McMillan v. Ryan Jackson Props., LLC

• Decision Date: 21 January 2014
• Docket Number: No. COA13–270.,COA13–270.
• Citation: 753 S.E.2d 373
• Court: North Carolina Court of Appeals
• Parties: Thomas G. McMILLAN, Jr., et al., Plaintiffs, v. RYAN JACKSON PROPERTIES, LLC, et al., Defendants.

753 S.E.2d 373

Thomas G. McMILLAN, Jr., et al., Plaintiffs,

v.RYAN JACKSON PROPERTIES, LLC, et al., Defendants.

No. COA13–270.

Court of Appeals of North Carolina.

Jan. 21, 2014.

Appeal by plaintiffs from order entered 17 September 2012 by Judge Edgar B. Gregory in Guilford County Superior Court. Heard in the Court of Appeals 9 October 2013.

Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro, by Joseph A. Ponzi and Darrell A. Fruth, for plaintiffs-appellants.

Hicks McDonald Noecker, LLP, Greensboro, by David W. McDonald, for defendant-appellee Collins & Galyon General Contractors, Inc.

HUNTER, ROBERT C., Judge.

Thomas G. McMillan, Jr. and Shawn De'Lace Hendrix (“plaintiffs”) appeal the order awarding defendant Collins & Galyon General Contractors, Inc. (“C & G”) attorneys' fees. On appeal, plaintiffs argue: (1) the trial court erred by concluding that the action was brought without reasonable cause; and (2) the trial court abused its discretion by awarding attorneys' fees.

After careful review, we affirm the trial court's conclusion that the derivative action was brought without reasonable cause, but remand for redetermination as to how much of the attorneys' fees were incurred in defense of the derivative action.

Background

Ryan Jackson Properties, LLC (“Ryan Jackson”) purchased an office building at 220 West Market Street in Greensboro, North Carolina with the plan of converting it into a residential condominium complex. It contracted for the services of C & G, with the contract specifying that C & G was to be “responsible for causing all the Work to be performed as required by the Contract Documents for the Construction of ALTERATIONS TO 220 WEST MARKET STREET.” C & G acquired two permits from the city to perform the renovations. The first permit stated that the work was for “Int./Ext. Alterations” and approximated the total cost of this project to be $1,488,100.00. C & G was the sole contractor named in the permit. The second permit stated that the work to be done was “Demolition—Renovation” and the total cost of the project was to be $5,000.00. Again, C & G was the only contractor named.

Each plaintiff purchased one unit in the newly renovated condominium complex in the summer of 2007. Both units were located in the former basement of the building, and both flooded in late July or early August of that same year. Plaintiffs had to move out of their units as a result of the flooding.

Plaintiffs first filed suit against Ryan Jackson and 220 West Market Street Condominium Association, Inc. (“the Condo Association”) in March 2009, pursuing claims of breach of the implied warranty of habitability against Ryan Jackson and seeking monetary and injunctive relief from the Condo Association. All parties stipulated to voluntary dismissal without prejudice in November 2009.

On 14 July 2010, plaintiffs filed suit against Ryan Jackson and C & G. They asserted negligence against C & G individually and derivatively on behalf of the Condo Association, a nonprofit corporation of which plaintiffs were members, and claimed that Ryan Jackson breached the implied warranty of habitability and violated N.C. Gen.Stat. § 75–1.1. In support of the derivative action, plaintiffs alleged that the Condo Association “incurred prospective liability and compensatorydamages for the costs of repairs to common areas caused by the negligence of [C & G],” based on C & G's “failure to provide proper and adequate waterproofing, dampproofing, and/or drainage for the exterior and common areas of the Real Property.” Ryan Jackson did not appear to defend against plaintiffs' claims, thus causing default judgment to be entered against it in the amount of $38,658.04.

C & G did defend the suit and met with plaintiffs several times to discuss the flooding. Plaintiffs contended that the flooding could have come from three potential sources: (1) the exterior water handling system, (2) a dam effect created by the north retaining wall, or (3) a change in topography of the parking lot. Anthony Collins and James Galyon, Jr., C & G's vice president and owner, respectively, filed affidavits with the trial court wherein they averred that: (1) C & G did not agree to perform work on the exterior water handling system, and in fact did not perform any work on it, (2) the north retaining wall appeared in a survey of the property which predated any renovation, and C & G did not modify the wall in any way, and (3) the parking lot is owned by a third party and was never part of C & G's project. Collins and Galyon also averred that C & G did not have exclusive control over the construction project and except for limited circumstances such as windows, doors, and electrical boxes, only contracted to renovate the interior of the building.

C & G filed a motion for summary judgment on 29 April 2011, which was granted 11 July 2011. This Court affirmed the trial court's order dismissing C & G by unpublished opinion filed 3 July 2012. See McMillan v. Ryan Jackson Properties, LLC, No. COA11–1318, ––– N.C.App. ––––, 727 S.E.2d 404, 2012 WL 2551261 (N.C.App. July 3, 2012) (“ McMillan I ”). C & G moved for an attorneys' fees award pursuant to N.C. Gen.Stat. § 55A–7–40(f) (2013) on 19 August 2011. This matter was heard on 4 September 2012, and the trial court granted C & G's motion for attorneys' fees by order entered 17 September 2012. Plaintiffs timely appealed from that order.

Discussion

I. Standard of Review

Plaintiffs' first argument is that the panel should review the court's initial conclusion as to whether the case was brought without reasonable cause de novo and the ultimate awarding of fees for abuse of discretion. We agree.

“It is settled law in North Carolina that ordinarily attorneys fees are not recoverable either as an item of damages or of costs, absent express statutory authority for fixing and awarding them.” United Artists Records, Inc. v. Eastern Tape Corp., 18 N.C.App. 183, 187, 196 S.E.2d 598, 602 (1973). Here, the trial court awarded fees pursuant to N.C. Gen.Stat. § 55A–7–40, which governs derivative actions for nonprofit corporations. Under section 55A–7–40(f), the trial court must make a finding that an action was brought “without reasonable cause” before awarding attorneys' fees.

C & G argues that the standard of review on appeal should be abuse of discretion, without reviewing the conclusion as to whether the suit was brought without reasonable cause de novo. It cites to a number of cases for the proposition that the general standard of review for an award of attorneys' fees is abuse of discretion. See Furmick v. Miner, 154 N.C.App. 460, 462, 573 S.E.2d 172, 174 (2002) (“The allowance of attorney fees is in the discretion of the presiding judge, and may be reversed only for abuse of discretion.”) (quotation marks omitted).

However, section 55A–7–40(f) authorizes an award of attorneys' fees only upon a “finding” by the trial court that the derivative action was “brought without reasonable cause.” Whether an action is brought without reasonable cause is a conclusion of law, as it involves the exercise of judgment and the application of legal principles. See In re Helms, 127 N.C.App. 505, 510, 491 S.E.2d 672, 675 (1997). Conclusions of law are reviewed de novo. Carolina Power & Light Co. v. City of Asheville, 358 N.C. 512, 517, 597 S.E.2d 717, 721 (2004). Therefore, we agree with plaintiffs, and will review the trial court's conclusion as to reasonable cause de novo and its ultimate award of attorneys' fees for an abuse of discretion.

II. Reasonable Cause

Plaintiffs next argue that the trial court erred by concluding that the action was brought without reasonable cause. Specifically, plaintiffs contend that the word “action” in section 55A–7–40(f) should be interpreted to include all claims in the lawsuit, and therefore, the action as a whole must have been brought with reasonable cause because plaintiffs were awarded default judgment against Ryan Jackson. In the alternative, plaintiffs argue that they had reasonable cause to bring the derivative suit on behalf of the Condo Association against C & G. We disagree with plaintiffs' interpretation of section 55A–7–40(f), and we affirm the trial court's conclusion that the derivative action was brought without reasonable cause.

As is discussed above, we review the trial court's conclusion as to whether the action was brought without reasonable cause de novo. Under de novo review, “the court considers the matter anew and freely substitutes its own judgment” for that of the trial court. In re Greens of Pine Glen, Ltd. P'ship, 356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003).

Section 55A–7–40 governs derivative proceedings under the North Carolina Nonprofit Corporation Act; it controls the method by which the members of a nonprofit corporation may bring an action in the right of that corporation. Under subsection (a) of the statute,

An action may be brought in a superior court of this State ... in the right of any domestic or foreign corporation by any member or director, provided that, in the case of an action by a member, the plaintiff or plaintiffs shall allege, and it shall appear, that each plaintiff-member was a member at the time of the transaction of which he complains.

N.C. Gen.Stat. § 55A–7–40(a) (2013). The attorneys' fees provision at issue in this case is found in section 55A–7–40(f); it provides that:

(f) In any such action, the court, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff or plaintiffs to pay to the defendant or defendants the reasonable expenses, including attorneys' fees, incurred by them in the defense of the action.

N.C. Gen.Stat. § 55A–7–40(f) (2013) (emphasis added).

Plaintiffs first argue that the word “action” in section 55A–7–40(f) should be interpreted to include all claims against all parties in a lawsuit, not just the derivative portion therein. Thus, because plaintiffs obtained judgment in...