Rhoades v. Greenbriar Corp , 24 F. App'x 175 ( 2001 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
SHARON J. RHOADES, 
Plaintiff,
and
GREENBRIAR CORPORATION; AMERICAN
CARE COMMUNITIES, INCORPORATED,  No. 01-1616
Defendants-Appellants,
v.
FLOYD B. RHOADES,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
W. Earl Britt, Senior District Judge.
(CA-99-669-5-BR)
Argued: November 1, 2001
Decided: December 26, 2001
Before NIEMEYER, WILLIAMS, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Camden Robert Webb, MAUPIN, TAYLOR & WILLIS,
P.A., Raleigh, North Carolina, for Appellants. James T. Johnson,
LEWIS & ROBERTS, P.L.L.C., Raleigh, North Carolina, for Appel-
2 GREENBRIAR CORP. v. RHOADES
lee. ON BRIEF: M. Keith Kapp, MAUPIN, TAYLOR & WILLIS,
P.A., Raleigh, North Carolina, for Appellants. James A. Roberts, III,
LEWIS & ROBERTS, P.L.L.C., Raleigh, North Carolina, for Appel-
lee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
In this diversity case, Greenbriar Corp. (Greenbriar) brings claims
of fraud, constructive fraud, unfair trade practices, and indemnifica-
tion against Floyd Rhoades, its former CEO and the former majority
shareholder of American Care Communities, Inc., a North Carolina
corporation (American Care-NC), which was acquired by Greenbriar
in 1996. Greenbriar alleges that Floyd Rhoades breached his fiduciary
duties to American Care-NC and Greenbriar in connection with an
employment agreement which he negotiated with his wife, Sharon
Rhoades, who at the time was a minority shareholder of American
Care-NC. The district court found that Greenbriar was clearly and
fully informed as to the terms of Sharon Rhoades’s employment
agreement and ratified it. Accordingly, the district court granted sum-
mary judgment in favor of Floyd Rhoades. Finding no reversible
error, we affirm.
I.
A.
In 1992, Floyd and Sharon Rhoades married. In 1993, Floyd
Rhoades founded American Care-NC. Floyd Rhoades owned more
than 70% of the company’s stock and served as both president and a
director of the company. Sharon Rhoades owned 10% of the stock of
American Care-NC and was the company’s Vice President for Opera-
GREENBRIAR CORP. v. RHOADES 3
tions, as well as a member of the company’s board of directors. Gary
Smith was a shareholder and the only other director of American
Care-NC.
In 1995, the Rhoadeses began experiencing marital difficulties, and
as a result, they separated in February 1996. Between February and
December 1996, they considered divorce, discussed the division of
marital property, and discussed alimony. On December 11, 1996,
Floyd Rhoades, but not Sharon, signed one of several drafts of a Sep-
aration Agreement and Property Settlement, but no final agreement
was reached until November 5, 1997. In the preliminary agreement of
December 11, Floyd Rhoades promised to provide Sharon Rhoades
with an employment contract with American Care-NC.1 Two days
later, Floyd Rhoades, on behalf of American Care-NC, signed an
Employment Agreement with Sharon Rhoades which altered her
duties and which increased her salary from $80,000 to $125,000 for
a period of three years. Under the contract, Sharon Rhoades was to
report only to the President of the company who, until October 1998,
was Floyd Rhoades. Smith was not informed of the employment
agreement, nor was it approved by American Care-NC’s Board of
Directors.
During December of 1996, American Care-NC and Greenbriar
completed the final stages of negotiating a merger of the two compa-
nies. The merger resulted in Greenbriar assuming the obligations of
American Care-NC.2 During the merger negotiations, Greenbriar was
not aware that the Rhoadeses had discussed Sharon Rhoades’s
employment agreement in the context of their divorce settlement. As
the discussion in Part II below demonstrates, however, Greenbriar
was fully informed of all material terms of the Sharon Rhoades
employment agreement prior to the consummation of the merger.
1
The final agreement between the Rhoadeses included a personal guar-
antee of Sharon’s employment agreement by Floyd Rhoades.
2
The merger was accomplished by merging American Care-NC into
wholly-owned Greenbriar subsidiary American Care Communities, Inc.,
a Nevada corporation.
4 GREENBRIAR CORP. v. RHOADES
B.
Sharon Rhoades filed her complaint in state court against Green-
briar Corporation and American Care Communities, Inc. and Floyd
Rhoades on August 1, 1999. This case was removed to the district
court based on diversity of citizenship.3 On March 28, 2001, follow-
ing discovery, the district court, in the portion of its order relevant to
this appeal, granted summary judgment for Sharon Rhoades on her
claims against Floyd Rhoades and Greenbriar and dismissed all of
Greenbriar’s crossclaims against Floyd Rhoades. The judgment made
Floyd Rhoades and Greenbriar jointly and severally liable to Sharon
Rhoades for $111,642.44. Greenbriar timely appealed from both the
grant of summary judgment in Sharon Rhoades’s favor and the dis-
missal of its counterclaims against Sharon Rhoades and crossclaims
against Floyd Rhoades. Greenbriar and Sharon Rhoades have settled
their dispute, and Sharon Rhoades has been dismissed as a party to
this appeal.
Greenbriar argues on appeal that Floyd Rhoades’s motive for exe-
cuting the employment agreement with Sharon Rhoades was a desire
to reduce or eliminate alimony payments; that this motive was a mate-
rial fact which was not disclosed to American Care-NC’s board of
directors or to Greenbriar; that the terms of the agreement were not
effectively disclosed to Greenbriar; and that as a result, Floyd
Rhoades did not disclose material facts which he had a fiduciary duty
to disclose regarding the transaction. Consequently, Greenbriar argues
that it has established the predicate for its fraud, constructive fraud,
unfair trade practices, and indemnification claims, and it argues fur-
ther that it cannot be deemed to have ratified the employment agree-
ment.
II.
This Court reviews a grant of summary judgment de novo, viewing
all facts and inferences in the light most favorable to the non-
3
Floyd Rhoades is a citizen of California; Sharon Rhoades is a citizen
of North Carolina; Greenbriar Corp. and its American Care Communi-
ties, Inc. subsidiary are Nevada corporations whose principal places of
business are in Texas. The amount in controversy exceeds $75,000.
GREENBRIAR CORP. v. RHOADES 5
prevailing party. See Providence Square Assoc., L.L.C. v. G.D.F.,
Inc., 211 F.3d 846, 850 (4th Cir. 2000). All evidence of the non-
movant is to be believed and all justifiable inferences are to be drawn
in his or her favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986).
We have reviewed the record, briefs, and pertinent case law on this
matter, and we have had the benefit of oral argument. Our careful
review persuades us that the district court correctly granted summary
judgment in favor of Floyd Rhoades. See Rhoades v. Greenbriar
Corp., No. 5:99-CV-669-BR(2) (W.D.N.C. March 28, 2001) (J.A. at
535). Greenbriar’s president, James Gilley, testified that during
November of 1996, he agreed with Floyd Rhoades that Sharon would
be given an employment contract and that Floyd Rhoades, who later
became CEO of Greenbriar on December 16, 1996, told him that this
would involve increasing her salary. Gilley also stated that he was
aware prior to the closing of the merger that Floyd and Sharon
Rhoades were separated due to marital difficulties. Ronald Brown,
Greenbriar’s merger attorney, reviewed the Sharon Rhoades employ-
ment agreement prior to the consummation of the merger and for-
warded what he referred to as "Greenbriar’s comments" regarding the
agreement to American Care-NC’s attorney. (J.A. at 154.). American
Care-NC’s attorney returned a copy to Brown showing Brown’s
changes incorporated in blackline. A draft of the agreement was faxed
to Greenbriar’s Chief Financial Officer, Gene Bertcher, as well as to
Brown on December 12, 1996, marked "for your review." (J.A. at
147.). The "merger binder" prepared for the merger between Ameri-
can Care-NC and Greenbriar included a copy of the Sharon Rhoades
employment agreement; the facsimile transmission line on this copy
of the employment agreement suggests it was added to the binder on
December 27. Greenbriar admits having received a copy of the binder
before December 31, 1996. The merger binder was delivered to Floyd
Rhoades as CEO of Greenbriar, as well as to Brown and Bertcher. It
is therefore clear that Greenbriar had adequate notice, verbally and in
writing, of all material facts regarding the employment agreement in
question and thus must be deemed to have ratified American Care-
NC’s obligation to Sharon Rhoades.4 Under North Carolina law,
4
We note that from the time of the merger until February 6, 1999,
Sharon Rhoades continued to work for Greenbriar under the terms of the
6 GREENBRIAR CORP. v. RHOADES
Greenbriar’s constructive fraud, fraud, unfair trade practices, and
indemnification claims fail, as Greenbriar bases each of these claims
on Floyd Rhoades’s alleged nondisclosure of material facts. Accord-
ingly, we affirm the grant of summary judgment in favor of Floyd
Rhoades on the reasoning of the district court.
AFFIRMED
employment agreement. In terminating Rhoades during February of
1999, Greenbriar stated that her termination was "pursuant to" the
employment agreement at issue in this case. (J.A. at 378.) Further,
Greenbriar performed under the contract in question for a period of
approximately two years and continued to perform for several months
following Floyd Rhoades’s departure from Greenbriar.