WLAE, LLC v. Edwards

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA17-154
Filed: 19 December 2017
Henderson County, No. 14 CVS 395
WLAE, LLC, Plaintiff,
v.
ROBERT L. EDWARDS a/k/a ROBBIE EDWARDS and WOLF ARBIN WEINHOLD,
Defendants.
Appeal by plaintiff from orders entered 17 June 2016 and 31 August 2016 by
Judge Mark E. Powell in Henderson County Superior Court. Heard in the Court of
Appeals 23 August 2017.
Craig Law Firm, PLLC, by Sam B. Craig, and James, McElroy & Diehl, P.A.,
by Preston O. Odom, III, for plaintiff-appellant.
Prince, Youngblood & Massagee, PLLC, by Sharon B. Alexander, for defendant-
appellee Edwards.
F.B. Jackson and Associates Law Firm, PLLC, by Frank B. Jackson and Angela
S. Beeker, for defendant-appellee Weinhold.
ELMORE, Judge.
Plaintiff WLAE, LLC, appeals from two dismissal orders, one each of which
was entered in favor of defendants Robert L. Edwards and Wolf Arbin Weinhold, and
both of which were entered pursuant to Rule 12(b)(1) of the North Carolina Rules of
Civil Procedure. Because plaintiff lacked standing at the time its complaint was filed,
WLAE, LLC V. EDWARDS
Opinion of the Court
the trial court correctly determined that it did not have subject matter jurisdiction
over the proceeding. Accordingly, we affirm the dismissal orders of the trial court.
I. Background
The series of events culminating in this appeal were set in motion more than
20 years ago with the filing of a bankruptcy petition in the United States Bankruptcy
Court for the Middle District of Florida, Tampa Division. Upon filing for Chapter 7
bankruptcy in June 1994, defendant Weinhold scheduled as an asset his 80 percent
limited partnership interest in a Florida limited partnership known as Wolf’s Lair,
Ltd. At all relevant times, Wolf’s Lair owned approximately 1,400 acres of land in
Henderson County, North Carolina (the “property”).
In June 1996, the bankruptcy trustee sold defendant Weinhold’s 80 percent
limited partnership interest in Wolf’s Lair to Carolina Preservation Partners, Inc.
(CPP), a corporation wholly owned by Mr. Douglas Smith. The bankruptcy case was
then closed from June 1998 until October 2000, when creditors moved to reopen it
based on a conveyance by defendant Weinhold’s brother of a 20 percent general
partnership interest in Wolf’s Lair to defendant Weinhold shortly after the case was
closed. As a result of these events, the trustee filed an adversary proceeding in
November 2001 against defendant Weinhold, CPP, and Smith, in which she alleged
the 20 percent general partnership interest in Wolf’s Lair belonged to the bankruptcy
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Opinion of the Court
estate and sought to rescind the sale of the 80 percent limited partnership interest to
CPP.
Nearly eleven years later, on 21 February 2012, the trustee, CPP, and Smith
executed a settlement agreement within the adversary proceeding that attempted to
resolve all issues regarding ownership of Wolf’s Lair (the “2012 agreement”). The
2012 agreement reserved to the trustee her claim against defendant Weinhold
regarding the 20 percent general partnership interest in Wolf’s Lair, and it provided
for the creation of WLAE, LLC, as an “acquiring entity” to be formed jointly by the
trustee and Smith. The 2012 agreement provided further details as follows:
Trustee, Smith and CPP shall quitclaim to [WLAE] all of
Trustee’s, Smith/CPP’s right, title and interest in and to
the Property and Wolfs’ Lair [sic], excepting and expressly
reserving to Trustee, however, Trustee’s claims against
Weinhold as set forth in the [adversary proceeding]
Complaint. [WLAE] shall be a limited liability entity
established by CPP, and at the time of Trustee’s and
CPP/Smith’s quitclaims, Trustee and CPP shall enter into
a limited liability operating agreement . . . for [WLAE]
which shall provide that CPP shall be an 80% managing
member, and the Trustee shall be a 20% non-managing
member . . . . Trustee makes no representation, warranty
or covenant as to the condition of title to the Property or as
to the Property’s physical condition, and the quitclaim of
her interest shall be “as-is, where-is.” [WLAE] shall
assume all responsibility for the management and control
of the Property.
Paragraph 11 of the 2012 agreement is also particularly significant and references
the fact that the state of Florida administratively dissolved Wolf’s Lair in 2000.
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Opinion of the Court
Trustee shall retain all right, title and interest in and to
the claims she asserted against Weinhold in the [adversary
proceeding] Complaint, including, without limitation,
Trustee’s rights in Weinhold’s purported 20% general
partnership interest in Wolfs’ Lair [sic] and/or any
derivative interest in the Property, including any 20%
tenant in common interest that Weinhold may have as a
result of the dissolution of Wolf’s Lair . . . .
Pursuant to the 2012 agreement, the trustee executed an assignment of her 80
percent limited partnership interest in Wolf’s Lair from the trustee to the acquiring
entity, WLAE, on 2 March 2012 (the “2012 assignment”). The 2012 assignment, like
the 2012 agreement, specifically reserved to the trustee her claim against defendant
Weinhold to the 20 percent general partnership interest in Wolf’s Lair, stating:
The undersigned . . . Trustee . . . (“Assignor”), does hereby
grant, sell, transfer, assign and convey unto WLAE, LLC,
a Delaware limited liability company, all of Assignor’s
right, title, interest, claim and demand, if any, in and to
WOLF’S LAIR, LTD., a Florida limited partnership,
excepting and expressly reserving to Assignor, however,
Assignor’s claims against Wolf Arbin Weinhold as set forth
in the [adversary proceeding] Complaint . . . .
On 6 March 2012, the bankruptcy court issued an order confirming final
adjudication of the adversary proceeding, approving the trustee’s 2012 agreement
with CPP and Smith, and acknowledging a verbal agreement between the trustee and
defendant Weinhold regarding the 20 percent general partnership interest in Wolf’s
Lair. The said verbal agreement was announced in open court on 2 March 2012, with
defendant Weinhold conceding that the 20 percent general partnership interest
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Opinion of the Court
belonged to the trustee and had become the property of the bankruptcy estate during
the initial phase of the bankruptcy proceeding.
Despite court approval of the 2012 agreement, the trustee, CPP, and Smith
continued to be entangled in a dispute from March 2012 to September 2013 regarding
the subsequent valuation and transfer of the trustee’s 20 percent general partnership
interest in Wolf’s Lair to the acquiring entity, WLAE. On 23 September 2013,
following several motions and orders to enforce the 2012 agreement, Smith executed
an assignment of “any and all suits, actions, charges, claims, and choses of action
arising from or related to the [North Carolina property]” from Wolf’s Lair to WLAE
(the “2013 assignment”), with WLAE being described as the “owner of all the
partnership interests in Wolf’s Lair, Ltd.” The 2013 assignment was signed by Smith
as manager of WLAE.
On 3 March 2014, the trustee, CPP, and Smith participated in a mediation
conference resulting in a settlement agreement (the “2014 agreement”) in which CPP
and Smith agreed to pay the trustee $400,000.00 for her 20 percent general
partnership interest in Wolf’s Lair as well as her 20 percent interest in WLAE, the
latter of which she had formed with Smith pursuant to the 2012 agreement. Four
days after the mediation conference, on 7 March 2014, plaintiff WLAE instituted this
action against defendant Weinhold as well as defendant Edwards, who operates a
timber purchasing and harvesting business in North Carolina. In its complaint,
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Opinion of the Court
plaintiff asserted eight claims for relief, all related to timbering activities that had
occurred between 2009 and 2011 on the property belonging to Wolf’s Lair. Plaintiff
specifically alleged that at some point prior to April 2009, defendants “Weinhold and
Edwards entered into an agreement by which Edwards would remove and sell some
of the timber on the Property and give Weinhold a portion . . . of the sales proceeds.”
Because the damage occurred to its property, Wolf’s Lair solely owned the right
to pursue a claim for compensation for the alleged damages. See Woodard v.
Marshall, 14 N.C. App. 67, 6869, 187 S.E.2d 430, 431 (1972) (“[w]here the plaintiff
claims damages for unlawful cutting of timber, he is claiming permanent damages to
the freehold, or damages to the ownership interest, and his right to recover depends
upon his establishing his title to the described lands[.]”). Accordingly, plaintiff’s only
potential interest in this claim is based on the series of agreements and assignments
discussed herein. Plaintiff thus filed a copy of the 2013 assignment along with its
complaint, purportedly to show that “Plaintiff WLAE is successor in interest to rights
and claims of Wolf’s Lair related to matters affecting the Property through an
assignment of rights, a copy of which is attached hereto as Exhibit A, and
incorporated herein by reference.” Like the 2013 assignment, plaintiff’s verified
complaint was signed by Smith as manager of WLAE, but with WLAE now being
described as the “General Partner of Wolf’s Lair, Ltd.” Notably, Wolf’s Lair was not
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Opinion of the Court
a party to the 2012 agreement or the subsequent assignments, and the only debtor in
the bankruptcy proceeding was defendant Weinhold in his individual capacity.
On 26 May 2016, defendant Weinhold moved to dismiss plaintiff’s claims for
lack of standing pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(1) (2015). In his
motion to dismiss, defendant Weinhold essentially argued that neither the 2012
settlement agreement or the subsequent assignments had transferred ownership of
the property, or authority to act in this litigation, from Wolf’s Lair to WLAE; thus,
the trial court had no subject matter jurisdiction over the proceeding. Defendant
Edwards likewise moved to dismiss the action for lack of standing on 5 June 2016.
Pursuant to Rule 12(b)(1), the trial court granted defendant Weinhold’s motion
to dismiss by order entered 17 June 2016, and granted defendant Edwards’ motion to
dismiss by order entered 31 August 2016. The court found that the trustee and Smith
had resolved their remaining issues regarding ownership of Wolf’s Lair pursuant to
the 2014 agreement with a “Quitclaim Assignment of Interest” from the trustee to
Smith executed on 30 June 2014 (the “2014 assignment”). The 2014 assignment was
executed more than three months after the filing of the complaint and more than nine
months after Smith had declared WLAE to be the “owner of all the partnership
interests in Wolf’s Lair” in the 2013 assignment. Based on its findings, the court
made the following conclusions of law:
1. WLAE, LLC, did not acquire the Trustee’s general
partner interest in Wolf’s Lair, Ltd., at any time prior to
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Opinion of the Court
March 7, 2014.
2. As of September 23, 2013, the date of the Assignment,
WLAE, LLC, did not own the general partner interest in
Wolf’s Lair, Ltd.
3. The September 23, 2013, assignment from Wolf’s Lair,
Ltd., to WLAE, LLC, was not valid.
4. As of March 7, 2014, the date of the filing of this action
pursuant to the Assignment, WLAE, LLC, did not have
standing to file this lawsuit.
5. Because WLAE, LLC, did not have standing to file this
action, this Court does not have jurisdiction over the
subject matter of this action.
On 15 July 2016, plaintiff filed notice of appeal of the 17 June 2016 dismissal
order granted in favor of defendant Weinhold, and that appeal was docketed on 7
November 2016 as no. 16-1129. On 30 September 2016, plaintiff commenced this
appeal of both the 17 June and 31 August 2016 dismissal orders. Plaintiff’s second
appeal was docketed on 10 February 2017 as no. 17-154 and is addressed herein,
while this Court dismissed appeal no. 16-1129 on 14 February 2017 pursuant to
motions filed by both plaintiff and defendant Weinhold.
II. Discussion
Plaintiff contends that the trial court erred by dismissing its claims for lack of
subject matter jurisdiction pursuant to Rule 12(b)(1). Plaintiff asserts that WLAE
was the real party in interest when the action commenced, and it argues in the
alternative that the purported real party in interest, Wolf’s Lair, subsequently
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Opinion of the Court
ratified the action pursuant to N.C. Gen. Stat. § 1A-1, Rule 17(a) (2015). Plaintiff
also contends that Rule 17(a) precludes dismissal under these circumstances because
the trial court had a duty to afford plaintiff the opportunity to substitute the real
party in interest prior to dismissing the action. We disagree with each of plaintiff’s
arguments.
As a preliminary matter, we note that defendant Weinhold argues the 17 June
2016 dismissal order was previously appealed to this Court and dismissed with
prejudice. This is not so. In appeal no. 16-1129, the Court did not specifically grant
or deny defendant Weinhold’s motion to dismiss with prejudice, ruling simply:
“Appeal dismissed.” This is due to the fact that unlike our trial courts, the Court of
Appeals does not label its dismissals as being issued with or without prejudice.
Rather, an appellant whose appeal has been dismissed may appeal the matter again
if that is within his right (e.g., if his first appeal was from an interlocutory order) or
he may petition this Court for discretionary review by writ of certiorari. See Atl.
Coast Mech., Inc. v. Arcadis, Geraghty & Miller of N.C., Inc., 175 N.C. App. 339, 623
S.E.2d 334, 337 (2006) (holding that withdrawal of prior appeal from an interlocutory
order did not waive the right to appeal therefrom after entry of a final judgment); see
also N.C. R. App. P. 3, 21, 37 (addressing appeals from superior court orders in civil
cases generally, the extraordinary writ of certiorari, and motions filed in appellate
courts, respectively).
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Opinion of the Court
Here, the 31 August 2016 dismissal order granted in favor of defendant
Edwards constitutes the final judgment of the trial court for purposes of appellate
review. See, e.g., Veazey v. City of Durham, 231 N.C. 357, 362, 57 S.E.2d 377, 381
(1950) (distinguishing between appeals taken from interlocutory rulings versus final
judgments). Thus, because plaintiff’s first appeal was from an interlocutory order
(i.e., the 17 June 2016 dismissal order granted in favor of defendant Weinhold), it is
within plaintiff’s right to bring this appeal following the entry of a final judgment.
We therefore hold that both the 17 June and 31 August 2016 dismissal orders are
properly before this Court for review.
A. Rule 12(b)(1), Subject Matter Jurisdiction, and Standing
Rule 12 of the Rules of Civil Procedure provides that “[w]henever it appears by
suggestion of the parties or otherwise that the court lacks jurisdiction of the subject
matter, the court shall dismiss the action.” N.C. Gen. Stat. § 1A-1, Rule 12(h)(3)
(2015). “We review Rule 12(b)(1) motions to dismiss for lack of subject matter
jurisdiction de novo and may consider matters outside the pleadings.” Harris v.
Matthews, 361 N.C. 265, 271, 643 S.E.2d 566, 570 (2007).
“Standing concerns the trial court’s subject matter jurisdiction and is therefore
properly challenged by a Rule 12(b)(1) motion to dismiss.” Fuller v. Easley, 145 N.C.
App. 391, 395, 553 S.E.2d 43, 46 (2001) (citations omitted). Standing refers to “a
party’s right to have a court decide the merits of a dispute.” Teague v. Bayer AG, 195
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N.C. App. 18, 23, 671 S.E.2d 550, 554 (2009). To have standing to bring a claim, one
must be a “real party in interest,” which typically means the person or entity against
whom the actions complained of were taken. See Finks v. Middleton, ___ N.C. App.
___, ___, 795 S.E.2d 789, 795 (2016); N.C. Gen. Stat. § 1-57 (2015).
“If a party does not have standing to bring a claim, a court has no subject
matter jurisdiction to hear the claim.” Woodring v. Swieter, 180 N.C. App. 362, 366,
637 S.E.2d 269, 274 (2006). “Jurisdiction is not a light bulb which can be turned off
or on during the course of the trial.” In re Peoples, 296 N.C. 109, 146, 250 S.E.2d 890,
911 (1978). Rather, the issue of jurisdiction is assessed as of the time of the filing of
a complaint, and the subsequent proceedings of a court without subject matter
jurisdiction are a nullity. See Metcalf v. Black Dog Realty, LLC, 200 N.C. App. 619,
625, 684 S.E.2d 709, 714 (2009); see also Burgess v. Gibbs, 262 N.C. 462, 465, 137
S.E.2d 806, 808 (1964).
Here, plaintiff alleges that the property damage constituting the basis of its
complaint began in April 2009 and continued into 2011. Plaintiff relies on the 2012
settlement agreement between the trustee, CPP, and Smith, as well as the 2012 and
2013 assignments executed by the trustee and Smith, to vest plaintiff with the right
to pursue such claims. Plaintiff argues that
In effect, the Trustee delegated to WLAE through the
Settlement Agreement and the 2 March 2012 Quitclaim
Assignment the responsibility to manage all affairs of
Wolfs’ Lair [sic] vis-à-vis the Property and associated
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Opinion of the Court
Timber Rights. . . . WLAE validly did so by, for example,
executing the Assignment of claims in September 2013, . . .
even if WLAE held only the 80% limited partnership
interest in Wolfs’ Lair [sic] at that time.
Thus, while plaintiff acknowledges that it was only a limited partner at the time, its
argument would have us ignore the fact that ownership of Wolf’s Lair was still in
dispute when the 2013 assignment was executed and remained in dispute for several
months thereafter.
The interpretation of assignments is undertaken based on contract law, and
the clear and unambiguous terms of the 2012 assignment contain no conveyance of
any claim for damages or any other asset owned by Wolf’s Lair. See Martin v. Ray
Lackey Enterprises, Inc., 100 N.C. App. 349, 354, 396 S.E.2d 327, 330 (1990). In both
the 2012 agreement and assignment, the trustee’s claim to the 20 percent general
partnership interest in Wolf’s Lair as against defendant Weinhold was specifically
reserved to the trustee and not transferred to WLAE. As to the 2013 assignment
attached to the complaint and upon which plaintiff primarily relies, the trial court
concluded the assignment was not valid. This is because WLAE was not the “owner
of all the partnership interests in Wolf’s Lair” as stated in the 2013 assignment, and
it is clear from the record that ownership of Wolf’s Lair was still in dispute for several
months after the 2013 assignment was executed. Thus, at the time of the 2013
assignment, plaintiff was at most a limited partner of Wolf’s Lair.
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Opinion of the Court
Pursuant to Florida law, applied here as required by N.C. Gen. Stat. § 59-901
(2015), plaintiff had no authority as a limited partner to transfer any asset or interest
in Wolf’s Lair via the 2013 assignment. See Fla. Stat. Ann. § 620.1302(1) (2017) (“A
limited partner does not have the right or the power as a limited partner to act for or
bind the limited partnership.”). As a result, Wolf’s Lair−as the entity whose property
had been damaged−continued to own the right to pursue an action for compensation
for such damage, while the authority to act for or control Wolf’s Lair continued to be
the subject of dispute.
For the reasons stated above, we hold that plaintiff lacked standing at the time
its complaint was filed. The trial court thus correctly determined that it lacked
subject matter jurisdiction over the proceeding and properly dismissed the action
pursuant to defendants’ Rule 12(b)(1) motions to dismiss.
B. Rule 17(a), Ratification, and Substitution
Plaintiff’s arguments regarding ratification and substitution pursuant to Rule
17(a), both of which are made in the alternative, are not persuasive. Rule 17(a)
provides in relevant part:
Every claim shall be prosecuted in the name of the real
party in interest; . . . No action shall be dismissed on the
ground that it is not prosecuted in the name of the real
party in interest until a reasonable time has been allowed
after objection for ratification of commencement of the
action by, or joinder or substitution of, the real party in
interest; and such ratification, joinder, or substitution shall
have the same effect as if the action had been commenced
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Opinion of the Court
in the name of the real party in interest.
N.C. Gen. Stat. § 1A-1, Rule 17(a) (2015).
Plaintiff did not file a motion pursuant to Rule 17(a) at any time. Despite this,
plaintiff contends for the first time on appeal that the trial court should have allowed
plaintiff the opportunity to amend its complaint to add the real party in interest (i.e.,
Wolf’s Lair). However, because the trial court did not have subject matter jurisdiction
over this proceeding at the time of filing, the court did not have the authority to order
such substitution of party, and any attempt to do so would have been a nullity. See,
e.g., Coderre v. Futrell, 224 N.C. App. 454, 457, 736 S.E.2d 784, 787 (2012) (holding
that the proceedings of a court without jurisdiction of the subject matter are a nullity).
Likewise, an action determined to be a nullity at the time of filing cannot be cured by
subsequent ratification because no valid action exists for the real party in interest to
ratify. See, e.g., In re T.R.P., 360 N.C. 588, 595, 636 S.E.2d 787, 793 (2006) (holding
that parties cannot by consent, waiver, or otherwise confer subject matter jurisdiction
of an action over which the court does not have jurisdiction). We therefore hold that
the trial court correctly declined to invoke Rule 17(a) sua sponte, which could only
have resulted in a failed attempt to breathe life into an action that was a nullity at
its commencement.
III. Conclusion
The orders of the trial court are hereby:
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AFFIRMED.
Judges STROUD and TYSON concur.
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