Opinion
No. COA 12–1177.
2013-06-18
Brenda LIVESAY, Trustee of the Ronald Livesay and Brenda Livesay Family Trust Dated March 26, 1998, Brenda Livesay, Guardian ad Litem for Candice Livesay and Ron Livesay, Jr., and Brenda Livesay, Individually, Plaintiff, v. CAROLINA FIRST BANK, Safeco Corporation, First National Insurance Company of America, and E.K. Morley, Administrator CTA of the Estate of Ronald B. Livesay, Deceased, Defendants.
Gary A. Dodd and Charles R. Brewer, for plaintiff-appellee Brenda Livesay. Russell L. McLean, III, for plaintiff-appellee Brenda Livesay, Guardian ad Litem for Candace Livesay and Ron Livesay, Jr.
Appeal by defendant E.K. Morley from order entered 9 April 2012 by Judge Mark E. Powell in Henderson County Superior Court. Heard in the Court of Appeals 13 March 2013. Gary A. Dodd and Charles R. Brewer, for plaintiff-appellee Brenda Livesay. Russell L. McLean, III, for plaintiff-appellee Brenda Livesay, Guardian ad Litem for Candace Livesay and Ron Livesay, Jr.
Smith Moore Leatherwood LLP, by L. Cooper Harrell, Corinne B. Jones, and Kip D. Nelson, for defendant-appellant E.K. Morley, Administrator CTA of the Estate of Ronald B. Livesay, Deceased.
Robinson, Bradshaw & Hinson, P.A., by R. Steven DeGeorge and Jessica M. Hardin, for Safeco Corporation and First National Insurance Company of America, amicus curiae.
HUNTER, JR., ROBERT N., Judge.
E.K. Morley (“Mr.Morley”), Administrator CTA of the estate of Ronald B. Livesay, appeals from: (i) a Clerk's order dismissing creditors' claims; and (ii) a trial court order affirming the Clerk's order. Upon review, we reverse and remand.
I. Facts & Procedural History
On 1 January 1998, Brenda Livesay (“Plaintiff”) and Ronald B. Livesay (“Decedent”) married in Las Vegas, Nevada. The couple has three children: (i) Candace (born 9 August 1994); (ii) Ronald, Jr. (born 11 December 1995) and (iii) Skylar (born 2 February 2000). The family lives in Henderson County.
On 26 March 1998, Plaintiff and Decedent established the Ronald Livesay and Brenda Livesay Family Trust (the “Family Trust”). Per the terms of the trust agreement, the Family Trust was revocable by either spouse during their joint lives. The Family Trust's beneficiaries are Plaintiff and the couple's minor children at the time of its establishment, Candace and Ronald, Jr. The trust agreement identified Decedent as initial trustee, but allowed Plaintiff to become successor trustee if Decedent died or was disabled.
Initially, Plaintiff and Decedent transferred $100 to the Family Trust as the Trust Corpus. At various times, they subsequently transferred to the Family Trust: (i) the deed to the family residence, located at 5670 Howard Gap Road; and (ii) the deed to another property, located at 44 Trenholm Woods Drive. The Family Trust's assets also include, inter alia: (i) a bank account; and (ii) various farm equipment.
On 21 January 2002, Decedent established the Ronald B. Livesay Revocable Trust (the “Ronald B. Livesay Trust”). The assets of the Ronald B. Livesay Trust include assets from several of Decedent's businesses. Pursuant to this trust agreement, the trust's assets were earmarked for Decedent's funeral expenses, claims against Decedent's estate, expenses of administering Decedent's estate, and related taxes. The trust agreement also set aside a portion of the assets for the benefit of Plaintiff, Candace, Ronald, Jr., and Skylar. The trust agreement identified Decedent as the initial trustee, but stated Plaintiff and First Citizens Bank of North Carolina would be co-trustees after Decedent's death.
Also on 21 January 2002, Decedent executed his last will and testament (the “Will”). In the Will, Decedent “direct[ed] that [his] just debts ... be paid out of the assets of [his] estate as soon as practicable after [his] death.” The Will also designated that: (i) all tangible personal property would pass to Plaintiff; and (ii) the remainder of the estate would pass to the Ronald B. Livesay Trust.
On 1 November 2002, Decedent executed a deed of trust and promissory note, using the Family Trust's assets to secure a $500,000 equity line from MountainBank. The equity line was intended for home improvements. As successor in interest to MountainBank, Carolina First Bank subsequently acquired the deed of trust and promissory note. Decedent also negotiated commercial loans from Carolina First Bank to several of his businesses. Nothing in the record indicates Decedent used the Family Trust's assets to secure these commercial loans. The record also does not indicate whether: (i) Plaintiff signed these loans; or (ii) cross-collateralization occurred.
Safeco Corporation (“Safeco”) acted as a surety for several of the commercial loans issued to Decedent's business, Gilco Construction, Inc. To obtain the surety from Safeco, Decedent executed a General Agreement of Indemnity (the “Agreement”) on 9 May 2003. In the Agreement, Decedent personally indemnified both Safeco and its affiliate, First National Insurance Company of America (“First National Insurance”), for any losses, costs, or expenses they suffered as surety.
Decedent died on 1 July 2005. Pursuant to the Trust Agreement, Plaintiff became trustee of the Family Trust. She continued to make all required monthly payments to Carolina First Bank on the 1 November 2002 deed of trust and promissory note. However, since Decedent's death was a contractual default event, Carolina First Bank demanded payment of the note, accelerated the balance due, and after payment did not immediately occur, began foreclosure on the residence. On 24 April 2006, Plaintiff took out a loan from Sun Trust Bank to satisfy Carolina First Bank's note claims. The Sun Trust loan satisfied the Carolina First Bank debt in full, including the bank's claim for attorney's fees. Still, Carolina First Bank subsequently asserted additional claims against Decedent's estate for the commercial loans it made to Decedent's businesses.
Mr. Morley was appointed administrator CTA of Decedent's estate. Mr. Morley's subsequent accounting revealed: (i) various creditors had claims against the estate totaling $3,784,434.11; and (ii) the estate, including the Family Trust, only had assets of $2,683,168.00 . The creditors included, inter alia, Carolina First Bank, Safeco, and First National Insurance.
It is not clear whether these amounts include claims by Plaintiff for sums advanced to pay off the Carolina First Bank note.
A. Livesay I
On 30 December 2005, Plaintiff filed a petition for declaratory judgment against Carolina First Bank, Safeco and First National Insurance in Henderson County Superior Court. Specifically, Plaintiff petitioned the court to declare “the assets of the Family Trust are not subject to the payment of the debts of the Ronald B. Livesay Estate as regards these Defendants.”
On 15 February 2006, Carolina First Bank removed the case to the U.S. District Court for the Western District of North Carolina, alleging diversity jurisdiction. On 7 June 2006, Mr. Morley filed a motion to intervene under Federal Rule of Civil Procedure 24(a); the federal district court granted this motion on 14 July 2006.
On 10 November 2006, Defendants filed a joint motion for partial summary judgment. On 3 January 2007, Plaintiff filed a motion to dismiss or remand to state court. On 9 May 2007, the federal district court remanded the case to Henderson County Superior Court.
On 6 June 2007, Defendants filed a joint motion for partial summary judgment in Henderson County Superior Court. In their motion, Defendants alleged that “pursuant to well-established North Carolina law and N.C. Gen.Stat. § 36C–5–505, the assets of the [Family Trust] are subject to the claims of the creditors of [Decedent's] estate and, as a result, are available to the Administrator to pay valid claims of such creditors.”
On 20 July 2007, the trial court granted the motion. In its order, the trial court determined “all of the property held in the [Family Trust] is subject to the claims of the creditors of Decedent's estate, to the extent that the assets in Decedent's probate estate are inadequate to satisfy those claims.”
On 27 July 2007, Plaintiff appealed to this Court. Livesay v. Carolina First Bank (Livesay I), 192 N.C.App. 234, 236, 665 S.E.2d 158, 160 (2008). On 19 August 2008, we affirmed the trial court's order. Id. at 241, 665 S.E.2d at 163. Specifically, we determined Defendants could reach the Family Trust's assets under N.C. Gen.Stat. § 36C–5–505(a)(3) if they proved the estate's assets were inadequate to satisfy their claims. Id. at 238, 665 S.E.2d at 161.
B. Livesay II
On 26 February 2008, while Livesay I's appeal was pending before this Court, Mr. Morley filed a motion for preliminary injunction in Henderson County Superior Court. In his motion, Mr. Morley sought to stop Plaintiff from making expenditures or withdrawals from the Family Trust until the parties resolved Livesay I. The only evidence Mr. Morley offered was his sworn affidavit that “[t] he assets in [Decedent's] probate estate are inadequate to satisfy the claims of the creditors of [Decedent's] estate.”
On 19 May 2008, the trial court denied Mr. Morley's motion because he “did not submit to this Court competent factual evidence upon which this Court could determine that the alleged claims of [Defendants] and other creditors [are] enforceable against the Estate of Ronald B. Livesay and that the assets of said estate are inadequate to satisfy those claims.” Defendants subsequently appealed to this Court.
On 17 March 2009, this Court affirmed the trial court's denial of Mr. Morley's motion for preliminary injunction. Livesay v. Carolina First Bank (Livesay II), No. COA08–1102, 2009 WL 678757, at *4 (N.C. Ct.App. 17 Mar. 2009). We focused on the fact that:
Mr. Morley's affidavit did not provide any explanation or basis for his valuation of the estate's assets and debts. Mr. Morley provided only the total amounts of what he believed the estate's assets and debts to be, without providing any other data from which these totals were derived. In addition, as the trial court found, there has been no determination that the debts alleged by Mr. Morley were enforceable against the estate.
Id. Since we determined Mr. Morley's affidavit was not sufficient evidence to prove “the assets of said estate are inadequate to satisfy [Defendants'] claims,” we concluded the trial court did not err by declining to grant a preliminary injunction. Id. at *3.
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Given Livesay I's outcome, on 2 March 2010 Mr. Morley petitioned the Henderson County Superior Court for writ of execution against the Family Trust. On 27 April 2010, the trial court dismissed the petition without prejudice because the Henderson County Clerk of Court (the “Clerk”), acting as ex officio judge of probate, had not yet made factual findings and legal conclusions regarding the inadequacy of the estate's assets to satisfy creditors' claims.
On 7 November 2011, the Henderson County Superior Court issued notice of hearing with the Clerk. The hearing was scheduled for 13 December 2011. Its purpose was to confirm the creditors' claims against Decedent's estate and determine the inadequacy of the estate's assets to satisfy those claims.
On 1 December 2011, Plaintiff filed a motion in the cause to cancel the hearing. She argued that since Livesay II stated “Defendants are not entitled to subject the assets of the Family Trust to the claims of creditors,” the Clerk could not now make a determination regarding the inadequacy of the estate's assets to satisfy Defendants' claims. Id. at *4.
On 12 January 2012, the Clerk entered an order granting Plaintiff's motion and dismissing the creditors' claims with prejudice. Specifically, in Finding of Fact No. 8 the Clerk stated:
8. The undersigned Clerk of Superior Court finds that the aforementioned language of the decision of the Court of Appeals [in Livesay II] is clear and unambiguous. The decision was written by Judge Linda Stephens which directly addresses the issues raised in the Motion of Morley ... and determines the aforementioned issues.
Based on its findings of fact, the Clerk made the following legal conclusion:
The “aforementioned language” from Livesay II states: “Defendants are not entitled to subject the assets of the Family Trust to the claims of creditors. In light of this holding, Defendants may not encumber the assets of the Family Trust.” Livesay II, 2009 WL at *4. In her order, the Clerk did not address the fact that this language was offered in the context of a preliminary injunction.
1. The issues raised in the Motion for Confirmation of Creditors' Claims and for Judicial Determination of Inadequacy of Estate Assets have been determined by the Court of Appeals in [ Livesay II ]. Carolina First Bank, Safeco Corporation, First National Insurance Company of America; and the Estate of Ronald B. Livesay, Deceased, are foreclosed from subjecting the assets of the Ronald Livesay and Brenda Livesay Family Trust, dated March 26, 1998, to the claims of creditors of the Estate of Ronald B. Livesay, Deceased and/or encumbering the assets of said Family Trust.
On 18 January 2012, Mr. Morley promptly appealed to the Henderson County Superior Court. In his notice of appeal, Mr. Morley “[s]pecifically [took] exception to finding of fact number eight of the Order because it is not supported by the evidence and the conclusion of law of the Order because it is not supported by the appropriate findings of fact.”
On 12 March 2012, the trial court held a hearing. On 9 April 2012, the trial court entered an order affirming the Clerk's order. The trial court's order, in its entirety, reads:
THIS MATTER coming on to be heard by the undersigned Judge presiding of the General Court of Justice, Superior Court Division, of Henderson County upon the appeal of E.K. Morley, Administrator CTA of the Estate of Ronald B. Liesay [sic], deceased from the Order of Honorable Kimberly GaspersonJustice, Clerk of Superior Court Ex Officio Judge of Probate filed on 12 January 2012, and
The Court having considered and reviewed the Findings of Fact, Conclusions of Law, and Order made by the Clerk of Court, as[sic] well as the record of proceedings, and
The Court having ascertained that the Findings of Fact are supported by the evidence; the Conclusions of Law are supported by the Findings of Fact, and that the Order of the Clerk of Superior Court is consistent with the Findings of Fact and Conclusions of Law, and, further, that the Order of the Clerk is consistent with applicable law (N.C.G.S. § 1–301.3(d)).
IT IS NOW THEREFORE ORDERED, ADJUDGED AND DECREED that the January 12, 2012 Order of the Clerk of Superior Court entered in these matters be, and the same is hereby, affirmed.
On 20 April 2012, Mr. Morley filed timely notice of appeal to this Court of: (i) the trial court's order; and (ii) the underlying Clerk's order, “including any findings of fact and conclusions of law contained therein.”
II. Jurisdiction & Standard of Review
This court has jurisdiction to hear the instant case pursuant to N.C. Gen.Stat. § 7A–27(b) (2011).
When reviewing Clerks' probate orders, trial courts must determine “(1) [w]hether the findings of fact are supported by the evidence[,] (2)[w] hether the conclusions of law are supported by the findings of facts[,][and] (3)[w] hether the order or judgment is consistent with the conclusions of law and applicable law.” N.C. Gen.Stat. § 1–301.3(d) (2011). “Conclusions of law are reviewed de novo and are subject to full review.” State v. Biber, 365 N.C. 162, 168, 712 S.E.2d 874, 878 (2011). “Under a de novo review, the court considers the matter anew and freely substitutes its own judgment for that of the lower tribunal.” State v. Williams, 362 N.C. 628, 632–33, 669 S.E.2d 290, 294 (2008) (quotation marks and citation omitted) “The standard of review in this Court is the same as in the Superior Court.” In re Estate of Pate, 119 N.C.App. 400, 403, 459 S.E.2d 1, 2–3 (1995).
In Mr. Morley's notice of appeal to the trial court, he took specific exception to the Clerk's Finding of Fact No. 8 and the Clerk's legal conclusion. See In re Whitaker, 179 N.C.App. 375, 382, 633 S.E.2d 849, 854 (2006) (“The superior court ... only reviews those findings of fact which the appellant has properly challenged by specific exceptions.” (quotation marks and citation omitted)). Although the trial court referenced the Clerk's “Findings of Fact, Conclusions of Law, and Order,” it ought to have limited the scope of its review to Finding of Fact No. 8 and the Clerk's legal conclusion. Given this determination, we now limit the scope of our appellate review to: (i) the trial court's order; (ii) the Clerk's Finding of Fact No. 8; and (iii) the Clerk's legal conclusion. See id.
Additionally, Mr. Morley's notice of appeal to this Court improperly referenced the Clerk's entire order, “including any findings of fact and conclusions of law contained therein.”
III. Analysis
On appeal, Mr. Morley argues the trial court erred by affirming the Clerk's order. Specifically, he contends the Clerk and trial court mistakenly relied on Livesay II, which only dealt with a preliminary injunction, to dispose of the entire case. Upon review, we reverse and remand.
In his appellate brief, Mr. Morley offers two related arguments: (i) the trial court erred by affirming the Clerk's decision to grant Plaintiff's motion in the cause; and (ii) the trial court erred by affirming the Clerk's dismissal of Mr. Morley's motion for confirmation of creditors' claims and for judicial determination of inadequacy of estate assets. Since both arguments hinge on whether the Clerk and trial court misapplied Livesay II, we consider them together.
Under North Carolina's “law of the case” doctrine, “[a] decision of this Court on a prior appeal constitutes the law of the case, both in subsequent proceedings in the trial court and on a subsequent appeal.” Lea Co. v. N.C. Bd. of Transp., 323 N.C. 697, 699, 374 S.E.2d 866, 868 (1989); see also Tennessee–Carolina Transp., Inc. v. Strick Corp., 286 N.C. 235, 239, 210 S.E.2d 181, 183 (1974). According to this doctrine, “the mandate of the reviewing court is binding on the lower court, and must be strictly followed.” Couch v. Private Diagnostic Clinic, 146 N.C.App. 658, 667, 554 S.E.2d 356, 363 (2001) (quotation marks and citation omitted). “However, the [‘law of the case’ doctrine] only applies to issues actually decided by the appellate court,” not to other collateral issues. Condellone v. Condellone, 137 N.C.App. 547, 551, 528 S.E.2d 639, 642 (2000).
In the present case, Mr. Morley argues the Clerk and trial court improperly relied on Livesay II as the law of the case. We agree.
In the Clerk's Finding of Fact No. 8, she references the following language from Livesay II: “Defendants are not entitled to subject the assets of the Family Trust to the claims of creditors. In light of this holding, Defendants may not encumber the assets of the Family Trust.” Livesay II, 2009 WL at *4. Based on this language, the Clerk made the legal conclusion that:
The issues raised [by the creditors] have been determined by the Court of Appeals in [ Livesay II ]. Carolina First Bank, Safeco Corporation, First National Insurance Company of America; and the Estate of Ronald B. Livesay, Deceased, are foreclosed from subjecting the assets of the [Family Trust] ... to the claims of creditors of the Estate of Ronald B. Livesay, Deceased and/or encumbering the assets of said Family Trust.
However, the Clerk failed to interpret the quoted language from Livesay II in the context of the entire opinion.
Livesay II only dealt with a motion for a preliminary injunction. See id. at *2 (“In an order filed 19 May 2008, the trial court denied the estate's motion for preliminary injunction. Defendants appeal.”). There, since Defendants did not satisfy their evidentiary burden for a preliminary injunction, we held they could not receive that relief. Id. at *4. Defendants do not contest that holding in the instant case.
Thus, Livesay II only resolved the question of whether to grant a preliminary injunction; it did not resolve any other issues. See Condellone, 137 N.C.App. at 551, 528 S.E.2d at 642 (holding that the “law of the case” doctrine “only applies to issues actually decided by the appellate court”). The Livesay II court clearly described that:
Defendants argue the trial court erred in finding that Defendants failed to satisfy the requirements for issuance of a preliminary injunction under North Carolina law. Specifically, Defendants argue the trial court erred in finding: (1) Defendants did not present competent evidence that the assets of the estate were insufficient to satisfy claims against it; (2) Defendants would suffer irreparable harm if Plaintiff was not enjoined from exercising ownership and control of the Family Trust; and (3) the trial court was without authority to issue a preliminary injunction.
“The scope of appellate review in the granting or denying of a preliminary injunction is essentially de novo.”
Livesay II, 2009 WL at *2 (emphasis added) (quoting Wade S. Dunbar Ins. Agency, Inc. v. Barber, 147 N.C.App. 463, 467, 556 S.E.2d 331, 334 (2001)).
Specifically, Livesay II did not decide the central issue reached in Livesay I: whether Defendants may ever reach the Family Trust's assets to satisfy their claims. Livesay I, 192 N .C.App. at 237, 665 S.E.2d at 160. In fact, Livesay II explicitly acknowledges Livesay I's holding that “the assets of the Family Trust were available to the creditors of the estate to the extent that the estate was unable to satisfy the claims against it.” Livesay II, 2009 WL at *2. As such, we do not interpret Livesay II's preliminary injunction decision to invalidate Livesay I's broader holding.
Consequently, our preliminary injunction ruling in Livesay II does not prevent Defendants from later providing sufficient evidence under Livesay I to reach the Family Trust's assets. In making this conclusion, we are guided by North Carolina precedent in analogous contexts.
For instance, we have held that our previous reversal of a summary judgment order does not preclude the moving party from later presenting evidence in the substantive case. See Southland Assocs. Realtors, Inc. v. Miner, 73 N.C.App. 319, 321, 326 S.E.2d 107, 108 (1985) (“The prior appeal establishes only that plaintiff was not entitled to summary judgment; it did not establish that plaintiff was not entitled to present its evidence with regard to the disputed issues. The ‘law of the case’ doctrine does not apply.”); Creech ex rel. Creech v. Melnik, 147 N.C.App. 471, 474–75, 556 S.E.2d 587, 590 (2001). Similarly, this Court's prior reversal of a Rule 12(b)(6) dismissal does not become the law of the case for the trial court's subsequent summary judgment determination after further discovery. See Alston v. Granville Health System, ––– N.C.App. ––––, ––––, 727 S.E.2d 877, 879 (2012).
Consequently, we now hold: (i) the Clerk erred in relying on Livesay II as the law of the case; and (ii) the trial court erred in affirming the Clerk's order. As such, we conclude Defendants shall have the opportunity to present the Clerk with evidence confirming their claims and proving the estate's assets are inadequate to satisfy their claims. See Livesay I, 192 N.C.App. at 237, 665 S.E.2d at 160.
IV. Conclusion
In conclusion, we determine: (i) the Clerk erred by using Livesay II to dispose of the entire case; and (ii) the trial court erred in affirming the Clerk's order. Consequently, we: (i) reverse the Clerk's order and the trial court's order; and (ii) remand for proceedings consistent with this opinion.
REVERSED and REMANDED. Judges BRYANT and McCULLOUGH concur.
Report per Rule 30(e).