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Plasman v. Decca Furniture (USA), Inc.

Court of Appeals of North Carolina

May 16, 2017

CHRISTIAN G. PLASMAN, in his individual capacity and derivatively for the benefit of, on behalf of and right of nominal party BOLIER & COMPANY, LLC, Plaintiffs,

          Heard in the Court of Appeals 21 February 2017.

         Appeal by plaintiffs and third-party defendant from order entered 26 February 2016 by Judge Louis A. Bledsoe, III in Catawba County No. 12 CVS 2832 Superior Court.

          Law Offices of Matthew K. Rogers, PLLC, by Matthew K. Rogers, for plaintiffs-appellants and third-party defendant-appellant.

          McGuireWoods LLP, by Robert A. Muckenfuss, Jodie H. Lawson, and Andrew D. Atkins, for defendants-appellees.

          ZACHARY, Judge.

         This appeal comes to the Court as the result of a bitter corporate dispute that has yet to reach the discovery phase nearly five years after the action was filed. Plaintiff Christian G. Plasman (Plasman) and third-party defendant Christian J. Plasman (Barrett) (collectively with Plasman, the Plasmans) appeal from an order of the North Carolina Business Court[1] holding them in civil contempt of court.

         The contempt order was entered after the Plasmans failed to comply with a Business Court order enforcing the terms of a preliminary injunction entered against them in federal court. On appeal, the Plasmans argue that the Business Court lacked jurisdiction to enter the contempt order while their appeal from the order enforcing the injunction was pending in this Court. The Plasmans then make a series of arguments that attack the sufficiency of the contempt order itself. After careful review, we conclude that the Business Court retained jurisdiction to enter the contempt order, and that the order should be affirmed in its entirety.

         I. Background

         In April 2002, Plasman formed Bolier & Company, LLC (Bolier), a closely held North Carolina company offering residential furniture designs that were also suited for use in the hospitality industry. Shortly thereafter, Plasman partnered with Decca Furniture, Ltd. (Decca China), which manufactured Bolier's furniture lines. Decca China then formed Decca Furniture (USA), Inc. (Decca USA) to own Decca China's interest in Bolier. Richard Herbst (Herbst) was Decca USA's president at all relevant times.

         In August 2003, Plasman and Herbst executed an operating agreement that granted Decca USA a 55% majority ownership interest in Bolier, and that allowed Plasman to retain a 45% minority ownership interest for himself. The operating agreement also vested Decca USA with the authority to make all employment decisions related to Bolier. In November 2003, Plasman entered into an employment agreement with Bolier, which provided that Plasman could be terminated without cause. Plasman executed the employment agreement on his own behalf, and Herbst signed on behalf of Decca USA and Bolier. Thereafter, Plasman served as President and CEO of Bolier, and his son, Barrett, worked as Bolier's operations manager.

         According to defendants, despite the significant investments of Decca USA and Decca China in Bolier's operations, they sustained losses in excess of $2 million between 2003 and 2012. As a result, Decca USA terminated the employment of Plasman and Barrett on 19 October 2012. The Plasmans, however, refused to accept their terminations and continued to work out of Bolier's office space. During this time, the Plasmans set up a new bank account in Bolier's name, and they diverted approximately $600, 000.00 in Bolier customer payments to that account. From these diverted funds, the Plasmans paid themselves, respectively, approximately $33, 170.49 and $17, 021.66 in salaries and personal expenses. Plasman also wrote himself a $12, 000.00 check, dated 5 December 2012, from the new account for "Bolier Legal Fees." Decca USA eventually changed the locks to Bolier's offices.

         On 22 October 2012, the Plasmans filed the instant action in Catawba County Superior Court alleging claims for, inter alia, corporate dissolution, breach of contract, fraud, constructive fraud, and trademark as well as copyright infringement. Two days later, the action was designated as a mandatory complex business case and assigned to the North Carolina Business Court. After removing the case to the United States District Court for the Western District of North Carolina, Decca USA moved Judge Richard L. Vorhees for a preliminary injunction against the Plasmans. On 27 February 2013, Judge Vorhees entered an order (the injunction) that enjoined the Plasmans from acting on Bolier's behalf in any manner. Judge Vorhees further ordered the Plasmans to return all diverted funds to Bolier within five business days, and to provide Decca USA with an accounting of those funds. Judge Voorhees did not require Decca USA to post a security bond pursuant to Rule 65(c) of the Federal Rules of Civil Procedure, but the injunction did contain various terms that were meant to protect Plasman's rights as a minority owner of Bolier while the litigation continued.

         One week after the injunction was entered, the Plasmans filed their "Response to Court Order" in federal court, which challenged certain provisions of the injunction and stated that "Plaintiffs have fully complied to the best of their ability with the Court Order signed on February 27, 2013." Shortly thereafter, the Plasmans filed another motion that sought to have the federal court provide additional safeguards protecting "Plaintiffs Chris Plasman and Bolier . . . pending final resolution of the merits." This motion also sought to "clarify the . . . [injunction] . . . to specifically permit [the Plasmans] to retain funds paid to Chris Plasman and Barrett Plasman for wages earned and Bolier . . . expenses paid (including the $12, 000.00 paid as reimbursement for legal expenses) prior to January 14, 2013[.]" Although Judge Vorhees never ruled on these motions, the Plasmans neither appealed the injunction nor properly sought to have it reconsidered.

         The action was remanded to the North Carolina Business Court in September 2014 when Judge Voorhees dismissed the Plasmans' federal copyright claims and declined to exercise supplemental jurisdiction over the state law claims that remained. Upon remand, the parties filed competing motions for consideration by Judge Louis A. Bledsoe, III. In a document entitled "Plaintiffs Motion to Amend Preliminary Injunction, to Dissolve Portions of the Preliminary Injunction and Award Damages, and Motion for Sanctions[, ]" the Plasmans moved Judge Bledsoe to, inter alia, amend and dissolve certain portions of the injunction. In contrast, Decca USA sought to enforce the injunction's terms. Contending that the Plasmans were in willful violation of the injunction, Decca USA moved Judge Bledsoe to hold the Plasmans in civil contempt and to impose sanctions against them. After conducting a hearing on the parties' motions, Judge Bledsoe entered an order on 26 May 2015 (the 26 May Order) denying the Plasmans' motion, and reasoning that because the preliminary injunction was carefully crafted and narrowly tailored, it should not be "modified, amended, or dissolved in any respect."[2] Although Judge Bledsoe declined to hold the Plasmans in contempt, he did grant Decca USA's motion to enforce the injunction's requirements. To that end, the Plasmans were ordered to pay Decca USA $62, 191.15 plus interest and to provide the accounting required by the injunction.

         On 25 June 2015, the Plasmans filed notice of appeal from the 26 May Order. Defendants later filed with this Court a motion to dismiss the Plasmans' appeal, arguing that the 26 May Order was not immediately appealable because it was an interlocutory order that did not affect a substantial right of the Plasmans.

         In July 2015, the Business Court, sua sponte, directed the parties to "submit short briefs advising the Court whether this case may proceed with further pleadings and discovery, and to a determination on the merits, or whether this case must be stayed pending resolution" of the Plasmans' interlocutory appeal from the 26 May Order. The case was temporarily stayed to allow for the parties' submissions. On 22 September 2015, while the Plasmans' appeal was pending in this Court, defendants filed a motion in the Business Court seeking to have the Plasmans held in contempt for failure to comply with the 26 May Order.

         In October 2015, Judge Bledsoe entered an order that reflected his consideration of a stay pending appeal. Relying in part on this Court's decision in RPR & Assocs., Inc. v. Univ. of N. Carolina-Chapel Hill, 153 N.C.App. 342, 344, 570 S.E.2d 510, 512 (2002), cert. denied and disc. review denied, 357 N.C. 166, 579 S.E.2d 882 (2003), Judge Bledsoe determined that he had the authority to determine whether the 26 May Order was immediately appealable. Exercising that authority, Judge Bledsoe found that "no substantial right of the Plasmans was affected by the May 26 Order" because it "simply ordered [the Plasmans] to comply with the never-appealed, legally valid and binding, 2013 [Injunction] Order requiring [the Plasmans] to return money that the Federal Court found they had diverted from Bolier." Consequently, Judge Bledsoe dissolved the temporary stay that he had entered in July 2015, and determined that the "action [would] proceed in th[e Business] Court during the pendency of the Plasmans' appeal unless otherwise ordered by the Court[.]"

         After holding a show cause hearing on defendants' contempt motion, Judge Bledsoe entered an order on 26 February 2016 (the Contempt Order) concluding that the Plasmans were in civil contempt of court because of their willful noncompliance with the 26 May Order. The Contempt Order contained a finding that repeated Judge Bledsoe's previous determination that "the appeal of the May 26 Order was interlocutory, did not affect a substantial right, and . . . did not stay the case." The Plasmans filed notice of appeal from the Contempt Order on 24 March 2016.

         Roughly eight months later, in November 2016, this Court filed an opinion that dismissed the Plasmans' interlocutory appeal from the 26 May Order. See Bolier & Co., LLC v. Decca Furniture (USA), Inc., ___ N.C.App. ___, 792 S.E.2d 865 (2016) (Bolier I). This Court reached three conclusions in support of its holding that the Plasmans had failed to demonstrate the loss of a substantial right absent immediate review of the 26 May Order:

First, we conclude that Judge Voorhees' Order was, in fact, appealable. It is well settled that preliminary injunction orders issued by a federal court are immediately appealable. . . .
Second, Plaintiffs contend that their subsequent filings in federal court tolled their deadline for appealing Judge Voorhees' Order. We disagree. . . .
Had Plaintiffs intended to seek reconsideration of Judge Voorhees' Order so as to toll their deadline for appealing the preliminary injunction, they were required to file a motion that unambiguously sought such relief. However, they failed to do so. While Plaintiffs may have held out hope that the federal court would nevertheless modify its preliminary injunction as a result of their motion, it was still incumbent upon them to protect their appeal rights during the interim by taking an appeal of Judge Voorhees' Order to the Fourth Circuit within the thirty-day deadline provided by Rule 4 of the Federal Rules of Appellate Procedure. . . .
Finally, we reject Plaintiffs' argument that [the 26 May] Order was independently appealable. The specific aspects of [the 26 May] Order cited by Plaintiffs as depriving them of a substantial right are essentially identical to the preliminary injunction terms contained in Judge Voorhees' Order, which Plaintiffs never appealed. Thus, because Judge Bledsoe's Order merely enforces the preliminary injunction entered by Judge Voorhees, our consideration of the substantive issues raised by Plaintiffs in the present appeal would enable them to achieve a "back door" appeal of Judge Voorhees' Order well over three years after its entry.

Id. at ___, 792 S.E.2d at 872 (internal citations omitted). In sum, the Bolier I Court determined that the 26 May Order "simply reiterate[d] that [the Plasmans were] . . . bound to comply with the federal preliminary injunction that was entered on 27 February 2013." Id. at ___, 792 S.E.2d at 873.

         The Plasmans now appeal from the Contempt Order.

         II. Trial Court's Jurisdiction To Enter The Contempt Order

         As an initial matter, we address the Plasmans' argument that their appeal from the 26 May Order stayed all proceedings in the Business Court and left the trial court without jurisdiction to enter the Contempt Order.

         Under North Carolina law, the longstanding general rule is that an appeal divests the trial court of jurisdiction over a case until the appellate court returns its mandate. E.g., Bowen v. Hodge Motor Co., 292 N.C. 633, 635, 234 S.E.2d 748, 749 (1977); Upton v. Upton, 14 N.C.App. 107, 109, 187 S.E.2d 387, 388 (1972). Our legislature has codified this rule at N.C. Gen. Stat. § 1-294 (2015), which provides that:

When an appeal is perfected as provided by this Article it stays all further proceedings in the court below upon the judgment appealed from, or upon the matter embraced therein, unless otherwise provided by the Rules of Appellate Procedure;[3] but the court below may proceed upon any other matter included in the action and not affected by the judgment appealed from. . . .

         Pending the appeal, the trial judge is functus officio, Bowen, 292 N.C. at 635, 234 S.E.2d at 749, which is defined as being "without further authority or legal competence because the duties and functions of the original commission have been fully accomplished." Black's Law Dictionary 743 (9th ed. 2009).

         For over a century, the Supreme Court has recognized that an appeal operates as a stay of all proceedings at the trial level as to issues that are embraced by the order appealed. E.g., Bohannon v. Virginia Trust Co., 198 N.C. 702, 153 S.E. 263 (1930); Pruett v. Charlotte Power Co., 167 N.C. 598, 83 S.E. 830 (1914). This is section 1-294 in a nutshell, for the statute itself draws a distinction between trial court's inability to rule on matters that are inseparable from the pending appeal and the court's ability to proceed on matters that are "not affected" by the pending appeal. See N.C. Gen. Stat. § 1-294 (2015). This jurisdictional issue often arises in the context of interlocutory orders.

         In Veazey v. Durham, our State's high court examined the question of the circumstances under which the appeal of an interlocutory order operates as a stay of the proceedings in the trial court. 231 N.C. 357, 57 S.E.2d 377 (1950). Speaking through Justice Ervin, the Supreme Court drew a clear distinction between the effect of immediately appealable and nonappealable interlocutory orders on a trial court's continuing jurisdiction:

When a litigant takes an appeal to the Supreme Court from an appealable interlocutory order of the Superior Court and perfects such appeal in conformity to law, the appeal operates as a stay of all proceedings in the Superior Court relating to the issues included therein until the matters are determined in the Supreme Court. G.S. Sec. 1-294. . . .
But this sound principle is not controlling upon the record in the case at bar. . . .
There is no more effective way to procrastinate the administration of justice than that of bringing cases to an appellate court piecemeal through the medium of successive appeals from intermediate orders. The rules regulating appeals from the Superior Court to the Supreme Court are designed to forestall the useless delay inseparable from unlimited fragmentary appeals, and to enable courts to perform their real function, i.e., to administer 'right and justice * * * without sale, denial, or delay.' N.C. Const. Art. I, Sec. 35.
This being true, a litigant cannot deprive the Superior Court of jurisdiction to try and determine a case on its merits by taking an appeal to the Supreme Court from a nonappealable interlocutory order of the Superior Court. A contrary decision would necessarily require an acceptance of the paradoxical paralogism that a party to an action can paralyze the administration of justice in the Superior Court by the simple expedient of doing what the law does not allow him to do, i.e., taking an appeal from an order which is not appealable. . . .
[W]hen an appeal is taken to the Supreme Court from an interlocutory order of the Superior Court which is not subject to appeal, the Superior Court need not stay proceedings, but may disregard the appeal and proceed to try the action while the ...

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