Wiley v. L3 Commc'ns Vertex Aerospace, LLC

• Decision Date: 20 December 2016
• Docket Number: No. COA16-460,COA16-460
• Citation: 251 N.C.App. 354,795 S.E.2d 580
• Court: North Carolina Court of Appeals
• Parties: Harry A. WILEY and Gerald D. Gilman, Plaintiffs, v. L3 COMMUNICATIONS VERTEX AEROSPACE, LLC, Defendant.

251 N.C.App. 354

795 S.E.2d 580

Harry A. WILEY and Gerald D. Gilman, Plaintiffs,

v.L3 COMMUNICATIONS VERTEX AEROSPACE, LLC, Defendant.

No. COA16-460

Court of Appeals of North Carolina.

Filed: December 20, 2016

Yarborough, Winters & Neville, P.A., Fayetteville, by Garris Neil Yarborough and H. Addison Winters, and Phelps Dunbar LLP, by M. Nan Alessandra and Robert M. Kennedy, Jr., for defendant-appellant/cross-appellee.

Ryan McKaig, Raleigh, Lee Tart Malone, Dunn, and Robert A. Buzzard, Lillington, for plaintiffs-appellees/cross-appellants.

DIETZ, Judge.

Plaintiffs Harry Wiley and Gerald Gilman secured a default judgment against Defendant L3 Communications Vertex Aerospace, LLC after the company mistakenly missed its deadline to respond to the complaint. The trial court later set aside the damages portion of its award and held a trial on damages. The jury awarded compensatory and punitive damages to both Wiley and Gilman, totaling more than $750,000 each.

As explained below, we affirm in part and vacate in part. We hold that Gilman lacked standing to pursue his claims because he failed to disclose the claims in his pending bankruptcy proceeding. Consistent with other courts that have addressed this issue, we conclude that North Carolina's standing principles do not permit a Chapter 13 debtor to pursue a claim that the debtor concealed from the bankruptcy estate.

We affirm the award of compensatory damages to Wiley, but vacate the award of punitive damages. The complaint did not allege any aggravating factors supporting an award of punitive damages under Rule 9(k) of the Rules of Civil Procedure. Indeed, the complaint did not even contain the words "punitive damages" in the allegations or prayer for relief, much less an articulation of the grounds required by the rule. Accordingly, as explained more fully below, we vacate in part, affirm in part, and remand for entry of a new judgment consistent with this opinion.

Facts and Procedural History

On 14 July 2014, Plaintiffs Harry Wiley and Gerald Gilman filed a joint complaint against their former employer, Defendant L3 Communications Vertex Aerospace, LLC, with each asserting claims for discrimination based on age, physical ability, and race. Gilman also asserted a claim for violation of the North Carolina Wage and Hour Act. Plaintiffs served L3 with a summons and the complaint on 17 July 2014.

L3 failed to timely file an answer or other responsive pleading. On 21 August 2014, Wiley and Gilman moved for entry of default. That same day, the clerk entered a default against L3.

On 8 September 2014, Wiley and Gilman moved for default judgment. On 15 September 2014, their motion for default judgment came on for hearing. L3 did not appear at the hearing.

On 17 September 2014, the trial court granted the motion for default judgment. The trial court awarded Wiley $391,274.44 in compensatory damages and $1,173,823.32 in punitive damages. The court awarded Gilman $727,525.62 in compensatory damages and $2,182,576.86 in punitive damages.

On 16 October 2014, L3 moved to set aside the entry of default and default judgment. On 23 January 2015, the trial court denied L3's request to set aside the entire judgment, but granted the motion with respect to damages and scheduled a trial on damages.

On 21 September 2015, the jury awarded Wiley $273,353.48 in compensatory damages and $500,000.00 in punitive damages. It awarded Gilman $279,180.00 in compensatory damages and $500,000.00 in punitive damages. On 9 October 2015, the trial court entered written judgment on the jury's verdict.

L3 timely moved for judgment notwithstanding the verdict or, alternatively, a new trial. The trial court denied L3's post-trial motions.

L3 timely appealed. Wiley and Gilman timely cross-appealed.

Analysis

Both parties appeal from various trial court orders and judgments throughout this case. We first address several jurisdictional arguments asserted by L3, and then turn to the parties’ challenges to the trial court's rulings throughout the default proceedings.

I. Gilman's Failure to Disclose His Claim to the Bankruptcy Court

L3 argues that Gilman lacked standing to bring the claims asserted in the complaint because he had a pending bankruptcy and failed to inform the bankruptcy court of the existence of his legal claims. As explained below, we agree.

Standing is a jurisdictional issue. Union Grove Mill. & Mfg. Co. v. Faw , 109 N.C.App. 248, 251, 426 S.E.2d 476, 478, aff'd , 335 N.C. 165, 436 S.E.2d 131 (1993). "If a party does not have standing to bring a claim, a court has no subject matter jurisdiction to hear the claim." Estate of Apple ex rel. Apple v. Commercial Courier Exp., Inc., 168 N.C.App. 175, 177, 607 S.E.2d 14, 16 (2005). A defect in subject matter jurisdiction cannot be waived by a party's failure to appear. Hart v. Thomasville Motors, Inc. , 244 N.C. 84, 90, 92 S.E.2d 673, 678 (1956) ; Matter of Triscari Children , 109 N.C.App. 285, 288, 426 S.E.2d 435, 437 (1993). Thus, if Gilman lacked standing, the trial court had no power to enter judgment in his favor, notwithstanding L3's default.

We thus turn to L3's argument that Gilman lacked standing because of his failure to notify the bankruptcy court of his claims. Gilman's causes of action arose when L3 terminated him on 11 April 2013. Gilman petitioned for Chapter 13 bankruptcy in the United States Bankruptcy Court for the Eastern District of North Carolina on 10 January 2014. Because Gilman's claims existed when he petitioned for bankruptcy, they are the property of the bankruptcy estate and Gilman was required by law to disclose the claims to the estate. See 11 U.S.C. §§ 541, 1007(h), 1306(a). Gilman did not properly disclose these claims to the bankruptcy court until after the jury entered its verdict.

In a Chapter 13 bankruptcy, both the debtor and the trustee of the bankruptcy estate have concurrent standing to bring non-bankruptcy causes of action belonging to the estate.

Wilson v. Dollar Gen. Corp ., 717 F.3d 337, 343 (4th Cir. 2013). This concurrent standing results from the special character of a Chapter 13 bankruptcy, in which the debtor retains possession of the property comprising the bankruptcy estate and is permitted to use that property in various ways. 11 U.S.C. §§ 363, 1303, 1306(b), 1322.

But the fact that debtors have concurrent standing to bring claims in the Chapter 13 context does not mean that we can ignore Gilman's failure to disclose the claims in his bankruptcy proceeding. As the Fourth Circuit acknowledged in Wilson , although a Chapter 13 debtor has standing to bring such claims, the debtor does so "on behalf of the estate" and "for the benefit of the estate." Wilson , 717 F.3d at 343–44.

This special, vicarious nature of the debtor's standing leads us to conclude, as other courts have, that the debtor's standing is conditional on having properly disclosed his claims in the bankruptcy proceeding. Cowling v. Rolls Royce Corp. , No. 1:11–CV–01719–JMS, 2012 WL 4762143, at *4 (S.D. Ind. Oct. 5, 2012) (unpublished); Calvin v. Potter , No. 07 C 3056, 2009 WL 2588884, at *3 (N.D. Ill. Aug. 20, 2009) (unpublished); Robson v. Tex. E. Corp. , 833 N.E.2d 461, 473 (Ind. Ct. App. 2005). As these courts reasoned, disclosing the claim in the bankruptcy proceeding is a necessary prerequisite to pursuing a claim on behalf of the estate. Without disclosing the claim, the bankruptcy court cannot factor that potential claim (and possible recovery) into any repayment plan, and the bankruptcy trustee cannot exercise its authority to evaluate the debtor's actions and determine if it must intervene to ensure the litigation is resolved in the best interests of the estate. We agree with this reasoning and hold that, when a debtor has concealed the existence of a potential legal claim in a Chapter 13 bankruptcy proceeding, the debtor cannot be pursuing that claim "on behalf of or for the benefit of her bankruptcy estate" and thus lacks standing under North Carolina law. See Calvin , 2009 WL 2588884, at *3.

This outcome also is consistent with our State's strict rules concerning prerequisites to proper legal standing when suing on behalf of others. For example, a homeowner's association lacks standing, even in an actual controversy at the heart of the association's representative role, if it failed to first obtain authority to sue under its bylaws. Willowmere Cmty. Ass'n, Inc. v. City of Charlotte , ––– N.C. App. ––––, ––––, 792 S.E.2d 805, 807 (2016). Similar rules apply to those suing on behalf of a corporation. See Anderson v. SeaScape at Holden Plantation, LLC , ––– N.C. App. ––––, ––––, 773 S.E.2d 78, 88 (2015). We see no reason why we should depart from this standing precedent for debtors suing on behalf of the bankruptcy estate.

Accordingly, we hold that Gilman lacked standing to litigate these claims because he pursued it without properly disclosing it in his bankruptcy proceeding. As a result, the trial court lacked subject matter jurisdiction to adjudicate the claim. See Estate of Apple , 168 N.C.App. at 177, 607 S.E.2d at 16.

"Where there is no jurisdiction of the subject matter the whole proceeding is void ab initio and may be treated as a nullity anywhere, at any time, and for any purpose." High v. Pearce , 220 N.C. 266, 271, 17 S.E.2d 108, 112 (1941). Accordingly, we vacate the judgment and award in Gilman's favor.

II. Application of Mandatory Arbitration Agreement

L3 next argues that the trial court lacked jurisdiction to enter the default judgment because Wiley signed an arbitration agreement that governed any claims concerning his employment. L3 contends that, under the arbitration agreement, the court lacked authority to litigate these disputes.

This argument is foreclosed by precedent from this Court holding that application of an arbitration clause is not a jurisdictional issue and can be waived by failure to timely invoke it. Blankenship v. Town and Country Ford, Inc. , 155 N.C.App. 161, 163, 574 S.E.2d 132, 133–34 (2002).

In Blankenshi...