Fox v. Fox ( 2022 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
2022-NCCOA-334
No. COA21-534
Filed 17 May 2022
Wake County, No. 20 CVS 6247
ANN HERRING FOX, individually and on behalf of the P.G. FOX, JR. REVOCABLE
TRUST and RUSSELL LEE STEPHENSON, III on behalf of the P.G. FOX, JR.
REVOCABLE TRUST, Plaintiffs,
v.
SARAH WESLEY FOX and CRAIG B. WHEATON, individually, and in their
representative capacities as Trustees of the P.G. FOX, JR. REVOCABLE TRUST;
and SMITH, ANDERSON, BLOUNT, DORSETT, MITCHELL & JERNIGAN, L.L.P.,
Defendants.
Appeal by Plaintiffs from orders entered on 23 April 2021 by Judge G. Bryan
Collins, Jr., in Wake County Superior Court. Heard in the Court of Appeals 22 March
2022.
Rossabi Law Partners, by Amiel J. Rossabi and Gavin J. Reardon, for Plaintiff-
Appellant Ann Herring Fox.
Penry Riemann PLLC, by J. Anthony Penry, for Defendant-Appellees Sarah
Wesley Fox and Craig B. Wheaton as trustees, and Nelson Mullins Riley &
Scarborough, LLP, by Mark A. Stafford, for Defendant-Appellees Sarah Wesley
Fox and Craig B. Wheaton individually.
JACKSON, Judge.
¶1 Ann Herring Fox (“Plaintiff”) appeals from the trial court’s orders dismissing
her complaint under Rules 9 and 12 of the North Carolina Rules of Civil Procedure.
Plaintiff Russell Lee Stephenson, III, with the other parties’ consent, moved to
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voluntarily dismiss his appeal from the orders on 23 November 2021, which our Court
allowed the following day. Plaintiff also moved on 23 November 2021 to voluntarily
dismiss her appeal from one of the trial court’s 23 April 2021 orders of dismissal,
which dismissed the case against Defendant Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P. (“Smith Anderson”). That motion was also allowed by
our Court on 24 November 2021. Accordingly, Plaintiff is the sole remaining
appellant and Defendants Sarah Wesley Fox and Craig B. Wheaton (“Defendants”)
are the two remaining appellees. After careful review, we affirm the order of the trial
court in part, reverse it in part, and remand the case for further proceedings.
I. Background
¶2 This is a dispute about P.G. Fox, Jr., M.D.’s (“Dr. Fox”) revocable trust and a
home the trust owns jointly with Plaintiff. In late 2012 or early 2013, Dr. Fox engaged
Smith Anderson, a law firm, to prepare his will and trust. The will and trust revoked
all prior wills and trusts. On 28 January 2013, Dr. Fox executed the will and trust.
On 22 February 2014, Dr. Fox died.
¶3 At the time of his death, Plaintiff was married to Dr. Fox. She was his third
wife, and they had been married for 24 years. She lives in a home she purchased
jointly with Dr. Fox as tenants in common, in which she owns an 11 percent interest,
reflecting the proportion of the purchase price she paid with her separate funds. Dr.
Fox’s trust owns the remaining 89 percent of the home, reflecting the proportion of
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the price Dr. Fox paid for the home.
¶4 Defendant Fox is Dr. Fox’s daughter and Defendant Wheaton is her husband.
Both are lawyers, and at the time Dr. Fox engaged Smith Anderson to prepare the
will and trust, Defendants were employed by Smith Anderson.
¶5 Plaintiff, Defendant Fox, and Defendants’ children are the beneficiaries of the
trust.1 The trust terms appoint Defendants and Russell Lee Stephenson, Jr., (“Mr.
Stephenson”) as Dr. Fox’s successor trustees. Mr. Stephenson is Plaintiff’s former
husband. On 8 July 2015, Mr. Stephenson resigned as a trustee, apparently on the
understanding (1) that his appointment as a successor trustee was a mistake; (2) that
Dr. Fox had intended to appoint Mr. Stephenson’s son, Russell Lee Stephenson, III,
(“Lee”) as a successor trustee, not Mr. Stephenson; and (3) that Lee would be
appointed as a trustee by a majority of Dr. Fox’s surviving issue upon Mr.
Stephenson’s resignation, which the trust terms authorized. Lee is Plaintiff and Mr.
Stephenson’s son.
¶6 After Dr. Fox passed away, Defendant Wheaton began making distributions
from the trust to his wife and children for their health, maintenance, and support, as
purportedly authorized by the terms of the trust. No distributions were made to
Plaintiff for her health, maintenance, or support, however, despite trust terms
1 All of Dr. Fox’s issue are beneficiaries, so any of Dr. Fox’s great-grandchildren also would
be.
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authorizing such distributions. Instead, Defendants attributed distributions to
Plaintiff for continuing to live in the home, essentially charging her rent for
continuing to live in the home and treating the rent Plaintiff was not paying as a
recurring distribution for Plaintiff’s health, maintenance, and support.
¶7 In 2016, Plaintiff engaged counsel and requested an accounting of the trust for
the first time. The trust terms require Defendants to provide an accounting of the
trust at least annually upon the request of a beneficiary.
¶8 The trust terms also require Defendants to pay for the trust’s share—that is,
89 percent—of the cost of maintaining the home for as long as the home remains trust
property. In 2017, Defendants refused to reimburse Plaintiff for certain expenses she
claimed were incurred to maintain the home because they believed the expenses
either were not incurred to maintain the home or were inadequately documented.
They also notified Plaintiff that they wanted to sell the home. In 2019, Defendants
again refused to reimburse Plaintiff for expenses she claimed were incurred to
maintain the home because of what they considered inadequate documentation.
¶9 On 7 August 2019, Plaintiff filed a petition to remove Defendants as trustees
with the Wake County Clerk of Superior Court. On 29 May 2020, Plaintiff filed this
suit. The petition to remove Defendants as trustees was still pending at the time
Plaintiff filed suit.
¶ 10 In her complaint, Plaintiff asserts eight claims: (1) breach of fiduciary duty;
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(2) reformation of trust based on either unilateral mistake induced by fraud or mutual
mistake; (3) legal malpractice; (4) civil conspiracy; (5) constructive fraud; (6)
intentional infliction of emotional distress; (7) negligent infliction of emotional
distress; and (8) conversion. In her prayer for relief, Plaintiff requests actual and
punitive damages; reformation or modification of the trust; disgorgement of all
distributions to Defendant Fox and Defendants’ children and their return to the trust;
and costs and attorney’s fees.
¶ 11 On 5 August 2020, Defendants moved to dismiss Plaintiff’s complaint under
Rules 9 and 12 of the North Carolina Rules of Civil Procedure. Smith Anderson filed
a motion to dismiss under Rules 9 and 12 the same day. The motions came on for
hearing before the Honorable G. Bryan Collins, Jr., in Wake County Superior Court
on 15 September 2020. The trial court granted the motions in two orders entered on
23 April 2021.
¶ 12 Plaintiff timely noticed appeal on 14 May 2021.
II. Analysis
¶ 13 Plaintiff’s complaint asserts numerous causes of action against Defendants as
trustees and individuals and many of these claims overlap, are incorrectly captioned,
and are time-barred. Several appear to lack any merit. Nevertheless, we hold that
Plaintiff’s complaint states two valid claims for breach of trust, one valid claim for
constructive fraud against Defendants as trustees, and one valid claim for civil
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conspiracy against Defendants as trustees.
¶ 14 Specifically, the valid claims for breach of trust are (1) for allegedly making
unauthorized distributions for health, maintenance, and support to Defendant Fox
and her children while wrongfully withholding distributions for health, maintenance,
and support from Plaintiff and (2) for failing to fully reimburse Plaintiff for the trust’s
share of the cost to maintain the home Plaintiff owns jointly with the trust. The claim
for constructive fraud against Defendants as trustees is based on an alleged error in
Dr. Fox’s trust appointing Mr. Stephenson as a successor trustee and Defendant
Wheaton inducing Mr. Stephenson to resign as a trustee on the pretext that Lee
would be appointed after Mr. Stephenson’s resignation. The valid claim for civil
conspiracy against Defendants as trustees is that Defendants agreed to take control
of the trust through Mr. Stephenson’s resignation and make the allegedly improper
distributions while withholding distributions from Plaintiff as part of a deliberate,
premeditated plan. Because these are valid claims, the trial court erred in dismissing
them. We therefore reverse the trial court’s order in part and remand the case for
further proceedings.
A. Introduction and Standard of Review
¶ 15 “A Rule 12(b)(6) motion tests the legal sufficiency of the pleading.” Sterner v.
Penn, 159 N.C. App. 626, 628, 583 S.E.2d 670, 672 (2003) (citation omitted).
A Rule 12(b)(6) motion will be granted (1) when the face of
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the complaint reveals that no law supports plaintiff’s
claim; (2) when the face of the complaint reveals that some
fact essential to plaintiff’s claim is missing; or (3) when
some fact disclosed in the complaint defeats plaintiff’s
claim. We treat all factual allegations of the pleading as
true but not conclusions of law. In sum, a Rule 12(b)(6)
motion asks the court to determine whether the complaint
alleges the substantive elements of a legally recognized
claim.
Id. at 628-29, 583 S.E.2d at 872 (cleaned up). In determining whether to grant a Rule
12 motion, exhibits attached to a complaint are considered a part thereof “because
‘[a] copy of any written instrument which is an exhibit to a pleading is a part thereof
for all purposes.’” Krawiec v. Manly, 370 N.C. 602, 606, 811 S.E.2d 542, 546 (2018)
(quoting N.C. Gen. Stat. § 1A-1, Rule 10(c)). However, “matters outside the complaint
are not germane to a Rule 12(b)(6) motion.” Weaver v. Saint Joseph of the Pines, Inc.,
187 N.C. App. 198, 203, 652 S.E.2d 701, 707 (2007). Moreover, “[g]eneral allegations
of wrongdoing, which do not specify the alleged wrongful act or omission, such as the
allegation that the defendant did other things not authorized by the laws of North
Carolina in the management of a fiduciary estate, are mere conclusions of law.”
Kuykendall v. Proctor, 270 N.C. 510, 514-15, 155 S.E.2d 293, 298 (1967) (internal
marks omitted).
¶ 16 On appeal, our review is de novo. Spoor on behalf of JR Int’l Holdings, LLC v.
Barth, 257 N.C. App. 721, 724, 811 S.E.2d 609, 612 (2018). “Under a de novo review,
the court considers the matter anew and freely substitutes its own judgment for that
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of the lower tribunal.” Fields v. H & E Equip. Servs., 240 N.C. App. 483, 486, 771
S.E.2d 791, 793 (2015) (citation omitted).
B. Plaintiff’s Claims
¶ 17 This is an action against Defendants in both their individual capacities and as
trustees of Dr. Fox’s trust. We address the claims against Defendants individually
first. Then we turn to the claims against them as trustees.
1. Individual Capacity Claims
a. The Challenge to the Validity of the Trust Is Time-Barred
¶ 18 As noted previously, Plaintiff asserts claims against Defendants for breach of
fiduciary duty, constructive fraud, and civil conspiracy.2 However, certain allegations
in Plaintiff’s breach of fiduciary duty claim cannot be construed as a claim against
Defendants individually because the allegations are based on alleged failures by
Defendants to fulfill their duties as trustees. While “it is clear that the trustee of a
trust has a fiduciary obligation to the beneficiary of the trust[,]” Melvin v. Home Fed.
Sav. & Loan Ass’n, 125 N.C. App. 660, 664, 482 S.E.2d 6, 8 (1997), under the North
Carolina Uniform Trust Code, “[a] violation by a trustee of a duty the trustee owes
under a trust is a breach of trust[,]” N.C. Gen. Stat. § 36C-10-1001(a) (2021).
2Although Plaintiff also asserted claims against Defendants for reformation of trust, legal
malpractice, intentional infliction of emotional distress, negligent infliction of emotional distress, and
conversion, Plaintiff does not argue any error in the dismissal of these claims, thereby abandoning
them. See N.C. R. App. P. 28(a) (“Issues not presented and discussed in a party’s brief are deemed
abandoned.”).
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¶ 19 Paragraph 52 of Plaintiff’s complaint alleges:
52. Despite the fiduciary duties owed, Defendants have
breached their fiduciary duties to Plaintiffs by, among
other things:
(a) denying Mrs. Fox distributions owed to her
under the Trust;
(b) attributing to Mrs. Fox “rent” from the Trust
that she has not received;
(c) making distributions to themselves, their
children and others in violation of the express and
implied terms of the Trust;
(d) devising, perpetrating and continuing to
perpetrate the Scheme;3
(e) harassing and intimidating Plaintiffs,
3 The “Scheme” is defined in paragraph 10 of Plaintiff’s complaint as follows:
10. Upon information and belief, in or about 2012, Defendant Fox
and Defendant Wheaton, together with one or more lawyers at
Defendant Smith Anderson, formulated a scheme by which they would
cause to be created and signed by Dr. Fox a trust document which
would:
(a) contain ambiguous language that Defendant Fox and
Defendant Wheaton could use, together with their inequitable
bargaining power and superior knowledge of the law over
Plaintiffs, illicitly, to construe in their favor and deprive Mrs.
Fox of assets Dr. Fox intended her to have;
(b) nullify Dr. Fox’s intent and plan to have Lee serve as a
co-trustee of the Trust; and
(c) misinterpret and violate the terms of the Trust
(hereinafter, the “Scheme”).
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including about the sale of the Primary Residence;
(f) failing to appoint Lee as a co-trustee; and
(g) failing to provide, at all and/or in a timely
manner, accountings of the Trust.
¶ 20 In essence, Plaintiff’s claim for breach of fiduciary duty is two separate claims:
(1) a claim challenging the validity of the trust based on the perpetration of what
Plaintiff characterizes as a “scheme” to change Dr. Fox’s estate plan to wrongfully
benefit Defendants and their children at Plaintiff’s expense; and (2) a claim for breach
of trust for alleged failures to make required distributions, making unauthorized
distributions, and failure to provide timely accountings.4 The claim challenging the
validity of the trust is a claim against Defendants individually because it is based on
alleged actions by Defendants outside their capacities as trustees, which allegedly
occurred before they were appointed as trustees. The claim based on alleged failures
to make required distributions, making unauthorized distributions, and failing to
provide accountings is a claim for breach of trust against Defendants as trustees, not
as individuals. See N.C. Gen. Stat. § 36C-10-1001(a) (2021).
¶ 21 The statute of limitations for a claim contesting the validity of a revocable trust
is three years after the settlor’s death or, at the trustee’s election, 120 days after the
4 Plaintiff also alleges that attributing distributions to her for continuing to live in the home
she jointly owns with the trust constitutes a breach of fiduciary duty. We consider attributing
distributions to Plaintiff for continuing to live in the home that allegedly was unauthorized to be a
subcategory of alleged failures to make required distributions.
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settlor’s death if the trustee gives proper notice. Id. § 36C-6-604(a). The claim
challenging the validity of the trust is time-barred because Dr. Fox died on 22
February 2014 and Plaintiff did not bring this suit until 29 May 2020, over six years
after Dr. Fox’s death—over three years after the statute of limitations had run. This
suit is the first time the validity of the trust has been challenged: notably, Plaintiff
did not challenge the validity of the trust in the 7 August 2019 petition to remove
Defendants as trustees filed with the Clerk of Superior Court of Wake County by her
former counsel, nor does any of her counsel take the position that the trust is invalid
in any of the correspondence included in the record on appeal.
b. The Complaint Does Not State a Claim for Constructive Fraud Against
Defendants Individually
¶ 22 Plaintiff’s claim for constructive fraud against Defendants individually fails
because the allegations in the complaint do not adequately allege a fiduciary
relationship between Plaintiff and Defendants as a matter of fact.
¶ 23 “It is axiomatic that ‘[f]or a breach of fiduciary duty to exist, there must first
be a fiduciary relationship between the parties.’” Howe v. Links Club Condominium
Assoc., Inc., 263 N.C. App. 130, 147, 823 S.E.2d 439, 453 (2018) (quoting Dalton v.
Camp, 353 N.C. 647, 651, 548 S.E.2d 704, 707 (2001)). “In the event that a party fails
to allege any special circumstances that could establish a fiduciary relationship,
dismissal of a claim which hinges upon the existence of such a relationship would be
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appropriate.” Azure Dolphin, LLC v. Barton, 371 N.C. 579, 599, 821 S.E.2d 711, 725
(2018) (cleaned up).
Though difficult to define in precise terms, a fiduciary
relationship is generally described as arising when there
has been a special confidence 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 confidence.
A fiduciary relationship may exist in law or in fact. For
that reason, even when a fiduciary relationship does not
arise as a matter of law, that is, due to the legal relations
between two parties, it may yet exist as a matter of fact in
such instances when there is confidence reposed on one
side, and the resulting superiority and influence on the
other.
Id. at 599-600, 821 S.E.2d at 725 (cleaned up).
¶ 24 However, “detailed factual allegations, rather than mere conclusory assertions,
are necessary to demonstrate the existence of a fiduciary relationship as a matter of
fact.” Id. at 600, 821 S.E.2d at 726 (citation omitted). Moreover, “it has long been
established that the finding of a familial relationship alone does not create a fiduciary
relationship.” Holloway v. Holloway, 221 N.C. App. 156, 165, 726 S.E.2d 198, 204-05
(2012) (citation omitted). “Only when one party figuratively holds all the cards—all
the financial power or technical information, for example—have North Carolina
courts found that the ‘special circumstance’ of a fiduciary relationship has arisen.”
Crumley & Assocs., P.C. v. Charles Peed & Assocs., P.A., 219 N.C. App. 615, 621, 730
S.E.2d 763, 767 (2012) (citation omitted).
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¶ 25 The most Plaintiff’s complaint does to allege that a fiduciary relationship
existed between her and Defendants as a matter fact is to allege that Defendant Fox
is Dr. Fox’s daughter and Defendant Wheaton is her husband, and that Plaintiff
“reposed special confidence and trust in Defendants because of the close familial
relationship with Defendant[s] . . . and because of their status as co-trustees and
attorneys licensed to practice law in the State of North Carolina.” These allegations
are mere conclusory assertions that are not supported by any allegations regarding
any special circumstance giving rise to a fiduciary relationship between Plaintiff and
Defendants as a matter of fact. While attorneys “owe a fiduciary duty to their
clients[,]” N.C. State Bar v. Gilbert, 151 N.C. App. 299, 311, 566 S.E.2d 685, 692
(2002), they do not to non-clients, see Noblot v. Timmons, 177 N.C. App. 258, 263-64,
628 S.E.2d 413, 415-16 (2006), and there is no allegation in this case that Defendants
or any other attorney associated in practice with either of them has ever represented
Plaintiff.5 Accordingly, the trial court did not err in dismissing the claim for
5 As we observed in Piraino Brothers, LLC v. Atlantic Financial Group, Inc., 211 N.C. App.
343, 349-50, 712 S.E.2d 328, 333 (2011),
[t]he Courts of this State have held attorneys liable for actions that
impact non-client third parties in only a few limited situations . . . . See
Title Ins. Co. of Minn. v. Smith, Debnam, Hibbert & Pahl, 119 N.C.
App. 608, 459 S.E.2d 801 (1995), affirmed and modified in part, 342
N.C. 887, 467 S.E.2d 241 (1996) (duty applies where the attorney
renders a title opinion upon which the non-client is entitled to rely);
Jenkins v. Wheeler, 69 N.C. App. 140, 316 S.E.2d 354 (1984) (duty
applies where there is a complete unity of interests between the
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constructive fraud against Defendants individually.
c. Civil Conspiracy Is Not an Independent Basis of Liability
¶ 26 Plaintiff’s claim for civil conspiracy against Defendants individually fails
because it is derivative of Plaintiff’s other claims against Defendants individually and
all of Plaintiff’s other individual capacity claims against Defendants fail.
¶ 27 “A civil action for conspiracy is an action for damages resulting from acts
committed by one or more of the conspirators pursuant to the formed conspiracy,
rather than the conspiracy itself.” Burton v. Dixon, 259 N.C. 473, 476, 131 S.E.2d 27,
30 (1963).
To create civil liability for conspiracy there must have been
a wrongful act resulting in injury to another committed by
one or more of the conspirators pursuant to the common
scheme and in furtherance of the objective. This is because
a conspiracy charged does no more than associate the
defendants together and perhaps liberalize the rules of
evidence to the extent that under the proper circumstances
the acts of one may be admissible against all. Therefore,
we have determined that a complaint sufficiently states a
claim for civil conspiracy when it alleges (1) a conspiracy,
(2) wrongful acts done by certain of the alleged conspirators
in furtherance of that conspiracy, and (3) injury as a result
of that conspiracy.
Krawiec, 370 N.C. at 613-14, 811 S.E.2d at 550-51 (cleaned up).
¶ 28 However, “there is not a separate civil action for civil conspiracy in North
attorney’s client and the non-client).
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Carolina.” Dove v. Harvey, 168 N.C. App. 687, 690, 608 S.E.2d 798, 800 (2005).
Because conspiracy is a mode of liability rather than a cause of action, it is derivative
of the other claims against a party, and if the other claims fail, so does the conspiracy
claim. Piraino Bros., LLC v. Atlantic Fin. Grp., Inc., 211 N.C. App. 343, 350, 712
S.E.2d 328, 333-34 (2011). Accordingly, the trial court did not err in dismissing
Plaintiff’s claim for civil conspiracy against Defendants individually because the
individual capacity claim challenging the validity of the trust is time-barred and the
individual capacity claim for constructive fraud fails to adequately allege a fiduciary
relationship as a matter of fact.
2. Defendants as Trustees
a. The Complaint States Two Valid Claims for Breach of Trust
¶ 29 As previously noted, we hold that Plaintiff’s complaint states two valid claims
for breach of trust: one for allegedly making unauthorized distributions for health,
maintenance, and support to Defendant Fox and her children while wrongfully
withholding distributions for health, maintenance, and support from Plaintiff; and a
second for failing to fully reimburse Plaintiff for the trust’s share of the cost to
maintain the home Plaintiff owns jointly with the trust.
¶ 30 The duties and powers of trustees are codified in Article 8 of the North Carolina
Uniform Trust Code. See N.C. Gen. Stat. § 36C-8-801 (2021), et seq. These duties
include the duties of good faith, loyalty, impartiality, and prudence. See id. §§ 36C-
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8-801, -802, -803, -804. In general, while “the extent to which a . . . trustee violated
his or her fiduciary duty is a separate, and broader, question than the issue of
whether he or she violated a specific provision of a written trust instrument[,]” In re
Skinner, 370 N.C. 126, 144, 804 S.E.2d 449, 461 (2017), violation of a specific
provision of a trust constitutes a breach of trust unless the terms of the trust are
inconsistent with a trustee’s fiduciary duties, see N.C. Gen. Stat. §§ 36C-10-1001(a),
-1-105(b)(2), (3) (2021).
¶ 31 “Trustees . . . must act in good faith. They can never paramount their personal
interest over the interest of those for whom they have assumed to act.” Miller v.
McLean, 252 N.C. 171, 174, 113 S.E.2d 359, 362 (1960) (citations omitted). In
addition, a trustee must “maintain complete loyalty to the interests of his
beneficiaries.” Howe, 263 N.C. App. at 149, 823 S.E.2d at 454 (quoting Wachovia
Bank & Trust Co. v. Johnston, 269 N.C. 701, 711, 153 S.E.2d 449, 457 (1967))
(internal marks omitted). “Should there be any self-interest on the trustee’s part in
the administration of the trust which would interfere with this duty of complete
loyalty, a beneficiary may seek the trustee’s removal.” In re Wills of Jacobs, 91 N.C.
App. 138, 143, 370 S.E.2d 860, 864 (1988). In North Carolina, such an action must
be brought before the Clerk of Superior Court. N.C. Gen. Stat. § 36C-2-203(a)(1)
(2021).
¶ 32 Not all self-dealing by trustees is categorically prohibited, however. As the
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official commentary to N.C. Gen. Stat. § 36C-8-802 notes, “it is not uncommon that
the trustee will also be a beneficiary.” N.C. Gen. Stat. § 36C-8-802, off. cmt. (2021).
“The grant to a trustee of authority to make a distribution to a class of beneficiaries
that includes the trustee implicitly authorizes the trustee to make distributions for
the trustee’s own benefit.” Id.
¶ 33 “The powers of a trustee are either mandatory or discretionary.” Woodard v.
Mordecai, 234 N.C. 463, 471, 67 S.E.2d 639, 644 (1951). “A power is mandatory when
it authorizes and commands the trustee to perform some positive act.” Id. “A power
is discretionary when the trustee may either exercise it or refrain from exercising it,
or when the time, or manner, or extent of its exercise is left to his discretion.” Id.(cleaned up). While a court “will always compel the trustee to exercise a mandatory
power[,] . . . [it] will not undertake to control the trustee with respect to the exercise
of a discretionary power, except to prevent an abuse by him of his discretion.” Id.The trustee abuses his discretion in exercising or failing to
exercise a discretionary power if he acts dishonestly, or if
he acts with an improper even though not a dishonest
motive, or if he fails to use his judgment, or if he acts
beyond the bounds of a reasonable judgment.
Id. (citations omitted).
Whether a power is mandatory or discretionary depends
upon the intent of the settlor as evidenced by the terms of
the trust. The intent of a settlor is determined by the
language he chooses to convey his thoughts, the purposes
he seeks to accomplish and the situation of the parties
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benefitted by the trust. Use by the settlor of words of
permission or option, or reference to the discretion of the
trustee, in describing the trustee’s power indicates that the
settlor intended that the power be discretionary, whereas
use of directive or commanding language indicates that a
mandatory power was intended.
Linebacker v. Stout, 79 N.C. App. 292, 297, 339 S.E.2d 103, 107 (1986) (cleaned up).
“Under a true discretionary trust, the trustee may withhold the trust income and
principal altogether from the beneficiary and the beneficiary, as well as the creditors
and assignees of the beneficiary, cannot compel the trustee to pay over any part of
the trust funds.” Id. at 296, 339 S.E.2d at 106.
¶ 34 The terms of Dr. Fox’s trust demonstrate that it is a discretionary trust as to
distributions for health, maintenance, and support to the beneficiaries, but
mandatory with respect to the trust’s share of the cost of maintaining the home it
owns jointly with Plaintiff and certain other decisions related to the home. Article
III, Section One of the trust directs the trustees until Plaintiff’s death or remarriage
“to distribute all or any portion of the trust property to [] [Plaintiff] in such amounts
and at such times as the Trustee deems necessary for her health, maintenance or
support” and to “distribute all or any portion of the trust property to any of [Dr. Fox’s]
issue in such amounts and at such times as the Trustee deems necessary for the
health, maintenance or support in reasonable comfort of any of them.” Defendants’
powers as trustees to make distributions for Plaintiff’s health, maintenance, and
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support, as well as distributions for the health, maintenance, and support of Dr. Fox’s
issue are discretionary because of Dr. Fox’s “[u]se . . . of words of permission or
option,” id. at 297, 339 S.E.2d at 107, to wit—“all or any portion of the trust
property”—with the time, manner, and extent of the exercise of this discretion left to
the trustees, see Woodard, 234 N.C. at 471, 67 S.E.2d at 644. (Emphasis added.)
¶ 35 The trust creates three important discretionary powers to be exercised by the
trustees in connection with the home the trust owns jointly with Plaintiff. Article III,
Section Six provides in relevant part that the trustees may retain the 89 percent
interest in the home and permit Plaintiff “to use and occupy the residence rent free”
until her death or remarriage. In addition, this section authorizes the trustees to
“sell, rent or otherwise dispose of the trust’s interest in the residence if [they]
determine[] that occupancy of such residence by [] [Plaintiff] is contrary to her best
interests and the interests of the beneficiaries succeeding to the trust property after
her death or remarriage.” (Emphasis added.) Finally, this section authorizes the
trustees, in the event of a sale of the home, “to purchase an interest in a replacement
residence using such portion of the principal of the trust, including, but not limited
to, the trust’s share of net proceeds from any sale or other disposition of the trust’s
interest in the residence[,]” at Plaintiff’s election.
¶ 36 The trust terms that are mandatory relate to the cost of maintaining the home
and to sale or rental of the home at Plaintiff’s election. For as long as the home
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remains trust property, Article III, Section Six directs the trustees to “pay out of the
trust that percentage of all expenses incurred in connection with carrying, upkeep,
maintenance and repair of the residence including, without limitation, taxes,
assessments, utilities, insurance and repairs, which is equal to the trust’s percentage
ownership[.]” That section additionally directs the trustees to “sell or rent the trust’s
interest in the residence within a reasonable time upon receipt of signed instructions
from [] [Plaintiff] to that effect.”
¶ 37 There is considerable documentation in the record on appeal of distributions to
beneficiaries other than Plaintiff for health, maintenance, and support and to
Plaintiff for the trust’s share of the cost of maintaining the home, as well as an
appraisal of the home completed after Dr. Fox’s death that Defendants apparently
used to determine a rental value of the home.6 However, none of this documentation
would have been properly considered by the trial court at the hearing on Defendants’
motion to dismiss, and nothing in the record indicates that the court so considered it,
6 The terms of the trust neither expressly authorize nor prohibit attributing distributions to
Plaintiff for health, maintenance, and support for continuing to live in the home. As noted above, the
trustees enjoy a discretionary power to permit Plaintiff to continue living in the home unless she
informs them in writing that she wants them to sell or rent the trust’s interest in the home. Because
the trustees’ powers to make distributions to the beneficiaries for health, maintenance, and support,
including to Plaintiff, are wholly discretionary, on the undeveloped record before us, we cannot say as
a matter of law that attributing distributions to Plaintiff for health, maintenance, and support for
continuing to live in the home was an abuse of discretion by the trustees or constituted a breach of
trust. Nothing in this opinion is intended to suggest or imply what the correct resolution of this issue
is in further proceedings on remand, however, which will require considering matters outside the
pleadings.
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Opinion of the Court
thereby converting the motion to dismiss into one for summary judgment without
notice to Plaintiff, which would have been improper. See, e.g., N.C. Gen. Stat. § 1A-
A, Rule 12(b) (2021) (“If, on a motion . . . to dismiss for failure of the pleading to state
a claim upon which relief can be granted, matters outside the pleading are presented
to and not excluded by the court, the motion shall be treated as one for summary
judgment and disposed of as provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made pertinent to such a motion by
Rule 56.”). Indeed, in the order of dismissal, the trial court states that it considered
only “the complaint and attachments filed by plaintiffs, along with the brief served
by defendants and the material served by plaintiffs, as well as the arguments of
counsel.”
¶ 38 Determining whether Defendants are liable for making unauthorized
distributions for health, maintenance, and support to Defendant Fox and their
children while withholding distributions for health, maintenance, and support from
Plaintiff and for failing to fully reimburse Plaintiff for the trust’s share of the cost to
maintain the home Plaintiff jointly owns with the trust will require a developed
factual record of all distributions of trust property and potentially other evidence,
such as evidence in the form of expert opinion regarding whether attributing
distributions to Plaintiff for health, maintenance, and support for continuing to live
in the home was consistent with the trustees’ duties to administer the trust in good
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Opinion of the Court
faith, loyally, impartially, and prudently with respect to the interests of all
beneficiaries, including Plaintiff. Because Plaintiff’s claims for breach of trust are
legally sufficient, and resolution of these claims will require consideration of matters
outside the pleadings and the exhibits thereto, we hold that the trial court erred in
dismissing these claims.
b. The Complaint States a Valid Claim for Constructive Fraud Against
Defendants as Trustees
¶ 39 Plaintiff’s claim for constructive fraud against Defendants as trustees is
likewise legally sufficient.
¶ 40 “In order to maintain a claim for constructive fraud, [a] plaintiff[] must show
that [she] and [the] defendants were in a relation of trust and confidence which led
up to and surrounded the consummation of the transaction in which [the] defendant
is alleged to have taken advantage of his position of trust to the hurt of [the] plaintiff.”
Barger v. McCoy Hillard & Parks, 346 N.C. 650, 666, 488 S.E.2d 215, 224 (1997)
(internal marks and citation omitted).
Constructive fraud differs from actual fraud in that it is
based on a confidential relationship rather than a specific
misrepresentation. Implicit in the requirement that a
defendant take advantage of his position of trust to the
hurt of plaintiff is the notion that the defendant must seek
his own advantage in the transaction; that is, the
defendant must seek to benefit himself.
Id. (cleaned up).
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¶ 41 “Although the elements of constructive fraud and breach of fiduciary duty
overlap, each is a separate claim under North Carolina law.” Chisum v. Campagna,
376 N.C. 680, 706, 2021-NCSC-7 ¶ 47 (internal marks and citation omitted).
A successful claim for breach of fiduciary duty requires
proof that (1) the defendants owed the plaintiff a fiduciary
duty; (2) the defendant breached that fiduciary duty; and
(3) the breach of fiduciary duty was a proximate cause of
injury to the plaintiff. A successful claim for constructive
fraud requires proof of facts and circumstances (1) which
created the relation of trust and confidence between the
parties, and (2) which led up to and surrounded the
consummation of the transaction in which defendant is
alleged to have taken advantage of his position of trust to
the hurt of plaintiff.
Id. at 706, 2021-NCSC-7 ¶ 48 (cleaned up). “Intent to deceive is not an element of
constructive fraud.” White v. Consol. Plan., Inc., 166 N.C. App. 283, 294, 603 S.E.2d
147, 156 (2004) (citation omitted). Thus, “[t]he primary difference between pleading
a claim for constructive fraud and one for breach of fiduciary duty is the intent and
showing that the defendant benefitted from his breach of duty.” Ironman Med. Props.
v. Chodri, 268 N.C. App. 502, 513, 836 S.E.2d 682, 691 (2019) (citing White, 166 N.C.
App. at 294, 603 S.E.2d at 156).
¶ 42 Article V, Section Three of the trust appoints Defendants and Mr. Stephenson
as successor trustees. That section also provides that if any one or two of the trustees
cease to act, the remaining trustee or trustees can continue to serve without a
successor being appointed and that a majority of Dr. Fox’s adult issue who are living
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Opinion of the Court
and competent may appoint a successor trustee. These terms thus confer a
discretionary power on Defendant Fox and her children to appoint a successor
trustee, assuming they are all competent.
¶ 43 Paragraph 82 of Plaintiff’s complaint alleges:
82. Defendant Fox and Defendant Wheaton obtained
their present control over the Trust and its assets,
mismanaged the trust and its assets, and misappropriated
to themselves and others Funds from the Trust by
breaching their fiduciary positions as alleged herein,
including by:
(a) causing Mr. Stephenson’s name, rather than Lee’s,
to be listed in the Trust as co-trustee;
(b) inducing Lee to secure Mr. Stephenson’s resignation
as co-trustee under false pretenses;
(c) falsely representing to Lee, with the intent that he
would be convinced and Lee would convince Mrs.
Fox, that Lee would be appointed as a co-trustee;
(d) misappropriating and depleting funds from the
Trust through the Scheme and as otherwise alleged
herein; and
(e) violating the terms of the Trust and preventing Mrs.
Fox from receiving distributions from the Trust to
which she was entitled.
¶ 44 In essence, this claim is that including Mr. Stephenson as a successor trustee
rather than Lee in Article V, Section Three was either a simple mistake or some kind
of ploy and that Defendant Wheaton induced Mr. Stephenson to resign as a trustee
on the pretext that Lee would be appointed upon Mr. Stephenson’s resignation while
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Opinion of the Court
knowing full well that a majority of Dr. Fox’s adult issue—his wife and his children—
would refuse to appoint Lee as a successor trustee, which they in turn refused to do
once Mr. Stephenson resigned.
¶ 45 Mr. Stephenson was the only obstacle to Defendants’ control of the trust before
his resignation. Once he resigned, it is alleged that Defendants exercised the
discretionary powers created by the trust and conferred upon them as trustees in a
manner that breached their duties to Plaintiff as trustees, thereby benefitting
Defendant Fox and their children at Plaintiff’s expense. We hold that the allegations
in paragraph 82 of Plaintiff’s complaint state a valid claim for constructive fraud
against Defendants as trustees. Accordingly, the trial court erred in dismissing it.
c. The Complaint States a Valid Claim for Civil Conspiracy Against
Defendants as Trustees
¶ 46 Because Plaintiff’s complaint states two valid claims for breach of trust and
one valid claim for constructive fraud against Defendants as trustees, Plaintiff’s claim
for civil conspiracy against Defendants as trustees, which is derivative of the valid
claims against them as trustees, should have survived Defendants’ motion to dismiss.
Plaintiff alleges in her complaint that Defendants “agreed among themselves to take
the actions complained of herein[,]” and, “[a]s a proximate result of Defendants’
conspiracy, Plaintiff[] and the Trust have been damaged by: (a) failure to properly
administer the Trust; (b) misuse and misappropriation of Trust funds; and (c) loss of
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money to which they are entitled.” We hold that these allegations state a valid claim
for civil conspiracy against Defendants as trustees because they allege that
Defendants agreed to take control of the trust by securing Mr. Stephenson’s
resignation and then made allegedly improper distributions while withholding
distributions from Plaintiff as part of a deliberate, premeditated plan. Accordingly,
the trial court erred in dismissing this claim.
3. Amendment of Complaint
¶ 47 In her final argument on appeal, Plaintiff contends that she should be allowed
an opportunity to amend her complaint to state her claims more fully. We hold that
this issue has not been preserved for appellate review.
¶ 48 While generally speaking, “[a] party may amend his pleading once as a matter
of course at any time before a responsive pleading is served or, if the pleading is one
to which no responsive pleading is permitted and the action has not been placed upon
the trial calendar, he may so amend it at any time within 30 days after it is served,”
N.C. Gen. Stat. § 1A-1, Rule 15(a) (2021), otherwise, “a party can only amend a
pleading with the consent of the trial judge[,]” Mauney v. Morris, 316 N.C. 67, 72,
340 S.E.2d 397, 400 (1986) (citation omitted). A trial court’s refusal to allow
amendment of a complaint is reviewed for an abuse of discretion. Id.¶ 49 Moreover, to preserve an issue for appellate review, a party must both (1)
“present[] to the trial court a timely request, objection, or motion, stating the specific
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grounds for the ruling . . . desired . . . if the specific grounds [are] not apparent from
the context” and (2) “obtain a ruling upon the party’s request, objection, or motion.”
N.C. R. App. P. 10(a). Relatedly, “[u]nder North Carolina Rules of Appellate
Procedure 7, 9, and 11, the burden is placed upon the appellant to commence
settlement of the record on appeal, including providing a verbatim transcript if
available.” State v. Berryman, 360 N.C. 209, 216, 624 S.E.2d 350, 356 (2006)
(citations omitted). Thus, Plaintiff, “as the appellant, bore the burden . . . of ensuring
that the record on appeal . . . [was] complete, properly settled, in correct form, and
filed[.]” Id. at 217, 624 S.E.2d at 356.
¶ 50 Plaintiff has chosen not to include a transcript of the hearing on Defendants’
motion to dismiss in the record on appeal on the grounds that no evidence was
presented at the hearing and the hearing consisted only of arguments of counsel and
colloquy with the court. Plaintiff asserts in her appellate brief that she made an
express request for findings of fact and conclusions of law pursuant to Rule 52 of the
North Carolina Rules of Civil Procedure to support the trial court’s dismissal of her
claims, but Defendants dispute this assertion, and there is nothing in the record that
indicates such a request was made at the hearing. Because Plaintiff chose not to
include a transcript of the hearing in the record, and neither the alleged Rule 52
request nor any ruling on this alleged request are in the record, the issue of whether
the trial court abused its discretion by refusing to grant a request that might or might
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not have been made has not been preserved for appellate review. As the appellant,
Plaintiff bore the burden of including any Rule 52 request in the record.
III. Conclusion
¶ 51 We affirm the trial court’s dismissal of Plaintiff’s individual capacity claims
against Defendants. We reverse the trial court’s dismissal of Plaintiff’s claims for
breach of trust for (1) making unauthorized distributions to Defendant Fox and her
children while withholding distributions from Plaintiff and for (2) failing to fully
reimburse Plaintiff for the trust’s share of the cost to maintain the home. In addition,
we reverse the trial court’s dismissal of Plaintiff’s claim for constructive fraud and
civil conspiracy against Defendants as trustees for securing control of the trust by
inducing Mr. Stephenson to resign as a trustee and then making allegedly improper
distributions to Defendant Fox and their children while withholding distributions
from Plaintiff. We remand the case for further proceedings on these four claims.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Chief Judge STROUD and Judge HAMPSON concur.