J.T. Russell & Sons, Inc. v. Silver Birch Pond, LLC

An unpublished opinion of the North Carolina Court of Appeals does not constitute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.

NO. COA13-662
NORTH CAROLINA COURT OF APPEALS

Filed: 18 February 2014

J.T. RUSSELL & SONS, INC.,
Plaintiff/Counterclaim-
Defendant,

v. Stanly County
No. 08-CVS-1453
SILVER BIRCH POND, LLC,
Defendant/Counterclaim-
Plaintiff.

Appeal by defendant from order entered 31 October 2012 by

Judge Theodore S. Royster, Jr. in Stanly County Superior Court.

Heard in the Court of Appeals 20 November 2013.

Womble Carlyle Sandridge & Rice, LLP, by Brent F. Powell,
John F. Morrow, Jr., and David R. Boaz, for plaintiff-
appellee.

James, McElroy & Diehl, P.A., by Preston O. Odom, III, and
The Jonas Law Firm, P.L.L.C., by Peter C. Capece, for
defendant-appellant.

HUNTER, Robert C., Judge.

Defendant-appellant Silver Birch Pond, L.L.C. (“SBP”)

appeals the order entered 31 October 2012 denying SBP’s motion

to amend its counterclaim and granting plaintiff’s-appellee’s

J.T. Russell & Sons, Inc.’s (“JTR’s”) motion for summary
 -2-
judgment. On appeal, SBP argues that the trial court: (1) erred

by resolving the issue of damages on summary judgment because

that ruling exceeded the scope of the appellate mandate; (2)

abused its discretion in denying SBP’s motion to amend its

counterclaims; and (3) erred in granting JTR’s motion for

summary judgment. After careful review, we: (1) affirm the

order denying the motion to amend; and (2) reverse the order

granting summary judgment in favor of JTR because it violated

the mandate of this Court in J.T. Russell & Sons, Inc. v. Silver

Birch Pond L.L.C., __ N.C. App. __, 721 S.E.2d 699 (2011)

(“Silver Birch I”), and remand on the issue of damages.

Background

This case is before this Court for the second time after a

trial court has entered an order granting summary judgment for

JTR. This Court’s prior opinion contains a detailed recitation

of the facts underlying this dispute. See Silver Birch I. JTR

is an asphalt paving company. SBP is a North Carolina limited

liability company formed by Robert Johnson (“Mr. Johnson”) for

the purpose of developing Silver Birch Pond, a planned

residential subdivision, (“the subdivision”) in Lincoln County.

Although Mr. Johnson has built modular homes before, he has no

prior experience in developing subdivisions. SBP and JTR
 -3-
entered into a contract on 14 December 2007 whereby JTR agreed

to pave the roadways in the subdivision for $148,000 (“the

paving contract”). The amount of the contract was increased

$4,870.96 based on a change order; consequently, the total price

of the contract was $152,870.96.

JTR completed the work on 18 April 2008. However, SBP

alleged that the work failed to comply with the stone base

requirements in the paving contract. Specifically, SBP

contended that, based on numerous stone base cores taken, the

stone base of the roads measured less than the eight inches

required by the paving contract. Consequently, SBP refused to

pay the $152,870.96 it owed pursuant to the terms of the

contract. JTR filed an action on 25 September 2008 against SBP

alleging breach of contract. On 3 December 2008, SBP filed an

answer and counterclaim against SBP, also alleging breach of the

paving contract.

Beginning 7 September 2010, the case was tried by a jury in

Stanly County Superior Court. On 10 September, the jury

returned a verdict finding that SBP had not breached the

contract and that JTR had breached the contract. The jury

awarded SBP $370,765.82 in damages. JTR appealed.
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On appeal, JTR argued, inter alia, that the trial court

erred by denying its motion for a directed verdict and that the

jury’s award of damages was contrary to law and should be

vacated. Silver Birch I, __ N.C. App. at __, 721 S.E.2d at 702-

704. On the first issue, this Court concluded that because

several of the core samples provided more than a scintilla of

evidence that JTR failed to comply with the stone base terms of

the paving contract, the trial court properly denied JTR’s

motion for a directed verdict. Id. at __, 721 S.E.2d at 703-

704.

On the second issue of damages, JTR failed to preserve the

issue for appellate review; however, the Court invoked Rule 2 to

address the issue. Id. at __, 721 S.E.2d at 704. The Court

noted that SBP was seeking three types of damages: (1) direct

damages measured as the reasonable costs to SBP of labor and

materials necessary to correct the asphalt paving services to

bring it into conformity with the requirements of the paving

contract; (2) incidental damages based on the costs of

engineering tests done by the North Carolina Department of

Transportation; and (3) consequential damages which consisted of

the interest payments SBP made on a development loan and the

lost profits on two lot sales. Id. at __, 721 S.E.2d at 704.
 -5-
After comparing the jury instructions with the evidence at

trial, this Court concluded that “[SBP’s] evidence did not

support the full amount of the jury’s verdict.” Id.

Specifically, with regard to the direct damages, i.e., the “cost

to fix” damages, the Court held that the direct evidence at

trial only supported an award of $139,560. Id. For incidental

damages, the evidence only supported an award of $6,502.82 paid

to a consultant for testing on the asphalt roads. Id. at __,

721 S.E.2d at 704-705. With regard to SBP’s interest payments

on the loan, the evidence presented at trial supported an award

of $72,017.29, as established by testimony by a loan officer

handling SBP’s loan. Id.

In sum, the Court concluded that the evidence supported an

award “considerably less” than the jury’s verdict. Id.

Therefore, it vacated the damages award and remanded for a new

trial on the issue of damages. Id.

The Motion to Amend SBP’s Counterclaims on Remand

On remand, the trial court reopened discovery. After the

discovery period was complete, on 17 October 2012, SBP moved to

amend its counterclaims to request additional damages incurred,

arguing that its “damages ha[d] changed significantly from the

original trial in this matter.” SBP drastically increased its
 -6-
claim for lost profit damages and interest payments damages with

these new damages falling into three basic types: lost profits,

“homebuilder premiums,” and interest payments. First, instead

of only claiming lost profits based on the lost sales on two of

the lots, SBP claimed lost profits for all 39 lots because, as

Mr. Johnson averred, the bank foreclosed on the subdivision.

Thus, SBP lost any and all potential revenues from selling lots

in the subdivision. Second, SBP now claimed damages for lost

“homebuilder premiums.” Mr. Johnson alleged that he was also

the principal of Willow Brook Homes, Inc., a company that

constructs modular homes. Since the subdivision was a “closed

development,” each time someone purchased a lot from SBP, he

would be required to purchase a modular home for that lot from

Willow Brook. To pay off SBP’s loan quicker, Willow Brook would

pay SBP a “homebuilder premium” each time a sale was made—

$20,000 for the first 10 lots, $15,000 for the next 10, $10,000

for the next 10, and $5,000 for the last dwellings sold. The

total new amount of requested damages for lost profits was

$1,137,906. Third, SBP requested additional damages for the

interest payments made to the bank of $75,033.64. Finally, SBP

now claimed an additional amount of $6,205.82 for additional
 -7-
engineering fees to inspect the defective work (this on top of

the original damages of $6,502.02).

In total, on remand, SBP sought to amend its counterclaim

to request over $1.2 million in damages.

JTR’s Motion for Summary Judgment

On 17 October 2012, JTR moved for summary judgment.

Specifically, JTR argued the lost profits damages and damages

related to the interest payments SBP made to the bank on its

loan were not reasonably foreseeable and were overly

speculative.

The Hearing

Both matters came on for hearing on 29 October 2012 before

Judge Royster, Jr. After hearing from both parties, Judge

Royster, Jr. noted that the Court of Appeals “vacated the jury’s

award of $371,000 and sent it back for retrial on [the] damage

issue. The Court of Appeals affirmed the fact that the

defendant is entitled to damages. So the trial is basically

just on the amount of damages.” With regard to SBP’s motion to

amend, the trial court denied it for two reasons. First, the

trial court concluded that it should be denied because it was

filed over four years after the initial counterclaim was filed.
 -8-
Second, it should be denied due to the speculative and

unforeseeable nature of the newly requested damages.

The trial court granted JTR’s motion for summary judgment.

Specifically, the trial court found that interest payments on

the loan would be a “normal cost of doing business” and would

not be foreseeable. Moreover, the trial court determined that

the lost profit damages were too speculative. Thus, the trial

court concluded that SBP failed to “produce a forecast of

evidence that would demonstrate specific facts as opposed to

allegations . . . . to show that they have at least a prima

facie case to be tried.” By doing so, the trial court dismissed

SBP’s claims; however, since JTR did not challenge SBP’s claims

for damages based on the cost it incurred for engineering tests

in its summary judgment motion, these claims were to be dealt

with at trial.

SBP appealed. After filing its notice of appeal, SBP

voluntarily dismissed its claims for the engineering test

damages.

Arguments

SBP argues that the trial court erred in denying its motion

to amend its counterclaim. Specifically, SBP contends that
 -9-
because a “post-appeal occurrence [] significantly altered what

damages

[it] can recover from JTR,” the trial court abused its

discretion in denying it. We disagree.

“A motion to amend is addressed to the discretion of the

court, and its decision thereon is not subject to review except

in case of manifest abuse.” Calloway v. Motor Co., 281 N.C.

496, 501, 189 S.E.2d 484, 488 (1972). “If the trial court

articulates a clear reason for denying the motion to amend, then

our review ends. Acceptable reasons for which a motion to amend

may be denied are undue delay, bad faith, dilatory motive,

repeated failure to cure deficiencies, undue prejudice and

futility of the amendment.” NationsBank of N.C., N.A. v.

Baines, 116 N.C. App. 263, 268, 447 S.E.2d 812, 815 (1994)

(internal quotation marks omitted).

Here, the record indicates that the trial court denied

SBP’s motion to amend based on undue delay and futility. During

arguments, the trial court focused a great deal not only on the

length of time that had elapsed between the initial paving work,

approximately four years, but also on the foreseeability and the

speculative nature of these new damages. If either of these
 -10-
grounds exist, the trial court did not abuse its discretion in

denying SBP’s motion to amend.

Given the substantial amount of time that had elapsed

between the filing of SBP’s counterclaims and the motion to

amend, the trial court’s denial of the motion to amend was

manifestly supported by reason. SBP filed its initial

counterclaim in December 2008. The first trial occurred in

2010. After this Court reversed and remanded the judgment

awarding damages to SBP back to the trial court in December

2011, SBP still did not move to amend its counterclaim until

October 2012, almost four years after the initial counterclaims

were filed and almost one year after remand. Moreover, we find

that SBP’s reasoning behind the delay is not compelling.

Therefore, the trial court did not abuse its discretion in

denying the motion to amend.

Next, SBP argues that the trial court erred since its

action violated the appellate mandate. We agree.

It is well-established that an appellate mandate

is binding upon the trial court and must be
strictly followed without variation or
departure. No judgment other than that
directed or permitted by the appellate court
may be entered. We have held judgments of
Superior [C]ourt which were inconsistent and
at variance with, contrary to, and modified,
corrected, altered or reversed prior
 -11-
mandates of the Supreme Court . . . to be
unauthorized and void.

Lea Co. v. N.C. Bd. of Transp., 323 N.C. 697, 699, 374 S.E.2d

866, 868 (1989) (internal quotation marks and citations

omitted). Thus, the issue is whether the trial court violated

the Silver Birch I mandate.

In Silver Birch I, this Court addressed two issues. First,

the Court noted that the trial court properly denied JTR’s

motion for a directed verdict and submitted the issue to the

jury, noting that SBP “provided more than a scintilla of

evidence regarding [JTR’s] failure to comply with one of the

terms of the paving contract.” Id. at __, 721 S.E.2d at 703.

Second, the Court held that the amount of damages awarded by the

jury exceeded what the evidence would support. Id. at __, 721

S.E.2d at 705. Noting that the amount of damages was not

supported by the evidence, this Court vacated the award and

remanded for a new trial “on the issue of damages.” Id. On

remand, this Court also provided the trial court a formula with

which to measure SBP’s direct damages. Id.

While we acknowledge that a directive from an appellate

court “[does] not render the Rules of Civil Procedure

inapplicable” on remand, see Britt v. Allen, 37 N.C. App. 732,

733, 247 S.E.2d 17, 18 (1978), here, the trial court’s dismissal
 -12-
of SBP’s claims by summary judgment is directly contrary to this

Court’s directive in Silver Birch I to hold a new trial on the

issue of damages because this Court found that SBP was entitled

to certain damages, even though the jury’s award exceeded the

evidence. In fact, the Court even provided the trial court

with a formula on how to measure the direct damages. Id. at __,

721 S.E.2d at 705. Thus, when the trial court foreclosed on the

possibility of SBP recovering any lost profit and interest

payments damages, it violated this Court’s determination that

the evidence supported an award of damages, both of which were

clearly articulated in this Court’s opinion.

We find our Court’s decision in Metts v. Piver, 102 N.C.

App. 98, 101, 401 S.E.2d 407, 409 (1991), instructive. In

Metts, the plaintiff filed a medical malpractice action against

the defendants, and the defendants moved for summary judgment.

Id. at at 99, 401 S.E.2d at 408. The trial court granted

summary judgment, and the plaintiff appealed. Id. On appeal

the first time, this Court reversed the order granting summary

judgment in favor of the defendant, concluding that there was a

genuine issue of material fact as to whether the defendants were

negligent. Id. On remand, the defendants again moved for

summary judgment, and the trial court granted the motion. Id.
 -13-
On appeal the second time, this Court found that the trial

court’s “ruling on the existence of a genuine issue of material

fact [on remand] is directly contrary to our earlier holding.”

Id. at 100, 401 S.E.2d at 408. Thus, the Court reversed the

order and remanded for trial. Id. at 101, 401 S.E.2d at 409.

Similarly, here, since this Court ordered a new trial on

the issue of damages and provided a formula with which to

measure those damages, the trial court’s conclusion that there

was no issue of material fact with regard to SBP’s claim for

lost profit damages and damages based on interest payments SBP

made on its loan conflicted with this Court’s decision in Silver

Birch I that the evidence supported an award of direct and

consequential damages. Although this Court concluded that the

amount of damages awarded exceeded the amount of damages

supported by the evidence in Silver Birch I, it affirmed that

SBP was entitled to some lost profit damages, damages based on

SBP’s interest payments, and direct damages.1 Moreover, the

trial court reiterated this point at the hearing on JTR’s motion

1
In addition, this Court held that SBP was entitled to $6,502.82
in incidental damages based on payments SBP made to a consultant
to test the roads. Silver Birch I, __ N.C. App. at __, 721
S.E.2d at 704-705. However, after the trial court granted JTR’s
motion for summary judgment, SBP voluntarily dismissed its claim
for incidental damages. Therefore, we need not discuss these
damages on appeal.
 -14-
for summary judgment when it noted that: “The Court of Appeals

affirmed the fact that the defendant is entitled to damages.”

Thus, as in Metts, we reverse the trial court’s order granting

summary judgment and remand for trial on the issue of damages.2

Next, we will determine what damages SBP will be entitled

to on remand. In the original trial, the trial court instructed

the jury that the direct damages were “the reasonable cost to

[SBP] of labor and materials necessary to correct the asphalt

paving services to bring it into conformity with the

requirements of the contract.” Silver Birch I, __ N.C. App. at

__, 721 S.E.2d at 704. This Court specifically found that the

evidence at trial supported an award of $139,560 in direct

damages—$124,250 to repair the subdivision asphalt, $11,310 to

repair and reseed the sides of the roads, and $4,000 in

additional engineering costs. Id. Since “the cost of repairs

required to bring the property into compliance with the warranty

or contract” is a proper method of measuring damages for defects

in construction contracts, Warfield v. Hicks, 91 N.C. App. 1,

11, 370 S.E.2d 689, 695 (1988), SBP is entitled to $139,560 in

direct “cost to fix” damages. However, given that SBP has not

2
Since we are reversing the trial court’s order granting summary
judgment, we need not address SBP’s final argument regarding the
merits of summary judgment.
 -15-
paid JTR for its work on the contract, Silver Birch I, __ N.C.

App. at __, 721 S.E.2d at 705, these damages must be offset by

the value of the work performed by JTR for SBP so that SBP does

not receive a windfall recovery. See id. Therefore, SBP would

owe JTR $13,310.96—the amount of the contract price of

$152,870.96 less the amount of the “cost to fix” direct damages

of $139,560. Under this measure of damages, SBP will get the

work it contracted for and will pay the price it contracted for,

$152,870.96.

Furthermore, SBP would be entitled to the lost profits on

two of the lots and damages based on the interest payments SBP

made on its loan. “[L]ost profits damages are usually defined

as lost net profits[.]” Stan D. Bowles Distrib. Co. v. Pabst

Brewing Co., 80 N.C. App. 588, 597, 343 S.E.2d 543, 548 (1986).

Accordingly, the jury must determine what SBP’s net profit on

each of the two lost lot sales would be measured in accordance

with this opinion. Furthermore, as stated by this Court in

Silver Birch I, SBP is entitled to damages based on the interest

payments SBP made to the bank on its loan. The Silver Birch I

Court held that the amount of the interest payments supported by

the evidence was $72,017.29. Silver Birch I, __ N.C. App. at
 -16-
__, 721 S.E.2d at 705. Thus, any damages must include the

$72,017.29 for the interest payments SBP made.

Conclusion

In summary, we affirm the trial court’s order denying SBP’s

motion to amend its counterclaims on the basis of undue delay.

However, we reverse the order granting summary judgment in favor

of JTR and remand on the issue of damages in accordance with

this opinion. The trial court must award $72,017.29 to SBP, the

amount of interest payments that SBP made on its loan to the

bank. Second, with regard to the cost to fix damages, while SBP

is entitled to $139,560, the amount it would cost to fix the

roads which was established by the evidence in the original

trial, this amount must be offset by the value of the work

performed by JTR based on the contract price since SBP has not

paid anything to JTR for its work. Accordingly, JTR would be

entitled to $13,310.96—the amount of the contract price,

$152,870.96, less the amount of the “cost to fix” direct

damages, $139,560. Finally, the lost profit damages for two

lots is a question for the jury to determine in accordance with

this opinion.

AFFIRMED IN PART; REVERSED IN PART; REMANDED ON THE ISSUE
OF DAMAGES.
 -17-

Judges CALABRIA and HUNTER, JR., ROBERT N. concur.

Report per Rule 30(e).