Opinion
No. COA15-361
08-02-2016
CANDACE D. KHASHMAN, Plaintiff, v. SAMER F. KHASHMAN, a/k/a SAM KHASHMAN, Defendant.
Kenneth T. Davies, for plaintiff-appellant. Sodoma Law, P.C., by Matthew M. Villmer and Edward S. Garrett, for defendant-appellee.
An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure. Mecklenburg County, No. 14 CVS 021154 Appeal by plaintiff from order entered 28 January 2015 by Judge Jesse B. Caldwell, III, in Mecklenburg County Superior Court. Heard in the Court of Appeals 6 October 2015. Kenneth T. Davies, for plaintiff-appellant. Sodoma Law, P.C., by Matthew M. Villmer and Edward S. Garrett, for defendant-appellee. CALABRIA, Judge.
Candace D. Khashman ("plaintiff") appeals from an order granting Samer (Sam) F. Khashman's ("defendant") motion to dismiss plaintiff's claim for constructive fraud. Although we assign a different reason for dismissal of plaintiff's claim, we affirm the trial court's order and remand with instructions to enter a dismissal without prejudice.
I. Background
Plaintiff and defendant (collectively, "the parties") were married on 16 October 2000, and had one child, born on 20 December 2000. Since defendant had expertise in business and finance, he managed all of the parties' financial affairs during the marriage. Plaintiff stayed at home to attend to the child's daily needs, while defendant, a businessman and entrepreneur, formed various businesses and served as the breadwinner for the family.
When the parties separated on 18 June 2006, plaintiff remained in possession of the home and lived there with the parties' minor child. Although defendant left the marital home, he continued to pay all of the marital expenses and make all of the family's financial decisions. Plaintiff sought the counsel of two attorneys for legal services regarding her marital issues with defendant during the parties' separation; however, she did not retain either attorney's services.
On 1 August 2006, the parties executed a Separation and Property Settlement Agreement ("the agreement"), which addressed many issues pertaining to the parties' separation, including, inter alia, spousal support, child support, child custody, and claims against the marital estate. By the agreement's terms, plaintiff waived her right to both alimony and equitable distribution.
On 3 August 2007, defendant filed a complaint in Mecklenburg County District Court, seeking an absolute divorce from plaintiff. Plaintiff filed an answer and asserted a counterclaim for rescission of the agreement based on, inter alia, a theory of constructive fraud. The gravamen of the rescission claim was that defendant misrepresented his income and assets, engaged in unfair and coercive bargaining tactics, and procured an agreement that was beneficial only to himself while deceiving plaintiff in the process. However, plaintiff voluntarily dismissed her counterclaim for rescission several months before the district court entered a judgment of absolute divorce on 28 January 2008.
Almost four years later, on 5 December 2011, defendant filed a complaint against plaintiff in Mecklenburg County District Court, seeking custody of the parties' minor child. Plaintiff again asserted a counterclaim against defendant for rescission of the agreement on the ground of constructive fraud. She also asserted counterclaims for child custody and support. In response, defendant filed a motion to dismiss both of plaintiff's counterclaims pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. On 9 February 2012, the district court entered a custody order awarding defendant primary custody of the parties' minor child. However, the court never ruled on plaintiff's constructive fraud counterclaim or defendant's motion to dismiss it.
On 17 November 2014, plaintiff filed the instant complaint in Mecklenburg County Superior Court, which contained a constructive fraud (tort) claim and sought compensatory and punitive damages from defendant. In her complaint, plaintiff alleged that defendant took advantage of the parties' marital relationship and plaintiff's unwavering trust of defendant by inducing plaintiff to sign a one-sided separation agreement without the advice of counsel. More specifically, defendant represented to plaintiff that he would continue to "take care" of the family and that plaintiff could rely on him to treat her fairly in dividing the parties' assets and liabilities. Plaintiff alleged that defendant actively misrepresented and/or concealed the value of his businesses, which she believed to be in excess of $3 million, as well as the value of the parties' marital home and other assets that would have been subject to equitable distribution.
As to the circumstances surrounding the agreement's execution, plaintiff insisted that defendant procured her signature by fraud, since he insisted on a meeting with plaintiff but failed to disclose his purpose. Defendant arrived at the marital residence accompanied by a notary public and demanded that plaintiff sign the agreement. Plaintiff alleged that defendant told plaintiff that she was required by law to sign the agreement and that he deterred her from seeking counsel to review it. According to plaintiff, defendant warned her that if she sought an attorney's advice, she would reap fewer benefits in the imminent divorce action than those provided for in the agreement. Because plaintiff fully trusted defendant, she signed the agreement within thirty minutes of reading it, at his insistence and without the advice of counsel.
Defendant filed a Rule 12(b)(6) motion to dismiss plaintiff's claim on 1 December 2014, alleging, inter alia, that plaintiff failed to state a claim upon which relief could be granted because it was barred by the three-year statute of limitations on fraud actions set forth in N.C. Gen. Stat. § 1-52(9) and by the doctrine of res judicata. More specifically, defendant argued that since he had moved out of the marital home and plaintiff had sought consultations with two attorneys before the separation agreement was executed, the ten-year limitations period for constructive fraud claims was not applicable because "the fiduciary relationship between [the parties] ended . . . well before" either party signed the agreement. See Searcy v. Searcy, 215 N.C. App. 568, 573, 715 S.E.2d 853, 857 (2011) (explaining that a husband and wife are in a confidential, fiduciary relationship during marriage and failure to disclose all material facts to one another constitutes fraud, the fiduciary duty " 'ends when the parties separate and become adversaries negotiating over the terms of their separation[,]' " certain factors determine when the confidential relationship has ended, and constructive fraud requires the existence and breach of a fiduciary duty) (citation omitted); Fender v. Deaton, 153 N.C. App. 187, 191, 571 S.E.2d 1, 4 (2002) (" 'A claim of constructive fraud based upon a breach of fiduciary duty falls under the ten-year statute of limitations contained in N.C. Gen. Stat. § 1-56.' ") (citation omitted). As to res judicata, defendant contended that the district court's May 2014 custody order constituted a final judgment on the merits of plaintiff's counterclaim for rescission even though the court never ruled on the merits of that claim.
At the hearing on the motion to dismiss plaintiff's complaint in superior court, defendant repeated the arguments contained in his written motion. However, two other potential bases for dismissal emerged. First, defendant made a vague subject matter jurisdiction argument, stating that "[b]oth of [the] prior . . . counterclaims were handled in family law [district] court and we think it would be appropriate for [the] family law court to handle the [constructive fraud claim for damages]." Second, the trial court inquired, sua sponte, whether plaintiff's damages claim should have been asserted as a compulsory counterclaim in the divorce action in district court. See N.C. Gen. Stat. § 1A-1, Rule 13(a) (2015) (defining a compulsory counterclaim as "any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction."). On 28 January 2015, the trial court entered an order granting defendant's motion to dismiss plaintiff's damages claim. The court based its dismissal on three grounds: (1) that the superior court lacked subject matter jurisdiction; (2) that plaintiff's complaint was barred by the statute of limitations; and (3) that plaintiff's complaint should have been asserted in the 2007 district court divorce action, "as the 2007 action and the current cause of action involve the same factual allegations." Plaintiff appeals.
It appears that the law of compulsory counterclaims would not apply here, as the issues of law (and some issues of fact) raised by the previous divorce and child custody actions are not the same as those raised by plaintiff's present constructive fraud claim. See Hendrix v. Advanced Metal Corp., 195 N.C. App. 436, 439, 672 S.E.2d 745, 747 (2009) ("[T]o determine whether a claim is a compulsory counterclaim . . . a court is to consider '[(1)] whether the issues of fact and law raised by the claim and counterclaim are largely the same[; (2)] whether substantially the same evidence bears on both claims[;] and [(3)] whether any logical relationship exists between the two claims.' ") (citation omitted) (emphasis added).
It is not clear whether this ground was based on res judicata or on the law of compulsory counterclaims.
II. Analysis
Plaintiff's sole argument on appeal is that the superior court erred in dismissing her constructive fraud action.
The standard of review of an order granting a Rule 12(b)(6) motion is whether the complaint states a claim for which relief can be granted under some legal theory when the complaint is liberally construed and all the allegations included therein are taken as true. On appeal, we review the pleadings de novo to determine their legal sufficiency and to determine whether the trial court's ruling on the motion to dismiss was correct.Gilmore v. Gilmore, ___ N.C. App. ___, ___, 748 S.E.2d 42, 45 (2013) (citations, quotation marks, and brackets omitted). Moreover, "[w]here a trial court has reached the correct result, the judgment will not be disturbed on appeal even where a different reason is assigned to the decision." Eways v. Governor's Island, 326 N.C. 552, 554, 391 S.E.2d 182, 183 (1990) (citing Shore v. Brown, 324 N.C. 427, 378 S.E.2d 778 (1989), and Sanitary District v. Lenoir, 249 N.C. 96, 99, 105 S.E.2d 411, 413 (1958)) (other citation omitted). Consequently, "a trial court's ruling must be upheld if it is correct upon any theory of law[,] and . . . should not be set aside merely because the court gives a wrong or insufficient reason for [it]." Templeton v. Town of Boone, 208 N.C. App. 50, 54, 701 S.E.2d 709, 712 (2010) (quoting Opsahl v. Pinehurst Inc., 81 N.C. App. 56, 63, 344 S.E.2d 68, 73 (1986)).
In this case, we conclude that plaintiff's constructive fraud action was properly dismissed by the superior court. In reaching this conclusion, however, we base our reasoning not on any of the grounds cited in the trial court's order, but rather on the prior pending action doctrine.
Under North Carolina law, "where a prior action is pending between the same parties for the same subject matter in a court within the state having like jurisdiction, the prior action serves to abate the subsequent action." Eways, 326 N.C. at 558, 391 S.E.2d at 185 (citing McDowell v. Blythe Brothers Co., 236 N.C. 396, 398, 72 S.E.2d 860, 862 (1952) (stating that "[t]he pendency of a prior action between the same parties for the same cause in a State court of competent jurisdiction works an abatement of a subsequent action either in the same court or in another court of the State having like jurisdiction") and Cameron v. Cameron, 235 N.C. 82, 84, 68 S.E.2d 796, 798 (1952) (same)). The prior pending action doctrine, which implicates "essentially the same questions as the outmoded plea of abatement," Nationwide Mut. Ins. Co. v. Douglas, 148 N.C. App. 195, 197, 557 S.E.2d 592, 593 (2001), is rooted in the principle of judicial economy and the basic rationale that when a "court can dispose of the entire controversy in the prior action[,] . . . the subsequent action is wholly unnecessary." Clark v. Craven Reg'l Med. Auth., 326 N.C. 15, 20, 387 S.E.2d 168, 171 (1990). To these ends, "[b]y abating the second action, a multiplicity of actions is prevented." Id.
We begin our analysis by determining whether plaintiff's rescission counterclaim is still "pending" in district court. The record does not conclusively reveal the status of defendant's counterclaim, but it is clear enough that the case file was administratively closed by the Clerk of Mecklenburg County Superior Court. At the hearing on the motion to dismiss, defendant submitted to the superior court a "civil processing sheet" which purportedly showed that the Clerk "closed" the rescission claim sometime in 2014. It is not clear if the file was closed before or after plaintiff filed her instant claim in superior court on 7 November 2014. Furthermore, in her brief to this Court, plaintiff states that the Clerk "discontinued" her rescission claim in district court.
This processing sheet does not appear in the record on appeal.
We note that plaintiff's characterization of her counterclaim as "discontinued" is incorrect as a matter of law. See Snead v. Foxx, 329 N.C. 669, 673, 406 S.E.2d 829, 831-32 (1991) (" 'Discontinuance' is a term of art whose only application in the context of service of process is to an action that must cease for failure of the party to comply with Rule 4(d) [of the North Carolina Rules of Civil Procedure]."); Johnson v. City of Raleigh, 98 N.C. App. 147, 148-49, 389 S.E.2d 849, 851 (1990) ("If a party fails to use either method to extend time for service, the suit is discontinued, and treated as if it had never been filed.") (citing Rule 4(e)). Neither party claims that plaintiff's rescission claim in district court was improperly served.
Although there is no North Carolina authority regarding so called "administrative closings," federal courts have analyzed the issue and determined that such closings are neither dismissals nor final adjudications. Rather, they are administrative case management proceedings:
Administrative closings comprise a familiar, albeit essentially ad hoc, way in which courts remove cases from their active files without making any final adjudication. The method is used in various districts throughout the nation in order to shelve pending, but dormant, cases. We endorse the judicious use of administrative closings by district courts in circumstances in which a case, though not dead, is likely to remain moribund for an appreciable period of time.Lehman v. Revolution Portfolio L.L.C., 166 F.3d 389, 392 (1st Cir. 1999) (citations omitted) (emphasis added).
Properly understood, an administrative closing has no effect other than to remove a case from the court's active docket and permit the transfer of records associated with the case to an appropriate storage repository. "In no event does such an order bar a party from restoring the action to the Court's active calendar upon an appropriate application." Nor is the power to resurrect reserved to the parties. The court, too, retains the authority to reinstate a case if it concludes that the administrative closing was improvident or if the circumstances that sparked the closing abate.
In Lehman, the plaintiff requested a stay of the action because he had entered bankruptcy. Id. at 390. The district court granted the stay but issued a "procedural order of dismissal," which "dismissed [the action] without prejudice to either party moving to restore it to the docket if any further action is required upon completion and termination of all bankruptcy or arbitration proceedings." Id. at 391. Despite the order being labeled as a dismissal, the First Circuit concluded that the order was an "administrative closing" of the action used as a case management tool by the district court to manage its docket. Id. at 392. The procedural closing of the action "did not terminate the underlying case, but, rather, placed it in inactive status until such time as the judge, in his discretion or at the request of a party, chose either to reactivate it or to dispose of it with finality." Id. (emphasis added).
The reasoning behind the Lehman Court's explanation of administrative closings is sound, and we apply it in the context of this case for three reasons. To begin, the Fourth Circuit Court of Appeals has "recognized that the removal of a case from a court's 'active docket' is the functional equivalent of an administrative closing, which does not end a case on its merits or make further litigation improbable. Penn-Am. Ins. Co. v. Mapp, 521 F.3d 290, 295 (4th Cir. 2008) (citing Lehman and other federal circuit court decisions in support of this proposition). Furthermore, although North Carolina courts have not ruled on this specific issue as a matter of law, it is clear that our trial courts use administrative closings in the manner described in Lehman and Mapp. See Greenshields, Inc. v. Travelers Prop. Cas. Co. of Am., ___ N.C. App. ___, ___, ___, 781 S.E.2d 840, 842, 846 (2016) (recognizing that a superior court's " 'Order of Dismissal,' " ordering "that this case be removed from the trial docket of active cases and placed as a closed file without prejudice to previous orders herein, and without prejudice to the entry of motions and orders in the future[,] . . . did not dismiss th[e] action but simply administratively closed the file and removed it from th[e] [trial c]ourt's active docket" ); Williard v. Williard, No. COA12-931, 2013 WL 1121375, at *1 (N.C. Ct. App. Mar. 19, 2013) (unpublished) (noting in the procedural background that the district court judge administratively closed an "equitable distribution file without prejudice to [the p]laintiff to re-file her action; that nearly seven years later plaintiff renewed certain motions in the action; and that the trial court ultimately granted the defendant's motion to dismiss the equitable distribution claim with prejudice for failure to prosecute it). Finally, "[a]n action is pending for the purpose of abating a subsequent action between the same parties for the same cause from the time of the issuance of the summons until its final determination by judgment." Clark, 326 N.C. at 20, 387 S.E.2d at 171 (citation omitted).
Here, plaintiff's counterclaim was never determined by a final judgment. Accordingly, since the record reveals that plaintiff's rescission counterclaim was administratively closed, and since nothing suggests that this "closing" was entered with any prejudice to plaintiff's ability to restore the action to the district court's active calendar, her counterclaim is still pending in district court.
We note that while the district court never ruled on plaintiff's counterclaim or defendant's motion to dismiss it, there is also no indication that defendant made any subsequent motion to dismiss the counterclaim for failure to prosecute.
We now turn to the issue of whether plaintiff's pending district court action should serve to abate her superior court action. "The ordinary test for determining whether or not the parties and causes are the same for the purpose of abatement by reason of the pendency of the prior action is this: Do the two actions present a substantial identity as to parties, subject matter, issues involved, and relief demanded?" Cameron, 235 N.C. at 85, 68 S.E.2d at 798 (citations omitted). "This rule has been applied not only when there is a prior civil action pending which is identical to the subsequent action but also when there is a prior action in which a party could by motion in the cause achieve what he is attempting to achieve in the subsequent action." Weaver v. Early, 325 N.C. 535, 538, 385 S.E.2d 334, 336 (1989).
Here, the parties are not only substantially similar, they are identical. The subject matter and legal issues involved are substantially similar as well. Both actions are squarely aimed at the parties' separation agreement, which has obviously been the subject of extensive litigation. Similarly, the controversy at issue arose as a result of defendant's alleged misrepresentations in the context of the parties' separation agreement. In no uncertain terms, plaintiff contends in both actions that defendant breached his fiduciary duty to her by, inter alia, distorting and concealing the value of marital assets and forcing her to sign an agreement that was wholly detrimental to her interests. The essence of plaintiff's claims in the district and superior courts is that since the parties were still in a confidential relationship when the agreement was executed, defendant's alleged misrepresentations constituted constructive fraud. Indeed, constructive fraud is the linchpin of all plaintiff's claims, and in terms of the legal issues involved, her claim for damages is merely a reincarnation of her rescission counterclaim.
Finally, although the remedy sought by plaintiff in district court—rescission, i.e., the undoing of the separation agreement—is distinct from the one sought in superior court—money damages—both actions seek substantially similar results: namely, some form of relief from the agreement's allegedly oppressive terms. In Clark, the remedies requested were not identical. However, since the essential legal issues were the same, our Supreme Court determined that
[w]hile these remedies are procedurally distinct, as applied in these cases the intended result would be the same. In both cases, plaintiffs have sought an equitable remedy which would have the effect of compelling defendant to obtain a building permit and pay fees to plaintiff City of New Bern rather than to the County of Craven. Under these circumstances, we find that the remedies requested by plaintiffs, while technically distinct from one another, are substantially similar in the result sought. Furthermore, we note that where an action is pending between the parties, a plaintiff cannot bring another action involving the same subject matter and the same defendant
even where the first suit demanded remedies clearly distinct from the second. In examining this question as long ago as 1936 in a case where the plaintiff sought damages in the first suit and injunctive relief in a second suit against the same defendant on the same grounds, this Court concluded "this is not only taking two bites at the cherry, but biting in two places at the same time." In summary, we find the parties, subject matter, issues involved and relief requested are sufficiently similar to warrant issuance of the order of abatement in this case.Clark, 326 N.C. at 22-23, 387 S.E.2d at 172-73 (quoting Vinson v. O'Berry, 209 N.C. 289, 290, 183 S.E. 424, 424-25 (1936)). Similarly here, whether you call it a cherry or an apple, plaintiff is taking multiple bites at it. Because plaintiff seeks an equitable remedy in district court and damages in superior court based on the theory of constructive fraud, our Supreme Court's holdings in Clark and Vinson dictate that the relief demanded in her prior rescission action is substantially similar to that demanded in the instant one.
All told, we conclude that the parties, the subject matter, the issues involved, and the relief requested are sufficiently similar in both cases such that plaintiff's complaint in superior court could have been dismissed pursuant to the prior pending action doctrine. Consequently, although we assign a different reason for the trial court's decision on appeal, we nonetheless affirm its order dismissing the present action. Eways, 326 N.C. at 554, 391 S.E.2d at 183 (affirming the trial court's dismissal for lack of subject matter jurisdiction, although the appellate court based its reasoning on the doctrine of prior action pending).
However, despite our decision to affirm the trial court's order, we find that it should have been entered without prejudice to plaintiff's right to have the rescission and, potentially, the constructive fraud tort, claims decided in the district court. As indicated above, plaintiff's rescission counterclaim has been administratively closed, but the claim (and defendant's motion to dismiss it) could be revived by a motion to add it to the district court's docket for final adjudication. In addition, plaintiff may be able to seek an amendment to her pleadings in district court and add the constructive fraud claim for damages:
Ordinarily a suit for rescission of a contract may not be joined with an action for its breach or damages for fraud, but where special damages have been sustained as the result of the fraud practiced, rescission of the contract will not bar a recovery for damages. The rule is, if rescission of the contract does not place the injured party in status quo, as where he has suffered damages which cancellation of the contract cannot repair, there is no principle of law which prevents him from maintaining his action for damages caused by the other party's fraud.Canady v. Mann, 107 N.C. App. 252, 256-57, 419 S.E.2d 597, 600 (1992) (emphasis added) (quoting Kee v. Dillingham, 229 N.C. 262, 265, 49 S.E.2d 510, 512 (1948)). At this point, should such motions be made, it appears the decision of whether or not to grant them would be within the sound discretion of the presiding district court judge.
As to a possible amendment of plaintiff's pleadings in district court to add her tort claim for damages, we note that while she may eventually be forced to elect a remedy before or after final judgment, "[w]hen a complaint alleges a cause in contract and a cause in tort and both causes arise out of the same transaction or occurrence, a defendant's motion to require an election is properly refused." Ace Chem. Corp. v. DSI Transports, Inc., 115 N.C. App. 237, 247, 446 S.E.2d 100, 105 (1994) (citation omitted).
III. Conclusion
Although plaintiff's counterclaim for rescission in district court was administratively closed, it is still pending. Because plaintiff's counterclaim and her action in superior court involve substantial identity as to the parties, subject matter, issues involved, and remedies sought, the prior pending district court action served to abate the one in superior court. Ultimately, the trial court properly dismissed plaintiff's constructive fraud claim in superior court, but that dismissal should have been entered without prejudice. Therefore, we remand for entry of an order dismissing this action without prejudice to plaintiff's right to have the relevant issues and claims decided in the district court. Having so determined, we need not address plaintiff's remaining arguments.
AFFIRMED; REMANDED WITH INSTRUCTIONS.
Judges BRYANT and ZACHARY concur.
Report per Rule 30(e).