STATE OF NORTH CAROLINA                              IN THE GENERAL COURT OF JUSTICE

FORSYTH COUNTY                                                             SUPERIOR COURT DIVISION

 

PHILIP A.R. STATON, et al.   Plaintiffs,   v.   JERRI RUSSELL, et al.   Defendants, Cross-Claimants and Third-Party Defendants.	) ) ) ) ) ) ) ) ) ) )	CIVIL ACTION NO: 96 CvS 1409
INGEBORG STATON, et al.   Plaintiffs,   v.   CENTURA BANK, et al.   Defendants and Third-Party Defendants.	) ) ) ) ) ) ) ) ) )	CIVIL ACTION NO: 96 CvS 7224
PIEDMONT INSTITUTE OF PAIN MANAGEMENT, et al.   Plaintiffs,   v.   CENTURA BANK, et al.   Defendants and Third-Party Defendants.	) ) ) ) ) ) ) ) ) ) )	CIVIL ACTION NO: 96 CvS 7140
INGEBORG STATON, et al.,   Plaintiffs,   v.   CENTURA BANK, et al.   Defendants.	) ) ) ) ) ) ) ) )	CIVIL ACTION NO: 99 CvS 5156

 

 

 

BRIEF OF CENTURA BANK IN SUPPORT OF

MOTION FOR SUMMARY JUDGMENT AGAINST PIPM, ET AL.

 

INDEX

 

INTRODUCTION...................................................................................................................... 1

 

FACTUAL SUMMARY............................................................................................................. 1

 

ARGUMENT.............................................................................................................................. 5

 

I.      THE PIPM PLAINTIFF’S LACK STANDING TO ASSERT A CLAIM FOR         DECLARATORY JUDGMENT.…………………………………………………………5

 

II.     THE PIPM PLAINTIFFS LACK STANDING TO MAINTAIN A PRIVATE CAUSE

        OF ACTION AGAINST CENTURA AS A FORMER TRUSTEE OF THE STATON

        FOUNDATION…….…………………………………………………………………….6

 

III.   THE STATON FOUNDATION CHARITABLE TRUST INDENTURE AND THE

        GRANT LETTER EXCULPATE CENTURA FROM THE PIPM PLAINTIFFS’

        CLAIMS OF NEGLIGENCE AND BREACH OF FIDUCIARY DUTIES.…………….9

 

IV.   CENTURA DID NOT OWE THE PIPM PLAINTIFFS ANY DUTY…………….……11

 

V.    THE PIPM PLAINTIFFS HAVE NO CLAIM AGAINST CENTURA FOR BREACH

        OF FIDUCIARY DUTY OR CONSTRUCTIVE FRAUD……..………………………12

 

    A.        Business Discussions With A Bank Do Not Create A Fiduciary Relationship…12

 

    B.         The PIPM Plaintiffs Cannot Establish Any Benefit To Centura…..……………14

 

VI.   THE PIPM PLAINTIFFS CANNOT ESTABLISH THE ELEMENTS

        NECESSARY TO PROVE FRAUD OR FRAUDULENT MISREPRESENTATION…15

 

    A.        The PIPM Plaintiffs Cannot Demonstrate Actual Or Reasonable Reliance….…15

 

            1.         The PIPM Plaintiffs cannot establish actual reliance……………………15

 

            2.         Any purported reliance by the PIPM Plaintiffs was not reasonable..……16

 

    B.         The PIPM Plaintiffs Cannot Establish Scienter…………………………………17

 

VII.  THE PIPM PLAINTIFFS CANNOT ESTABLISH THE ELEMENTS OF

        NEGLIGENT MISREPRESENTATION.        ……………………………………………18

 

    A         The PIPM Plaintiffs Cannot Establish Reliance…………………………………18

 

    B.         The PIPM Plaintiffs Cannot Establish Any Damages…….……..………………19

 

VIII.             CENTURA DID NOT VIOLATE CHAPTER 75.        ……………………………19

 

    A.        Statements By Centura Did Not Have The Capacity To Deceive.….………...…19

 

    B.         The PIPM Plaintiffs Cannot Demonstrate Any Damages.    ……………………20

 

IX.   THE PIPM PLAINTIFFS ARE UNABLE TO SHOW THAT CENTURA         PROXIMATELY CAUSED ANY DAMAGES……...…………………………………20

 

X.    THE PIPM PLAINTIFFS HAVE NOT SUSTAINED ANY DAMAGES AS

        A MATTER OF LAW.        ……………………………………………………………23

 

    A.        Plaintiffs Are Not Entitled To Benefit-Of-The-Bargain Damages…...……….…23

 

    B.         Plaintiffs Have Not Sustained Any Damages……………………………………23

 

Conclusion........................................................................................................................ 25

 

CERTIFICATE OF SERVICE.................................................................................................. 26

 

 

 

 

INTRODUCTION^[1]

 

The PIPM Plaintiffs allege that they have been damaged by loss of funding for PIPM, a pain clinic.  As more fully set forth below, the idea of a pain clinic was discussed between Dr. Meloy and one of his patients, Tom Brame.  In 1993 a charitable foundation, the Staton Foundation, was created by Tom pursuant to powers of attorney authorizing him to act on behalf of his wealthy brother-in-law, Philip.  Based upon the powers of attorney executed by Philip, certain CLTs were established by Tom, funded from an account containing a large amount of Staton money.  Philip and Philip’s sister, Ingeborg, were named as grantors of the CLTs.  In 1996, Philip and Ingeborg challenged the validity of the Staton Foundation and the CLTs and Philip, as sole trustee of the Staton Foundation, prevented the Staton Foundation from funding PIPM.  Thereafter, the PIPM Plaintiffs entered into an agreement with Philip and the Staton Foundation which released the Foundation from any further obligation to fund PIPM. 

FACTUAL SUMMARY 

 

1.                  In 1993, the Statons sold their stock in a family soft drink business called Panamco.  On June 8, 1993, the Statons authorized Philip to receive and to handle the sale proceeds.  (Ex. 127); (Ingeborg-Dep. pp. 358-359); (Philip-Dep. pp. 106, 108, 110); (Mercedes-Dep. pp. 158, 160); (App-pp. 294-99, 87-88, 148, 149, 150, 133-134).

2.                  Prior to the Statons’ sale of their Panamco Stock, Tom, with the knowledge and consent of Philip, opened an account at a branch of Centura in Winston-Salem, North Carolina, which was designated the PIM Account. (Philip-Dep. p. 281); (Ex. 131); (App-pp. 154, 300).  Tom and his then wife, Jerri, were the authorized signatories.  (Jerri-Dep. p. 307); (App-p. 47).

3.                  In July and August of 1993, proceeds from the Panamco stock sale, over $119 million, were wired to the PIM Account pursuant to written instructions from Philip. (Philip-Dep. pp. 332-34); (Ex. 131); (App-pp. 157-59, 300, 493-96).

4.                  The Brames met with Dr. Meloy in August, 1993.  They continued a discussion begun earlier concerning the establishment of a pain clinic to serve the indigent. (PIPM-Complaint ¶13).  Thereafter, Dr. Meloy and Dr. Martin developed a plan for the establishment of PIPM. (PIPM-Complaint ¶ 14).

5.                  On November 24, 1993,  Philip executed three powers of attorney,  the 1993 Powers of Attorney, authorizing the Brames to conduct a variety of business and financial transactions, specifically including the making of charitable gifts and establishing charitable trusts and foundations.  (Ex. 104, 105, 106); (App-pp. 262-66, 267-71, 272-26).  The 1993 Powers of Attorney were signed by Philip, one on behalf of himself, one as Ingeborg’s attorney-in-fact, and one as Mercedes’ attorney-in-fact.  (Ex. 104, 105, 106); (Philip-Dep. pp. 328-329, 344-345, 383); (App-pp. 262-66, 267-71, 272-76, 155-56, 163-64, 177).

6.                  On December 6, 1993, Tom executed the trust indenture which established the Staton Foundation, which was declared to be a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. (Ex. 107); (App-pp. 277-85).  Centura was one of the initial trustees of the Staton Foundation.  (Id.)  Centura resigned on March 27, 1996.  (Ex. 369); (App-p. 375).

7.                   On December 8, 1993, Tom, as Philip’s attorney-in-fact, executed a trust agreement establishing the first of two CLTs for Philip.  (Ex. 150); (App-pp. 332-38).  The first CLT was funded with $5 million from the PIM Account.  (Philip-Dep. p. 404); (App-p. 182).  On October 24, 1994, Tom, again acting as attorney-in-fact for Philip, established a second CLT, which was funded with $4 million from the PIM Account.  (Ex. 152); (Philip-Dep. p. 409); (App-p. 342-50, 183).  At the time these two CLTs were established, Philip’s 1993 Power of Attorney was in full force and effect. (Ex. 104); (Philip-Dep. p. 401); (Hirsh-Dep. p.268); (App-pp. 262-66, 181, 59).  Contemporaneously with the establishment of each of Philip’s CLTs, Tom, as attorney-in-fact for Ingeborg, executed trust agreements establishing identical CLTs for Ingeborg.  (Ex. 108); (Philip-Dep. pp. 404, 412); (Ingeborg-Dep. p. 420); (Ex. 153); (App-p. 286-93, 182, 184, 98, 351-59).

8.                  At least by December, 1993, Philip knew from conversations with Tom, that a CLT had been established in his name.  (Philip-Dep. p. 368-370, 400-401); (App-pp. 168-70, 180-81).   Philip believed that $10 million from the PIM Account would be used to fund his initial CLT, rather than an initial $5 million investment followed by a $4 million investment.  (Id.) 

9.                  The income generated by the CLTs was to be used to fund the Staton Foundation and the Foundation would fund PIPM. (Ex. 132); (App-pp. 301-304).  It was anticipated that Philip and Ingeborg would receive tax benefits from the creation of the CLTs.  (Id.).

10.              Poyner & Spruill represented the PIPM Plaintiffs and Centura in connection with the establishment of PIPM, the Staton Foundation and the CLTs.   (Philip-Dep. pp. 193-194); (Ex. 132); (PIPM-Complaint ¶ 20); (App-pp. 151-152, 301-304).

11.               By letter dated October 21, 1994, the Staton Foundation conditionally agreed to fund PIPM with approximately $900,000 per year, for up to 20 years.  (Ex. 151); (App-pp. 339-41).  Funding was conditioned upon, among other things, (i) the Staton Foundation having such funds available, and (ii) the release from personal liability on the part of the Foundation’s trustees.  (Id.).  Dr. Meloy acknowledged and agreed to these terms on behalf of PIPM.  (Id.).

12.              In 1994, Philip continued discussions with Tom and Dr. Meloy regarding PIPM.  He was again made aware that his money was being used for a pain clinic. (Philip-Dep. p. 337, 366-69); (App-pp. 160, 166-69).  Specifically, Philip discussed the funding of PIPM with Dr. Meloy during a hunting trip in November, 1994.  (Philip-Dep. p. 366-370); (App-p. 166-70).

13.              Although Philip knew of the existence of his CLTs and the Staton Foundation as early as December, 1993, Philip did not object to Tom or anyone else about the use of his money to fund PIPM, nor attempt to rescind the CLTs until March, 1996. (Philip-Dep. p. 369-370, 377-380); (App-pp. 169-70, 173-76).

14.              Ingeborg contends she did not learn about the Staton Foundation or her CLTs until late December, 1995.  (Ingeborg-Dep. p. 381); (App-p. 95).  However, she testified that she was aware of Tom’s involvement in her financial affairs, and further knew as of December, 1993 that Philip had delegated management responsibility of her financial affairs to Tom. (Philip-Dep. p. 358); (Ingeborg-Dep. p. 368); (App-pp. 165, 89).  Ingeborg testified “I trusted Philip.  And Philip, in turn, trusted Tom.”  (Ingeborg-Dep. p. 394); (App- p. 96).

15.              From inception, the income generated by the CLTs was distributed to the Staton Foundation.  (Philip-Dep. p. 420-421); (App-pp. 188-89).  At a meeting on March 29, 1996, attorneys for Centura informed the PIPM Plaintiffs and their counsel that Centura, as trustee of the CLTs, would continue to make the required distributions from the CLTs to the Staton Foundation.  At the same meeting attorneys for Philip, who was then the sole trustee of the Staton Foundation, indicated that Philip would no longer permit the Staton Foundation to fund PIPM.  (Philip-Dep. p. 498); (App-p. 195).

16.              On April 16, 1996, the PIPM Plaintiffs entered into a Settlement Agreement and Release with Philip and the Staton Foundation, agreeing to accept the sum of $365,000 in full satisfaction of all claims against Philip, Ingeborg and the Staton Foundation.  (PIPM-Complaint ¶ 41); (Ex. 154); (Philip-Dep. p. 413-415); (App-pp. 360-68, 185-87).

ARGUMENT

 

The PIPM Plaintiffs assert claims against Centura for declaratory judgment, negligence/negligent misrepresentation, breach of fiduciary duty/constructive fraud,^[2] fraud/fraudulent misrepresentation and unfair and deceptive trade practices.^[3]  (PIPM-Complaint ¶¶ 91, 95, 98, 109, 115, 118, 126). A defendant may meet its burden on summary judgment by showing that an essential element of the plaintiff’s claim is nonexistent or that the plaintiff cannot produce evidence to support an essential element of its claim Camalier v. Jeffries, 340 N.C. 699, 710-11, 460 S.E.2d 133, 138 (1995).  For the following reasons, Centura is entitled to judgment as a matter of law on all claims asserted against it.

I.                   THE PIPM PLAINTIFF’S LACK STANDING TO ASSERT A CLAIM FOR DECLARATORY JUDGMENT.

 

The PIPM Plaintiffs seek a declaration regarding the validity of the Staton Foundation, the CLTs and documents related thereto.  (PIPM-Complaint ¶ 126).  A declaratory judgment action is inappropriate when the question presented has been rendered moot.  Hicks v. Hicks, 60 N.C. App. 517, 523, 299 S.E.2d 275, 279 (1983); see also  Morris v. Morris, 245 N.C. 30, 36, 95 S.E.2d 110, 114 (1956).  A dispute that has already been resolved is considered moot.  Black’s Law Dictionary 697 (6th ed.1990).

In the present case, the Settlement released the Staton Foundation from any further responsibility to fund PIPM (Ex. 154); (App-pp. 360-68).  The PIPM Plaintiffs have never been, and are not presently, beneficiaries of the Statons’ CLTs.  Therefore, even if the CLTs and the Staton Foundation are declared valid and specifically enforced, PIPM will not receive, or be entitled to receive, any funding from the CLTs or the Staton Foundation.  The question of the validity of the CLTs and the Staton Foundation is, therefore, as to the PIPM Plaintiffs, a moot question.  Moreover, as stated below, the PIPM Plaintiffs have no right to recover from Centura regardless of whether the Staton Foundation and CLTs are valid or invalid.  Accordingly, Centura is entitled to summary judgment on the PIPM Plaintiffs’ declaratory judgment claim as a matter of law.  See Threatte v. Threatte, 59 N.C. App. 292, 296 S.E. 2d 521 (1982) (summary judgment may be granted in a declaratory judgment action). 

II.                THE PIPM PLAINTIFFS LACK STANDING TO MAINTAIN A PRIVATE CAUSE OF ACTION AGAINST CENTURA AS A FORMER TRUSTEE OF THE STATON FOUNDATION.

 

The PIPM Plaintiffs have not sued Centura in its capacity as a former trustee of the Staton Foundation.  Even if the PIPM Complaint is deemed to assert claims against Centura in such capacity, such claims are barred as a matter of law.  Suits against trustees of charitable trusts are subject to unique rules not applicable to other types of trusts.  Mary Grace Blasko, et al. Standing to Sue in the Charitable Sector, 28 U.S.F.L. Rev. 37, 40-42 (1993).  North Carolina law recognizes the well-settled rule that a private citizen lacks standing to sue to enforce a charitable trust unless the private citizen has a special interest in the performance of the charitable trust.  Kania v. Chatham, 297 N.C. 290, 291-92, 254 S.E. 528, 530 (1979).  Whether a private citizen has a special interest in the performance of a charitable trust is determined by the posture of the private citizen seeking performance and the nature of the charitable trust.  Id. at 292, 254 S.E.2d at 530.

In Kania, the Supreme Court held that the plaintiff lacked standing because plaintiff’s status as a potential beneficiary of the charitable trust was insufficient to demonstrate a special interest in the performance of the charitable trust.  Id. at 292, 254 S.E.2d at 530.  No North Carolina case has recognized any other theory on which a private party may demonstrate standing to maintain an action against the trustee of a charitable trust.  

North Carolina law is consistent with Restatement (Second) of Trusts §392 and Comment (a) to §392,^[4] which require that a private party have a “special interest in the enforcement of the trust” to maintain a suit against a trustee of a charitable trust for failure to perform its trust duties.  Thus, the PIPM Plaintiffs must demonstrate a special interest in the enforcement of the Staton Foundation to maintain an action against Centura as a trustee of the Staton Foundation.^[5]

The PIPM Plaintiffs’ right, if any, to receive funding from the Staton Foundation arises from the Grant Letter.  To have standing, the PIPM Plaintiffs must demonstrate both a special interest in the enforcement of the terms of the Staton Foundation trust indenture and standing to enforce the terms of the Grant Letter.  However, the PIPM Plaintiffs lost any such special interest when they released the Staton Foundation pursuant to section 3 of the Settlement between Philip, the Staton Foundation and the PIPM Plaintiffs, in which the PIPM Plaintiffs expressly agreed to:

release, acquit and forever discharge the [Staton] Foundation . . . from any and all claims, actions, causes of action, and rights whatsoever . . . including any claims, actions, causes of action, and rights arising under or in connection with the [Grant] Letter  . . . or the [Staton] Foundation’s funding of the [Piedmont] Institute [for Pain Management] . . . . 

 

(Ex. 154); (App-p. 361).  The PIPM Plaintiffs’ Complaint acknowledges that they no longer have any interest in the Staton Foundation by referring to their status as beneficiaries in the past tense.^[6]

The policy behind the special interest doctrine ensures that when a private party sues a charitable trust, the best interests of the charity and charitable beneficiaries will be protected. Blasko, 28 U.S.F.L. Rev. at 61  The PIPM Plaintiffs have already recovered from and released the Staton Foundation and no longer have any interest in the Staton Foundation.

No North Carolina case has addressed the standing issue in the context of a former beneficiary of a charitable trust who has given a release.  The Court of Appeals has held that a caveator had no standing to challenge his father’s will after he released all his rights in his father’s estate.  In re Will of Edgerton, 29 N.C. App. 60, 65, 223 S.E.2d 524, 528 (1976) (summary judgment appropriate where plaintiff lacks standing).  The PIPM Plaintiffs’ release of the Staton Foundation prevents them from receiving any benefit from, and therefore having any special interest in, the enforcement of the Staton Foundation.  As a matter of law, the PIPM Plaintiffs lack standing to maintain an action against Centura in its capacity as a former trustee of the Staton Foundation.^[7]

III.             THE STATON FOUNDATION CHARITABLE TRUST INDENTURE AND THE GRANT LETTER EXCULPATE CENTURA FROM THE PIPM PLAINTIFFS’ CLAIMS OF NEGLIGENCE AND BREACH OF FIDUCIARY DUTIES.

 

The Uniform Trust Act provides that the settlor of a trust may by the terms of the trust document “alter or deny to his trustee any or all of the privileges and powers conferred upon the trustee by this Article . . . .”  N.C. Gen. Stat. §36A-78 (2000).  The Court of Appeals has recognized the authority granted to the settlor of a trust under 36A-78, but no North Carolina case has yet applied the statute to an exculpatory clause in a trust.  See Taylor v. NationsBank Corp., 125 N.C. App. 515, 481 S.E.2d 358 (1997).  However, North Carolina law with respect to exculpatory clauses in contracts is well-settled, holding that such clauses are valid when the language and intent of the parties is clearly exculpatory.  Gibbs v. Carolina Power & Light Co., 265 N.C. 459, 467, 144  S.E.2d 393, 400 (1965).  

The language of 36A-78 and North Carolina’s recognition of the validity of exculpatory provisions supports the enforcement of exculpatory provision in trust documents.  Other states’ courts that have addressed the issue of exculpatory clauses in trusts have held such clauses valid and enforceable.  See Captran Creditor’s Trust v. McConnell, 114 B.R. 753 (Bnkr. M.D. Fla. 1990); Mahle v. First Nat’l. Bank of Peoria, 610 N.E.2d 115 (Ill. Ct. App. 1993). In Corpus Christi National Bank v. Gerdes,  the issue was whether an exculpatory provision in a trust is binding upon the beneficiaries.  551 S.W.2d 521, 522 (Tex. Civ. App. 1977).  Applying Texas’ version of 36A-78 to find that a trustor has authority to relieve a corporate trustee of all duties,^[8] the court held in Gerdes that the beneficiaries of the trust were bound by the exculpatory language and that the trial court erred by submitting issues of negligence to the jury.  Id. at 524. 

Applying these principles to the clear and unequivocal language of the Staton Foundation Trust Indenture and the Grant Letter, Centura, as a trustee of the Staton Foundation, cannot be held liable for claims alleging negligence and/or breach of fiduciary duties.  Section Five of the Staton Foundation Charitable Trust Indenture states that “[n]o Trustee . . . shall be responsible or liable for the acts or omissions of any . . . agent . . . selected with reasonable care.”  (Ex. 107);  (App-p. 279).  The October 21, 1994 Grant Letter to PIPM states that “[i]t is also understood and agreed that the Foundation’s undertaking to provide long-term funding for the Institute shall in no way result in any personal liability on the part of the Foundation’s trustees or any of them.”  (Ex. 151); (App-p. 339).

As the language of the Trust Indenture and the Grant Letter is plain and unambiguous, these documents can be interpreted by the Court as a matter of law.  See Davis v Vecaro Develop. Corp., 101 N.C. App. 554, 555, 400 S.E.2d 83, 84 (1991) (“[w]hen the language of a contract is plain and unambiguous . . . it is the duty of the court to construe the contract as written”).  The clear and unambiguous language of the Staton Foundation Trust Indenture relieves Centura of liability to the PIPM Plaintiffs based on the alleged acts or omissions of Centura’s agents, which acts the PIPM Plaintiffs attempt to impute to Centura.  The Grant Letter also relieves Centura, and the other trustees, of personal liability with respect to the Staton Foundation’s agreement to fund PIPM.  Thus, the express language of the Staton Foundation Trust Indenture and the Grant Letter exculpate Centura from liability as a result of any undertaking to fund PIPM.

 

IV.              CENTURA DID NOT OWE THE PIPM PLAINTIFFS ANY DUTY.

 

To establish a claim for negligence, negligent misrepresentation or breach of fiduciary duty, the PIPM Plaintiffs must prove that Centura owed a duty to the PIPM Plaintiffs and that Centura breached that duty.  See Kaplan v. First Union, 99 N.C. App. 570, 393 S.E.2d 344 (1990) (negligence claim requires showing of duty of care and breach of duty); The Jay Group, Ltd. v. Glasgow, 534 S.E.2d 233, 236 (N.C. App. 2000), rev. denied, 2000 N.C. Lexis 968 (N.C. Dec. 20, 2000) (negligent misrepresentation occurs when “a party justifiably relies to his detriment on information prepared without reasonable care by one who owed the relying party a duty of care.”); Pittman v. Barker, 117 N.C. App. 580, 452 S.E.2d 326 (1995) (breach of fiduciary duty requires showing that defendant owed a fiduciary duty to plaintiff and breach of that duty).  The PIPM Plaintiffs allege that Centura breached its duty by supplying false and misleading information, failing to supply truthful and accurate information (PIPM-Complaint ¶ 88), failing to insure the validity of the CLTs and the Staton Foundation, failing to notify the PIPM Plaintiffs of problems when they developed, (PIPM-Complaint ¶ 95), and failing to act honestly, in good faith and in the best interest of the PIPM Plaintiffs.  (PIPM-Complaint ¶ 100).  The PIPM Plaintiffs’ factual allegations in support of these claims appear to be that Centura had a duty to insure that Tom had ample, adequate and complete power and authority to make the arrangements to fund a pain clinic, (PIPM-Complaint ¶ 17), and that the CLTs were fully funded and irrevocable.  (PIPM-Complaint ¶ 32).

However, the PIPM Plaintiffs admit that Centura “strongly recommended and suggested” that a lawyer go over the plan for funding PIPM and do all the associated legal work.  (PIPM-Complaint ¶ 18).  The PIPM Plaintiffs further admit that Poyner & Spruill represented Centura and the PIPM Plaintiffs in preparing “all necessary documents to accomplish the objectives discussed,” and that the 1993 Powers of Attorney were returned to Poyner & Spruill, not Centura, after being executed by Philip.   (PIPM-Complaint ¶ 20).  Thus, Centura was not responsible for the preparation or execution of the documents authorizing and creating the CLTs and Staton Foundation.  Like the PIPM Plaintiffs, Centura relied upon Poyner & Spruill to ensure the validity of the CLTs and Staton Foundation.  The PIPM Plaintiffs allegation that Centura orally guaranteed the funding of PIPM is legally insufficient to impose liability upon Centura.  See N.C. Gen. Stat. § 22-1 (2000) (“No action shall be brought whereby . . .  to charge any defendant upon a special promise to answer the debt, default or miscarriage of another person, unless the agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party charged therewith or some other person thereunto by him lawfully authorized.”) (emphasis added).  Thus, Centura owed no duty to the PIPM Plaintiffs to ensure that these entities were valid. 

V.                 THE PIPM PLAINTIFFS HAVE NO CLAIM AGAINST CENTURA FOR BREACH OF FIDUCIARY DUTY OR CONSTRUCTIVE FRAUD.

 

Claims for breach of fiduciary duty and constructive fraud are identical.  See Estate of Smith v. Underwood, 127 N.C. App. 1, 487 S.E.2d 807 (1997).  Therefore, these claims will be discussed together.

A.                 Business Discussions With A Bank Do Not Create A Fiduciary Relationship.

The PIPM Plaintiffs allege that they relied on the representations of Centura, Poyner & Spruill and the Brames.  (PIPM-Complaint ¶¶ 13-18, 20-22).  They concede that Centura

“strongly recommended and suggested” that they have counsel go over the business plan and do the legal work.  Even if the PIPM Plaintiffs relied in part on alleged representations of Centura, which is denied, such conversations and reliance did not create a fiduciary relationship. 

“In general terms, a fiduciary relation is said to exist ‘[w]herever confidence on one side results in superiority and influence on the other side; where a special confidence is reposed in one who in equity and good conscience is bound to act in good faith and with due regard to the interests of the one reposing the confidence.’”  Vail v. Vail, 233 N.C. 109, 114, 63 S.E.2d 202, 206 (1951).  The superiority of influence must rise to the level that the fiduciary actually dominates the decisions of the other party.  See Abbitt v. Gregory, 201 N.C. 577, 598, 160 S.E. 896, 906 (1931) (relationship “‘extends to any possible case in which . . . there is confidence reposed on one side, and resulting domination and influence on the other’” (emphasis added)).  No such domination was present here.

In Branch Banking and Trust Co. v. Thompson, 107 N.C. App. 53, 418 S.E.2d 694 (1992), the plaintiffs made similar claims against a bank.  The plaintiffs in Thompson invested in a joint venture for the development of property.  The plaintiffs testified that in deciding to invest, they relied upon the representations of the officers of the bank and others.  The plaintiffs contended that their reliance on the bank for information created a fiduciary relationship between the plaintiffs and the bank.  Id. at 61, 418 S.E.2d at 699.  The court rejected this argument, holding that these facts were insufficient to establish a relationship of special confidence that the bank could have breached.  Id.  Likewise, the PIPM Plaintiffs’ claims for breach of fiduciary duty must be dismissed.

 

 

B.                 The PIPM Plaintiffs Cannot Establish Any Benefit To Centura.

To establish a claim for breach of fiduciary duty, the PIPM Plaintiffs must demonstrate that Centura received a benefit from the alleged wrongful transactions.  The PIPM Plaintiffs appear to contend that Centura benefited by its banking relationships with PIPM.  (PIPM-Complaint ¶ 30). This continued business relationship is an insufficient benefit to support claims for breach of fiduciary duty as a matter of law.  See Section  II.D.1.d of Centura’s Brief Against Philip.

The PIPM Plaintiffs must also establish that the alleged breaches of fiduciary duty caused them to suffer harm.  Any harm suffered by the PIPM Plaintiffs arose out of PIPM’s alleged “loss” of funding.  The PIPM Plaintiffs contend that PIPM lost funding because Philip and Ingeborg did not authorize Tom to create the CLTs or the Staton Foundation on their behalf.^[9]  (PIPM-Complaint ¶¶ 47, 49).  If they are correct, further investigation by Centura prior to the formation of the CLTs and the Staton Foundation would have necessarily resulted in no funding for the CLTs or the Staton Foundation, as opposed to assuring funding to PIPM as the PIPM Plaintiffs contend.  Centura’s alleged breaches of fiduciary duty, therefore, created a benefit, not a harm, to the PIPM Plaintiffs by causing PIPM to receive funding that it otherwise would not have received.^[10]  Without proof of a harm to the PIPM Plaintiffs or a benefit to Centura, the PIPM Plaintiffs’ breach of fiduciary duty claim fails as a matter of law.

VI.              THE PIPM PLAINTIFFS CANNOT ESTABLISH THE ELEMENTS NECESSARY TO PROVE FRAUD OR FRAUDULENT MISREPRESENTATION.

 

The elements of and pleading requirements for fraud are set forth in section II.B.2 of Centura’s Brief Against Philip, and are incorporated herein by reference.

A.                 The PIPM Plaintiffs Cannot Demonstrate Actual Or Reasonable Reliance.

To maintain an action for fraud, a plaintiff must demonstrate both actual and reasonable reliance on the alleged misrepresentation.  Pleasant Valley Promenade v. Lechmere, Inc., 120 N.C. App. 650, 663, 464 S.E.2d 47, 57 (1995).  The PIPM Plaintiffs cannot establish either.

1.                  The PIPM Plaintiffs cannot establish actual reliance.

The PIPM Plaintiffs state that they believed  “[t]he Defendant law firm undertook to represent Dr. Meloy, Dr. Faller, [and] Dr. Martin, as founders of PIPM, . . . and to prepare all necessary documents to accomplish the objectives as discussed.”  (PIPM-Complaint ¶ 20).  Moreover, the PIPM Plaintiffs concede that they not only relied on Poyner & Spruill to prepare such documents and accomplish the “objectives as discussed,” they also contracted with Poyner & Spruill to do so.  (PIPM-Complaint ¶ 22).  The PIPM Plaintiffs further admit that Dr. Meloy attended a meeting in Winston-Salem during November of 1993, (PIPM-Complaint ¶ 20), at which time Twiddy “specially instructed the parties present that these documents had to be signed by the principals.”  (PIPM-Complaint ¶ 23).^[11]  The PIPM Plaintiffs further admit to understanding that they shared, “jointly and severally,” with all the parties a “continuing duty and responsibility . . . to insure that all transactions [were] carried out in an appropriate and legal manner.”  (PIPM-Complaint ¶ 25).  Despite these concessions, and despite understanding that they had an independent duty to insure the efficacy of the documentation, and that Dr. Meloy requested to review the documents creating the CLTs (Ex. 541); (App-p. 387), the PIPM Plaintiffs incongruously assert that they relied on Centura’s representations regarding the effectiveness of the 1993 Powers of Attorney and the CLTs.  (PIPM-Complaint ¶¶ 107, 115).  Such allegations are without support in the facts and are legally unjustifiable.

2.                  Any purported reliance by the PIPM Plaintiffs was not reasonable.

To rely reasonably upon a representation for purposes of fraud, a plaintiff must not have had the opportunity to discover the truth of the representations allegedly relied upon.  As stated by the Court of Appeals, 

when the party relying on the false or misleading representation could have discovered the truth upon inquiry, the Complaint must allege that he was denied the opportunity to investigate or that he could not have learned the true facts by exercise of reasonable diligence. 

 

Hudson-Cole Development Corp. v. Beemer, 132 N.C. App. 341, 346, 511 S.E.2d 309, 313 (1999).  Beemer imposes an affirmative duty upon the PIPM Plaintiffs to investigate, unless the PIPM Plaintiffs allege that they were denied that opportunity.  Contrary to being denied such an opportunity, the PIPM Plaintiffs concede that they specifically understood they had a duty “to insure that all transactions [were] carried out in an appropriate legal manner.”  (PIPM-Complaint ¶ 25).  Moreover, the PIPM Plaintiffs allege that they were specifically instructed that the 1993 Powers of Attorney had to be signed by the principals, yet they never inspected the executed powers and Centura did not deny the PIPM Plaintiffs access to such documents.  (Meloy-Dep. p. 189-90); (App-pp. 65a-65b).  Finally, the PIPM Plaintiffs concede that they were encouraged to obtain counsel to represent their interests, but they chose not to do so.  (PIPM-Complaint ¶ 18).  These concessions eviscerate any claim for reasonable reliance on purported representations by Centura or its agents.

B.                 The PIPM Plaintiffs Cannot Establish Scienter.

“Without the element of intent to deceive, the required scienter for fraud is not present.  The term ‘scienter’ embraces both knowledge and intent to deceive, manipulate or de-fraud.”  Malone v. Topsail Area Jaycees, Inc., 113 N.C. App. 498, 502-503, 439 S.E.2d 192, 195 (1994).  “[M]ere evidence of reckless indifference to a representation’s truth or falsity is not sufficient to satisfy the element of scienter.”  Brandis v. Lightmotive Fatman, Inc., 115 N.C. App. 59, 67, 443 S.E.2d 887, 891 (1994) (internal quotation marks omitted); see also Leftwich v. Gaines, 134 N.C. App. 502, 507, 521 S.E.2d 717, 722, rev. denied, 351 N.C. 357 (1999) (holding that a “mere recommendation or statement of opinion ordinarily cannot be the basis of a cause of action for fraud”).  To state a claim for fraud, the PIPM Plaintiffs must establish that the individual(s) who made the alleged communications or fraudulent omissions possessed the requisite scienter.  The PIPM Plaintiffs cannot meet either the knowledge or intent elements of scienter.

In Myers & Chapman, Inc. v. Thomas G. Evans, Inc., a contractor sued a subcontractor for fraud.  The subcontractor submitted applications for payment which the officers of the subcontractor signed, averring that the work described in the application had been completed.  Two of the applications described work that, in fact, had not been completed, and charges for parts that, in fact, had not been ordered.  In the plaintiff’s complaint, there was no allegation that the certifying officer knew of the falsity or intended to deceive.  Nevertheless, the plaintiff argued that the corporate officers had committed fraud because they made the application “recklessly without any knowledge of its truth and as a positive assertion,” and that such an allegation satisfied the pleading requirements for fraud.  323 N.C. 559, 567-68, 374 S.E.2d 385, 391 (1988) (quoting Odom v. Little Rock & I-85 Corp., 299 N.C. 86, 91-92, 261 S.E.2d 99, 103 (1980) (emphasis omitted)).  In holding that the plaintiff had failed to allege facts sufficiently to establish scienter, the court observed:

The record and transcript in the case sub judice reveal that [the corporate officer] had neither knowledge nor intent to deceive plaintiff when he signed and swore to Applications for Payment Nos. 2 and 3.  He had no scienter.

 

Id. at 569, 374 S.E.2d at 392 (emphasis original). 

Similarly, the facts in this case demonstrate that Centura had neither knowledge nor intent to deceive.  The 1993 Powers of Attorney signed by Philip were returned to Poyner & Spruill without Centura having reviewed them.  Centura had no more or less opportunity to review the documents than the PIPM Plaintiffs, who, as stated above, chose not to review them or to have them reviewed.  There is no evidence that Wrenn or Jarvis knew that the 1993 Powers of Attorney had not been signed by the principals or that they believed the 1993 Powers of Attorney and/or CLTs were invalid.  Centura has itself requested that the Court determine the validity of the CLTs.

VII.           THE PIPM PLAINTIFFS CANNOT ESTABLISH THE ELEMENTS OF NEGLIGENT MISREPRESENTATION.

 

A.                 The PIPM Plaintiffs Cannot Establish Reliance.

As with fraud, “justifiable reliance” is an essential element of negligent misrepresentation.  Helms v. Holland, 124 N.C. App. 629, 635, 478 S.E.2d 513, 517 (1996).  As with the PIPM Plaintiffs’ fraud claims, there has been no justifiable reliance by the PIPM Plaintiffs on any representation by Centura.  See Section VI.A., above.

 

 

B.                 The PIPM Plaintiffs Cannot Establish Any Damages.

“Damages for negligent misrepresentation are limited to out-of-pocket loss and consequential damages, but does not include benefit of the bargain expectation damages.”  Charles E. Daye and Mark W. Morris, North Carolina Law of Torts, § 27.50 at 585 (2d ed. 1992) (citing Restatement (Second) of Torts § 552B (1977)) (footnote omitted).  North Carolina applies the Restatement (Second) of Torts § 552B measure of damages for negligent representation.  See Middleton v. Russell Group, Ltd., 126 N.C. App. 1, 29, 483 S.E.2d 727, 743 (1997) (quoting the Restatement and citing with approval Karas v American Family Ins. Co. Inc., 33 F.3d 995, 999 (8th Cir. 1994), for the proposition that mental anguish damages are not recoverable for negligent misrepresentation).  For the reasons set forth in section X below, the PIPM Plaintiffs cannot establish any out-of-pocket loss or consequential damages flowing from any alleged misrepresentations by Centura.

VIII.        CENTURA DID NOT VIOLATE CHAPTER 75.

 

A.                 Statements By Centura Did Not Have The Capacity To Deceive.

  “To prevail on a claim of unfair and deceptive trade practice a plaintiff must show (1) an unfair or deceptive act or practice, or an unfair method of competition, (2) in or affecting commerce, (3) which proximately caused actual injury to the plaintiff or to his business.”  Spartan Leasing Inc. v. Pollard, 101 N.C.App. 450, 460-61, 400 S.E.2d 476, 482 (1991).  A banking “‘practice is unfair if it offends established public policy or is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers,’ and ‘is considered deceptive if it has the capacity or tendency to deceive.’”  Carlson v. Branch Banking and Trust Co., 123 N.C. App. 306, 316, 473 S.E.2d 631, 637-38 (1996) (quoting Wachovia Bank & Trust Co. v. Carrington Dev. Assoc., 119 N.C. App. 480, 487, 459 S.E.2d 17, 21 (1995)).  As the court in Spartan Leasing instructed, “[t]he plaintiff . . . must show that the acts had a tendency or capacity to mislead or created the likelihood of deception.” Spartan Leasing, 101 N.C. App. at 461, 400 S.E.2d at 482.  “In a business context, whether a representation is deceptive may be decided by considering its effect on the average businessperson.”  Bolton Corp. v. T.A. Loving Co., 94 N.C. App. 392, 412, 380 S.E.2d 796, 808 (1989).

A representation does not have the capacity to deceive if it could not have been reasonably relied upon.  Spartan Leasing, 101 N.C. App. at 461, 400 S.E.2d at 482.  For the reasons set forth in section VI.A.2. above, the PIPM Plaintiffs have not established reasonable reliance.

B.                 The PIPM Plaintiffs Cannot Demonstrate Any Damages.

To establish damages under Chapter 75, a “plaintiff must prove they ‘suffered actual injury as a proximate result of defendants’ misconduct.”  Poor v. Hill, 138 N.C. App. 19, 34, 530 S.E.2d 838, 848 (2000) (citations omitted). 

In short, the measure of damages used should further the purpose of awarding damages, which is to ‘restore the victim to his original condition, to give back to him that which was lost . . .’

 

Id. at 34-35, 530 S.E.2d at 848.  For the reasons set forth in sections IX and X below, the PIPM Plaintiffs cannot demonstrate that Centura caused them any damages, and cannot establish they suffered any damages to support a claim for Chapter 75.

IX.              THE PIPM PLAINTIFFS ARE UNABLE TO SHOW THAT CENTURA PROXIMATELY CAUSED ANY DAMAGES.

 

To state a claim for breach of fiduciary duty, fraud, violation of Chapter 75 or negligence, the PIPM Plaintiffs must establish damages that were caused by allegedly wrongful conduct.  See The Jay Group, Ltd., 534 S.E.2d at 237, (to establish claims for constructive fraud and fraud, plaintiff must show damages proximately caused by allegedly fraudulent or constructively fraudulent act); Ausley v. Bishop, 133 N.C. App. 210, 216, 515 S.E.2d 72, 77 (1999) (to recover under Chapter 75, actual injury proximately caused by unfair act must be established); Schuman v. Investors Title Ins. Co., 78 N.C. App. 783, 785, 338 S.E.2d 611, 613 (1986) (defendant is not the proximate cause of the plaintiff’s injury if defendant’s negligence did not make plaintiff’s position worse than it would have been if there had been no negligence). The PIPM Plaintiffs contend that Centura caused them to suffer the following damages: (1) loss of income, (2) embarrassment and humiliation in their profession, (3) extra expenses, (4) changes in their professional duties, (5) loss of funding from the Foundation,^[12] (6) loss of reputation due to PIPM’s inability to award grants, (7) loss of the ability to raise additional funds due to PIPM’s loss of reputation and inability to pursue and complete research, and (8) loss of the ability to provide free services to the indigent.^[13]  (PIPM-Complaint, ¶¶ 121, 124).         

Assuming arguendo that these alleged damages represent actual losses, the PIPM Plaintiffs still cannot prove that their damages were proximately caused by Centura.  With respect to PIPM’s alleged loss of funding, the PIPM Plaintiffs contend that Centura should have made further inquiry into the authority granted to Tom.  However, had Centura done so, Philip and Ingeborg contend that they would not have agreed to establish the CLTs or Staton Foundation.  PIPM cannot establish, nor has it alleged, any action that Centura could have taken that would have resulted in anything other than the Foundation and the CLTs being prevented from carrying out their stated functions, given Philip and Ingeborg’s contentions.^[14]

The inability to prove that Centura proximately caused PIPM’s loss of funding necessarily establishes that Centura did not proximately cause the PIPM Plaintiffs’ alleged loss of reputation, which the PIPM Plaintiffs contend was caused by PIPM’s inability to award grants.  Centura cannot be the proximate cause of an alleged loss of reputation that was the consequence of a loss of funding that Centura did not proximately cause.  Likewise, any inability to raise funds based on a loss of reputation and PIPM’s inability to conduct additional research are also consequences of the loss of funding and, therefore, were not proximately caused by Centura.  The PIPM Plaintiffs cannot establish any damages proximately caused by Centura as a matter of law.

 

 

 

 

X.                 THE PIPM PLAINTIFFS HAVE NOT SUSTAINED ANY DAMAGES AS A MATTER OF LAW.

 

A.                 Plaintiffs Are Not Entitled To Benefit-Of-The-Bargain Damages

            As stated in Section VI. above, the PIPM Plaintiffs cannot establish a claim for fraud.  Absent fraud, the proper measure of damages in tort “is to place the injured party in the same position he would have occupied had the injury never occurred.”  David A. Logan and Wayne A. Logan, North Carolina Torts, § 8.20, at 173 (1996) (citing Restatement (Second) of Torts § 903).  Plaintiffs are not entitled to recover benefit-of-the-bargain damages for negligence, negligent misrepresentation or Chapter 75.  See Sections VII.B. and VIII. B., above. 

B.                 Plaintiffs Have Not Sustained Any Damages.

The burden of proving damages is on the party seeking them.  Olivetti Corp. v. Ames Business Sys., Inc., 319 N.C. 534, 547, 356 S.E.2d 578, 586 (1987).  To be recoverable, alleged damages must be based upon a standard that will allow calculation of the amount of damages with reasonable certainty.  Id. at 547-48, 356 S.E.2d at 586 (emphasis added).  The proper standard by which the amount of damages will be measured is a question of law.  Id. at 548, 356 S.E.2d at 586.

The PIPM Plaintiffs cannot establish any pecuniary loss resulting from their alleged embarrassment, humiliation, loss of reputation, loss of ability to raise additional funds, inability to serve the indigent or any changes in the doctors’ professional duties.^[15]  (PIPM-Complaint ¶¶ 121, 124); (Martin-Dep. pp. 123-26); (Faller-Dep. pp. 18, 136-37); (App-pp. 63a-63c, 54, 56-57).  See Johnson v. Bollinger, 86 N.C. App. 1, 11, 356 S.E.2d 378, 385 (1987) (no damages for mere loss of reputation absent proof of pecuniary loss); see also Stanback v. Stanback, 37 N.C. App. 324, 246 S.E.2d 74, aff’d in part and rev’d in part, 297 N.C. 181, 254 S.E.2d 611 (1979) (damages for loss of reputation not recoverable absent special contractual relationship). 

The only damages that Centura could possibly have caused would be actual losses which might have been suffered by the individual doctors as a result of leaving their prior employment to work for PIPM.   However, Dr. Faller and Dr. Martin have admitted that they earned less money at their jobs prior to PIPM than they earned at PIPM and at their jobs subsequent to PIPM.  (Martin-Dep. p. 126); (Stipulations); (App-p. 64).  Likewise, Dr. Meloy’s average yearly earnings between 1995 and 1997, the three years he worked for PIPM, are greater than Dr. Meloy’s earnings in 1994, the year before he went to work for PIPM.  Additionally, Dr. Meloy has stipulated that his pre-PIPM and post-PIPM earnings are virtually identical.  (Stipulations).  Thus, the doctors suffered no loss as a result of leaving their jobs in 1994 to go to work for PIPM.

Additionally, the employment contracts entered into by PIPM and the doctors on October 24, 1994, provided that after one year the doctors’ employment could be terminated without cause upon 90 days notice.  (Exs. 573, 585, 659); (Meloy Dep. p. 428-29); (App-p. 66-67, 517-26, 527-37, 538-45).  Any contention that the doctors would have continued to be employed by PIPM for a definite period of years is therefore speculative at best.   The PIPM Plaintiffs’ inability to prove compensatory damages is fatal to their claims for punitive damages.  Olivetti, 319 N.C. at 549, 356 S.E.2d at 587 (punitive damages may only be awarded where some compensatory damages have been shown with reasonable certainty). Neither PIPM nor the doctors can establish with reasonable certainty any damages caused by Centura, and summary judgment should be granted in favor of Centura upon all the PIPM Plaintiffs’ claims.

Conclusion

 

For the reasons set forth herein, Centura respectfully requests that it be granted summary judgment as to all claims asserted against it by the PIPM Plaintiffs.

This the 5th day of February, 2001.

 

__________________________________

Daniel W. Fouts

N. C. State Bar No. 1508

 

__________________________________

Robert G. Baynes

N. C. State Bar No. 252

 

_________________________________

W. Winburne King, III

N. C. State Bar No. 6709

Attorneys for Centura Bank

 

 

OF COUNSEL:

 

ADAMS KLEEMEIER HAGAN HANNAH & FOUTS

A Professional Limited Liability Company

Lake Point

701 Green Valley Road, Suite 100

Post Office Box 3463

Greensboro, NC  27402

(336) 373‑1600

 

CERTIFICATE OF SERVICE

 

            The undersigned hereby certifies that a copy of the foregoing BRIEF OF CENTURA BANK IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT AGAINST PIPM, ET AL. was duly served upon counsel and unrepresented parties in accordance with the provisions of Rule 5 of the North Carolina Rules of Civil Procedure by hand delivery:

 

 

and depositing it in the United States Mail, first-class postage prepaid upon the following:

Larry B. Sitton, Esq. Smith Helms Mulliss & Moore, L.L.P. Post Office Box 21927                         Greensboro, NC 27420	George W. Boylan, Esq. Special Deputy Attorney General Post Office Box 629 Raleigh, NC 27602-0629
Richard V. Bennett, Esq. Bennett & Guthrie, L.L.P. 1560 Westbrook Plaza Drive Winston-Salem, NC 27103	Robert M. Elliot, Esq. Elliot Pishko Gelbin & Morgan, P.A. Post Office Box 20545 Winston-Salem, NC 27120-0545
James W. McGrath, Esq. Piedmont Institute of Pain Management 1100-C S. Stratford Road, Suite 305 Winston-Salem, NC 27103	Reginald F. Combs, Esq. Blanco Tackabery Combs & Matamoros, P.A. Post Office Box 25008 Winston-Salem, NC 27104
Mr. Samuel Thomas Brame Post Office Box 11375 Winston-Salem, NC 27116	Ms. Jerri S. Russell Post Office Box 30218 Winston-Salem, NC 27130
Jeffrey S. Lisson, Esq. 120 Fayette Street Winston-Salem, NC 27101

 

            This the    5^th    day of February, 2001.

 

                                                                                    _________________________________

                                                                                    Daniel W. Fouts