Wiley v. L3 Commc'ns Vertex Aerospace, LLC ( 2016 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-460
Filed: 20 December 2016
Cumberland County, No. 14 CVS 5311
HARRY A. WILEY and GERALD D. GILMAN, Plaintiffs,
v.
L3 COMMUNICATIONS VERTEX AEROSPACE, LLC, Defendant.
Appeal by defendant from judgment entered 17 September 2014 by Judge Lucy
N. Inman, order entered 23 January 2015 by Judge Kendra D. Hill, and judgment
entered 9 October 2015 and order entered 13 November 2015 by Judge Claire V. Hill
in Cumberland County Superior Court. Cross-appeal by plaintiffs from order entered
9 October 2015 by Judge Kendra D. Hill in Cumberland County Superior Court.
Heard in the Court of Appeals 3 October 2016.
Yarborough, Winters & Neville, P.A., 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, Lee Tart Malone, and Robert A. Buzzard 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
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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
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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
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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
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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.
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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
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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. __,
__, __ S.E.2d __, __ (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.
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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 Blankenship, the defendant argued “that the trial court erred in denying its
motion to set aside the default judgment because the trial court lacked jurisdiction
since the parties were subject to mandatory arbitration with respect to issues raised
in plaintiffs’ complaint.” Id. at 166, 574 S.E.2d at 135. This Court rejected that
argument, holding that the arbitration agreement was binding on the court only if
the defendant appeared in court and invoked it:
Arbitration pursuant to a valid agreement may be
compelled by a court only upon application by a party to
the agreement.
Plaintiffs chose to file suit against defendant rather than
seek arbitration pursuant to the agreement. It was
incumbent upon defendant to assert its right to arbitrate.
Because defendant failed to assert its right to arbitrate,
this Court is not compelled to enforce the arbitration
agreement. Moreover, we hold that the trial court did not
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err in denying the motion to set aside the default judgment
based on the existence of an arbitration agreement.
Id. at 166–67, 574 S.E.2d at 135 (citations omitted).
This case is indistinguishable from Blankenship. Because L3 did not timely
appear in court and invoke the arbitration agreement to compel arbitration, the trial
court did not err in entering judgment notwithstanding the parties’ agreement to
arbitrate this dispute.
III. Decision to Set Aside Default Judgment on Damages
Having addressed these jurisdictional arguments, we turn to the parties’
challenges to the trial court’s rulings throughout the default proceedings.
First, Wiley argues that the trial court erred by setting aside the damages
portion of the court’s initial default judgment under Rule 60(b). Wiley focuses his
argument on Rule 60(b)(6), and we thus begin our analysis there, although the trial
court’s order did not specify the particular provision of Rule 60(b) on which it relied.
Wiley argues that Rule 60(b)(6) cannot support the trial court’s ruling because
L3 failed to satisfy either of the first two prongs of the three-part test applicable to
motions under Rule 60(b)(6). As explained below, the trial court was well within its
sound discretion in allowing relief under Rule 60(b)(6).
“A trial court’s decision to grant or deny a motion to set aside an entry of
default and default judgment is discretionary. Absent an abuse of that discretion,
this Court will not reverse the trial court’s ruling.” Basnight Const. Co. v. Peters &
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White Const. Co., 169 N.C. App. 619, 621, 610 S.E.2d 469, 470 (2005). “[W]e only find
abuse of discretion where the trial court’s judgment is manifestly unsupported by
reason.” Bodie Island Beach Club Ass’n, Inc. v. Wray, 215 N.C. App. 283, 290, 716
S.E.2d 67, 74 (2011).
To qualify for relief under Rule 60(b)(6), a movant must satisfy a three-part
test: “(1) extraordinary circumstances exist, (2) justice demands the setting aside of
the judgment, and (3) the defendant has a meritorious defense.” Gibby v. Lindsey,
149 N.C. App. 470, 474, 560 S.E.2d 589, 592 (2002). Wiley does not argue that L3
lacks a meritorious defense. Thus, we limit our analysis to the first two prongs of the
test.
This Court previously has recognized that the size of a default judgment award
is a relevant factor to consider when determining whether extraordinary
circumstances exist and whether justice would be best served by affording relief from
judgment. See Anderson Trucking Serv., Inc. v. Key Way Transp., Inc., 94 N.C. App.
36, 43, 379 S.E.2d 665, 669 (1989).
Here, the size of the judgment was quite large, totaling well over $4 million.
Moreover, as explained in Part VI below, that judgment included a large award of
punitive damages, which were not even requested in the complaint.
Finally, L3 provided an explanation for why it failed to timely respond to the
complaint and, although the trial court ultimately chose to uphold the default
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judgment on liability, L3’s conduct in the case and its innocent explanation for why
it missed the deadline readily provide a reasonable basis for the court to set aside the
default judgment on damages. Accordingly, we reject Wiley’s argument and hold
that, under the deferential standard of review, the trial court’s decision was not an
abuse of discretion. See Wray, 215 N.C. App. at 290, 716 S.E.2d at 74.
IV. L3’s Motion to Set Aside Entry of Default and Default Judgment
Next, L3 asserts several challenges to the trial court’s initial entry of default
and default judgment and the court’s denial of its motion to set aside the default. As
explained below, we must reject these arguments under the applicable, narrow
standard of review.
A trial court’s decision to enter a default judgment, as well as a clerk or lower
court’s entry of default, are both reviewable for abuse of discretion. Lowery v.
Campbell, 185 N.C. App. 659, 665, 649 S.E.2d 453, 456 (2007), aff’d per curiam, 362
N.C. 231, 657 S.E.2d 354 (2008). The decision to grant or deny a motion to set aside
a default judgment likewise is reviewed for abuse of discretion. Basnight Const. Co.,
169 N.C. App. at 621, 610 S.E.2d at 470. As noted above, “we only find abuse of
discretion where the trial court’s judgment is manifestly unsupported by reason.”
Wray, 215 N.C. App. at 290, 716 S.E.2d at 74. As a result, “[t]his Court seldom has
found an abuse of discretion by the trial court in failing to set aside a default
judgment.” Bailey v. Gooding, 60 N.C. App. 459, 466, 299 S.E.2d 267, 271 (1983).
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A. Attachment of Verifications at Default Judgment Hearing
L3 first argues that the trial court erred by entering the default judgment
because Wiley amended the complaint at the default judgment hearing, thus
reopening L3’s time to file a responsive pleading. Specifically, at the default
judgment hearing (where L3 was not present), the following exchange occurred
between Wiley’s counsel and the trial court:
MR. BUZZARD: We have got copies of the affidavits that
are in the binder that we handed up, which Ms. Malone has
copies to file.
MS. MALONE: And also the verifications for the
complaint.
THE COURT: Well that’s what I was going to say—
MS. MALONE: They were signed the date, or prior to the
filing to [sic] the complaint.
THE COURT: Okay.
MS. MALONE: I had just held those in my file, but I think
I should probably put them in the file.
THE COURT: Yes. You can hand those up, and in light of
the default all allegations in the complaint are deemed
admitted and insofar as they are verified.
MS. MALONE: That was a filed copy and also a copy of the
files.
THE COURT: And have been verified and can be treated
as affidavits.
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L3 argues that, by adding the verification pages to the complaint, Wiley
amended the complaint under Rule 15 of the Rules of Civil Procedure, thereby
reopening the time to file a responsive pleading. As explained below, we disagree.
Our determination turns on the context in which the verification pages were
offered to the court. As other jurisdictions have observed, “adding a verification to a
complaint is not, strictly speaking, an amendment to the pleading itself.” Chisholm
v. Vocational Sch. for Girls, 103 Mont. 503, 508, 64 P.2d 838, 842 (1936). Moreover,
the purpose of providing additional time to file a responsive pleading following an
amendment is to offer the party an opportunity to respond to the amended
allegations. Turner Halsey Co. v. Lawrence Knitting Mills, Inc., 38 N.C. App. 569,
573, 248 S.E.2d 342, 345 (1978). Of course, if the allegations were not amended, this
underlying purpose is not implicated.
Here, although the court accepted the verification pages into the trial record,
the court’s comments indicate that it treated those verifications as affidavits attesting
to the truth of the allegations in the complaint, not as amendments to the contents of
the complaint. And, as Wiley points out, those verifications had no impact on the
allegations in the complaint. Accordingly, we hold that, in the context of this default
judgment hearing, the submission of verifications, attesting to the truth of the
allegations in the complaint, did not amend the complaint and reopen the time to file
a responsive pleading. We therefore reject L3’s argument.
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B. Failure to Serve Affidavit of Service
L3 next argues that Wiley did not properly serve the motion for entry of default
and a notice of hearing at least five days before the hearing on the motion, as required
by Rule 6(d) of the North Carolina Rules of Civil Procedure. This argument is
meritless. Rule 6(d) states that it applies to a written motion “other than one which
may be heard ex parte.” This Court has held that the requirements of Rule 6(d) are
not applicable to motions for entry of default because, by their nature, these motions
are heard ex parte. G & M Sales of E. N.C., Inc. v. Brown, 64 N.C. App. 592, 594, 307
S.E.2d 593, 594–95 (1983). This decision also is consistent with the text of Rule 55
which, as explained in more detail below, provides a different, three-day period in
which to serve notice on a party who has appeared in the case in advance of the
default judgment hearing. Accordingly, we reject L3’s argument.
C. Appearance Before Entry of Default Judgment
L3 next argues that it had made an appearance in this action before entry of
default judgment and thus was entitled to notice of the default judgment hearing
under Rule 55 of the Rules of Civil Procedure. We are not persuaded.
Rule 55(b)(2) provides that, where “the party against whom judgment by
default is sought has appeared in the action, that party (or, if appearing by
representative, the representative) shall be served with written notice of the
application for judgment at least three days prior to the hearing on such application.”
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When a party entitled to notice under this provision does not receive it, the court
must vacate the default judgment. Stanaland v. Stanaland, 89 N.C. App. 111, 115,
365 S.E.2d 170, 172 (1988).
“Generally, an appearance requires some presentation or submission to the
court.” Cabe v. Worley, 140 N.C. App. 250, 253, 536 S.E.2d 328, 330 (2000).
Nevertheless, “a defendant does not have to respond directly to a complaint in order
for his actions to constitute an appearance.” Roland v. W & L Motor Lines, Inc., 32
N.C. App. 288, 289, 231 S.E.2d 685, 687 (1977). Instead, “an appearance may arise
by implication when a defendant takes, seeks, or agrees to some step in the
proceedings that is beneficial to himself or detrimental to the plaintiff.” Id. For
example, in Coastal Federal Credit Union v. Falls, this Court held that the
defendants’ negotiations with plaintiff’s law firm over a payment plan could be
sufficient to qualify as an “appearance” entitling the defendants to notice of a default
judgment hearing. 217 N.C. App. 100, 103–07, 718 S.E.2d 192, 194–96 (2011).
Here, L3 has not identified any communications that could satisfy the
appearance requirement. To be sure, L3 presented evidence of a series of
unsuccessful attempts by its counsel to reach Wiley’s counsel in the hour before the
default judgment hearing occurred. But this Court has never held that unsuccessful,
unilateral efforts to communicate with opposing counsel can constitute an
“appearance” for purposes of Rule 55, and we are unwilling to do so here. We adhere
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to the rule established in Roland, which permits an appearance by implication only
“when a defendant takes, seeks, or agrees to some step in the proceedings that is
beneficial to himself or detrimental to the plaintiff.” Roland, 32 N.C. App. at 289,
231 S.E.2d at 687. Accordingly, we reject L3’s argument.
D. Sufficiency of Facts Alleged to Support Claims Asserted
Finally, L3 argues that the allegations in the complaint are insufficient to state
a valid claim on which relief can be granted and, as a result, the court lacked
authority to enter judgment on those claims. But L3 does not present any argument
on this point, instead stating that “[t]he law and facts are detailed at R. pp. 194–205
and are incorporated by reference herein.” In a footnote, L3 then states that the
arguments in this case require “detailed exposition” and that “[d]ue to page
limitations, the Court is respectfully referred herein to prior briefs in the Record on
Appeal, which are incorporated by reference.”
This Court and our Supreme Court repeatedly have rejected attempts by
litigants to “incorporate by reference” arguments found elsewhere in the trial record.
See, e.g., Fortner v. J.K. Holding Co., 319 N.C. 640, 641–42, 357 S.E.2d 167, 167–68
(1987); Stark v. N.C. Dep’t of Env’t & Nat. Res., Div. of Land Res., 224 N.C. App. 491,
513, 736 S.E.2d 553, 567 (2012); S.N.R. Mgmt. Corp. v. Danube Partners 141, LLC,
189 N.C. App. 601, 615–16, 659 S.E.2d 442, 453 (2008). This precedent is particularly
important in this Court, which adheres to strict page or word limits for briefs—limits
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that L3 concedes it sought to avoid by referencing outside arguments rather than
presenting them in the brief. Under Rule 28(b)(6), an issue “not presented in a party’s
brief, or in support of which no reason or argument is stated, will be taken as
abandoned.” We therefore treat this argument as abandoned.
V. Exclusion of Certain Evidence at the Trial on Damages
We next turn to L3’s arguments concerning the trial on damages. L3 first
argues that the trial court erred by excluding certain evidence it sought to introduce
at trial, including evidence related to the circumstances surrounding Wiley’s
discharge and the existence of the arbitration agreement. As explained below, we
reject this argument.
As an initial matter, many of L3’s evidentiary arguments are not preserved for
appellate review. “A party must preserve the exclusion of evidence for appellate
review by making a specific offer of proof unless the significance of the evidence is
ascertainable from the record.” Griffis v. Lazarovich, 161 N.C. App. 434, 438, 588
S.E.2d 918, 921 (2003).
Here, L3 challenges the trial court’s refusal to permit L3 to ask various
questions concerning the company’s planned reduction in force, its employment
practices, and the Plaintiffs’ job performance. But the content and significance of the
answers to these questions is not apparent from the record and there was no offer of
proof. Accordingly, these issues are not preserved for appellate review. See id.- 17 -
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L3 also argues that the trial court erroneously prevented it from presenting
any evidence concerning the parties’ arbitration agreement. The parties’ arbitration
agreement is in the record and thus this issue properly is preserved for appellate
review. Nevertheless, we reject this argument because the exclusion of the
arbitration agreement, even if error, was harmless.
Appellate courts do not set aside verdicts and judgments
for technical or harmless error. It must appear that the
error complained of was material and prejudicial,
amounting to a denial of some substantial right. The
appellant thus bears the burden of showing not only that
an error was committed below, but also that such error was
prejudicial—meaning that there was a reasonable
possibility that, but for the error, the outcome would have
been different.
Faucette v. 6303 Carmel Rd., LLC, __ N.C. App. __, __, 775 S.E.2d 316, 323 (2015).
Here, even if we assume the contents of the arbitration agreement had some
minimal relevance, L3 has not shown that the exclusion of that evidence would have
affected the calculation of compensatory damages owed to Wiley.1 “The sole purpose
of the damages trial was to determine the harm to [Wiley] caused by” L3’s
discriminatory termination of his employment. See Hien Nguyen v. Taylor, 219 N.C.
App. 1, 16, 723 S.E.2d 551, 562 (2012). The availability of the arbitration procedures
would not have impacted the jury’s calculation of these compensatory damages, and
thus, exclusion of this evidence was harmless.
1 As explained in Part VI below, we vacate the award of punitive damages because Wiley failed
to properly plead a request for punitive damages under Rule 9(k) of the Rules of Civil Procedure.
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VI. Denial of Request for Punitive Damages
Finally, L3 argues that the trial court erred by denying its motion for a directed
verdict with respect to punitive damages. L3 contends that Wiley did not include a
request for punitive damages or allege with particularity any of the aggravating
factors that support punitive damages. L3 thus contends that the trial court should
not have submitted that issue to the jury. We agree.
In 1994, our Supreme Court held in Holloway v. Wachovia Bank & Trust
Company that “a plaintiff need not specially plead punitive damages as a prerequisite
to recovering them at trial.” 339 N.C. 338, 347, 452 S.E.2d 233, 238 (1994). Instead,
the Court held that, “where a pleading fairly apprises opposing parties of facts which
will support an award of punitive damages, they may be recovered at trial without
having been specially pleaded.” Id.In 1995, apparently in response to Holloway, the General Assembly adopted
Rule 9(k) of the North Carolina Rules of Civil Procedure. 1995 N.C. Sess. Laws ch.
514, § 3. That rule provides as follows: “A demand for punitive damages shall be
specifically stated, except for the amount, and the aggravating factor that supports
the award of punitive damages shall be averred with particularity.” N.C. R. Civ. P.
9(k).
Thus, to recover punitive damages, “[P]laintiff’s complaint must allege facts or
elements showing the aggravating circumstances which would justify the award of
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punitive damages.” Hart v. Brienza, __ N.C. App. __, __, 784 S.E.2d 211, 218 (2016).
Those aggravating factors are “(1) fraud; (2) malice; or (3) willful or wanton conduct.”
Id.Here, the complaint does not contain a request for punitive damages. Indeed,
the words “punitive damages” are not contained anywhere in the complaint’s
allegations or in the prayer for relief. Moreover, there are no allegations of any of the
aggravating factors that can support an award of punitive damages. See N.C. R. Civ.
P. 9(k). Thus, we hold that Wiley failed to properly plead a request for punitive
damages under Rule 9(k). As a result, the trial court erred by rejecting L3’s argument
and submitting the punitive damages issue to the jury.2
Conclusion
For the reasons set out above, we affirm the trial court’s judgment with respect
to the compensatory damages awarded to Plaintiff Harry A. Wiley, we vacate the
award of punitive damages to Wiley, and we vacate the judgment entered in favor of
Plaintiff Gerald D. Gilman for lack of standing. This case is remanded for entry of a
new judgment consistent with this opinion.
AFFIRMED IN PART; VACATED IN PART AND REMANDED.
2L3 also challenges the trial court’s denial of its motion for a directed verdict with respect to
the award of compensatory damages to Wiley but, as with other issues in its brief, presents no
argument, instead incorporating by reference arguments made in the trial court and contained in the
record on appeal. As explained in Part IV.D above, the Rules of Appellate Procedure do not permit
parties to incorporate by reference arguments set out in other pleadings. Accordingly, these
arguments are abandoned on appeal. See Stark, 224 N.C. App. at 513, 736 S.E.2d at 567.
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WILEY V. L3 COMMC’NS VERTEX AEROSPACE, LLC
Opinion of the Court
Chief Judge McGEE and Judge TYSON concur.
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