IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA 18-1075
Filed: 18 June 2019
Davidson County, No. 16 CVS 1474
R.C. KOONTS and SONS MASONRY, INC., DAVID CRAIG KOONTS, and ROY
CLIFTON KOONTS, III, Plaintiffs,
v.
FIRST NATIONAL BANK, f/k/a YADKIN BANK f/k/a NEWBRIDGE BANK f/k/a
LEXINGTON STATE BANK, Defendant.
Appeal by defendant from order entered 5 July 2018 by Judge Martin B.
McGee in Davidson County Superior Court. Heard in the Court of Appeals
21 May 2019.
Smith Law Group, PLLC, by Steven D. Smith, Matthew L. Spencer, and
Jonathan M. Holt, for plaintiff-appellees.
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., by Elizabeth L.
Troutman and James C. Adams, II, for defendant-appellant.
ARROWOOD, Judge.
First National Bank, formerly known as Yadkin Bank, formerly known as
NewBridge Bank, formerly known as Lexington State Bank (“defendant”) appeals
from an order denying its motion for summary judgment. For the reasons stated
herein, we affirm in part and reverse in part.
I. Background
R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
Defendant engages in commercial lending. On or about 22 November 2004,
R.C. Koonts and Sons Masonry, Inc. (the “corporate plaintiff”) obtained a $417,306.14
loan from defendant. The individual plaintiffs, plaintiff David Craig Koonts (“David
Koonts”) and plaintiff Roy Clifton Koonts, III (“R.C. Koonts”), who owned the
corporate plaintiff at all times relevant to this action, guaranteed the loan.
The parties renewed the loan in 2005. As collateral, R.C. Koonts and Sons
Masonry, Inc., R.C. Koonts, and David Koonts (collectively, “plaintiffs”) pledged all
inventory, vehicles, accounts receivable, machinery, and equipment of the corporate
plaintiff. Plaintiffs defaulted on the loan in 2007. The parties entered into a
forbearance agreement on 19 December 2007, however, plaintiffs subsequently
defaulted on the agreement.
On 15 January 2009, defendant filed suit against plaintiffs seeking repayment
of the loan. Defendant also instituted a claim and delivery proceeding to seize the
collateral pledged as security for the loan. Pursuant to a 12 February 2009 court
order, defendant posted a surety bond and seized the collateral in a claim and delivery
proceeding. Plaintiffs were unable to secure a bond to recover the collateral. On
15 October 2012, the Honorable Theodore Royster of Davidson County Superior
Court determined plaintiffs were liable to defendant on the loan.
Plaintiffs filed counterclaims challenging the propriety of the seizure of
collateral and requesting consequential damages. Specifically, the counterclaims
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
challenged the enforceability of defendant’s security interest and of the forbearance
agreement, defendant’s right to seize the collateral, and the amount of the loan that
remained outstanding. The counterclaims also alleged: the amount of collateral
seized forced the corporate plaintiff out of business, the corporate plaintiff lost the
rental value of the collateral due to the seizure, and defendant failed to maintain the
collateral in proper condition, in violation of Article 9 of the Uniform Commercial
Code (“UCC”). Defendant moved for summary judgment on plaintiffs’ counterclaims.
The matter came on for hearing before the Honorable John O. Craig, III in
Davidson County Superior Court on 15 June 2015. On 3 November 2015, the trial
court entered an order granting partial summary judgment, as follows.
1. Insofar as [R.C. Koonts and Sons Masonry, Inc., R.C.
Koonts, and David Koonts’] counterclaims challenge
[the] seizure of collateral, pursuant to N.C. Gen. Stat. §
1-473, et. seq., they are hereby dismissed, with
prejudice.
2. Insofar as [R.C. Koonts and Sons Masonry, Inc., R.C.
Koonts, and David Koonts’] counterclaims arise out of
Article 9 of the Uniform Commercial Code, N.C. Gen.
Stat. § 25-9-100, et seq., for failure to make a
commercially reasonable disposition of the collateral,
[the] claims are not ripe at this time. The Court
approves of [R.C. Koonts and Sons Masonry, Inc., R.C.
Koonts, and David Koonts] voluntary dismissal of such
claims without prejudice, [R.C. Koonts and Sons
Masonry, Inc., R.C. Koonts, and David Koonts] shall not
be required to pay the costs pursuant to Rule 41(d)
when filing or refiling such counterclaims.
3. All other counterclaims of [R.C. Koonts and Sons
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
Masonry, Inc., R.C. Koonts, and David Koonts] are
dismissed with prejudice.1
Following a bench trial, the trial court ruled that plaintiffs owed defendant
$708,373.80, plus interest accruing at 13.25% per annum, plus costs. The trial court
entered the final judgment on 3 November 2015. Plaintiffs did not appeal.2
After defendant sold the collateral, plaintiffs filed the instant lawsuit, claiming
defendant violated N.C. Gen. Stat. §§ 25-9-100, et seq., (2017) and committed unfair
and deceptive trade practices. Defendant answered the complaint on 3 August 2016,
and moved for summary judgment on 20 April 2018. Defendants argued in particular
that plaintiffs’ claims were barred by res judicata and collateral estoppel, that
plaintiffs lack standing, and that plaintiffs’ claims were barred for failure to adduce
evidence supporting the elements of their claims.
The matter came on for hearing before the Honorable Martin B. McGee in
Davidson County Superior Court on 21 May 2018. The trial court denied defendant’s
motion for summary judgment by order entered 5 July 2018.
Defendant appeals the trial court’s denial of summary judgment.
II. Discussion
1 Alterations have been added for clarity because plaintiffs were the defendants in the first
law suit, and defendant was the plaintiff.
2 The partial summary judgment order and the final order were amended twice; however, the
amendments did not alter the dismissal of plaintiffs’ counterclaims. The amendments only added
language describing the seized collateral, which was required by the North Carolina Division of Motor
Vehicles and the Federal Aviation Administration to permit defendant to proceed with the disposition
of the property.
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
Defendant argues the trial court erred by wholly denying its motion for
summary judgment because res judicata and collateral estoppel bar all claims except
the allegation that defendant disposed of the collateral in a commercially reasonable
manner. Therefore, defendant argues the trial court erred when it did not grant
partial summary judgment. We agree.
A. Grounds for Appellate Review
At the outset, we must address the interlocutory nature of this appeal.
Defendant contends the trial court’s interlocutory order is immediately appealable
because defendant would be deprived of a substantial right without immediate
review. We agree.
“The denial of summary judgment is not a final judgment, but rather is
interlocutory in nature.” Williams v. City of Jacksonville Police Dep’t, 165 N.C. App.
587, 589, 599 S.E.2d 422, 426 (2004) (citation and quotation marks omitted). As a
matter of course, our Court does not review interlocutory orders. Id. “If, however,
the trial court’s decision deprives the appellant of a substantial right which would be
lost absent immediate review, we may review the appeal under N.C. Gen. Stat. §§ 1-
277(a) and 7A-27(d)(1).” Id. (citation and internal quotation marks omitted).
“[T]he denial of a motion for summary judgment based on the defense of res
judicata may affect a substantial right, making the order immediately appealable.”
Id. at 589, 599 S.E.2d at 426 (citation and quotation marks omitted). However, a
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Opinion of the Court
mere allegation that res judicata bars a suit “does not automatically affect a
substantial right; the burden is on the party seeking review of an interlocutory order
to show how it will affect a substantial right absent immediate review.” Whitehurst
Inv. Properties, LLC v. NewBridge Bank, 237 N.C. App. 92, 95, 764 S.E.2d 487, 489
(2014) (emphasis in original). For an appellant “to meet its burden of showing how a
substantial right would be lost without immediate review,” the appellant must
demonstrate: “(1) the same factual issues would be present in both trials and (2) the
possibility of inconsistent verdicts on those issues exists.” Id. at 96, 764 S.E.2d at
490 (citation and quotation marks omitted).
Here, defendant argues it was entitled to summary judgment on all claims
except those arising out of Article 9 of the UCC, N.C. Gen. Stat. § 25-9-100, et seq.,
for failure to make a commercially reasonable disposition of the collateral. Therefore,
defendant contends, because plaintiffs’ complaint includes allegations that were
already litigated, or could have been litigated, in the prior case in addition to claims
arising out of Article 9, the trial court’s denial of its motion for summary judgment is
immediately appealable because re-litigation of the claims is barred by res judicata
and collateral estoppel. Absent immediate appeal, defendant would lose a substantial
right because trial of the instant case could result in inconsistent judgments between
the same parties involving the seizure of the same collateral. For the reasons that
follow, we agree. Therefore, defendant’s appeal is properly before this court.
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
B. Res Judicata
First, defendant argues res judicata bars all claims except issues related to the
commercial reasonableness of the disposition of the collateral.
“Our standard of review of an appeal from summary judgment is de novo; such
judgment is appropriate only when the record shows that ‘there is no genuine issue
as to any material fact and that any party is entitled to a judgment as a matter of
law.’ ” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008) (quoting
Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).
“Under the doctrine of res judicata or ‘claim preclusion,’ a final judgment on
the merits in one action precludes a second suit based on the same cause of action
between the same parties or their privies.” Williams v. Peabody, 217 N.C. App. 1, 5,
719 S.E.2d 88, 92 (2011) (citation and quotation marks omitted). For an action to be
barred by res judicata, “a party must show that the previous suit resulted in a final
judgment on the merits, that the same cause of action is involved, and that both the
party asserting res judicata and the party against whom res judicata is asserted were
either parties or stand in privity with parties.” Id. (citation and quotation marks
omitted). Res judicata bars both “matters actually determined or litigated in the prior
proceeding” and also “all relevant and material matters within the scope of the
proceeding which the parties, in the exercise of reasonable diligence, could and should
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
have brought forward for determination.” Id. at 7, 719 S.E.2d at 93 (citation and
quotation marks omitted).
Here, it is undisputed that the parties in the instant action are the same
parties that litigated the first suit, which resulted in a final judgment. Additionally,
both suits rose from the same factual circumstances addressed by the first suit: When
plaintiffs defaulted on defendant’s loan to plaintiffs, defendant filed a complaint to
enforce repayment. Defendant also caused a claim and delivery order of seizure of
the items plaintiffs had pledged as collateral for the loan. Plaintiffs then raised
various allegations in their counterclaims related to both the seizure and disposition
of the collateral.
Although the first suit resulted in a final judgment, finding plaintiffs owed
defendant $708,373.80, plus interest accruing at 13.25%, plus costs, and that
defendant could sell the collateral, both parties anticipated plaintiffs would file a
second suit based on this same collateral. The trial court specifically dismissed one
of plaintiffs’ counterclaims in the first suit, without prejudice, because it was not ripe:
2. Insofar as [R.C. Koonts and Sons Masonry, Inc., R.C.
Koonts, and David Koonts’] counterclaims arise out of
Article 9 of the Uniform Commercial Code, N.C. Gen.
Stat. § 25-9-100, et seq., for failure to make a
commercially reasonable disposition of the collateral,
[the] claims are not ripe at this time. The Court
approves of [R.C. Koonts and Sons Masonry, Inc., R.C.
Koonts, and David Koonts] voluntary dismissal of such
claims without prejudice, [R.C. Koonts and Sons
Masonry, Inc., R.C. Koonts, and David Koonts] shall not
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
be required to pay the costs pursuant to Rule 41(d)
when filing or refiling such counterclaims.
However, the complaint in the instant, second suit exceeds the counterclaim
the trial court dismissed without prejudice in the first suit. The complaint specifically
raises allegations related to the seizure of the collateral, an issue that was
adjudicated in the first lawsuit:
15. R.C. Koonts and Sons was operated and been
incorporated [sic] for 15 years, and operated as a
partnership for 27 years to the formation of a
corporation. R.C. Koonts and Sons operated and
engaged in the masonry business continuously until
Defendant seized Plaintiffs assets thereby putting
them out of business. Plaintiffs had no assets with
which to operate since said seizure of all its assets by
Defendant, and has been closed since the seizure after
many years of continuous, successful operation as a
thriving business. . . .
....
17. Plaintiffs have been damaged for the loss of said
assets in an amount to be determined at trial but
believed to be in excess of $25,000.00.
18. In addition, Plaintiffs have been damaged in that they
have lost their business and the use of said assets,
which had a fair rental value of $50,000.00 per month
for each month since the seizure of said assets on
March 12, 2009.
19. Defendant’s seizure of the assets of Plaintiffs,
proximately caused the closure of the business of R.C.
Koonts and Sons, damaging said Plaintiff by the loss
of business and income, an amount to be determined
at trial, since the closure of Plaintiffs’ business
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
continuing into an indefinite time into the future.
20. Defendant’s seizure of the helicopter of Defendant
David Craig Koonts has proximately caused and
damaged said Plaintiff in the fair market value and
rental value of the helicopter in an amount to be
determined at trial but believed to be in excess of
$25,000.00[.]
(Emphasis added).
Clearly, these claims relate to the seizure of the collateral. Allegations related
to the collateral’s seizure were litigated in the first lawsuit, where the trial court
determined “Plaintiff was legally permitted to seize all of the machinery, equipment
and other collateral[.]” Therefore, all of defendant’s counterclaims related to the
seizure of collateral pursuant to N.C. Gen. Stat. § 1-473, et seq., in the first suit were
dismissed. Accordingly, res judicata bars these claims and the damages plaintiffs
prayed for in their complaint related to allegations of an improper seizure, and loss
of the business due to the seizure, cannot be recovered. To hold otherwise could result
in inconsistent verdicts related to the seizure of the collateral.
In sum, the 3 November 2015 order makes clear that all claims except those
arising out of Article 9 of the UCC, N.C. Gen. Stat. § 25-9-100, et seq., for failure to
make a commercially reasonable disposition of the collateral were decided in the first
suit. Therefore, plaintiffs’ attempts to bring claims outside of those arising out of
Article 9 of the UCC are barred by res judicata. Plaintiffs can no longer request
damages based on allegations that the business could not continue after the seizure
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
of the collateral, that defendant seized more collateral than it was entitled to seize,
that the seizure proximately caused the loss of the business, and that the business
was damaged because it did not have the use of the collateral after the seizure.
Furthermore, to the extent the second claim, alleging unfair and deceptive trade
practices, relates to anything other than the claim reserved by the 3 November 2015
order, it is also barred by res judicata.
However, it is clear that the trial court in the first suit dismissed plaintiffs’
claim arising out of Article 9 of the UCC, N.C. Gen. Stat. § 25-9-100, et seq., for failure
to make a commercially reasonable disposition of the collateral without prejudice.
Therefore, plaintiffs’ allegations that defendant failed to dispose or sell of the
collateral in a commercially reasonable manner, including that defendant did not
properly maintain the property to allow for a commercially reasonable sale, is not
barred by res judicata and may proceed to trial. Because defendant’s collateral
estoppel argument requests the same conclusion we have reached based on the
doctrine of res judicata, we need not consider defendant’s second argument on appeal.
We reverse the trial court’s order to the extent it permitted plaintiffs to raise
claims in addition to those arising out of Article 9 of the UCC, N.C. Gen. Stat. § 25-9-
100, et seq., for failure to make a commercially reasonable disposition of the collateral.
III. Conclusion
For the foregoing reasons, we reverse in part and affirm in part.
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R.C. KOONTS AND SONS MASONRY, INC. V. YADKIN BANK
Opinion of the Court
REVERSED IN PART; AFFIRMED IN PART.
Chief Judge MCGEE and Judge INMAN concur.
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