Turner v. Hammocks Beach Corp.

664 S.E.2d 634, 192 N.C. App. 50, 2008 N.C. App. LEXIS 1547

• Court: Court of Appeals of North Carolina
• Decided: August 19, 2008
• Docket: COA07-1287
• Status: Published

Opinions

McGEE, Judge.

The Hammocks Beach Corporation (Defendant) appeals from the trial court’s order denying its motion to dismiss under N.C. Gen. Stat. § 1A-1, Rule 12(b)(6). For the reasons set forth herein, we reverse and remand with instructions to the trial court to grant Defendant’s motion to dismiss.

Harriett Hurst Turner and John Henry Hurst (Plaintiffs) filed a complaint on 15 December 2006 against Defendant and several other defendants who are not parties to this appeal. Plaintiffs’ claims arose out of the administration of a trust created by deed in 1950 (the 1950 deed) by Dr. William Sharpe (Dr. Sharpe).

Specifically, Plaintiffs alleged that in 1923, Dr. Sharpe, who was a neurosurgeon from New York, purchased 810 acres on the mainland in Onslow County, North Carolina. Subsequently, in 1930 and 1931, Dr. Sharpe “purchased adjacent property consisting of approximately 2,000 acres of sandy beach outer banks (known as Bear Island) and approximately 7,000 acres of marshland.” The high land on the mainland portion of the property was known as “the Hammocks.”

According to Plaintiffs’ complaint, Dr. Sharpe became friends with John and Gertrude Hurst (the Hursts), an Onslow County couple who moved onto Dr. Sharpe’s property as its managers and caretakers. After many years of a mutually beneficial business relationship and personal friendship between Dr. Sharpe and the Hursts, Dr. Sharpe advised the Hursts that he wanted to devise the Hammocks to them. However, as reflected in an agreement dated 6 September 1950 (the 1950 agreement), recorded in the Onslow County Registry, “Gertrude Hurst, having formerly served as a black teacher in the then racially segregated public school system, requested Dr. Sharpe instead make a gift of the property in such manner that African-American teachers and their then existing organizations could enjoy the property.” Plaintiffs further alleged as follows:

Pursuant to [Gertrude] Hurst’s request, and rather than wait until his death, Dr. Sharpe, in 1950, by deed of gift, deeded certain real property to a nonprofit corporation, as trustee. The Hammocks Beach Corporation was the name given to the trustee entity, and its charter spelled out its purpose — to administer the property given to it by Dr. Sharpe “primarily for the teachers in public and private elementary, secondary and collegiate institutions for Negroes in North Carolina . . . and for such other groups as are hereinafter set forth.” The deed to The Hammocks Beach Corporation as trustee restricted the use of the property “for the use and benefit of the members of The North Carolina Teachers Association, Inc., and such others as are provided for in the Charter of the Hammocks Beach Corporation.” The deed is recorded in the Onslow County Register of Deeds at Deed Book 221, Page 636[.]

The 1950 deed specifically made provision for the property in the event that the purposes of the trust became impossible or impracticable:

IT IS FURTHER PROVIDED AND DIRECTED by the said grantors, parties of the first part, that if at any time in the future it becomes impossible or impractical to use said property and land for the use as herein specified and if such impossibility or impracticability shall have been declared to exist by a vote of the majority of the directors of the Hammocks Beach Corporation, Inc., the property conveyed herein may be transferred to The North Carolina State Board of Education, to be held in trust for the purpose herein set forth, and if the North Carolina State Board of Education shall refuse to accept such property for the purpose of continuing the trust herein declared, all of the property herein conveyed shall be deeded by said Hammocks Beach Corporation, Inc. to Dr. William Sharpe, his heirs and descendants and to John Hurst and Gertrude Hurst, their heirs and descendants; The Hurst family shall have the mainland property and the Sharpe family shall have the beach property[.]

Plaintiffs further alleged that in a prior action filed by Defendant in 1986,

the Sharpe and Hurst heirs contended that fulfillment of the trust terms had become impossible or impracticable, that The Hammocks Beach Corporation had acted capriciously and contrary to the intent of the settlor in not declaring its recognition of such, and that the court should declare the trust terminated and either mandate a conveyance of all of the property to the Sharpe and Hurst families or adjudicate title in their names.

However, prior to trial in the earlier action, the parties reached a settlement, which was approved by the trial court in a consent judgment (the 1987 consent judgment). Plaintiffs in the present action cited portions of the 1950 deed, the 1950 agreement, and the 1987 consent judgment in their complaint.

Plaintiffs also alleged that “[a]s in 1987, fulfillment of the trust terms has become impossible or impracticable.” Plaintiffs alleged claims for (1) an accounting, (2) “Termination of Trust and Reversion to Contingent Beneficiaries,” and (3) breach of fiduciary duty. In support of Plaintiffs’ claim for an accounting, Plaintiffs alleged that they were “remainder beneficiaries and interested parties” under the 1950 deed. Similarly, under their claim for “Termination of Trust and Reversion to Contingent Beneficiaries,” Plaintiffs alleged that they were “contingent beneficiaries” of the 1950 deed. In support of their claim for breach of fiduciary duty, Plaintiffs also alleged that they were “remainder beneficiaries and interested persons” under the 1950 deed.

Defendant filed a motion to dismiss and a motion for a protective order on 5 July 2007. Regarding its motion to dismiss, Defendant asserted as follows:

Pursuant to the [1987] Consent Judgment, Plaintiffs have no rights to the property that is the subject of this lawsuit and therefore no further rights as beneficiaries of the trust to an accounting or a claim of breach of fiduciary duty. To the extent Plaintiffs seek to relitigate that issue now, they are precluded from doing so by the doctrine of issue preclusion.

Defendant filed a memorandum in support of its motion to dismiss, and Plaintiffs filed a memorandum in opposition to Defendant’s motion to dismiss. The trial court entered an order denying Defendant’s motion to dismiss on 23 August 2007. Defendant appeals.

I.

We first address the interlocutory nature of this appeal. “In general, the denial of a motion to dismiss is interlocutory and thus not immediately appealable.” McCarn v. Beach, 128 N.C. App. 435, 437, 496 S.E.2d 402, 404, disc. review denied, 348 N.C. 73, 505 S.E.2d 874 (1998). However, immediate review of an interlocutory order is available: (1) where the trial court certifies, pursuant to N.C. Gen. Stat. § 1A-1, Rule 54(b), that there is no just reason for delay of an appeal from a final order as to one or more, but not all, of the claims; and (2) where the interlocutory order affects a substantial right in accordance with N.C. Gen. Stat. § l-277(a). Sharpe v. Worland, 351 N.C. 159, 161-62, 522 S.E.2d 577, 579 (1999).

In the case before us, the trial court’s order from which Defendant appeals does not contain a Rule 54(b) certification. Defendant thus argues that the trial court’s order denying its motion to dismiss based upon collateral estoppel affects a substantial right.

Whether or not “a substantial right is affected is determined on a case-by-case basis.” McCallum v. N.C. Coop. Extension Serv., 142 N.C. App. 48, 50, 542 S.E.2d 227, 231, disc, review denied, 353 N.C. 452, 548 S.E.2d 527 (2001). In McCallum, our Court recognized that “[l]ike res judicata, collateral estoppel (issue preclusion) is ‘ “designed to prevent repetitious lawsuits over matters which have once been decided and which have remained substantially static, factually and legally.” ’ ” Id. at 51, 542 S.E.2d at 231 (quoting King v. Grindstaff, 284 N.C. 348, 356, 200 S.E.2d 799, 805 (1973) (quoting Commissioner v. Sunnen, 333 U.S. 591, 599, 92 L. Ed. 898, 907 (1948))). Our Court further recognized that “[u]nder collateral estoppel, parties are precluded from retrying fully litigated issues that were decided in any prior determination, even where the claims asserted are not the same.” Id. Therefore, our Court held as follows:

The denial of summary judgment based on collateral estoppel, like res judicata, may expose a successful defendant to repetítious and unnecessary lawsuits. Accordingly, we hold that the denial of a motion for summary judgment based on the defense of collateral estoppel may affect a substantial right, and that [the] defendants’ appeal, although interlocutory, is properly before us.

Id.

Our Court recently held that a trial court’s order denying a Rule 12(b)(6) motion to dismiss based in part upon a rejection of the defendants’ affirmative defense of collateral estoppel affected a substantial right in Strates Shows, Inc. v. Amusements of Am., Inc., 184 N.C. App. 455, 646 S.E.2d 418 (2007). In Strates, as in the case before us, several of the defendants appealed from the denial of their motions to dismiss based upon collateral estoppel. Id. at 459, 646 S.E.2d at 422. Our Court held that “[the] defendants’ appeal is properly before us[.]” Id. at 459, 646 S.E.2d at 422. Likewise, in the present case, we hold the trial court’s order denying Defendant’s motion to dismiss based upon collateral estoppel affects a substantial right, is immediately appealable, and is properly before us. See id.

The dissent cites Foster v. Crandell, 181 N.C. App. 152, 638 S.E.2d 526 (2007), and argues that “Defendant has failed to meet its burden of showing that the rejection of its issue preclusion or collateral estoppel defense will result in two inconsistent verdicts.” Although Foster is distinguishable from the present case, Foster supports our decision to review this interlocutory appeal.

In Foster, the defendants filed an answer to the plaintiffs’ complaint and later filed a motion for judgment on the pleadings. Id. at 159, 638 S.E.2d at 532. In support of their motion, the defendants argued that the plaintiffs’ prior settlement with two non-parties barred the plaintiffs’ recovery in the current action. Id. The trial court denied the defendants’ motion. Id. Following discovery, the defendants moved for summary judgment, again arguing, inter alia, that the plaintiffs’ prior settlement barred the plaintiffs’ recovery in the current action. Id. The trial court denied the motion, and the defendants appealed. Id. at 159-60, 638 S.E.2d at 532. While recognizing that an order rejecting the defenses of res judicata and collateral estoppel can affect a substantial right, our Court in Foster held that the summary judgment order appealed from in that case did not affect a substantial right because the prior action on which the defendants relied in support of their defenses of res judicata and collateral estoppel did not result in a final determination on the merits “by either a jury or a judge[.]” Id. at 162-64, 638 S.E.2d at 533-34. Specifically, the defendants asserted that the plaintiffs’ prior settlement and accompanying dismissal barred the plaintiffs’ current action. Id. at 163, 638 S.E.2d at 534. However, because the prior settlement was not a final adjudication on the merits for purposes of res judicata and collateral estoppel, our Court held that “there is no possibility of a result inconsistent with a prior jury verdict or a prior decision by a judge.” Id.

In contrast to Foster, the prior action upon which Defendant in the present case relies in support of its defense of collateral estoppel did result in a final adjudication on the merits. Specifically, Defendant argues that the 1987 consent judgment was a final adjudication on the merits that bars the present action. A consent judgment is a final judgment on the merits for purposes of res judicata and collateral estoppel. NationsBank of N.C. v. American Doubloon Corp., 125 N.C. App. 494, 504, 481 S.E.2d 387, 393, disc, review denied, 346 N.C. 282, 487 S.E.2d 551 (1997); see also McLeod v. McLeod, 266 N.C. 144, 153, 146 S.E.2d 65, 71 (1966) (holding that “a consent judgment is res judicata as between the parties upon all matters embraced therein”); Nash Cty. Bd. of Ed. v. Biltmore Co., 640 F.2d 484, 487 n.5 (4th Cir. 1981), cert, denied, 454 U.S. 878, 70 L. Ed. 2d 188, reh’g denied, 454 U.S. 1117, 70 L. Ed. 2d 654 (1981) (noting that “North Carolina law gives res judicata effect to consent judgments” (citing Simpson v. Plyler, 258 N.C. 390, 397, 128 S.E.2d 843, 848 (1963); McRary v. McRary, 228 N.C. 714, 719, 47 S.E.2d 27, 31 (1948))). Therefore, because the prior action resulted in a final judgment on the merits, the present action presents the possibility of a result inconsistent with the prior trial court’s decision. Accordingly, we hold Defendant has demonstrated that the order appealed from affects a substantial right and is immediately appealable.

II.

We next determine whether the trial court’s order denying Defendant’s motion to dismiss was in error. In support of Plaintiffs’ claims in the present action, Plaintiffs alleged that they were remainder or contingent beneficiaries under the 1950 deed. In response to these allegations, Defendant contends that Plaintiffs did not retain any rights to the real property that vested in Defendant based upon the provisions of the 1987 consent judgment. Therefore, Defendant argues that Plaintiffs’ claims in this action are barred by collateral estoppel.

Collateral estoppel will apply to prevent the re-litigation of issues when: “(1) a prior suit resulted] in a final judgment on the merits; (2) identical issues [were] involved; (3) the issue was actually litigated in the prior suit and necessary to the judgment; and (4) the issue was actually determined.” McDonald v. Skeen, 152 N.C. App. 228, 230, 567 S.E.2d 209, 211, disc, review denied, 356 N.C. 437, 571 S.E.2d 222 (2002). A consent judgment is a final judgment on the merits for purposes of collateral estoppel. NationsBank of N.C., 125 N.C. App. at 504, 481 S.E.2d at 393.

When ruling upon a motion to dismiss pursuant to Rule 12(b)(6), “[t]he question for the court is whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim upon which relief may be granted under some legal theory, whether properly labeled or not.”¹ Harris v. NCNB, 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987). “In ruling upon such a motion, the complaint is to be liberally construed, and the court should not dismiss the complaint ‘unless it appears beyond doubt that [the] plaintiff could prove no set of facts in support of [the plaintiff’s] claim which would entitle [the plaintiff] to relief.’ ” Holloman v. Harrelson, 149 N.C. App. 861, 864, 561 S.E.2d 351, 353 (quoting Dixon v. Stuart, 85 N.C. App. 338, 340, 354 S.E.2d 757, 758 (1987)), disc, review denied, 355 N.C. 748, 565 S.E.2d 665 (2002). We review the trial court’s ruling on a Rule 12(b)(6) motion to dismiss de novo. Leary v. N.C. Forest Prods., Inc., 157 N.C. App. 396, 400, 580 S.E.2d 1, 4, aff’d per curiam, 357 N.C. 567, 597 S.E.2d 673 (2003).

The central issue in the present case is whether Plaintiffs retained any interest in the real property that vested in Defendant based upon the 1987 consent judgment. In order to determine this issue, we must examine the 1987 consent judgment as well as the 1950 deed and the 1950 agreement referenced therein. In the 1987 consent judgment, the trial court made findings of fact summarizing the positions of the parties to the prior action:

Hammocks Beach Corporation contends that either it should be vested with fee simple title to a portion of the trust property or that the terms of the trust should be modified so that an appropriate portion of the trust property may be held by it free of any rights vested in the Sharpe and Hurst families and with authority to mortgage and sell in its discretion.

The Sharpe and Hurst defendants, on the other hand, contend that fulfillment of the trust terms has become impossible or impracticable, that Hammocks Beach Corporation has acted capriciously and contrary to the intent of the settlor in not declaring its recognition of such, and that the court should declare the trust terminated and either mandate a conveyance of all of the property to the Sharpe and Hurst families or adjudicate title in their names.

As the trial court stated, Defendant, who was the plaintiff in the prior action, sought either (1) termination of the trust in order to vest in Defendant fee simple title to a portion of the property, or (2) continuation of the trust with modifications to allow Defendant to hold a portion of the trust property free and clear of any rights of the Hurst family. However, the trial court made an additional finding of fact that after lengthy negotiations, the parties agreed that the trust should continue “so as to carry out the original intentions of Dr. Sharpe[.]”

In accordance with that disposition, the trial court ordered in its 1987 consent judgment that Defendant be vested with title to a certain portion of the property, and further ordered that Defendant, as trustee, hold title to that property “subject to the trust terms set forth in the [1950 deed] and in [the 1950 agreement].” We must now determine which trust terms remained in effect following the 1987 consent judgment.

Plaintiff contends, and the trial court in the present action necessarily concluded, that the following trust terms in the 1950 deed remained in full force and effect:

IT IS FURTHER PROVIDED AND DIRECTED by the said grantors, parties of the first part, that if at any time in the future it becomes impossible or impractical to use said property and land for the use as herein specified and if such impossibility or impracticability shall have been declared to exist by a vote of the majority of the directors of the Hammocks Beach Corporation, Inc., the property conveyed herein may be transferred to The North Carolina State Board of Education, to be held in trust for the purpose herein set forth, and if the North Carolina State Board of Education shall refuse to accept such property for the purpose of continuing the trust herein declared, all of the property herein conveyed shall be deeded by said Hammocks Beach Corporation, Inc. to Dr. William Sharpe, his heirs and descendants and to John Hurst and Gertrude Hurst, their heirs and descendants; The Hurst family shall have the mainland property and the Sharpe family shall have the beach property[.]

Relying upon this provision, Plaintiffs now argue, as they did in the prior action, that because the terms of the trust have become impossible or impracticable, the trust should be terminated and Defendant should be compelled to convey to Plaintiffs the mainland property. We disagree.

In the 1987 consent judgment, the trial court concluded:

The settlement which has resulted from negotiations between the parties, whereunder Hammocks Beach Corporation as trustee would hold title to an appropriate portion of The Hammocks free of any claims of the Sharpes and Hursts and with broader administrative powers, with the remainder of said property being vested in the Sharpe and Hurst defendants, is fair, reasonable, and in the best interests of the present and prospective beneficiaries of the trust, as well as the public interest, and is accordingly approved.

(Emphasis added.) This conclusion demonstrates that the trial court intended for the consent judgment to adjudicate title to a portion of the property to Defendant “free of any claims of the Sharpes and Hursts[.]” Moreover, following the specific order in the 1987 consent judgment that states that Defendant holds title to an appropriate portion of real property subject to the trust terms, the trial court further concluded that “[s]aid real property so vested in Hammocks Beach Corporation as trustee shall be free and clear of any rights of the heirs of Dr. William Sharpe or of Gertrude Hurst or of the heirs of John and Gertrude Hurst.” (Emphasis added.)

Plaintiffs contend that by this language, the trial court simply intended to extinguish Plaintiffs’ extensive use and occupancy rights that had burdened the property, and the trial court did not intend to extinguish Plaintiffs’ future interests. We cannot agree.

We examine the trial court’s findings of fact in the 1987 consent judgment in order to determine which trust terms remained in effect following the 1987 consent judgment. The trial court specifically found that the parties intended for the trust to continue so as to effectuate its original purposes:

In an effort to avoid the risk of a trial of this action and in search of a means of continuing the trust so as to carry out the original intentions of Dr. Sharpe, the parties have negotiated at great length. Through their counsel, they have stated to the court that, subject to the court’s approval, they have agreed to the entry of a judgment which would (1) enable Hammocks Beach Corporation to retain title to a sufficient portion of the land to serve the trust purposes, with additional powers of administration which should enable it to improve the property to the extent reasonably necessary, and (2) vest in the Sharpe and Hurst families a reasonable portion of the land in exchange for their relinquishing rights in that portion to be vested solely in Hammocks Beach Corporation as trustee.

(Emphases added.) The trial court in the 1987 consent judgment summarized the' purposes of the trust as follows:

Eventually, Dr. Sharpe apprised John and Gertrude Hurst of his desire to devise The Hammocks to them. As stated in the [1950 agreement], Gertrude Hurst, having formerly served as a black teacher in the then racially segregated public school system, requested Dr. Sharpe instead to make a gift of the property in such manner that black teachers and various youth organizations could enjoy the property. Pursuant to that request, and rather than wait until his death, Dr. Sharpe, in 1950, by deed of gift, gave The Hammocks to a nonprofit corporation, most of the incorporators of which were black school teachers. Hammocks Beach Corporation was the name given to such entity, and its charter spelled out its purpose — to administer the property given to it by Dr. Sharpe “primarily for the teachers in public and private elementary, secondary and collegiate institutions for Negroes in North Carolina . . . and for such other groups as are hereinafter set forth.” The deed to Hammocks Beach Corporation as trustee restricted the use of the property for the use and benefit of the members of “The North Carolina Teachers Association, Inc., and such others as are provided for in the Charter of Hammocks Beach Corporation.”

Accordingly, when the trial court in the 1987 consent judgment ordered that Defendant hold title to the property subject to the trust terms, the trial court was referring to the trust purposes. Had the trial court intended for the impossibility and impracticability terms of the 1950 deed to remain in effect following the 1987 consent judgment, it would have so ordered. We hold that based upon the trial court’s findings, conclusions, and order in the 1987 consent judgment, all of Plaintiffs’ rights to the property that vested in Defendant by reason of the 1987 consent judgment, including any alleged future interests of Plaintiffs, were extinguished.

Our decision is further supported by the provisions in the 1987 consent judgment allowing Defendant to sell portions of the property that vested in Defendant. The provisions for sale do not require Plaintiffs’ approval. In order to sell or encumber the property, Defendant need only apply to the trial court:

Said trustee shall not, however, be under a prohibition against the mortgaging or sale of said property. On application to the court by motion, copy of which shall be served on the Attorney General, the Court may approve the encumbering of said property, or the sale of a portion thereof, for the purpose of generating funds for use in furtherance of the terms of the trust.

(Emphasis added.) These provisions are inconsistent with Plaintiffs’ contention that they retained future interests in the property. Moreover, these provisions illustrate that the “terms of the trust” that remained in effect following the 1987 consent judgment relate to the original purposes for which the trust was created.

For the reasons stated above, we hold that Plaintiffs did not retain future interests in the property that vested in Defendant following the 1987 consent judgment. This issue was litigated and decided against Plaintiffs in the prior action, and Plaintiffs cannot now re-litigate the issue as a basis for the claims they assert in the present action. Therefore, we hold that Plaintiffs’ claims are barred by collateral estoppel and that the trial court erred by denying Defendant’s motion to dismiss. We reverse and remand with instructions to the trial court to grant Defendant’s motion to dismiss. Because we hold for Defendant on its first argument, we do not reach Defendant’s remaining arguments.

Reversed and remanded.

Judge STEPHENS concurs. Judge TYSON dissents with a separate opinion.

1 . We note that even though Plaintiffs did not attach the 1987 consent judgment, the 1950 deed, or the 1950 agreement to their complaint, it appears from the record that the trial court reviewed these documents when ruling upon Defendant’s motion to dismiss. In that Plaintiffs referred to these documents in their complaint and because Plaintiffs’ claims relied upon these documents, we hold that the trial court’s review of these documents did not convert the motion to dismiss into a summary judgment motion. See Brackett v. SGL Carbon Corp., 158 N.C. App. 252, 255, 580 S.E.2d 757, 759 (2003) (holding that “[although the trial court must have necessarily considered [the] plaintiff’s administrative complaint and/or right-to-sue letter, documents not attached to the complaint, in ruling on the motion, because [the] plaintiff referred to these documents in the complaint and they form the procedural basis for the complaint, the trial court did not convert the motion into one for summary judgment by doing so”); Robertson v. Boyd, 88 N.C. App. 437, 441, 363 S.E.2d 672, 675 (1988) (holding that the trial court did not convert the defendants’ motions to dismiss into motions for summary judgment by reviewing documents attached to the motions to dismiss “[b]ecause these documents were the subjects of some of [the] plaintiffs’ claims and [the] plaintiffs specifically referred to the documents in their complaint”).