Sed Holdings, LLC v. 3 Star Props., LLC
250 N.C. App. 215
| N.C. Ct. App. | 2016Background
- SED Holdings purchased a pool of 1,235 nonperforming mortgages from 3 Star under a June 2014 Agreement; SED paid part in cash and the balance via a promissory note. 3 Star retained certain rights under a Security Agreement if SED defaulted.
- After closing, SED alleged many loans were unsecured or not owned by 3 Star and sought to "put back" 605 loans; 3 Star claimed SED defaulted and threatened to liquidate assets.
- SED sued in Durham County (Dec. 2014) alleging breach, fraud, negligent misrepresentation, and sought a preliminary injunction to prevent defendants from selling loans or disbursing proceeds.
- The trial court denied defendants' motion to dismiss (forum selection/choice of law) and granted the preliminary injunction (Feb. 2015); SED posted a $100,000 bond. Defendants appealed both interlocutory orders on Feb. 19, 2015.
- While that appeal was pending, the trial court conducted contempt proceedings (Sept. 2015–Jan. 2016) after finding evidence that loans had been sold and servicing fees not escrowed; the court ultimately held defendants in civil contempt.
- The Court of Appeals (this opinion) addresses whether the trial court retained jurisdiction to enter contempt orders while defendants' interlocutory appeal of the injunction was pending.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court was divested of jurisdiction by defendants' notice of appeal from the preliminary injunction | The injunction was not immediately appealable; the trial court could continue proceedings to enforce it | The notice of appeal removed trial-court jurisdiction, making contempt orders void | Trial court retained jurisdiction; contempt orders affirmed |
| Whether an interlocutory injunction here affected a "substantial right" making it immediately appealable | The injunction maintained the status quo and SED was protected by bond, so no substantial right was affected | The injunction affected defendants' ability to use/control assets, so it was immediately appealable | Court of Appeals later held the injunction did affect a substantial right, but trial court reasonably concluded otherwise at the time; retention of jurisdiction was proper |
| Whether the trial court's enforcement actions prejudiced defendants | Enforcement was reasonable and aimed to preserve injunction; defendants were not prejudiced | Enforcement while appeal pending deprived defendants of rights | No prejudice shown; contempt orders valid |
| Standard for when trial court may act after interlocutory appeal | Trial court may act on matters not embraced by the appealed order or where appeal is from nonappealable interlocutory order | Appeal automatically stays all proceedings embraced by the appealed order | Trial court may continue if it reasonably determines the interlocutory order is nonappealable; that occurred here |
Key Cases Cited
- Lowder v. All Star Mills, Inc., 301 N.C. 561 (general rule that an appeal suspends further proceedings in trial court)
- Veazey v. City of Durham, 231 N.C. 357 (definition of final judgment and distinctions for interlocutory orders)
- RPR & Assocs., Inc. v. Univ. of N. Carolina-Chapel Hill, 153 N.C. App. 342 (trial court may reasonably continue proceedings when it determines interlocutory order is nonappealable)
- Barnes v. St. Rose Church of Christ, 160 N.C. App. 590 (injunction that merely maintains status quo does not necessarily affect a substantial right)
- Scottish Re Life Corp. v. Transamerica Occidental Life Ins. Co., 184 N.C. App. 292 (injunction that impinges use/control of large assets may affect a substantial right and be immediately appealable)
- Edmondson v. Macclesfield L-P Gas Co., 182 N.C. App. 381 (articulation of the "substantial right" test for interlocutory appeals)