Gay v. Peoples Bank

2016 NCBC 68

• Court: North Carolina Business Court
• Decided: September 16, 2016
• Docket: 13-CVS-383
• Status: Published

Opinion

Gay v. Peoples Bank, 2016 NCBC 68.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION LINCOLN COUNTY 13 CVS 383

JOSEPH LEE GAY, Individually and on Behalf of All Persons Similarly Situated,

Plaintiff, ORDER AND OPINION ON DEFENDANT’S MOTION v. TO RECOVER COSTS UNDER RULE 68 PEOPLES BANK,

Defendant.

1. THIS MATTER is before the Court upon Defendant Peoples Bank’s

(“Defendant” or “Bank”) Motion to Recover Costs from Plaintiff Joseph Lee Gay

(“Plaintiff”) pursuant to Rule 68 of the North Carolina Rules of Civil Procedure (the

“Motion”) in the above-captioned case. Having considered the Motion, the briefs in

support of and in opposition to the Motion, and appropriate evidence of record, the

Court hereby GRANTS the Motion.1

Squitieri & Fearon, LLP, by Stephen J. Fearon, Jr., Sigmon, Clark, Mackie, Hanvey & Ferrell, P.A., by Amber R. Mueggenburg, and Greg Coleman Law PC, by Greg Coleman, for Plaintiff Joseph Lee Gay.

Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Daniel F. E. Smith and Reid L. Phillips, for Defendant Peoples Bank.

Bledsoe, Judge.

1Pursuant to Rule 15.4 of the General Rules of Practice and Procedure for the North Carolina Business Court, and with the parties’ consent, the Court elects to consider and decide the Motion without oral argument. I.

INTRODUCTION AND BACKGROUND

2. Plaintiff initiated this lawsuit by filing a Class Action Complaint on

March 25, 2013, asserting claims against Defendant for breach of contract, breach of

the covenant of good faith and fair dealing, conversion, unjust enrichment, and

unfair and deceptive trade practices under N.C. Gen. Stat. § 75-1.1.

3. Plaintiff’s claims arose out of multiple overdraft fees incurred by Plaintiff

as a result of Defendant’s high-to-low posting of ATM and one-time, non-recurring,

debit card transactions, which Plaintiff alleged Defendant did not properly disclose

in Defendant’s effort to derive excessive overdraft fees at the expense of Plaintiff

and other Bank customers. Plaintiff contended Defendant manipulated the order

and timing in which Plaintiff’s debit charges were processed to charge overdraft fees

on accounts that were not actually overdrawn. Plaintiff further asserted Defendant

took these actions without notice to, and in violation of Defendant’s contractual

obligations to, its customers.

4. After lengthy discovery and motions practice, on October 24, 2014,

Defendant moved for summary judgment on Plaintiff’s claims (the “Summary

Judgment Motion”). On October 29, 2014, Defendant also served Plaintiff with an

Offer of Judgment under Rule 68 of the North Carolina Rules of Civil Procedure in

the amount of $5,001.00, including all costs, interest, and attorney’s fees accrued to

that date (the “Offer of Judgment”). Plaintiff declined to accept the Offer of Judgment within ten days; therefore, under the plain language of Rule 68, the Offer

was deemed withdrawn.

5. On June 10, 2015, this Court granted Defendant’s Summary Judgment

Motion, and dismissed Plaintiff’s claims with prejudice (the “Summary Judgment

Order”). On June 29, 2015, Defendant filed the present Motion. On July 2, 2015,

Plaintiff filed a notice of appeal of the Summary Judgment Order to the North

Carolina Court of Appeals. The Court thereafter stayed consideration of

Defendant’s Motion during the pendency of Plaintiff’s appeal.

6. On May 3, 2016, the Court of Appeals affirmed the Summary Judgment

Order. See Gay v. Peoples Bank, No. COA 15-1103, 2016 N.C. App. LEXIS 493

(N.C. Ct. App. 2016) (unpublished).

7. On June 16, 2016, the Court dissolved the stay, and the parties completed

briefing on the Motion. The Motion is now ripe for resolution.

II.

ANALYSIS

A. Rule 68

8. Defendant’s Motion seeks an order requiring Plaintiff to pay the costs

Defendant incurred after Plaintiff was served with Defendant’s Offer of Judgment

under Rule 68.

9. Rule 68 provides:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against him for the money or property or to the effect specified in his offer, with costs then accrued. If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment. An offer not accepted within 10 days after its service shall be deemed withdrawn and evidence of the offer is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer.

N.C. R. Civ. P. 68 (emphasis added). The purpose of Rule 68 is to “encourage

settlements and avoid protracted litigation.” Estate of Wells v. Toms, 129 N.C. App.

413, 416, 500 S.E.2d 105, 107 (1998). “The offer operates to save the defendant the

costs from the time of that offer if the plaintiff ultimately obtains a judgment for

less than the sum offered.” Scallon v. Hooper, 58 N.C. App. 551, 554, 293 S.E.2d

843, 844 (1982).

10. Defendant argues that because (i) it tendered an offer of judgment more

than ten days in advance of trial, (ii) Plaintiff rejected the offer of judgment such

that it was deemed withdrawn, and (iii) this Court’s entry of summary judgment in

favor of Defendant was a judgment “not more favorable than the offer,” the Court

should award Defendant the costs it incurred after making the offer by operation of

Rule 68. Plaintiff argues in opposition that Rule 68 does not require a plaintiff to

pay a defendant’s costs where, as here, the defendant-offeror, rather than the

plaintiff-offeree, obtained a judgment in its favor.

11. Contrary to Plaintiff’s contention, however, the North Carolina appellate

courts have held that Rule 68 applies to permit an award of costs where a defendant

succeeds in its defense and not simply where a plaintiff obtains a judgment less favorable than the defendant’s offer. For example, in Griffis v. Lazarovich, 164 N.C.

App. 329, 595 S.E.2d 797 (2004), the defendant made an offer of judgment to the

plaintiff in the amount of $500, the plaintiff did not accept the offer, and the jury

later found that the plaintiff was not injured by the negligence of the defendant.

The Court therefore entered judgment in favor of the defendant. Faced with these

facts on appeal, the Court of Appeals held that “Rule 68 required the trial court to

tax plaintiff with the [defendant’s] costs of proceeding with trial after plaintiff

rejected th[e] offer and received a less favorable result at trial.” Id. at 335, 595

S.E.2d at 802 (emphasis in original).

12. Similarly, in Morgan v. Steiner, 173 N.C. App. 577, 619 S.E.2d 516 (2005),

the defendant extended an offer of judgment to the plaintiff, which the plaintiff did

not accept, and after the defendant prevailed at trial, defendant filed a motion for

costs under Rule 68. Although not analyzed in depth, in affirming the trial court’s

order requiring the plaintiff to pay the defendant’s costs in accordance with Rule 68,

the Court of Appeals upheld the use of Rule 68 to permit an award of costs to the

prevailing defendant in that case. Id. at 579, 619 S.E.2d at 518.

13. In seeking to avoid the result compelled by these North Carolina

decisions, Plaintiff argues that this Court should be guided instead by the United

States Supreme Court’s decision in Delta Air Lines, Inc. v. August, 450 U.S. 346

(1981), holding that the cost-shifting mandate in the similarly-worded Rule 68 of

the Federal Rules of Civil Procedure does not apply where, as here, the defendant

obtains a judgment in his favor. In that case, the defendant offered the plaintiff $450 to settle the plaintiff’s claims, and the plaintiff rejected the offer. After the

jury returned a verdict in favor of the defendant, the defendant moved under

Federal Rule 68 for costs incurred after the settlement offer was tendered.

14. Federal Rule 68 provides, in relevant part, that “[i]f the judgment that the

offeree finally obtains is not more favorable than the unaccepted offer, the offeree

must pay the costs incurred after the offer was made.” Fed. R. Civ. P. 68(d). The

issue before the Supreme Court in Delta Air Lines was “whether the words

‘judgment finally obtained by the offeree’ as used in that Rule should be construed

to encompass a judgment against the offeree as well as a judgment in favor of the

offeree.” Delta Air Lines, 450 U.S. at 348. The Court concluded that Federal Rule

68 only applies “to judgments obtained by the plaintiff” in amounts less than the

unaccepted offer and not where a defendant prevails in his defense. Id. at 352.

15. As an initial matter, the Court observes that although “[d]ecisions under

the federal rules are . . . pertinent for guidance and enlightenment in developing the

philosophy of the North Carolina rules,” Turner v. Duke Univ., 325 N.C. 152, 164,

381 S.E.2d 706, 713 (1989), federal decisions are not binding on this Court or any

North Carolina court interpreting a question solely of state law. See Virmani v.

Presbyterian Health Servs. Corp., 350 N.C. 449, 465, 515 S.E.2d 675, 686 (1999).

Thus, because the proper interpretation of N.C. R. Civ. P. 68 is a matter solely of

North Carolina state law, the United States Supreme Court’s holding in Delta Air

Lines is not binding on this Court. 16. In any event, the Supreme Court rested its holding in Delta Air Lines on

its interpretation of Rule 54(d) of the Federal Rules of Civil Procedure, which allows

a prevailing party after judgment to recover costs unless the trial court otherwise

directs. The Supreme Court concluded that if Federal Rule 68 was interpreted to

apply to judgments obtained by defendants, it would “operate[] to deprive the

district judge of the discretion vested in him by Rule 54(d).” Delta Air Lines, 450

U.S. at 353. The North Carolina Rules of Civil Procedure, however, do not contain a

cost-recovery rule similar to Federal Rule 54(d), and the Court fails to see how the

trial court’s discretion under any North Carolina statute permitting cost recovery

will be impaired should Rule 68 apply to judgments obtained by defendants.

17. Moreover, although the North Carolina appellate courts have cited Delta

Air Lines in interpreting N.C. R. Civ. P. 68 on two occasions, our courts have never

relied upon or elected to follow Delta Air Lines to embrace the proposition that

Plaintiff urges the Court to adopt here. See Purdy v. Brown, 307 N.C. 93, 96, 296

S.E.2d 459, 462 (1982) (citing Delta Air Lines concerning attorney’s fees as costs

under Rule 68); Aikens v. Ludlum, 113 N.C. App. 823, 825, 440 S.E.2d 319, 321

(1994) (citing Justice Powell’s concurrence in Delta Air Lines concerning lump sum

offers under Rule 68). Thus, the Court concludes that even if the North Carolina

appellate courts had not squarely addressed the issue, the United States Supreme

Court’s holding in Delta Air Lines concerning Federal Rule 68 is of limited

persuasive force. 18. Accordingly, the Court declines to follow Delta Air Lines and concludes

that prior North Carolina appellate decisions, including Griffis and Morgan, supra,

control the proper interpretation of N.C. R. Civ. P. 68 in these circumstances. The

Court notes that courts in other states have similarly declined to follow Delta Air

Lines when interpreting their state’s Federal Rule 68-equivalent. See, e.g., Kellis v.

Crites, 20 P.3d 1112 (Alaska 2001); Greenwald v. Ford Motor Co., 993 P.2d 1087

(Ariz. Ct. App. 1999); Thompson v. Miller, 4 Cal. Rptr. 3d 905 (Cal. Ct. App. 2003);

Jorgensen v. Heinz, 847 P.2d 181 (Colo. App.1992); Paull v. Coughlin, 466 A.2d 347

(Conn. Super. Ct. 1983); Timmons v. Combs, 608 So.2d 1 (Fla. 1992); Divine v.

Groshong, 679 P.2d 700 (Kan. 1984); Luidens v. 63d Dist. Court, 555 N.W.2d 709

(Mich. Ct. App. 1996); Schwartz v. Estate of Greenspun, 881 P.2d 638 (Nev. 1994);

Fuller v. Pacheco, 21 P.3d 74 (Okla. Civ. App. 2001); Cole v. Clifton, 833 S.W.2d 75

(Tenn. Ct. App. 1992).

B. Amount of Costs

19. Defendant seeks to recover costs in the amount of $5,780.88 as follows: (1)

$4,380.88 for costs associated with the transcription of depositions and (2) $1,400.00

for the mediator’s fee from the court-ordered mediation.

20. Plaintiff does not dispute the amount of the costs to be awarded or

Defendant’s entitlement to deposition and mediation costs in the event that the

Court concludes, as it has, that Defendant is entitled to payment of its costs under

Rule 68. Indeed, N.C. Gen. Stat. § 7A-305(d) specifically provides that recoverable

costs include “[f]ees of mediators appointed by the court” and “[r]easonable and necessary expenses . . . for the costs of deposition transcripts,” § 7A-305(d)(7), (10),

which are the specific costs Defendant seeks to recover here. Accordingly, the Court

concludes that Defendant is entitled to recover costs in the amount of $5,780.88.

III.

CONCLUSION

21. Based on the foregoing, the Court concludes that because Plaintiff did not

obtain a judgment that was more favorable than Defendant’s offer, N.C. R. Civ. P.

68 requires that Plaintiff pay Defendant’s costs incurred after Defendant made its

offer.

22. WHEREFORE, the Court hereby GRANTS Defendant’s Motion and

ORDERS that Plaintiff shall pay Defendant’s costs in the amount of $5,780.88, such

payment to be made within forty-five (45) days of the entry of this Order.

SO ORDERED, this the 16th day of September, 2016.

/s/ Louis A. Bledsoe, III Special Superior Court Judge for Complex Business Cases