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.