Governor's Club, Inc. v. Governors Club Ltd. Partnership , 152 N.C. App. 240 ( 2002 )

WYNN, Judge.

Plaintiff Governors Club, Inc. (the “Club”) appeals from a 4 October 2000 trial court order dismissing its complaint on all issues against Governors Club Limited Partnership (the “Partnership”), Governors Club Development Corporation (the “Development Corporation”) (the Partnership and the Development Corporation are hereinafter referred to collectively as the “Developer”), Estate of Truby J. Proctor, Jr. (“Proctor”), and Kirk J. Bradley (“Bradley”) (the Partnership, the Development Corporation, Proctor and Bradley are hereinafter referred to collectively as the “defendants”). Plaintiff Robert L. Alpert is not a party to this appeal. Following careful review, we reverse the trial court’s 4 October 2000 order.

The Club and the Development Corporation are both North Carolina corporations. On 27 June 1989, the Club and the Development Corporation entered into a Facilities Purchase Agreement (“Agreement”). At the time, Bradley was the President of both the Club and the Development Corporation, and signed the Agreement on behalf of both entities. The Agreement provided for the Development Corporation’s construction of an “eighteen (18) hole championship golf course designed by Jack Nicklaus,” as well as a clubhouse, putting and chipping greens, a driving range, tennis courts and pool (collectively the “Facilities”). The Agreement further provided for the eventual sale of the Facilities to the Club no later than 1 January 1997, at which time the Club would purchase the Facilities and acquire the control and management thereof. Prior to closing, the Development Corporation would operate the Facilities.

In addition, the Agreement provided for the future creation of a six-member Advisory Committee, selected annually by the Development Corporation, to serve as a liaison between the Development Corporation and the Club members; the Advisory Committee was to have “no right, duty or obligation to act on behalf of the [Club] members” until closing. The Development Corporation agreed to select twelve Advisory Committee members immediately prior to closing, who would become the Club’s Board of Directors upon closing. The Agreement also contained several provisions that would limit the Development Corporation’s liability after title was conveyed to the Club. The Development Corporation later assigned the Agreement to the Partnership; at the time of the assignment, the Development Corporation was the Partnership’s general partner.

Prior to closing, the Club and the Partnership amended the Agreement (the “Amendment”) on 23 December 1996; Bradley signed the Amendment on behalf of both the Club (as its President) and the Partnership (as the President of its general partner, the Development Corporation). The Amendment altered various terms of the Agreement, such as (1) requiring the Developer to furnish a Closing Certificate to the Club at closing making certain representations; (2) requiring the then-sitting Advisory Committee to select independent legal counsel, at least thirty days prior to closing, to represent the Club in connection with the transactions contemplated within the Agreement, (3) requiring the Developer to select sixteen Advisory Committee members immediately prior to closing to become the Club’s Board of Directors upon closing, and (4) setting a closing date of 1 January 1997. The Amendment recited that the amendments therein had been approved by a majority of the Club’s members, and stated that “[e]xcept as specifically amended by this Amendment, the Agreement is hereby restated in full.”

Closing of the contemplated transaction did in fact take place on 1 January 1997, at which time the Partnership furnished the required Closing Certificate to the Club, containing the required representations and warranties. However, plaintiff later brought this action, alleging that the Club and its members subsequently discovered numerous “latent defects in and problems with the [] Facilities that were not apparent or reasonably discoverable before the closing.” Plaintiff detailed extensive defects in the golf course, wastewater holding ponds, and the clubhouse, and alleged that “neither the Agreement nor the Amendment nor the representations and warranties in the Closing Certificate were the result of an ‘arm’s length’ bargaining between independent parties.” Instead, “the Agreement and the Amendment were in reality agreements by the Developer with itself,” whereby Defendants intended that the Club members would bear ultimate responsibility, financial and otherwise, for the Facilities. Plaintiff pointed out various disclaimers throughout the Agreement whereby the Developer sought to exonerate itself from any responsibility for the Facilities that it constructed, and exclusively cared for and controlled until the closing date.

The complaint further asserted that the Club members had no rights whatsoever under the Agreement, and were not intended third-party beneficiaries thereof. Additionally, the complaint alleged that the Club’s Board of Directors prior to closing, as well as the “new” Board of Directors that took office at closing (comprised of the sixteen-member Advisory Committee selected by the Developer), were “hand-picked” by the Developer. The “independent legal counsel” selected by the Club’s “new” Board of Directors to represent the Club in connection with the transfer at closing was alleged to be a longtime friend of defendant Bradley, suggested by Bradley to the Board. Plaintiff alleged that said “independent” counsel actually began providing counsel to the incoming Board of Directors on or about June 1996. Accordingly, plaintiff asserted claims for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) reformation of contract, (4) fraudulent misrepresentation, (5) negligent misrepresentation, (6) breach of fiduciary duty, (7) constructive fraud, and (8) unfair and deceptive trade practices.

The Partnership and the Development Corporation answered separately, each asserting a N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) (1999) motion to dismiss plaintiffs complaint for failure to state a claim upon which relief can be granted. Both the Partnership and the Development Corporation also alleged that (1) upon information and belief, the Club members voted on and approved the Amendment in writing; (2) sometime between 1 January 1995 and 1 January 1997, all Club members were provided with a Governor’s Club, Inc. Membership Offering Memorandum (the “Memorandum”) containing a copy of the Agreement; (3) upon information and belief, sometime between 1 January 1995 and 1 January 1997, all Club members accepted the terms of Club membership set forth in the Memorandum, including an Acknowledgment Agreement specifically including an agreement by all Club members to be bound by the terms and conditions of the Agreement; (4) plaintiff “voluntarily assumed the risk of damage allegedly resulting from the purchase [of the Facilities] and [is] barred from recovery by an affirmative and voluntary assumption of known risks which were fully appreciated”; and (5) plaintiff waived its right to bring the claims in the complaint by ratifying all applicable agreements, wherein the Developer disclaimed all warranties and responsibilities relating to the alleged defects.

The Partnership and the Development Corporation each also asserted a counterclaim alleging that all Club members accepted the terms of Club membership as set forth in the Memorandum, as evidenced by the members’ execution of the Acknowledgment Agreement whereby they agreed to be bound by the terms and conditions of the Agreement. The counterclaim alleged that, upon information and belief, the Amendment and its execution were voted upon and approved by the Club members in writing prior to the Amendment’s execution. The counterclaim alleged further that the Memorandum refers to the “Disclaimer of Warranties” section of the Agreement, and specifically alerts the reader to the “substantial risks” to the Club and its members as a result thereof. The Partnership and the Development Corporation each pled plaintiff’s alleged written acknowledgment and acceptance of the terms of the Agreement and the Amendment in bar to plaintiffs claims of fraud, and sought recovery from plaintiff for costs and expenses incurred in defending plaintiffs lawsuit.

In replying to the counterclaims of the Partnership and the Development Corporation, plaintiff asserted that “defendants collectively and/or individually misrepresented the contents and/or the effect of accepting the [] Memorandum, including the Agreement.” Additionally, plaintiff asserted that:

several documents, including the Amendment, were submitted to then Club members for their approval by vote; that the defendants collectively and/or individually misrepresented the contents of said documents and/or the effect of accepting said documents; that a majority of the then Club members voted in favor of the documents submitted for their approval by vote[.]

Plaintiff also asserted an affirmative defense to the counterclaims, stating:

defendants collectively and/or individually intentionally or negligently misrepresented the contents of and/or the effect of accepting the [] Memorandum, including without limitation the Agreement and the Amendment, and accordingly, plaintiff[] plead [s] fraud as an affirmative defense to any and all of defendants’ counterclaims.

Plaintiff also admits, as to the contents of the Memorandum, that it “is a written document that speaks for itself and is the best evidence of its contents.” We note that the Memorandum is not a part of the record before this Court.

In granting defendants’ Rule 12(b)(6) motions to dismiss, the trial court stated that it “considered the pleadings, motions, briefs and arguments of counsel.” We must first determine whether, in doing so, the trial court converted defendants’ Rule 12(b)(6) motions to dismiss into N.C. Gen. Stat. § 1A-1, Rule 56 (2001) motions for summary judgment or N.C. Gen. Stat. § 12(c) (2001) motions for judgment on the pleadings.

Ordinarily, if, on a Rule 12(b)(6) motion, the trial court considers matters outside the pleading, “the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56[.]” N.C. Gen. Stat. § 1A-1, Rule 12(b); see Industries, Inc. v. Construction Co., 42 N.C. App. 259, 262-63, 257 S.E.2d 50, 53, disc. review denied, 298 N.C. 296, 259 S.E.2d 301 (1979) (“when outside matter is presented to and not excluded by the court on a motion under . . . Rule 12(b)(6) ..., it should be treated as one for summary judgment under Rule 56”). However, where, as here, the matters outside the pleading considered by the trial court consist only of briefs and arguments of counsel, the trial court need not “convert the Rule 12 motion into one for summary judgment under Rule 56[.]” Privette v. University of North Carolina, 96 N.C. App. 124, 132, 385 S.E.2d 185, 189 (1989).

While the trial court did not treat defendants’ motions as Rule 56 motions for summary judgment, it is less clear from the trial court’s 4 October 2000 order whether it treated defendants’ motions as Rule 12(c) motions for judgment on the pleadings. The trial court purported to rule on defendants’ motions as Rule 12(b)(6) motions to dismiss; however, prior to ruling on the motions, the trial court permitted plaintiff additional time to reply to the Developer’s counterclaims, and stated in its order that it “considered the pleadings, motions, briefs and arguments of counsel,” thereby indicating that it considered all of the pleadings and treated defendants’ motions as Rule 12(c) motions. In either case, after reviewing plaintiff’s claims and the appropriate supporting documentation under both Rules 12(b)(6) and 12(c), we conclude that the trial court erred in granting defendants’ motions, and reverse the trial court’s order.

In reviewing a Rule 12(b)(6) motion to dismiss,

the factual allegations in plaintiff’s complaint are treated as true. “A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the complaint by presenting ‘the question whether, as a matter of law, the allegations of the complaint, treated as true, are sufficient to state a claim upon which relief can be granted under some [recognized] legal theory.” A motion to dismiss pursuant to Rule 12(b)(6) should not be granted “ ‘unless it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim.’’ ”

Isenhour v. Hutto, 350 N.C. 601, 604-05, 517 S.E.2d 121, 124 (1999) (internal citations omitted). Under Rule 12(b)(6), we must therefore consider plaintiff’s complaint to determine whether, when liberally construed (see Dixon v. Stuart, 85 N.C. App. 338, 354 S.E.2d 757 (1987)), it states enough to give the substantive elements of a legally recognized claim. See Booher v. Frue, 86 N.C. App. 390, 358 S.E.2d 127 (1987).

A Rule 12(c) motion for judgment on the pleadings is not favored by the law, see Huss v. Huss, 31 N.C. App. 463, 230 S.E.2d 159 (1976), and requires the trial court to view all facts and permissible inferences in the light most favorable to the nonmoving party. See DeTorre v. Shell Oil Co., 84 N.C. App. 501, 353 S.E.2d 269 (1987). All factual allegations in the nonmovant’s pleadings are deemed admitted except those that are legally impossible or not admissible in evidence. See Cheape v. Town of Chapel Hill, 320 N.C. 549, 359 S.E.2d 792 (1987).

Plaintiff concedes in its brief that the trial court properly dismissed its following claims: (1) Breach of contract, as against defendants Proctor and Bradley; (2) Breach of implied covenant of good faith and fair dealing, as against defendants Proctor and Bradley; (3) Reformation of contract, as against all defendants; (4) Fraudulent misrepresentation, as against all defendants; (5) Negligent misrepresentation, as against all defendants; (6) Breach of fiduciary duty, as against defendants Development Corporation and Partnership; and (7) Constructive fraud, as against defendants Development Corporation and Partnership. Plaintiff’s remaining claims are: (1) Breach of contract, as against defendants Development Corporation and Partnership; (2) Breach of implied covenant of good faith and fair dealing, as against defendants Development Corporation and Partnership; (3) Breach of fiduciary duty, as against defendants Proctor and Bradley; (4) Constructive fraud, as against defendants Proctor and Bradley; and (5) Unfair and deceptive trade practices, as against all defendants.

I. Breach of Fiduciary Dut,v. Constructive Fraud, and Unfair and Deceptive Trade Practices

Plaintiff first contends that the trial court erred in dismissing its claims for breach of fiduciary duty and constructive fraud as against defendants Proctor and Bradley. We agree.

A claim for breach of fiduciary duty requires the existence of a fiduciary duty. In its complaint, plaintiff asserted that Truby J. Proctor, Jr. and Bradley each was formerly (at all relevant times) “a principal owner, a director, and an officer of both the [Development] Corporation and the Club.” The complaint also stated that, on information and belief, (1) Proctor “continues to be a principal owner of the [Development) Corporation,” (2) Bradley “continues to be a principal owner, a director, and an officer of the [Development] Corporation, and (3) Bradley also “continues to be a director of the Club.”

Under North Carolina law, directors of a corporation generally owe a fiduciary duty to the corporation, and where it is alleged that directors have breached this duty, the action is properly maintained by the corporation rather than any individual creditor or stockholder. Underwood v. Stafford, 270 N.C. 700, 703, 155 S.E.2d 211, 213 (1967).

Keener Lumber Co., Inc. v. Perry, 149 N.C. App. 19, 560 S.E.2d 817, 822 (2002); see also N.C. Gen. Stat. § 55-8-30 (2001). Plaintiff thus adequately alleged that defendants Proctor and Bradley owed it a fiduciary duty.

Furthermore, G.S. § 55-8-30 requires a corporate director to discharge his or her duties as a director:

(1) In good faith;

(2) With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and

(3) In a manner he reasonably believes to be in the best interests of the corporation.

G.S. §§ 55-8-30(a)(l)-(3). Having determined that defendants Proctor and Bradley, as principal owners, directors, and officers of the Club, owed it a fiduciary duty, we review the complaint as well as the additional pleadings to determine whether plaintiff sufficiently alleged a breach of that duty.

Plaintiff asserted in the complaint that “12. . . . neither the Agreement nor the Amendment nor the representations and warranties in the Closing Certificate were the result of ‘arm’s length’ bargaining between independent parties”; “14. ... the Agreement and the Amendment were in reality agreements by the Developer with itself’; the Developer purported to disclaim any fiduciary duty on behalf of the Club or its members; the Club’s Board of Directors, which took office at closing, was hand-picked by the Developer; the “independent legal counsel” selected to represent the Club in the transaction was a long-time friend of defendant Bradley, and was selected by the Developer’s hand-picked directors; the provision allowing the Club’s Board of Directors to select the Club’s “independent legal counsel” was a “sham”; the Developer constructed the Facilities with numerous defects, many of which were latent, not apparent or reasonably discoverable prior to closing, and were in fact not discovered by Club members until after closing; the Club’s Facilities were not properly constructed nor properly maintained prior to closing; defendants knew or reasonably should have known of the Facilities’ defects, and failed to disclose them to the Club or its members; the presence of the defects was not known to or reasonably discoverable by the Club or its members; “60. Defendants stood in a relationship of special faith, confidence, and trust with respect to” plaintiff as the Club’s officers and directors, and had exclusive control over the design, construction, operation and maintenance of the Facilities prior to closing; “61. . . . defendants owed plaintiff[] a fiduciary duty” and their acts and omissions breached said duty; and as a result of said breach, plaintiff suffered damages.

If we consider not only the complaint but all of the pleadings, plaintiff alleges in its reply to the Developer’s counterclaims “that the defendants collectively and/or individually misrepresented the contents of and/or the effect of accepting the [] Memorandum, including the Agreement.” Plaintiff also stated therein:

that the defendants collectively and/or individually intentionally or negligently misrepresented the contents of and/or the effect of accepting the [] Memorandum, including without limitation the Agreement and the Amendment, and accordingly, plaintiff[] plead[s] fraud as an affirmative defense to any and all of defendants’ counterclaims.

(Emphasis added.)

Having considered this evidence, we conclude that the complaint sufficiently stated a claim for breach of fiduciary duty against defendants Proctor and Bradley to survive a Rule 12(b)(6) motion to dismiss. Similarly, the pleadings as a whole are sufficient to survive a Rule 12(c) motion for judgment on the pleadings on this claim.

A constructive fraud claim requires proof of circumstances:

“ ‘(1) which created the relation of trust and confidence [the “fiduciary” relationship], 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.’ ” Terry v. Terry, 302 N.C. 77, 83, 273 S.E.2d 674, 677 (1981) (citation omitted). Put simply, a plaintiff must show (1) the existence of a fiduciary duty, and (2) a breach of that duty.

Keener Lumber Co., Inc., 149 N.C. App. at 28, 560 S.E.2d at 824. Having determined that the trial court erred in granting defendants’ Rule 12(b)(6) motions to dismiss plaintiff’s breach of fiduciary duty claim, we likewise conclude that the trial court erred in dismissing plaintiff’s constructive fraud claim as against defendants Proctor and Bradley.

Furthermore, allegations sufficient to allege constructive fraud are likewise sufficient to allege unfair and deceptive trade practices. See HAJMM Co. v. House of Raeford Farms, 94 N.C. App. 1, 14, 379 S.E.2d 868, 876 (1989), modified and aff’d in part, rev’d in part on other grounds, 328 N.C. 578, 403 S.E.2d 483 (1991). To establish a claim for unfair or deceptive trade practices under N.C. Gen. Stat. § 75-1.1 (2001), a plaintiff must show (1) defendant engaged in an unfair or deceptive practice or act, (2) “in or affecting commerce,” and (3) such act proximately caused actual injury to the plaintiff. G.S. § 75-1.1; see Pleasant Valley Promenade v. Lechmere, Inc., 120 N.C. App. 650, 464 S.E.2d 47 (1995). The business of buying, developing and selling real estate is an activity “in or affecting commerce” for the purposes of G.S. § 75-1.1. See Wilder v. Squires, 68 N.C. App. 310, 315 S.E.2d 63, 311 N.C. 769, 321 S.E.2d 158, disc. review denied, 311 N.C. 769, 321 S.E.2d 158 (1984); see also Wilder v. Hodges, 80 N.C. App. 333, 342 S.E.2d 57 (1986); Adams v. Moore, 96 N.C. App. 359, 385 S.E.2d 799 (1989), disc. review denied, 326 N.C. 46, 389 S.E.2d 83 (1990). Plaintiff adequately alleged that Proctor’s and Bradley’s actions were unfair or deceptive, and that those actions proximately caused actual injury to plaintiff. Thus, the complaint was sufficient to survive defendants’ motions on the claim of unfair and deceptive trade practices as against defendants Proctor and Bradley.

Additionally, we note that the actions of the Partnership, as a party to the Agreement, and the Development Corporation, as a party to the Agreement and the Amendment (as general partner of the Partnership), fall within the ambit of G.S. § 75-1.1. See, e.g., Opsahl v. Pinehurst Inc., 81 N.C. App. 56, 344 S.E.2d 68 (1986). The complaint alleges that the actions of the Partnership and the Development Corporation were unfair or deceptive, and caused plaintiff actual injury. As such, the trial court erred in granting defendants’ motions to dismiss these claims as against the Partnership and the Development Corporation.

II. Breach of Contract

In addition to its claims that defendants Proctor and Bradley breached their fiduciary duty to plaintiff and engaged in constructive fraud, and that all defendants engaged in unfair and deceptive trade practices, plaintiff asserts in its complaint and in its brief that the Development Corporation and the Partnership breached the contract (1) “by failing to construct an 18-hole golf course of championship quality,” and (2) “by failing to construct a clubhouse with an HVAC system appropriate to the size and uses of the clubhouse.”

In the Agreement, the Development Corporation contracted to construct “[a]n eighteen (18) hole championship golf course designed by Jack Nicklaus” and a golf clubhouse as part of the Facilities. The complaint alleged that the golf course was neither properly constructed nor properly maintained prior to closing, such that the course failed to meet United States Golf Association standards. Plaintiff alleged that neither the fairways nor the greens drained properly. Additionally, plaintiff alleged various defects in the clubhouse, including a woefully inadequate heating, ventilating and air conditioning system.

While the Agreement also contained a comprehensive “Disclaimer of Warranties” provision, whereby the Club purported to accept the Facilities (including the golf course and the clubhouse) in a “where is, as is” condition, plaintiff alleges additional claims to the effect that such disclaimers were obtained from the Club illegitimately. Indeed, defendant Bradley signed the Agreement on behalf of the Club as well as the Development Corporation, allegedly breaching his fiduciary duty to the Club and engaging in constructive fraud as well as unfair and deceptive trade practices. Under the circumstances, we conclude that the complaint was sufficient to survive defendants’ motions on plaintiffs breach of contract claims against the Partnership and the Development Corporation.

III. Breach of Implied Covenant of Good Faith and Fair Dealing

As recognized by our Supreme Court, “ ‘In every contract there is an implied covenant of good faith and fair dealing that neither party will do anything which injures the right of the other to receive the benefits of the agreement.’ ” Bicycle Transit Authority v. Bell, 314 N.C. 219, 228, 333 S.E.2d 299, 305 (1985) (citation omitted). Plaintiff’s complaint alleged that the Partnership and the Development Corporation “breached their [implied] duty of good faith and fair dealing in their dealings with plaintiff [] in connection with the Agreement, the Amendment, and the sale of the [] Facilities to the Club.” The complaint contained sufficient allegations to support this claim to survive defendants’ motions, such that the trial court erred in granting the motions to dismiss this claim as against the Partnership and the Development Corporation.

In summation, after carefully reviewing the complaint, we hold that when all of the allegations therein are liberally construed and assumed to be true, the complaint sufficiently alleges adequate facts to survive a Rule 12(b)(6) motion to dismiss. Furthermore, all of the pleadings considered in toto (when all of the facts and permissible inferences therein are viewed in the light most favorable to plaintiff) are sufficient to survive a Rule 12(c) motion for judgment on the pleadings. Accordingly, we conclude that the trial court erred in dismissing plaintiff’s claims as detailed above. The trial court’s 4 October 2000 order is therefore,

Reversed.

Judge TIMMONS-GOODSON concurs. Judge TYSON dissents.