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The Court of Appeals Again Recognizes the Trial Court’s Jurisdiction to Decide the Appealability of Interlocutory Orders When Deciding Whether the § 1-294 Stay Applies

Generally speaking, an appeal stops all proceedings at the trial court level until the appeal concludes. However, as we have previously blogged (here, here, here, and here), there are limited circumstances where a trial court may move forward with a case during the pendency of an appeal.  In Plasman v. Decca Furniture (USA), Inc., the North Carolina Court of Appeals once again recognized a trial court’s authority to determine whether the § 1-294 stay applies to proceedings before it.   Plasman, however, may also signal the evolution and further entrenchment of the RPR exception to § 1-294?

During the pendency of an appeal, N.C. Gen. Stat. § 1-294 will typically stay all proceedings in the trial court related to the subject of the appeal:

When an appeal is perfected as provided by this Article, it stays all further proceedings in the court below upon the judgment appealed from, or upon the matter embraced therein, unless otherwise provided by the Rules of Appellate Procedure; but the court below may proceed upon any other matter included in the action and not affected by the judgment appealed from.

Because two courts cannot have jurisdiction over the same case at the same time, the trial court becomes functus officio during the appeal.  See Wiggins v. Bunch, 280 N.C. 106, 110, 184 S.E.2d 879, 881 (1971).  Looking at § 1-294 from a more practical perspective, it is difficult for appellate courts to review moving targets, which is why most trial court proceedings are stayed by a pending appeal.

Almost 70 years ago, the Supreme Court of North Carolina recognized an important exception to the § 1-294 stay.  The statute does not stay trial court proceedings during appeals of non-appealable interlocutory orders. Veazey v. Durham, 231 N.C. 357, 57 S.E.2d 377 (1950).The Supreme Court in Veazey did not, however, answer the question of which court decides whether an interlocutory order is immediately appealable for purposes of § 1-294.

In Estrada v. Jaques, 70 N.C. App. 627, 321 S.E.2d 240 (1984), the Court of Appeals said that the decision whether an interlocutory order is immediately appealable is for the appellate courts and that the trial court does not have the authority to dismiss an interlocutory appeal on the grounds that it is not immediately appealable.   Under Veazey and Estrada, the trial court has the authority to elect to disregard the appeal if it believes that the order is not immediately appealable, but the ultimate decision regarding whether the order is immediately appealable is made by the appellate court.

What happens if the trial court wrongly decides that the § 1-294 stay is inapplicable and continues to enter trial court orders during the appeal?  If § 1-294 is a jurisdictional statute, one would think that all related trial court orders entered during the pendency of a proper interlocutory appeal would be void for lack of jurisdiction.  At least until 2002, that was the general rule that applied. See, e.g., generally Patrick v. Hurdle, 7 N.C. App. 44, 171 S.E.2d 58 (1969) (trial, verdict and judgment that were entered during pendency of proper appeal were void for lack of jurisdiction); see also France v. France, 209 N.C. App 406, 705 S.E.2d 399 (2011) (where trial court order was immediately appealable, order entered during pendency of appeal was void for lack of jurisdiction).

However, in 2002, RPR & Assocs. v. University of N.C.-Chapel Hill, 153 N.C. App. 342, 570 S.E.2d 510 (2002), carved out another exception: orders entered during the pendency of a proper interlocutory appeal are void except where the trial court’s decision to ignore the § 1-294 stay was reasonable or did not prejudice the appealing party. While basing jurisdictional inquiries on reasonableness and prejudice factors may seem odd,  RPR arose from rather unusual facts.  The appellate courts denied repeated requests to enforce the § 1-294 stay while the first appeal was pending, the first order was ultimately affirmed on appeal, and voiding the subsequent proceedings would have required a do-over of a trial.

However, the frequency with which RPR is being discussed and applied in appellate opinions appears to be increasing.   Which makes me wonder:  If the RPR “reasonable and prejudice” exception to § 1-294 is applied with regularity, is there a danger that it could transform from the exception to the rule into the general rule?

In Plasman, the Court of Appeals held that the trial court had jurisdiction to rule upon the immediate appealability of an interlocutory order and to issue contempt orders while an appeal was pending.  Despite the fact that the first appeal was improper, Plasman discussed the reasonableness of the trial court’s decision to proceed under § 1-294.

Plasman arose from a business dispute that was so acrimonious that it had already gone on for five years without reaching discovery (and perhaps the Court of Appeals was in part motivated by a desire not to further delay a case that had been so drawn out already).  In federal proceedings, the Defendants had successfully moved for a preliminary injunction (the “Injunction”).  Plaintiffs did not appeal the Injunction or properly move for reconsideration.

After the case was remanded to the North Carolina Business Court, the parties filed competing motions to amend and dissolve portions of the Injunction (Plaintiffs) and to enforce it (Defendants).  The Defendants also filed a motion to hold Plaintiffs in civil contempt and to impose sanctions on the basis that the Plaintiffs were in willful violation of the Injunction.  The Business Court entered an order denying Plaintiffs’ motion and granting Defendants’ motion to enforce the Injunction (the “Injunction Enforcement Order”).  Plaintiffs appealed that order.

While the appeal of the Injunction Enforcement Order was pending, the Business Court determined: (1) it had the authority to determine whether the Injunction Order was immediately appealable based in part upon RPR, (2) the Injunction Enforcement Order did not affect a substantial right of Plaintiffs because it simply ordered Plaintiffs to comply with the legally valid and binding Injunction, and (3) the action would proceed on its merits in the Business Court during the pendency of the appeal.  The Business Court then entered an order finding Plaintiffs in civil contempt for failing to comply with the Injunction Enforcement Order (the “Contempt Order”).  Approximately eight months later, the Court of Appeals dismissed the first appeal as one involving a nonappealable interlocutory order.

In Plasman, the Plaintiffs appealed from the Contempt Order, arguing that their earlier appeal from the Injunction Enforcement Order stayed all proceedings before the Business Court and divested the Business Court of jurisdiction to enter the Contempt Order.

The Court of Appeals flatly rejected Plaintiffs’ argument.  While recognizing that appeals generally divest trial courts of jurisdiction until the appeal is complete, the Plasman court emphasized Veazey’s holding that “an improper interlocutory appeal never deprives a trial court of jurisdiction over a case.” (emphasis in Plasman).  Surprisingly, however, the Plasman Court did not end its § 1-294  inquiry by simply applying the Veazey rule.

Instead, Plasman discussed the trial court’s authority to decide jurisdictional issues while also discussing the reasonableness and prejudice of the trial court’s decision.  The Court of Appeals stated that a “reasonableness” standard applies to appellate review of both (1) whether a trial court retains jurisdiction to allow it to determine an interlocutory order is immediately appealable, and (2) the substance of the trial court’s determination.  Citing SED Holdings, LLC v. 3 Star Properties, LLC, __ N.C. App. __, 791 S.E.2d 914 (2016), the Plasman court noted:

(1) a trial court properly retains jurisdiction over a case if it acts reasonably in determining that an interlocutory order is not immediately appealable, and (2) that determination may be considered reasonable even if the appellate court ultimately holds that the challenged order is subject to immediate review.

The Plasman court also cited SED Holdings’ statements regarding the flexible approach appellate courts employ when applying RPR‘s reasonableness standard:

It is clear that injunctive orders entered only to maintain the status quo pending trial are not immediately appealable. Then again, reasonable minds may disagree as to whether a particular injunction simply maintains the status quo. Beyond that, our courts have taken a flexible approach with respect to the appealability of orders granting injunctive relief.

Because the injunctive relief was designed to maintain the status quo, and given that established precedent regarding the appealability of such orders is equivocal, the trial court reasonably concluded that its injunction was not immediately appealable. While this Court eventually held in SED I that defendants’ appeal affected a substantial right, that decision was not dispositive of whether the trial court acted reasonably in determining that the appeal had not divested it of jurisdiction. RPR & Assocs., 153 N.C. App. at 348, 570 S.E.2d at 514. As such, the trial court was not functus officio. This Court also held that the trial court’s ruling on SED’s motion for injunctive relief was not erroneous. Defendants therefore cannot demonstrate how they were “prejudiced by the trial court’s [decision to continue to] exercise . . . jurisdiction over this case” by enforcing its injunction.

Based upon these principles, the Plasman court reasoned that the Business Court had jurisdiction to decide that the appeal of the Contempt Order was not immediately appealable and thus not to stay the proceedings.  The Business Court’s determination was “proper and reasonable,” and the Plaintiffs “have not, and cannot, demonstrate that they were prejudiced by Judge Bledsoe’s decision to enforce an order that directed the Plasmans to comply with a prior, never-appealed injunction.”

Given that the appellate courts had previously determined that the first appeal (of the Injunction Enforcement Order) was improper, why was it necessary to discuss the reasonableness or prejudice of the trial court’s decision to proceed under 1-294? Was this merely dicta?  Is Plasman unintentionally inviting trial courts to ignore the automatic stay provision regardless of whether the first appeal is proper? Who has the burden of proving prejudice and the reasonableness of the trial court’s decision to ignore the § 1-294 stay?  Can a trial court decide that the § 1-294 applies, but then as a functional matter, chose to ignore the stay if the appellant will not be prejudiced? Or does RPR remain a very limited exception to § 1-294 with results like Patrick v. Hurdle being the default assumption?

In short, questions remain concerning how to square what should be the absolute nature of N.C. Gen. Stat. § 1-294 (which has been characterized by the courts as a jurisdictional statute) with an exception that inquires into the reasonableness and prejudice associated with trial court’s decision to ignore the § 1-294 stay.  Moreover, while the automatic stay should generally apply during most interlocutory appeals, if the trial court ignores that automatic stay, will you have a hard time obtaining relief in the appellate courts under § 1-294?

One final thought. Almost two years ago, an amendment to § 1-294 gave the Supreme Court authority to carve out exceptions to the automatic stay provision through the North Carolina Rules of Appellate Procedure.  The Supreme Court has not yet exercised its new authority under § 1-294.  Perhaps this is an area where a rules-based solution would be superior to the case-by-case solution that has evolved in light of RPR.

What are your thoughts? Let us know in the comments below.

— Carrie Hanger and Beth Scherer

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