Bank of America, N.A. v. Rice

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-251
Filed: 15 December 2015
Mecklenburg County, No. 11-CVS-4263
BANK OF AMERICA, N.A., Plaintiff,
v.
CHRISTOPHER HARVEY RICE, DAVID HALVORSEN, HALEY BECK HILL,
JENNIFER BURKHARDT-BLEVINS, MARK GROW, AND UBS FINANCIAL
SERVICES, INC., Defendants.
Appeal by defendant Christopher Harvey Rice from order entered 20
November 2014 by Judge Richard D. Boner in Mecklenburg County Superior Court
and appeal by plaintiff from order entered 20 November 2014 by Judge W. Robert
Bell in Mecklenburg County Superior Court. Heard in the Court of Appeals 24
August 2015.
Williams Mullen, by Michael C. Lord and Kelly Colquette Hanley, for plaintiff.
Johnston, Allison & Hord, P.A., by Martin L. White and Munashe Magarira,
for defendant Christopher Harvey Rice.
DAVIS, Judge.
This case involves a dispute regarding the entitlement of Plaintiff Bank of
America, N.A. (“BOA”) to enforce novations to three promissory notes executed by
BANK OF AM., N.A. V. RICE
Opinion of the Court
Defendant Christopher Harvey Rice (“Rice”).1 BOA appeals from an order entered by
Judge W. Robert Bell granting summary judgment in favor of Rice regarding BOA’s
attempt to enforce two of the novations. Rice appeals from an order entered by Judge
Richard D. Boner granting both BOA’s motion for judgment on the pleadings on its
claim arising from the third novation and BOA’s motion to dismiss Rice’s
counterclaims. After careful review, we (1) affirm the order of Judge Boner; (2)
reverse the order of Judge Bell; and (3) remand for additional proceedings.
Factual Background
This matter is before us for the second time. The underlying facts giving rise
to this action are set out more fully in Bank of Am., N.A. v. Rice, __ N.C. App. __, 750
S.E.2d 205 (2013) (“BOA I”), and are quoted in pertinent part as follows:
On 24 September 2004, [BOA’s] corporate affiliate BAI
[Banc of America Investment Services, Inc.] hired [Rice] as
an employee. On this same date [Rice] and [BAI], entered
into an agreement entitled “BAI SERIES 7
AGREEMENT[.]” The BAI Series 7 Agreement contained
provisions regarding the following general topics:
“employment ‘at-will[,]’” “customer lists and other
proprietary and confidential information[,]” “non-
solicitation covenants[,]” “right to an injunction[,]”
“compliance with applicable laws, rules, policies and
procedures[,]” “hold harmless[,]” “arbitration[,]”
“assignment[,]” “non-waiver[,]” “invalid provisions[,]”
“choice of law[,]” and “terms and modifications[.]” (Original
in all caps.)
....
1While the caption in one of the orders giving rise to this appeal lists additional parties besides
Rice as defendants, none of these other defendants are parties to the present appeal.
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BANK OF AM., N.A. V. RICE
Opinion of the Court
[O]n 24 September 2004, [Rice] executed a promissory note
payable to [BOA], not BAI (“2004 Note”). The 2004 Note
provided for [Rice] to pay to [BOA] the sum of $500,000.00,
to be paid in six separate annual payments between 2005
and 2010. . . . For the following two years, [Rice] executed
substantially similar promissory notes . . . but these two
notes are payable to BAI, not [BOA]. The promissory note
from 2005 was for $219,928.50, payable from 2006 to 2011
(“2005 Note”) and the promissory note from 2006 was for
$219,928.50, payable from 2007 to 2012 (“2006 Note”).
On 4 May 2010, [BOA] entered into three “PROMISSORY
NOTE NOVATION AGREEMENT[S;]” (“2010 Novations”).
The 2010 Novations all stated they were between [BOA],
not BAI, and [Rice] and they were “replac[ing]” the prior
2004 Note, 2005 Note, and 2006 Note; the 2010 Novations
. . . provided that
[t]his Note contains the complete
understanding between [Rice] and . . . [BOA]
relating to the matters contained herein and
supersedes all prior oral, written and
contemporaneous oral negotiations,
commitments and understandings between
and among [BOA] and [Rice]. [Rice] did not
rely on any statements, promises or
representations made by [BOA] or any other
party in entering into this Note.
....
On 2 March 2011, [BOA] filed a “COMPLAINT, MOTION
FOR TEMPORARY RESTRAINING ORDER AND
PRELIMINARY INJUNCTION, AND MOTION FOR
EXPEDITED DISCOVERY” against defendants, including
. . . Rice, the only defendant in this appeal. (Original in all
caps.) [BOA] summarized its allegations of the case as
follows,
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Opinion of the Court
This Complaint arises from [Rice’s] breach of
contract and misappropriation of [BOA’s]
confidential, proprietary and trade secret
information which occurred at the time of
[his] coordinated and abrupt resignation from
[BOA’s] U.S. Trust business on January 28,
2011. BOA is informed and believes that
[Rice] continue[s] to breach [his] contractual
duties and continue[s] to commit tortious acts
by misappropriating [BOA’s] confidential,
proprietary and trade secret information
(despite a demand for its return) and by
soliciting certain clients and customers of
[BOA’s] U.S. Trust business. BOA is
informed and believes that [Rice is] engaged
in this misconduct for the benefit of UBS
[UBS Financial Services, Inc.].
[BOA] brought claims for breach of contract, conversion,
computer trespass, misappropriation of trade secrets,
tortious interference with contractual relations, tortious
interference with contractual relations with [BOA’s] U.S.
Trust business clients, unfair competition, and breach of
the 2010 Novations of the promissory notes. On 23 April
2011, pursuant to Rule 41 of the North Carolina Rules of
Civil Procedure, [BOA] stipulated to dismissal of its first
seven claims against [Rice] with prejudice; thus, the only
remaining claim was for breach of the promissory notes
identified in [BOA’s] complaint as the 2010 Novations.
On or about 31 May 2011, [Rice] filed a motion “to compel
arbitration and stay litigation” contending that the
“[o]riginal [p]romissory [n]otes [m]andate [a]rbitration”
and “[BOA] is bound to [a]rbitrate even without [an]
[a]rbitration [a]greement[.]” On or about 1 July 2011,
[Rice] amended his motion, adding to his initial motion
that “[t]he [a]mended [p]romissory [n]otes do not replace
the [o]riginal [p]romissory [n]otes” and “[BOA] is bound to
[a]rbitrate regardless of [the] language of [the] [a]mended
[p]romissory [n]otes[.]” On 16 April 2012, the trial court
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BANK OF AM., N.A. V. RICE
Opinion of the Court
denied [Rice’s] amended motion.
Id. at __, 750 S.E.2d at 207-09 (emphasis omitted).
In BOA I, the sole issue before this Court was whether Rice was entitled to
compel arbitration of BOA’s claims against him because of the existence of arbitration
clauses in the 2004, 2005, and 2006 notes despite the fact that no such clauses were
contained in the 2010 novations. Rice argued that the 2010 novations were invalid
and did not supersede the 2004, 2005, and 2006 notes because there was no mutuality
of parties as between the 2010 novations and the original notes. We determined that
the trial court had not erred in denying Rice’s motion to compel arbitration. Id. at __,
750 S.E.2d at 211.
With regard to the 2004 note and its 2010 novation, we held as follows:
[Rice] makes no specific argument regarding the 2004
Note, presumably because the 2004 Note was between
[Rice] and [BOA], and the 2010 Novation “replac[ing]” the
2004 Note was also between [Rice] and [BOA].
Accordingly, the 2004 Note and the 2010 Novation both
have the same parties, [Rice] and [BOA]. [Rice] has not
attacked the 2010 Novation on any other ground. As the
2010 Novation replacing the 2004 Note stated that it is the
entirety of the parties’ agreement regarding the 2004 Note
obligation it is replacing and as it does not contain an
agreement to arbitrate, there was no agreement to
arbitrate the 2004 Note since the 2010 Novation
superseded any agreement the parties may or may not
have made in the 2004 Note and/or the BAI Series 7
Agreement. Thus, the 2010 Novation as to the 2004 Note
is a valid novation which is enforceable and not subject to
arbitration.
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Opinion of the Court
Id. at __, 750 S.E.2d at 210 (internal citation omitted).
We also affirmed the portion of the trial court’s order rejecting Rice’s attempt
to compel arbitration as to BOA’s claims arising under the novations to the 2005 and
2006 notes but on a different ground.
[Rice] contends that the 2005 Note and 2006 Note are
between [Rice] and BAI, but the 2010 Novations
“replac[ing]” those documents were between [Rice] and
[BOA]; thus, contends [Rice], a valid novation could not
have occurred because BAI was not a party to the 2010
Novations replacing the 2005 and 2006 Notes. This is
correct.
....
[BOA] . . . contends that “the parties’ mutual performance
under the New Notes confirms the novation.” But the 2010
Novations would have to be confirmed by the performance
of the original party to the 2005 and 2006 Notes, BAI. Any
performance by [Rice] or [BOA] would not indicate that
BAI, the original party to the 2005 Note and the 2006 Note
which the 2010 Novation purportedly “replace[d,]” agreed
to the 2010 Novations. Indeed, BAI is not even a party to
this lawsuit. . . . Here, [BOA] has not directed us to nor are
we aware of any action taken by BAI which shows
acquiescence to the “replace[ment]” of its 2005 Note and
2006 Note with the 2010 Novations to which it was not a
party. We conclude that the 2010 Novations regarding the
2005 Note and 2006 Note are invalid and unenforceable
because BAI was not a party to the 2010 Novations
purporting to “replace” the 2005 Note and 2006 Note, as
the record does not contain any evidence indicating that
BAI agreed, acquiesced, ratified or in any other form
accepted the 2010 Novations purportedly “replac[ing]” the
2005 Note and 2006 Note. As such, the purported 2010
Novations between [BOA] and [Rice] had no effect upon the
2005 Note and 2006 Note. Both the 2005 Note and 2006
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BANK OF AM., N.A. V. RICE
Opinion of the Court
Note, which, we assume without deciding, are in full force
and effect, contained arbitration provisions, but [BOA] has
not brought any claim based upon the 2005 Note and 2006
Note. Furthermore, [BOA] is not even a party to the 2005
Note or 2006 Note. Accordingly, [Rice] cannot compel
arbitration as to [BOA’s] claims under the 2010 Novations
of the 2005 and 2006 Notes, because a valid novation could
not occur without BAI and [BOA] was not a party to the
2005 Note and 2006 Note.
Id. at __, 750 S.E.2d at 210-11 (internal citations omitted).
We then summarized our holding as follows:
In conclusion, we affirm the trial court’s order denying
arbitration as to the 2010 Novation regarding the 2004
Note, because the 2010 Novation includes the entire
agreement of the parties as to the 2004 Note and that
novation does not contain an arbitration provision. We
further affirm the trial court’s denial of arbitration as to
[BOA’s] claims based upon the 2010 Novations regarding
the 2005 Note and 2006 Note, but for a different reason
than the trial court; here we affirm because there is no
claim as currently pled to be arbitrated. Because of the
narrow issue presented in this appeal, we express no
opinion on the enforceability of the 2005 Note, the 2006
Note, or the 2010 Novations.
Id. at __, 750 S.E.2d at 211.2
Following our decision in BOA I, the case was remanded to the trial court for
further proceedings. Rice filed an answer to BOA’s complaint on 10 February 2014,
2 Both of the orders that form the basis for the present appeal refer to (1) the 2010 novation of
the 2004 note as “Note 1”; (2) the 2010 novation of the 2005 note as “Note 2”; and (3) the 2010 novation
of the 2006 note as “Note 3.” For the remainder of this opinion, we adopt these same shorthand
references to the individual novations for the sake of consistency and ease of reading but on occasion
refer to Notes 1, 2, and 3 collectively as “the 2010 Novations” for contextual clarity.
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BANK OF AM., N.A. V. RICE
Opinion of the Court
setting forth various affirmative defenses and asserting counterclaims for (1) breach
of contract (in which Rice alleged he was entitled to compensation pursuant to certain
incentive plans in effect between BOA and him); (2) quantum meruit; (3) unjust
enrichment; (4) violation of North Carolina’s Wage and Hour Act; and (5) unfair trade
practices pursuant to N.C. Gen. Stat. § 75-1.1 et seq.
On 17 April 2014, BOA filed (1) a motion to dismiss Rice’s counterclaims
pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure; and (2) a
motion for judgment on the pleadings based on Rule 12(c) or, in the alternative, a
motion for summary judgment pursuant to Rule 56 to enforce the 2010 Novations
based on Rice’s failure to make the payments to BOA required thereunder.
On 23 June 2014, a hearing on BOA’s motions was held before the Honorable
H. William Constangy in Mecklenburg County Superior Court. Following the
hearing, Judge Constangy took the motions under advisement.
In the meantime, the parties continued to engage in discovery. During
discovery, BOA produced documentation disclosing new information about events
that had occurred between the signing of the original 2005 and 2006 notes and the
execution of the 2010 Novations. These documents essentially showed the following:
(1) In October 2009, BAI merged into Merrill Lynch, Pierce, Fenner and Smith, Inc.
(“MLPF&S”), a subsidiary of Merrill Lynch; (2) MLPF&S therefore became the legal
holder of the 2005 and 2006 notes originally entered into by Rice and BAI; and (3)
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BANK OF AM., N.A. V. RICE
Opinion of the Court
BOA subsequently acquired Merrill Lynch and, as part of the acquisition, BOA
acquired approximately 205 promissory notes held by MLPF&S, including the 2005
and 2006 notes.
On 12 September 2014, BOA filed a motion for summary judgment in which it
sought to enforce Notes 2 and 3. In support of its motion, BOA submitted (1) the
affidavit of Allen Bednarz, BOA’s Director of Global Wealth & Investment
Management Compensation Administration; (2) copies of the 2004, 2005, and 2006
notes; (3) copies of the 2010 Novations; (4) various records pertaining to Rice’s
compensation; (5) the affidavit of John Romano, BAI’s Chief Financial Officer from
2006 through October 2009; (6) the affidavit of Donald Brock, the Controller of U.S.
Trust (a subsidiary of BOA); (7) excerpts from Rice’s deposition; and (8) Rice’s
interrogatory responses. On that same date, Rice filed a cross-motion for summary
judgment supported by his own affidavit. In his cross-motion, he contended that in
light of our decision in BOA I the law of the case doctrine precluded the trial court
from finding that Notes 2 and 3 were legally effective novations of the 2005 and 2006
notes.
On 7 October 2014, a hearing on BOA’s motion for summary judgment and
Rice’s cross-motion was held before the Honorable W. Robert Bell. On 20 November
2014, Judge Bell issued an order (“Judge Bell’s Order”) granting Rice’s cross-motion
as to Notes 2 and 3 and denying BOA’s motion. On that same date, the Honorable
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BANK OF AM., N.A. V. RICE
Opinion of the Court
Richard D. Boner entered an order (“Judge Boner’s Order”)3 granting both BOA’s
motion to dismiss Rice’s counterclaims pursuant to Rule 12(b)(6) and its motion for
judgment on the pleadings as to Note 1 pursuant to Rule 12(c).4
On 10 December 2014, BOA filed a notice of appeal from Judge Bell’s Order.
On 29 December 2014, Rice gave notice of appeal as to Judge Boner’s Order.
Analysis
I. Judge Bell’s Order
BOA argues that Judge Bell erred in denying its motion for summary judgment
and granting Rice’s cross-motion on its claims for breach of contract as to Notes 2 and
3. We agree.
On appeal, this Court reviews an order granting summary
judgment de novo. The entry of summary judgment is
proper if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that any party is entitled to a
judgment as a matter of law. A trial court may enter
summary judgment in a contract dispute if the provision at
issue is not ambiguous and there are no issues of material
fact.
3 Due to Judge Constangy’s retirement subsequent to the 23 June 2014 hearing, the order was
signed by Judge Boner pursuant to Rule 63 of the North Carolina Rules of Civil Procedure.
4 Judge Boner’s Order denied judgment on the pleadings as to BOA’s breach of contract claims
regarding Notes 2 and 3. Furthermore, although BOA’s 17 April 2014 motions had included, in the
alternative, a motion for summary judgment, all of the rulings contained in Judge Boner’s Order were
based on Rule 12.
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Opinion of the Court
Malone v. Barnette, __ N.C. App. __, __, 772 S.E.2d 256, 259 (2015) (internal citations
and quotation marks omitted).
BOA contends that the trial court inappropriately utilized the law of the case
doctrine in reaching its conclusion that BOA was not entitled to enforce Notes 2 and
3 as novations to the 2005 and 2006 notes. Rice, conversely, argues that the doctrine
was correctly applied because BOA I definitively established that Notes 2 and 3 were
not legally effective novations to the 2005 and 2006 notes.
The law of the case doctrine provides that
when an appellate court passes on a question and remands
the cause for further proceedings, the questions there
settled become the law of the case, both in subsequent
proceedings in the trial court and on subsequent appeal,
provided the same facts and the same questions which
were determined in the previous appeal are involved in the
second appeal.
Hayes v. City of Wilmington, 243 N.C. 525, 536, 91 S.E.2d 673, 681-82 (1956).
“The general rule is that an inferior court must follow the mandate of an
appellate court in a case without variation or departure. However, the general rule
only applies to issues actually decided by the appellate court. The doctrine of law of
the case does not apply to dicta, but only to points actually presented and necessary
to the determination of the case.” Condellone v. Condellone, 137 N.C. App. 547, 551,
528 S.E.2d 639, 642 (internal citations and quotation marks omitted), disc. review
denied, 352 N.C. 672, 545 S.E.2d 420 (2000). Notably, for purposes of the present
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Opinion of the Court
appeal, “the law of the case doctrine does not apply when the evidence presented at a
subsequent proceeding is different from that presented on a former appeal.” State v.
Lewis, 365 N.C. 488, 505, 724 S.E.2d 492, 503 (2012).
The rule that a decision of an appellate court is ordinarily
the law of the case, binding in subsequent proceedings, is
basically a rule of procedure rather than of substantive
law, and must be applied to the needs of justice with a
flexible, discriminating exercise of judicial power.
Therefore, in determining the correct application of the
rule, the record on former appeal may be examined and
looked into for the purpose of ascertaining what facts and
questions were before the Court.
Hayes, 243 N.C. at 537, 91 S.E.2d at 682 (internal citations omitted).
In urging us to uphold the trial court’s application of the law of the case
doctrine, Rice attempts to rely on language in BOA I stating that Notes 2 and 3 were
not valid novations because (1) BAI — rather than BOA — had executed the 2005
and 2006 notes; and (2) BAI did not sign or ratify Notes 2 and 3. However, Rice
ignores our express recognition in BOA I of the fact that based on the record before
us at that time there was no “indication that the 2005 and 2006 Notes were ever
transferred by BAI to [BOA].” BOA I, __ N.C. App. at __ n. 7, 750 S.E.2d at 211 n. 7.
That is no longer the case.
Our decision in BOA I was issued in the context of a bare factual record due to
the fact that the appeal in BOA I was taken before the parties had begun discovery.
Following our decision, based on new facts obtained during discovery conducted
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Opinion of the Court
between the parties, BOA submitted unrebutted affidavit testimony in support of its
motion for summary judgment establishing that because of BOA’s acquisition of the
2005 and 2006 notes, BAI was no longer the holder of these notes at the time the 2010
Novations were executed and, for this reason, was not required to ratify them. Thus,
the present record on appeal contains facts that had not yet been discovered at the
time of BOA I, and — as a result — the observations we made in BOA I forming the
basis for Rice’s present argument no longer conform to the factual record before us.
See State v. Paul, __ N.C. App. __, __, 752 S.E.2d 252, 254 (2013) (“The law of the case
principle does not apply when the evidence presented at a subsequent proceeding is
different from that presented on a former appeal.” (citation and quotation marks
omitted)).
It is also worthy of emphasis that our decision in BOA I explicitly recognized
that the only issue actually before this Court was whether Rice was entitled to compel
arbitration of BOA’s claims against him. See BOA I, __ N.C. App. at __, 750 S.E.2d
at 211 (affirming trial court’s denial of motion to compel arbitration and “express[ing]
no opinion” on various additional issues “[b]ecause of the narrow issue presented in
this appeal”). None of the issues in the present appeal require us to reexamine our
prior ruling on the discrete issue decided in BOA I relating to whether BOA’s claims
must be arbitrated. For all of these reasons, the law of the case doctrine does not
control our decision in the present appeal as to whether BOA was entitled to
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Opinion of the Court
summary judgment on its claims to enforce Notes 2 and 3 as novations to the 2005
and 2006 notes.
Nor has Rice identified any legal impediment to the acquisition of the 2005
and 2006 notes by BOA. “The general rule is that contracts may be assigned. The
principle is firmly established in this jurisdiction that, unless expressly prohibited by
statute or in contravention of some principle of public policy, all ordinary business
contracts are assignable, and that a contract for money to become due in the future
may be assigned.” Hurst v. West, 49 N.C. App. 598, 604, 272 S.E.2d 378, 382 (1980)
(citation and quotation marks omitted). Furthermore, an “assignment operates as a
binding transfer of the title to the debt as between the assignor and the assignee
regardless of whether notice of the transfer is given to the debtor.” Lipe v. Guilford
Nat. Bank, 236 N.C. 328, 331, 72 S.E.2d 759, 761 (1952); see Credigy Receivables, Inc.
v. Whittington, 202 N.C. App. 646, 652, 689 S.E.2d 889, 893 (“It has long been the law
in North Carolina that the assignee stands absolutely in the place of his assignor,
and it is as if the contract had been originally made with the assignee, upon precisely
the same terms as with the original parties.” (citation, quotation marks, and ellipses
omitted)), disc. review denied, 364 N.C. 324, 700 S.E.2d 748 (2010).
Based on the factual record currently before us, it is clear that BOA, not BAI,
was the holder of the 2005 and 2006 notes at the time of the 2010 Novations. As such,
BAI was no longer an interested party with regard to the notes at that time and was
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Opinion of the Court
not legally entitled to receive notice of the 2010 Novations or required to ratify them
in order for them to constitute valid novations.
“The elements of a claim for breach of contract are (1) existence of a valid
contract and (2) breach of the terms of that contract.” Branch v. High Rock Realty,
Inc., 151 N.C. App. 244, 250, 565 S.E.2d 248, 252 (2002) (citation and quotation marks
omitted), disc. review denied, 356 N.C. 667, 576 S.E.2d 330 (2003). In support of its
motion for summary judgment, BOA not only submitted competent evidence
explaining its acquisition of the 2005 and 2006 notes prior to the execution of the
2010 Novations but also provided the following: (1) the 2005 and 2006 notes (signed
by Rice); (2) Notes 2 and 3 (signed by Rice); (3) the deposition testimony of Rice in
which he admitted that he had not paid the outstanding balances owed on Notes 2
and 3; and (4) the affidavit of Brock, who testified as to the precise amounts still owed
on Notes 2 and 3 as of 2 October 2014. Rice has failed to make any valid argument
refuting BOA’s evidence that Notes 2 and 3 are legally enforceable novations to the
2005 and 2006 notes. Therefore, having established both that it was the real party
in interest entitled to enforce Notes 2 and 3 and that Rice breached the terms thereof,
BOA demonstrated that no genuine issue of material fact existed and that it was
entitled to summary judgment on its claims as to Notes 2 and 3.
Accordingly, we reverse the order of Judge Bell denying BOA’s motion for
summary judgment as to its claims based on Notes 2 and 3 and granting Rice’s cross-
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Opinion of the Court
motion. We remand to the trial court for the entry of summary judgment in favor of
BOA as to these claims.
II. Judge Boner’s Order
We next address Rice’s appeal of Judge Boner’s Order granting both BOA’s
Rule 12(c) motion for judgment on the pleadings as to BOA’s breach of contract claim
regarding Note 1 and BOA’s Rule 12(b)(6) motion to dismiss Rice’s counterclaims.
Rice’s sole argument on this issue is procedural in nature, claiming that the trial
court committed reversible error by considering documents extraneous to the
pleadings in ruling on BOA’s Rule 12 motions without converting them into motions
for summary judgment. We disagree.
It is well settled that “[b]oth a motion for judgment on the pleadings and a
motion to dismiss for failure to state a claim upon which relief can be granted should
be granted when a complaint fails to allege facts sufficient to state a cause of action
or pleads facts which deny the right to any relief.” Robertson v. Boyd, 88 N.C. App.
437, 440, 363 S.E.2d 672, 675 (1988).
Rule 12(b) provides that a motion to dismiss for failure to
state a claim under Rule 12(b)(6) shall be treated as one for
summary judgment and disposed of as provided in Rule 56
where matters outside the pleading are presented to and
not excluded by the court in ruling on the motion. Rule
12(c) contains an identical provision, stating that if, on a
motion for judgment on the pleadings, matters outside the
pleadings are presented to and not excluded by the court,
the motion shall be treated as one for summary judgment
and disposed of as provided in Rule 56.
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Opinion of the Court
Horne v. Town of Blowing Rock, 223 N.C. App. 26, 30, 732 S.E.2d 614, 617 (2012)
(internal citations, quotation marks, and brackets omitted).
“If, however, documents are attached to and incorporated within a complaint,
they become part of the complaint. They may, therefore, be considered in connection
with a Rule 12(b)(6) or 12(c) motion without converting it into a motion for summary
judgment.” Weaver v. Saint Joseph of the Pines, Inc., 187 N.C. App. 198, 204, 652
S.E.2d 701, 707 (2007). This is due to the fact that
[t]he obvious purpose of . . . Rule 12(b) is to preclude any
unfairness resulting from surprise when an adversary
introduces extraneous material on a Rule 12(b)(6) motion,
and to allow a party a reasonable time in which to produce
materials to rebut an opponent’s evidence once the motion
is expanded to include matters beyond those contained in
the pleadings.
Coley v. N.C. Nat. Bank, 41 N.C. App. 121, 126, 254 S.E.2d 217, 220 (1979).
In Coley, the plaintiffs asserted that the trial court erred by considering
materials outside the pleadings in ruling on the defendants’ Rule 12(b)(6) motion to
dismiss the plaintiffs’ claim for fraudulent inducement without giving the plaintiffs
a reasonable time in which to present additional materials in opposing the motion.
Id. The plaintiffs argued that because the court considered materials outside of the
pleadings — namely, the contract at the heart of the plaintiffs’ fraudulent inducement
claim — the motion should have been converted into a motion for summary judgment
under Rule 56. Id. In rejecting the plaintiffs’ argument, we noted that the plaintiffs
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Opinion of the Court
had specifically referred to the contract at issue in their complaint and that, for this
reason, the trial court was not required to convert the matter into a summary
judgment motion.
Certainly the plaintiffs cannot complain of surprise when
the trial court desires to familiarize itself with the
instrument upon which the plaintiffs are suing because the
plaintiffs have failed to reproduce or incorporate by
reference the particular instrument in its entirety in the
complaint. Furthermore, by considering the contract, the
trial judge did not expand the hearing to include any new
or different matters.
Id.
We elaborated on this principle in Oberlin Capital, L.P. v. Slavin, 147 N.C.
App. 52, 554 S.E.2d 840 (2001).
[T]his Court has stated that a trial court’s consideration of
a contract which is the subject matter of an action does not
expand the scope of a Rule 12(b)(6) hearing and does not
create justifiable surprise in the nonmoving party. This
Court has further held that when ruling on a Rule 12(b)(6)
motion, a court may properly consider documents which
are the subject of a plaintiff’s complaint and to which the
complaint specifically refers even though they are
presented by the defendant.
Id. at 60, 554 S.E.2d at 847 (internal citations omitted).
Here, it is clear from the face of Judge Boner’s Order that the trial court did
not convert BOA’s Rule 12 motions into motions for summary judgment. Moreover,
the order expressly states that in ruling on BOA’s motions the trial court considered
the pleadings, the General Plan Provisions of the two
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Opinion of the Court
incentive compensation plans specifically referred to in the
counterclaims of [Rice] and which are the subject of his
claims, the authorities cited by the parties, the “Judge’s
Notebook” submitted by [BOA], including the
Memorandum of Law in support of [BOA’s] Motion to
Dismiss/Motion for Judgment on the Pleadings, and
Exhibit A (redacted excerpts from the 2010 Plan), Exhibit
B (excerpts from defendant’s 2010 Score Card) and copies
of fourteen cases, as well as the argument of counsel.
Rice contends that it was improper for the trial court to consider the excerpts
attached to BOA’s Rule 12 motions from the two compensation plans pursuant to
which Rice sought payment in his counterclaims — the “U.S. Trust, Bank of America
Private Wealth Management 2010 U.S. Trust Private Client Advisor/Private Client
Manager Incentive Plan” (“the 2010 PCA Incentive Plan”) and the U.S. Trust “2011
Compensation Plan Overview” (collectively “the Incentive Plans”).
Rice claims the trial court similarly erred in considering Exhibits A and B to
the “Judge’s Notebook” submitted by BOA. The Judge’s Notebook consisted of a
memorandum of law and copies of various cases along with two attached exhibits.
Exhibit A was an additional excerpt from the 2010 PCA Incentive Plan. Exhibit B
was an excerpt from Rice’s “2010 Scorecard,” which indicated that Rice had been
employed by BOA as a Private Client Advisor II in 2010 and had received a negative
performance review.5
5 The Judge’s Notebook was apparently served on Rice five days prior to the 23 June 2014
hearing.
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Opinion of the Court
Rice does not contest the authenticity of either the excerpts from the Incentive
Plans or the 2010 Scorecard. Instead, his only argument, as noted above, is that these
documents were extraneous to the pleadings and, accordingly, should not have been
considered in connection with BOA’s Rule 12 motions. We address these documents
in turn.
A. The Incentive Plans
The fatal flaw with Rice’s argument regarding the Incentive Plans is that —
as Judge Boner’s Order noted — Rice specifically referenced both plans in his
counterclaims, alleging the following:
7. Pursuant to Plaintiff’s Compensation Incentive Plans for
its PCA’s in 2010 and 2011, Mr. Rice was entitled to
compensation in addition to his regular salary.
8. Mr. Rice was entitled to receive compensation pursuant
to Plaintiff’s Compensation Incentive Plan of at least
$45,657.03 for services and work rendered during the
fourth quarter of 2010. Said compensation should have
been paid to Mr. Rice on or about February 28, 2011.
9. Mr. Rice was entitled to receive compensation pursuant
to Plaintiff’s Compensation Incentive Plan of at least
$11,956.48 for services and work rendered during the first
quarter of 2011. Said compensation should have been paid
to Mr. Rice on or about May 31, 2011.
We rejected an analogous argument in Robertson. In that case, the plaintiffs
purchased a home from the defendants. In conjunction with the sale, the defendants
provided the plaintiffs with a termite inspection report stating that the residence was
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Opinion of the Court
free of any termite damage. After closing, however, the plaintiffs discovered that the
house had, in fact, suffered termite damage. The plaintiffs therefore brought suit
against the defendants for fraudulent misrepresentation and concealment and
referenced the termite report in their complaint. Robertson, 88 N.C. App. at 439, 363
S.E.2d at 674.
The defendants filed a motion to dismiss as well as a motion for judgment on
the pleadings. The trial court granted the defendants’ motion to dismiss, and on
appeal the plaintiffs argued that the trial court had impermissibly considered the
termite report without converting the defendants’ motion into a motion for summary
judgment. Id. at 440-41, 363 S.E.2d at 674-75. In holding that the trial court did not
err, we stated the following:
Defendants in this case apparently utilized Rule 12(c)
because they wanted the trial court to consider the termite
report and the contract of sale in determining the
sufficiency of plaintiffs’ complaint. These documents were
not submitted by plaintiff, but copies of both documents
were attached to the answer and motion to dismiss of
defendants Boyd and copies of the termite report were
attached to the motions to dismiss of defendants Booth
Realty and Go-Forth. Because these documents were the
subjects of some of plaintiffs’ claims and plaintiffs
specifically referred to the documents in their complaint,
they could properly be considered by the trial court in
ruling on a motion under Rule 12(b)(6).
Id. at 440-41, 363 S.E.2d at 675.
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Opinion of the Court
Here, similarly, the Incentive Plans considered by the trial court were
expressly referenced in Rice’s own counterclaims. Consequently, the trial court’s
review of excerpts from these documents did not require the conversion of BOA’s Rule
12 motions into motions for summary judgment.
B. Rice’s 2010 Scorecard
Unlike the Incentive Plans, Rice’s 2010 Scorecard was not referenced in the
parties’ pleadings. Therefore, the excerpt from the 2010 Scorecard should not have
been considered by the trial court in ruling on BOA’s Rule 12 motions.
However, we are satisfied that the trial court’s consideration of this document
was merely harmless error. Rice has failed to demonstrate in his appellate brief how
the 2010 Scorecard related to the merits of his counterclaims (or, for that matter, to
the merits of BOA’s breach of contract claim as to Note 1), and, therefore, he has not
shown that he was actually prejudiced by the trial court’s error.
Both of the Incentive Plans expressly provided that
participants [under the PCA Incentive Plans] whose
employment is terminated (either by [BOA] or the
participant) prior to the payment date of an incentive
award are no longer eligible to be Plan participants and as
such, are not eligible to receive a Plan award or other
incentive payment, subject to the requirements of
applicable law.
BOA’s primary argument as to why Rice was not eligible to receive the
compensation sought in his counterclaims was that his resignation from BOA
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Opinion of the Court
resulted in a forfeiture of his right to receive such compensation under the plain
language of the plans.6 In his brief to this Court, Rice has failed to articulate how the
excerpt from the 2010 Scorecard related to the legal effect of his resignation on his
eligibility to be compensated under the Incentive Plans.
Moreover, the trial court’s entry of judgment on the pleadings in BOA’s favor
in connection with Note 1 was based solely on the undisputed fact that Rice was in
default and had nothing to do with the contents of the 2010 Scorecard. Therefore,
once again, Rice has failed to demonstrate any prejudice resulting from the court’s
consideration of that document. See Cabaniss v. Deutsche Bank Secs., Inc., 170 N.C.
App. 180, 184, 611 S.E.2d 878, 881 (“[P]laintiffs argue that the trial court wrongly
considered documents outside the scope of the second amended complaint which were
attached to the motion to dismiss. However, given plaintiffs’ failure to comply with
the demand requirements as discussed above, the court’s consideration of the letter
in making its ruling, while improper, was not prejudicial.” (internal citation
omitted)), cert. denied, 360 N.C. 61, 621 S.E.2d 176 (2005).
III. Attorneys’ Fees
The final issue in this appeal concerns BOA’s contention that it is entitled to
an award of attorneys’ fees in connection with its enforcement of Notes 2 and 3. “The
general rule in this state is a successful litigant may not recover attorneys’ fees,
6 Rice has not challenged on appeal the validity of the trial court’s substantive ruling on this
issue.
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Opinion of the Court
whether as costs or as an item of damages, unless such a recovery is expressly
authorized by statute.” Calhoun v. WHA Med. Clinic, PLLC, 178 N.C. App. 585, 603,
632 S.E.2d 563, 575 (2006) (citation and quotation marks omitted), appeal dismissed
and disc. review denied, 361 N.C. 350, 644 S.E.2d 5 (2007). N.C. Gen. Stat. § 6-21.2
provides, in pertinent part, as follows:
Obligations to pay attorneys’ fees upon any note . . . or
other evidence of indebtedness, in addition to the legal rate
of interest or finance charges specified therein, shall be
valid and enforceable, and collectible as part of such debt,
if such note . . . or other evidence of indebtedness be
collected by or through an attorney at law after maturity,
subject to the following provisions:
....
(2) If such note . . . or other evidence of indebtedness
provides for the payment of reasonable attorneys’
fees by the debtor, without specifying any specific
percentage, such provision shall be construed to
mean fifteen percent (15%) of the “outstanding
balance” owing on said note . . . or other evidence of
indebtedness.
N.C. Gen. Stat. § 6-21.2(2) (2013).
Notes 2 and 3 (like Note 1) each contain the following provision:
5. Payment.
. . . Where permitted by law, [Rice] shall reimburse [BOA]
for any and all damages, losses, costs and expenses
(including attorneys’ fees and court or arbitrator costs)
incurred or sustained by [BOA] as a result of the breach by
[Rice] of any of the terms of this Note or in connection with
the enforcement of the terms of this Note.
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Judge Boner’s Order granting BOA judgment on the pleadings as to Note 1
stated the following: “The award of [BOA’s] costs, including its reasonable attorneys’
fees, associated with the issues decided by this Order will be determined in a
subsequent motion proceeding.” In light of our determination that BOA was entitled
to summary judgment in connection with Notes 2 and 3, we direct the trial court on
remand to make a similar determination accompanied by appropriate findings as to
BOA’s entitlement to attorneys’ fees in connection with its enforcement of Notes 2
and 3.
Conclusion
For the reasons stated above, we (1) affirm Judge Boner’s Order; (2) reverse
Judge Bell’s Order; and (3) remand for the entry of summary judgment in favor of
BOA on its claims as to Notes 2 and 3 and for further proceedings in connection with
BOA’s motion for attorneys’ fees.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
Chief Judge McGEE and Judge ELMORE concur.
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