Prevailing party in small claims case can’t appeal

Defendants who prevail in an action in small claims court can’t bring any compulsory counterclaims that would exceed that court’s jurisdictional limit via an appeal since another avenue for relief already exists, the North Carolina Court of Appeals has ruled in a matter of first impression.

Although the ruling is nominally a loss for a tenant who was bringing counterclaims against her landlord, an attorney for the tenant said that the court’s ruling provides a roadmap for how to successfully file counterclaims in small claims court and fills a gap that existed within the state’s statutes and its existing case law.

In November 2017, Maria Stevenson was sued by her landlord, J.S. & Associates Inc., in small claims court in Mecklenburg County. The lawsuit sought to eject Stevenson from the rental property, but in December the trial court ruled in Stevenson’s favor.

Even though she won, Stevenson filed an appeal of the court’s judgment to the district court in an effort to assert counterclaims against JSA which arose from their alleged failure to maintain the rental property. JSA’s motion to dismiss was granted in April 2018, when the district court held that Stevenson was not an aggrieved party and had no right to appeal the small claims court judgment, which she again appealed.

Judge Chris Dillon, writing for a unanimous panel, said that the issue on appeal was a unique one, but that in this situation, a proper avenue for redress already exists.

Small claims courts have jurisdiction over claims for summary ejectment of a tenant or matters which involve dollar amounts under $10,000, Dillon said. This bars defendants in small claims courts from bringing any counterclaim, cross-claim or third-party claim against a plaintiff if the claim would “make the amount in controversy exceed the jurisdictional amount.”

Aggrieved parties who lose in small claims court can appeal to the district court for trial de novo, and bring any counterclaims, cross-claims or third-party claims, Dillon said. Rule 13 of the Rules of Civil Procedure says that counterclaims that arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim must be brought in the same action, or they are lost.

Stevenson argued that it is unclear what remedy is available to parties in situations where they prevail in small claims court but still wish to bring such compulsory counterclaims. Dillon said that Stevenson’s proposed remedy doesn’t work because one already exists.

“Section 7A-219 makes it clear that counterclaims, even those ordinarily considered compulsory, may be brought in a subsequent, separate action in district court if and when they would exceed the amount in controversy allowed in small claims court,” Dillon said. “Failure by a defendant to file a counterclaim in a small claims action assigned to a magistrate, or failure by a defendant to appeal a judgment in a small claims action to district court, shall not bar such claims in a separate action.”

Dillon said that even though Stevenson argued that she was, in fact, an aggrieved party, this was simply not the case.

“Our Supreme Court has generally defined a “person aggrieved” as a party “adversely affected in respect of legal rights, or suffering from an infringement or denial of legal rights,” Dillon said. “Here, Stevenson is not an aggrieved party because she is still free to seek appropriate redress for her claims against JSA by bringing a separate action.”

Attempts by JSA to seek to dismiss Stevenson’s counterclaims as compulsory pursuant to Rule 13 would fail, Dillon said.

“Stevenson’s proper course of action is to bring her counterclaims in a new action,” Dillon said.

Nathan White of Moore & Van Allen in Charlotte represented Stevenson. He said that the decision is great news for tenants and their attorneys, as it establishes a clearer roadmap of how to proceed when a client in a landlord/tenant issue has substantial counterclaims.

“The Court’s ruling fills a ‘gap’ in North Carolina where the small claims statutes (Article 19 of Chapter 7A), Rule 13 of the Rules of Civil Procedure, and the Court of Appeals’ then-existing case law did not previously meet,” White said. “The small claims statutes allow for bringing a separate action; however, our concern, based on a prior [Court of Appeals] case ruling was whether we would face a compulsory counterclaim motion to dismiss.”

The court answered that question, White said, and in situations where a defendant prevails in small claims court, the defendant can now bring counterclaims exceeding $10,000 in a separate action without fear of facing a motion to dismiss.

Malik Dixon represented J.S. & Associates Inc. He could be reached for comment prior to press time.

The seven-page decision is J.S. & Associates Inc. v. Maria Stevenson (Lawyers Weekly No. 011-119-19). The full text of the decision is available online at nclawyersweekly.com.

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