Gr&s Atlantic Beach, LLC v. Hull

GR&S Atlantic Beach, LLC v. Hull, 2013 NCBC 39.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF WAKE 11 CVS 5883

GR&S ATLANTIC BEACH, LLC and )
GR&S ATLANTIC BEACH HOTEL, )
LLC, )
)
Plaintiffs, )
)
v. ORDER ON MOTION
) TO RECONSIDER
)
H. WILLIAM HULL and MARILYN )
H. HULL, )
)
Defendants. )
)

THIS MATTER is before the court on Defendants’ Motion to Reconsider
(“Motion”)1, which seeks the court’s determination of whether GR&S Atlantic
Beach, LLC (“GR&S”) and GR&S Atlantic Beach Hotel, LLC (“GR&S Hotel”) retain
any right to bring claims pursuant to an Indemnification Agreement with
Defendants after the Indemnification Agreement was assigned to a third party in
foreclosure.

I. PROCEDURAL BACKGROUND

Plaintiffs GR&S and GR&S Hotel filed suit in Wake County on April 15,
2011, and filed an Amended Complaint on September 30, 2011. In their Amended
Complaint, GR&S and GR&S Hotel seek indemnification for several different
categories of claims pursuant to an Indemnification Agreement executed between
GR&S and Defendants in connection with GR&S’ purchase of a hotel from
Defendants: (1) the “Tank Collapse Claims”; (2) the “IBRC Litigation Claims”; and
(3) the “Legacy Repairs Claims.” (Am. Compl. ¶¶ 10–16.)

1
Defendants’ Motion recites that it is brought pursuant to N.C. R. Civ. P. (“Rule(s)”) 54(b) and 56. The North
Carolina Rules of Civil Procedure do not include a provision for “reconsideration.” The court believes the more
proper basis here is Rule 60(b). See Diggs v. Forsyth Mem’l Hosp., Inc., 2010 N.C. App. LEXIS 1285, at *7–9 (July
20, 2010).
On October 10, 2012, the court issued its Summary Judgment Order, in
which it held, inter alia, that the issue of whether the exclusionary clause in the
General Assignment between GR&S and GR&S Hotel operated to leave ownership
of any claim with GR&S was an issue of fact to be determined at trial. (Summary
Judgment Order ¶¶ 78.) GR&S has never contended that it retained the Legacy
Repairs Claims. (Summary Judgment Order ¶¶ 80–82; Pls.’ Mem. of Law in Opp’n
to Defs.’ Mot. for Summ. J. 8.) The court also determined that the appointment of a
receiver over the Hotel, discussed in more detail below, did not divest GR&S Hotel
of its claims arising out of the Indemnity Agreement.
On June 28, 2013, the court issued an order clarifying its Summary
Judgment Order (“Clarification Order”) to make clear that the IBRC Litigation
Claims are being made by GR&S, not GR&S Hotel, so that the issue of whether
GR&S retained ownership of that claim when it executed the General Assignment
is among the issues reserved for trial. (Clarification Order 1–2.) The court now also
clarifies that, if GR&S retained ownership of the IBRC Litigation Claims, any
attorneys’ fees incurred in connection with the IBRC Litigation Claims (to the
extent recoverable at all) would be limited to those incurred within three years of
the filing of the lawsuit brought by GR&S in Carteret County on February 19, 2008,
rather than within three years of the filing of the present lawsuit as would be the
case if the claim was being pursued by GR&S Hotel. See (Summary Judgment
Order ¶¶ 5, 68.)
The present Motion is brought based upon facts which occurred after the
entry of the Summary Judgment and Clarification Orders. While Defendants
contend these later events defeat all claims, the court believes their impact is
restricted to claims assigned to GR&S Hotel by the General Assignment.

II. FACTUAL BACKGROUND

In 2004, GR&S purchased the Sheraton Atlantic Beach Oceanfront Hotel
(“Hotel”) from Defendants. (Am. Compl. ¶ 9.) In connection with the purchase of
the Hotel, GR&S and Defendants entered into an Indemnification Agreement,
pursuant to which, GR&S alleges, Defendants agreed to indemnify GR&S and its
successors and assigns for specified categories of costs and expenses relating to the
Hotel. (Am. Compl. Ex. A.) On May 11, 2007, GR&S transferred the Hotel and
assigned the Indemnity Agreement to GR&S Hotel pursuant to a General
Assignment. The General Assignment included a clause excepting from assignment
claims “for periods or events occurring prior to the date hereof . . . .” (General
Assignment 2.) The Parties dispute what provisions of the General Assignment are
subject to this exclusion, and specifically whether the Tank Collapse Claims and the
IBRC Litigation Claims were excepted from assignment.
To finance the purchase of the Hotel from GR&S, GR&S Hotel took out a $15
million loan and executed a Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing (“Deed of Trust”) to secure that loan. (Br. in
Supp. of Defs.’ Mot. to Reconsider 3.) The Deed of Trust included the following
provisions:
Section 1.1 PROPERTY MORTGAGED. [GR&S Hotel] does
hereby irrevocably mortgage, grant . . . assign . . . transfer and convey
to Trustee for the benefit of Beneficiary, as nominee of Lender and its
successors and assigns, to and under the following property, rights,
interests and estates now owned, or hereafter acquired by [GR&S
Hotel] (collectively, the “Property”):

(a) Land. The real property described in Exhibit A
[describing the hotel] . . . ;

(n) Agreements. To the extent assignable, all agreements,
contracts, certificates . . . and other documents, now or hereafter
entered into by [GR&S Hotel] . . . and all rights therein and thereto,
respecting or pertaining to the use, occupation, construction,
management or operation of the Land and any part thereof . . . and all
right, title and interest of [GR&S Hotel] therein and thereunder,
including, without limitation, the right, upon the happening of any
Event of Default hereunder, to receive and collect any sums payable to
[GR&S Hotel] thereunder . . . .”

(Defs.’ Mot. to Reconsider Attach. I § 1.)
The $15 million loan and the rights in the Deed of Trust were transferred
from the original lender to a successor lender in March 2012. (Br. in Supp. of Defs.’
Mot. to Reconsider 3.) As of April 26, 2012, GR&S Hotel was in default on the $15
million loan, and on that day a Consent Order for Appointment of Receiver
(“Receivership Order”) was entered in Carteret County, which appointed a receiver
to take charge of the Hotel in anticipation of foreclosure proceedings. (Br. in Supp.
of Defs.’ Mot. to Reconsider 4; Aff. of H. William Hull Attach. I, June 13, 2013.)
On December 12, 2012 the Hotel was sold at public auction to Newport
Group, Inc. (“Newport Group”), and the successor lender assigned all its interest in
the Deed of Trust to Newport Group. (Br. in Supp. of Defs.’ Mot. to Reconsider 4.)
On December 28, 2012, after the upset bid period expired, the Deed of Trust was
filed in Carteret County along with a Notice of Foreclosure of Deed of Trust. (Br. in
Supp. of Defs.’ Mot. to Reconsider 4.)
Based on the sale of the Hotel to Newport Group, Defendants filed their
Motion on March 22, 2013. On May 17, 2013, Plaintiffs filed a Motion for Limited
Stay of Consideration of Defendants’ Motion to Reconsider, which contended that
Rule 17(a) required the court to allow Plaintiffs a “reasonable time” to seek
ratification or substitution by the real party in interest and sought additional time
to seek that ratification or substitution. (Pls.’ Mot. for Limited Stay of
Consideration of Defs.’ Mot. to Reconsider 1–2.) The court granted Plaintiffs’
Motion for Limited Stay on May 29, 2013, staying the case until June 27, 2013 (97
days after the Motion to Reconsider was filed). (Order May 29, 2013.)
On June 28, 2013, Newport Group executed a Release of All Claims in favor
of Defendants (“Release”). (Defs.’ Status Report ¶ 4, Attach. I.) The Release
contends that Newport Group is “the rightful owner of the Indemnity Agreement
and any rights thereunder,” and purports to release Defendants from any and all
claims or damages “which arise from or are related in any way, no matter how
remote, to the [present lawsuit], the Indemnity Agreement, the Treatment Plant, or
the Hotel . . . .” (Defs.’ Status Report Attach. I, at §§ I(f), II.)
III. LEGAL STANDARD

Rule 60(b) permits a court, “[o]n motion and upon such terms as are just,” to
“relieve a party or his legal representative from a final judgment, order, or
proceeding for the following reasons,” among others:
(2) Newly discovered evidence which by due diligence could not have
been discovered in time to move for a new trial under Rule 59(b);
...
(6) Any other reason justifying relief from the operation of the
judgment.

N.C. R. Civ. P. 60(b) (2013). “It is the duty of the judge presiding at a Rule 60(b)
hearing to make findings of fact and to determine from such facts whether the
movant is entitled to relief from a final judgment or order.” Hoglen v. James, 38
N.C. App. 728, 731, 248 S.E.2d 901, 903 (1978).
The court now makes the following FINDINGS OF FACT, which it believes to
be uncontested based on pleadings and affidavits that have not been opposed:
1. Defendants filed their Motion seeking relief from the court’s Summary
Judgment Order, which allowed GR&S and GR&S Hotel to continue
prosecuting any claims each properly owned pursuant to the Indemnity
Agreement and the General Assignment;
2. After the entry of the Summary Judgment and Clarification Orders, the
ownership of the Hotel and the Indemnity Agreement, out of which the
Plaintiffs’ claims are based, were, at least in part, assigned to Newport Group
pursuant to a foreclosure sale;
3. After the entry of the Summary Judgment and Clarification Orders, Newport
Group executed a Release of all claims it then had rights to pursue against
Defendants;
4. The occurrences in paragraphs 2 and 3 above constitute “newly discovered
evidence which by due diligence could not have been discovered” before the
entry of the Summary Judgment Order; and
5. The occurrences in paragraphs 2 and 3 above also constitute “reason[s]
justifying relief from the operation of [the Summary Judgment Order]”.

III. ANALYSIS

Defendants contend that Newport Group became the owner of all claims
arising out of the Indemnity Agreement. (Defs.’ Mot. to Reconsider 4.) In fact, the
Motion necessarily seeks to have the court modify its earlier ruling that the Tank
Collapse Claims and the IBRC Litigation Claims were, as a matter of law, assigned
to GR&S Hotel pursuant to the General Assignment. There is no basis to modify
that holding, and to that extent, Defendants’ Motion is DENIED. The court
restricts its consideration to the Legacy Repairs Claims, which GR&S admits were
being pursued solely by GR&S Hotel. See (Pls.’ Mem. of Law in Opp’n to Defs.’ Mot.
for Summ. J. 8.)
“The right to receive money due or to become due under an existing contract
may be assigned.” Booker v. Everhart, 294 N.C. 146, 153, 240 S.E.2d 360, 364
(1978) (citing Lipe v. Guilford Nat’l Bank, 236 N.C. 328, 72 S.E.2d 759 (1952)). “An
assignee of a contractual right is a real party in interest and may maintain the
action.” Morton v. Thornton, 259 N.C. 697, 699, 131 S.E.2d 378, 380 (1963).
The Deed of Trust secured all rights under the Indemnity Agreement owned
by GR&S Hotel, which rights were then assigned to Newport Group. But GR&S
Hotel could only assign those rights in the Hotel and Indemnity Agreement which it
owned at the time of executing the Deed of Trust. Hurst v. West, 49 N.C. App. 598,
606, 272 S.E.2d 378, 384 (1980) (An assignee can “take by transfer only what rights
and interests the assignor had at the time of the assignment.” (citing Holloway v.
Depositors Nat’l Bank, 211 N.C. 227, 189 S.E. 789 (1937))). As discussed in this
court’s Summary Judgment Order, there is an issue of fact whether the General
Assignment assigned all claims arising out of the Indemnity Agreement from GR&S
to GR&S Hotel. It remains an issue for trial whether GR&S remained the owner of
the IBRC Litigation Claims and the Tank Collapse Claims upon execution of the
General Assignment. If GR&S retained those claims, then the rights to those
claims could not have been assigned by GR&S Hotel pursuant to the Deed of Trust,
and GR&S remains the real party in interest with standing to pursue those claims.
If, on the other hand, GR&S Hotel did become the owner of the rights to those
claims, then those claims were irrevocably assigned to Newport Group, now the real
party in interest. In that case, the Release executed by Newport Group would reach
and bar those claims.
The court concludes that the Legacy Repairs Claims were assigned to
Newport Group upon the assignment of the Deed of Trust, and that Newport Group
is the real party in interest to pursue those claims and has released those claims.
GR&S has no remaining interest in those claims and cannot pursue them. See
Commerce Mfg. Co. v. Blue Jeans Corp., 146 F. Supp. 15, 17 (E.D.N.C. 1956) (“N.C.
General Statutes § 1-57 requires that every action must be prosecuted in the name
of the real party in interest, and, to be sure, the one to whom there has been an
absolute assignment is the ‘real party in interest’ rather than the assignor who has
parted with all interest therein.”)
Plaintiffs argue that the foreclosure sale can have no greater impact than the
Receivership Order, which the court found did not wholly divest GR&S Hotel of
standing. See (Summary Judgment Order ¶¶ 38–43.) Specifically, Plaintiffs
contend that the assignment of the Deed of Trust did not vest exclusive rights to
pursue claims under the Indemnity Agreement in Newport Group, and that until
Newport Group institutes action or seeks to assume control over the pending
litigation, GR&S Hotel remains a real party in interest and may continue
prosecuting the current lawsuit. (Pls.’ Mem. of Law in Opp’n to Defs.’ Mot. to
Reconsider 3.) Of course, Newport Group exercised control over the claims by
executing the Release with its recitals.
The court does not agree with Plaintiffs that the language in the Receivership
Order is of the same effect as the language in the Deed of Trust. The language in
the Receivership Order upon which the court based its decision in the Summary
Judgment Order that the receiver had the option, but not the exclusive right, to
prosecute claims arising under the Indemnity Agreement included the following:

The Receiver . . . shall have the following powers and instructions . . . :
(b) to collect the past and future rents, additional rents, fees or
revenues from leasing and other funds or revenues for the Property in
order to preserve the Property until further Order of this Court or a
foreclosure sale or sale by Receiver may be had;

(l) to institute and prosecute suits, including proceedings in
bankruptcy court, for the collection of rents and other charges now due
or hereafter to become due or fixed . . .

(Aff. of H. William Hull, Attach. I, at 7–10, June 13, 2013.) In contrast, the Deed of
Trust states that GR&S Hotel, by executing the Deed of Trust, does “irrevocably
mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to
Trustee for the benefit of Beneficiary, as nominee of Lender and its successors and
assigns, to and under the following property, rights, interests and estates now
owned, or hereafter acquired by [GR&S Hotel] . . . .” (Defs.’ Mot. to Reconsider
Attach. I § 1.1.) The language in the Deed of Trust unequivocally assigns GR&S
Hotel’s rights in the Hotel and the Indemnity Agreement.
The court further notes that, at the time of the Summary Judgment Order,
the Receiver had not taken any steps to exercise its rights or powers to pursue
claims, and the court “expresse[d] no further opinion as to whether the Receiver
would be entitled upon request to assume control of the claims in this case . . . .”
(Summary Judgment Order ¶ 43.) In contrast, to the extent Newport Group
obtained ownership of the pending claims against Defendants, it had the right to
release them and has released them.
The court concludes that there is a good and adequate basis to modify its
earlier Order pursuant to Rule 60(b) and THEREFORE, IT IS ORDERED that:
1. Defendants’ Motion is GRANTED in part, and DENIED in part;
2. To the extent recoverable, if at all, GR&S’ claim for attorneys’ fees associated
with the IBRC Litigation Claims are limited to those attorneys’ fees incurred
within three years of GR&S’ filing of the initial lawsuit in Cartaret County on
February 19, 2008;
3. GR&S Hotel is no longer a real party in interest with standing to pursue
claims arising out of the Indemnity Agreement, and all claims asserted by
GR&S Hotel are hereby DISMISSED;
4. GR&S retains the right to pursue claims arising out of the Indemnity
Agreement so long as it retained them upon execution of the General
Assignment; and
5. The issues of whether the Tank Collapse Claim and the IBRC Litigation
Claim were retained by GR&S upon execution of the General Assignment,
and whether GR&S is otherwise entitled to recover on those claims, are
reserved for trial.

This the 26th day of July, 2013.