Conseco Finance Servicing v Home City, (02-913) 08/05/2003

Appeal by defendants from orders entered 22 and 28 May 2002 by Judge Stafford G. Bullock, and 14 June 2002 by Judge Evelyn W. Hill, in Wake County Superior Court. Heard in the Court of Appeals 14 April 2003.

Smith, Debnam, Narron, Wyche, Story & Myers, L.L.P., by Byron L. Saintsing and Connie E. Carrigan, for plaintiff-appellee.

Everett, Gaskins, Hancock & Stevens, L.L.P., by E.D. Gaskins, Jr., for defendant-appellants.

    EAGLES, Chief Judge.

    This appeal arises from three interlocutory orders entered in, and ancillary to, a civil action for breach of an inventory financing and security agreement.
    The record tends to establish the following: Green Tree Financial Corporation (“Green Tree”), is a Delaware corporation with its principal place of business in St. Louis, Missouri, with offices in Wake County North Carolina. Home City, Ltd. (“Home City”) is a North Carolina corporation, with its principal place ofbusiness in Lakeview, North Carolina, primarily engaged in the business of selling new and used manufactured homes to the public. Michael L. Allen is the president of Home City; Marva H. Allen is his wife. Von Allen is Home City's corporate secretary and treasurer.
    On 3 July 1995, Home City entered into an inventory financing and security agreement with Green Tree. According to the terms of the agreement, Green Tree was to provide inventory financing to Home City while maintaining a security interest in all of Home City's then-existing and after-acquired inventory, as well as all of the proceeds derived therefrom. The agreement also provided that upon default, Green Tree, at its option, could accelerate all or any part of Home City's indebtedness and take immediate possession of the collateral. Furthermore, the agreement stated that “[Green Tree's] failure to take action as to any default shall not be deemed a waiver of any of [its] rights as to that default . . . .” By separate written agreements, defendants Michael L. Allen, Marva H. Allen and Von Allen (collectively “Allens”), individually guaranteed Home City's indebtedness to Green Tree.
    From 3 July 1995 to 24 March 1999, the parties executed various written agreements supplementing and/or modifying the original inventory financing and security agreement. On 20 January 1999, the parties agreed, inter alia, that “[a]ny controversy or claim arising out of or related to th[e] Agreement, or the breach thereof, except for an action to recover, repossess or replevy any collateral . . . shall be settled by arbitration . . . .” On 1November 1999, Green Tree changed its name to Conseco Finance Servicing Corporation (“Conseco”).
    On 6 November 2000, Home City entered into a “Dealer Agreement” with North Star Homes of Sanford, Inc. (“North Star”). This agreement provided that Home City would consign some of its inventory to North Star, which would be held by North Star and offered for sale to North Star's customers. Green Tree, now Conseco, apparently was aware of this arrangement. Between 6 November 2000 and 1 May 2002, Home City became delinquent in the payment of its outstanding obligation to Conseco. By letter dated 1 May 2002, Conseco notified Home City that it was in default and demanded “immediate payment of all obligations and amounts due totaling $30,309.21.” The letter further provided that while Conseco was choosing not to exercise all of its remedies, it was not waiving any remedies that remained under the terms of the financing and security agreement. Each guarantor was also mailed a copy of the demand letter. On 2 May 2002, in response to this letter, Home City tendered Conseco a check in the amount of $30,309.21.
    On 7 May 2002, Conseco initiated this action against Home City and the Allens alleging both breach of contract and breach of personal guaranty. Conseco sought the following remedies: (1) an Order of Claim and Delivery; (2) possession of the inventory; (3) recovery in the amount of the full accelerated balance due ($3,020,952.37); and (4) temporary, preliminary and permanent injunctive relief. On 17 May 2002, Home City and the Allens(collectively “defendants”) answered and counterclaimed against Conseco. Defendants also moved to: (1) stay the action and compel arbitration pursuant to the terms of the 20 January 1999 agreement; and (2) dismiss the claim and delivery proceedings on grounds that the North Carolina claim and delivery statutes were facially unconstitutional.
    On 20 May 2002, Judge Stafford G. Bullock conducted a hearing on defendants' motion to compel arbitration and on Conseco's application for preliminary injunction. Judge Bullock declined to hear defendants' motion to dismiss the claim and delivery proceedings. By order dated 22 May 2002, Judge Bullock ordered all claims and controversies pending in the action to arbitration except the proceedings in claim and delivery. Judge Bullock also granted Conseco's application for a temporary restraining order. By order dated 28 May 2002, Judge Bullock entered a preliminary injunction order that provided, inter alia, that Home City was enjoined from “conveying, selling, moving, transporting, encumbering, or otherwise impairing any of the Inventory in which [Conseco] claims to hold a security interest . . . without the express written consent of [Conseco].” On 12 June 2002, Judge Evelyn W. Hill conducted a hearing on defendants' motion to dismiss the claim and delivery proceedings. By order dated 14 June 2002, Judge Hill denied defendants' motion to dismiss. Defendants appeal.
    Defendants assign error to: (1) the trial court's denial of their motion to stay and compel all proceedings, including thosefor claim and delivery, to arbitration; (2) the trial court's entry of the preliminary injunction; and (3) the trial court's denial of their motion to dismiss the claim and delivery proceedings on constitutional grounds.
    We note that the orders from which defendants appeal are interlocutory in nature. “A ruling is interlocutory in nature if it does not determine the issues but directs some further proceeding preliminary to final decree.” Blackwelder v. Dep't of Human Resources, 60 N.C. App. 331, 333, 299 S.E.2d 777, 779 (1983). It is the general rule that “[a]n appeal of an interlocutory order will not lie to an appellate court unless the order deprives the appellant of a substantial right which would be jeopardized absent a review prior to a final determination on the merits.” Southern Uniform Rentals, Inc. v. Iowa Nat'l Mut. Ins. Co., 90 N.C. App. 738, 740, 370 S.E.2d 76, 78 (1988). “If the appellant's rights 'would be fully and adequately protected by an exception to the order that could then be assigned as error on appeal after final judgment,' there is no right to an immediate appeal.” Horne v. Nobility Homes, Inc., 88 N.C. App. 476, 477, 363 S.E.2d 642, 643 (1988)(citation omitted).
    It is not the duty of this Court to construct arguments for or find support for appellant's right to appeal from an interlocutory order; instead, the appellant has the burden of showing this Court that the order deprives the appellant of a substantial right which would be jeopardized absent a review prior to a final determination on the merits.

Jeffreys v. Raleigh Oaks Joint Venture, 115 N.C. App. 377, 380, 444 S.E.2d 252, 254 (1994). Where the appellant fails to carry thisburden, the appeal is subject to dismissal as fragmentary and premature. Godley Auction Co. v. Myers, 40 N.C. App. 570, 574, 253 S.E.2d 362, 365 (1979). After careful review of the records and the several briefs, we conclude this appeal is not properly before this Court and dismiss it as interlocutory.
    Defendants first contend that the trial court erred by denying their motion to stay and compel all proceedings, including those for claim and delivery, to arbitration. Defendants argue that the arbitration provision was inapplicable to claim and delivery proceedings because under North Carolina law, there is no “action” for claim and delivery; rather, claim and delivery is a remedy that is ancillary to a civil action. Defendants further argue that the claim and delivery seizure orders were improper in that they were inconsistent with the entry of a preliminary injunction.
    Generally, “'there is no immediate right of appeal from an order compelling arbitration.'” Laws v. Horizon Hous., Inc., 137 N.C. App. 770, 771, 529 S.E.2d 695, 696 (2000)(citation omitted). However, “[a]n 'order denying arbitration, although interlocutory, is immediately appealable because it involves a substantial right which might be lost if appeal is delayed.'” Miller v. Two State Constr. Co., 118 N.C. App. 412, 414, 455 S.E.2d 678, 679 (1995)(citations omitted).
    Here, although defendants have provided ample support for the substantive portions of their arguments, apart from conclusively asserting that their appeal of this issue is taken as a matter of right, they have failed to make any showing concerning how thisorder affects a substantial right which would be jeopardized absent immediate appellate review. In short, defendants have not demonstrated to this Court that they are entitled to immediate appellate review of this issue. Accordingly, this issue should be dismissed as interlocutory.
    Defendants next contend that the trial court erred by entering a preliminary injunction against them. Defendants argue that the trail court committed prejudicial error by failing to make findings concerning the likelihood of plaintiff's success on the merits before entering the injunction.
    Because the issuance of a preliminary injunction is by its nature a temporary remedy, designed to preserve the status quo during the pendency of the action, it is “purely interlocutory.” State ex rel. Edmisten v. Fayetteville Street Christian School, 299 N.C. 351, 358, 261 S.E.2d 908, 913 (1980). Therefore, “the threshold question presented by a purported appeal from an order granting a preliminary injunction is whether the appellant has been deprived of any substantial right which might be lost should the order escape appellate review before final judgment.” Id. Where an injunction prevents a defendant from operating his business, he has been deprived of a substantial right sufficient to warrant immediate appellate review. Town of Knightdale v. Vaughn, 95 N.C. App. 649, 651, 383 S.E.2d 460, 461 (1989). However, a preliminary injunction does not impair a substantial right where “the order serves only to ensure that [defendants] continue their previous compliance pending disposition of the case on its merits.”Fayetteville Street Christian School, 299 N.C. at 358, 261 S.E.2d at 913.
    Here, defendants assert that the injunction affects a substantial right because: (1) it restricts Home City's operations by requiring “Home City to pay to Conseco the proceeds for each manufactured home closing sufficient to pay off the plaintiff's lien on each unit as sold”; and (2) it is unlikely that defendants will recover any of these payments if they prevail because Conseco has filed for Chapter 11 bankruptcy protection. We conclude that defendants have failed to establish the impairment of a substantial right sufficient to warrant immediate appellate review.
    First, nothing in the trial court's order prevented defendants from operating their business. On the contrary, the inclusion of the language concerning the disposition of the proceeds following the sale of inventory indicates that the trial court expressly contemplated that Home City would continue to operate. Moreover, the terms of the original inventory financing and security agreement granted Conseco a security interest in all of the proceeds derived from the sale of Home City's inventory. Finally, the 20 January 1999 agreement provided Conseco with the option to choose that Home City promptly pay the total amount due on each item of inventory following its sale. Therefore, the preliminary injunction served only to ensure defendant's continued compliance with its pre-existing obligations under the terms of the inventory financing and security agreement. Accordingly, this issue should be dismissed as interlocutory    Defendants' final contention is that the trial court erred by denying their motion to dismiss the claim and delivery proceedings on constitutional grounds. Before addressing the merits of defendants' argument, we must first determine whether the notice of appeal was sufficient to confer jurisdiction on this Court.
    Our Rules of Appellate Procedure provide that “[a]ny party entitled by law to appeal from a judgment or order . . . may take appeal by filing notice of appeal with the clerk of superior court . . . .” N.C.R. App. P. 3(a). The rules further provide that the notice of appeal “shall designate the judgment or order from which appeal is taken and the court to which appeal is taken . . . .” N.C.R. App. P. 3(d).
    Proper notice of appeal is a jurisdictional requirement that may not be waived. As a general rule, the appellate court obtains jurisdiction only over the rulings specifically designated in the notice of appeal as the ones from which the appeal is being taken. As exceptions to the general rule, there are two situations in which the appellate court may liberally construe a notice of appeal to determine it has jurisdiction over a ruling not specified in the notice. First, if the appellant made a mistake in designating the judgment intended to be appealed, then the appeal will not be dismissed if the intent to appeal from the judgment can be fairly inferred from the notice and the appellee was not misled by the mistake. Second, if the appellant technically fails to comply with procedural requirements in filing papers with the court but accomplishes the functional equivalent of the requirement, then the court may find compliance with the rules.

Chee v. Estes, 117 N.C. App. 450, 452, 451 S.E.2d 349, 350-51 (1994)(citations omitted).
    Here, Home City's notice of appeal indicated that it was appealing from “the Order of June 17, 2002, denying defendant's motion to dismiss the claim and delivery proceeding onconstitutional grounds.” However, the record contains no evidence of either a hearing being conducted or an order being entered on 17 June 2002. Notwithstanding defendants' apparent error in designating the judgment intended to be appealed, the notice specifically stated that defendant was appealing the ruling denying its motion to dismiss the claim and delivery proceedings. Therefore, it may fairly be inferred that defendants actually intended to appeal from Judge Hill's 14 June 2002 order. Accordingly, we hold that defendants' notice of appeal was sufficient to confer jurisdiction on this Court to review the 14 June 2002 order denying defendants' motion to dismiss the claim and delivery proceedings.
    Defendants argue that they were entitled to a dismissal of the claim and delivery proceedings because North Carolina's claim and delivery statutes are facially unconstitutional. Specifically, defendants argue that North Carolina's current claim and delivery statutes lack the minimum procedural safeguards to comport with the requirements of constitutional due process. We conclude this issue is not yet ripe for review and decline to address the merits of defendants' argument.
    Because the denial of a motion to dismiss simply allows an action to proceed, it does not impair any right that cannot be corrected upon appeal from final judgment. Howard v. Ocean Trail Convalescent Center, 68 N.C. App. 494, 495, 315 S.E.2d 97, 99 (1984). In short, “[t]he avoidance of a trial is not a 'substantial right' that would make such an interlocutory order appealable underG.S. 1-277 or G.S. 7A-27(d).” Id. Furthermore, “the mere assertion of a constitutional violation, without more, is insufficient to constitute a substantial right . . . .” Kaplan v. Prolife Action League of Greensboro, 123 N.C. App. 677, 680, 474 S.E.2d 408, 410 (1996), overruled on other grounds, Sharpe v. Worland, 351 N.C. 159, 522 S.E.2d 577 (1999).
    Here, there is no final judgment; rather, the trial court's order merely allowed the claim and delivery proceedings to go forward. Moreover, this action will not impair any substantial right of defendant that cannot be corrected on appeal from final judgment. Accordingly, this issue should be and is dismissed as interlocutory.
    Dismissed.
    Judges HUNTER and CALABRIA concur.
    Report per Rule 30(e).

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