Ward v. Fogel

NO. COA14-417
NORTH CAROLINA COURT OF APPEALS
Filed: 2 December 2014
JO ANN WARD,
Plaintiff,
v. Wake County
No. 11 CVS 4932
MARK E. FOGEL AND WILLIAM B.
WRIGHT, JR., as Co-Trustees under
certain trust agreements dated
February 1, 2005 and January 1,
2006; ROBERT E. WARD, III; and
ROBERT E. WARD, IV,
Defendants.
Appeal by plaintiff from order entered 2 December 2013 by
Judge Paul G. Gessner in Wake County Superior Court. Heard in
the Court of Appeals 23 September 2014.
Brady Morton, PLLC, by Travis K. Morton, for plaintiff-
appellant.
Ward and Smith, P.A., by Gary J. Rickner, for defendants-
appellees Mark E. Fogel and William B. Wright, Jr., co-
trustees.
Narron, O’Hale & Whittington, P.A., by Jason W. Wenzel, for
defendant-appellee Robert E. Ward, III.
Howard, Stallings, From & Hutson, P.A., by John N. Hutson,
Jr., for defendant-appellee Robert E. Ward, IV.
HUNTER, Robert C., Judge.
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Jo Ann Ward (“plaintiff”) appeals from an order granting
summary judgment in favor of defendants Robert E. Ward, III
(“Mr. Ward”); Robert E. Ward, IV (“Ward’s son”); and Mark E.
Fogel and William B. Wright, Jr., as co-trustees of the Robert
E. Ward, III Irrevocable Trust Agreement (“the REW trust”) and
the Ward Family Irrevocable Trust Agreement (“the WF trust”).
On appeal, plaintiff argues that the trial court erred in
granting summary judgment for defendants because: (1) North
Carolina superior court has subject matter jurisdiction over
this dispute; (2) plaintiff’s claims are not time-barred by the
statute of limitations; (3) genuine issues of material fact
exist as to plaintiff’s claims for fraudulent inducement,
constructive fraud, and breach of fiduciary duty; and (4) the
“divorce clause” in the REW trust is void as contrary to public
policy.
After careful review, we affirm the trial court’s order in
part, reverse the order in part, and remand for further
proceedings.
Background
Plaintiff and Mr. Ward are residents of Florida, where they
have both lived since approximately 2002. They married in North
Carolina on 4 April 1987, but separated on 9 October 2009. On 4
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June 2010, Mr. Ward filed an action against plaintiff for
divorce and equitable distribution in Broward County, Florida
(“the Florida divorce action”).
During the marriage, Mr. Ward and others formed a business
called Environmental Protection Services, Inc. (“EPS”) in West
Virginia. In 1997, after reacquiring a third owner’s stock, Mr.
Ward owned fifty percent of EPS. During deposition, Mr. Ward
testified that he remembered discussing with the EPS co-owner,
Keith Reid, how Mr. Reid’s ex-wife acquired EPS stock through
equitable distribution. On or about 1 February 2005, Mr. Ward
conveyed his fifty percent interest in EPS to the REW trust.
Mr. Wright, Mr. Ward’s friend and business associate, advised
him regarding the REW trust. At the time, Mr. Wright had been
helping Mr. Ward and plaintiff with their financial questions.
Mr. Wright introduced Mr. Ward to C. Wells Hall, III (“Mr.
Hall”), who was the attorney that Mr. Ward hired to draft the
REW trust.
Mr. Ward was the grantor of the REW trust. He transferred
his EPS stock into the trust, which contained a clause stating
that income would be provided to plaintiff as the beneficiary so
long as she remained married to Mr. Ward (“the divorce clause”).
Mr. Ward’s son and any grandchildren of Mr. Ward were the
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remaining beneficiaries. Mr. Wright and Mark Fogel were named
co-trustees of the REW trust. Mr. Hall testified in deposition
that the divorce clause was not included in the initial draft of
the REW trust but was inserted after having discussions with his
client, Mr. Ward. According to Mr. Ward, it was Mr. Hall’s idea
to include the divorce clause to protect his assets in the event
of divorce.
Plaintiff testified in deposition that she did not know
about either the divorce clause or the existence of the other
beneficiaries for the REW trust until she saw a copy of the
trust document for the first time in late 2009, after her
separation from Mr. Ward. All parties agree that she did not
participate in the drafting of the REW trust and was not
involved in the transfer of EPS shares by Mr. Ward into the
trust. She testified that Mr. Ward told her the purpose of the
REW trust was to protect EPS shares from claims by the
Environmental Protection Agency and other potential judgment
creditors. He also said that the trust would hold EPS stock and
that plaintiff would be the beneficiary.
After the creation of the REW trust, but before the parties
separated on 9 October 2009, checks written from the REW trust
were deposited into Mr. Ward’s and plaintiff’s joint bank
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account. Plaintiff signed forms authorizing these direct
deposits. However, plaintiff testified that she never saw bank
statements from this account and was not involved in the
family’s finances. Rather, Mr. Ward and Mr. Wright controlled
the family’s financial matters and paid their bills, with Mr.
Wright having the authority to write checks from the joint
account into which distributions from the REW trust were
deposited.
In 2006, the WF trust was created with the assistance of
Mr. Wright and Mr. Hall. To create this trust, Mr. Ward
transferred interests in a number of limited liability companies
spun off from EPS to plaintiff, who was told by Mr. Ward to
immediately transfer these interests into the WF trust. Thus,
plaintiff was the grantor of the WF trust, and Mr. Ward was its
beneficiary. Although Mr. Hall testified that he typically
represents the grantor of a trust, his client for purposes of
drafting the WF trust was Mr. Ward, not plaintiff. He did not
recall ever providing plaintiff with drafts of the WF trust or
discussing the terms of the trust with her. However, plaintiff
testified that she thought Mr. Hall represented her interests in
the creation of the WF trust. She also testified that Mr. Ward
told her that it was “her turn” to be the grantor of a trust and
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for him to be the beneficiary, like an inverse of the REW trust.
However, Mr. Ward did not disclose the existence of the divorce
clause in the REW trust, and no divorce clause was included in
the WF trust. Mr. Hall testified that because grantors of a
trust retain certain powers of control, the grantor is still
liable for payment of taxes on the trust’s income. Plaintiff
alleges that this tax obligation was not explained to her before
she transferred the spun-off LLC interests into the WF trust and
became the trust’s grantor.
Plaintiff filed this cause of action in Wake County
Superior Court on 29 March 2011. The complaint sets forth the
following claims: (1) fraudulent inducement; (2) constructive
fraud; (3) and breach of fiduciary duty; it also requests the
creation of a constructive trust and the termination of the REW
and WF trusts. Mr. Ward filed a motion for summary judgment as
to all claims on 7 October 2013, and the motion was granted in
favor of all defendants on 2 December 2013. However, the trial
court failed to specify in its order the grounds upon which it
granted summary judgment for defendants, and no transcript has
been produced of the hearing on the motion for summary judgment.
Plaintiff filed timely notice of appeal.
Discussion
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I. Subject Matter Jurisdiction
Plaintiff first argues that the trial court erred to the
extent that it granted summary judgment for defendants on the
ground that Wake County Superior Court lacked subject matter
jurisdiction to resolve the dispute. We agree.
Jurisdiction is “the power to hear and to determine a legal
controversy; to inquire into the facts, apply the law, and to
render and enforce a judgment.” High v. Pearce, 220 N.C. 266,
271, 17 S.E.2d 108, 112 (1941) (citation and internal quotation
marks omitted). “Subject matter jurisdiction, a threshold
requirement for a court to hear and adjudicate a controversy
brought before it, is conferred upon the courts by either the
North Carolina Constitution or by statute.” In re M.B., 179
N.C. App. 572, 574, 635 S.E.2d 8, 10 (2006) (citations and
internal quotation marks omitted). “In reviewing a question of
subject matter jurisdiction, our standard of review is de novo.”
Raleigh Rescue Mission, Inc. v. Bd. of Adjust. of Raleigh, 153
N.C. App. 737, 740, 571 S.E.2d 588, 590 (2002).
Here, defendants argue that Wake County Superior Court
lacked subject matter jurisdiction to hear this controversy for
two reasons: (1) proper jurisdiction to equitably distribute
marital property lies exclusively in the Florida courts, since
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Mr. Ward filed the Florida divorce action before plaintiff filed
the current suit; and (2) even if North Carolina is the proper
state in which to bring suit, the district court, and not the
superior court, has jurisdiction over plaintiff’s claims for
marital misconduct. For the following reasons, we find these
arguments unpersuasive.
First, defendants rely on Beers v. Beers, 724 So. 2d 109,
116-17 (Fla. Dist. Ct. App. 1998) for the proposition that
“claims for alleged dissipation of marital assets must be
settled in the divorce setting of equitable distribution, not in
a collateral proceeding.” In Beers, the husband filed for
dissolution of marriage and equitable distribution against the
wife. Id. at 112. In response, the wife filed a counter
petition alleging fraud, constructive fraud, and breach of
fiduciary duty, based on the theory that the husband had
secretly depleted marital assets in furtherance of an adulterous
relationship throughout the marriage. Id. The Florida
appellate court held that the judgment entered in favor of the
wife on these claims was properly vacated because “[w]here no
specific transaction or agreement exists between the spouses,
the dissolution of marriage statute . . . provides the exclusive
remedy where one’s spouse has intentionally dissipated marital
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property during the marriage. . . . In our view, there simply
is no cognizable tort claim for constructive fraud for a
concealed dissipation of marital assets.” Id. at 117.
Upon careful review, we find Beers to be distinguishable
and inapposite. The Florida Court specifically held that “where
no specific transaction or agreement exists between the
spouses,” the statute controlling equitable distribution
provides the exclusive remedy for an alleged dissipation of
marital property. There was a discrete transaction and
agreement here that distinguishes this case from Beers. It is
undisputed that Mr. Ward transferred his fifty percent stake in
a number of LLC spinoffs from the EPS stock to plaintiff, with
an agreement that plaintiff would immediately transfer those
assets into the WF trust, for which Mr. Ward was the beneficiary
and plaintiff was the grantor. Thus, there is a “specific
transaction and agreement” between the spouses here that is the
subject of plaintiff’s claims for fraudulent inducement,
constructive fraud, and breach of fiduciary duty that did not
exist in Beers. Based on this material distinction, Beers is
not controlling, and the remedy for plaintiff’s claims is not
necessarily the Florida equitable distribution action based on
that holding.
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Furthermore, defendants argue that North Carolina courts
should refrain from exercising jurisdiction where the estate is
already subject to the proper jurisdiction of the Florida court.
Defendants claim that “[t]he res of the marital property is
properly subject to the jurisdiction of the Florida court
because [Mr. Ward] and [plaintiff] are longtime residents of
Florida.” Therefore, defendants argue that because “the relief
sought would require the [North Carolina] court to control a
particular property or res over which another court already has
jurisdiction,” Whitmire v. Cooper, 153 N.C. App. 730, 734, 570
S.E.2d 908, 911 (2002) (quotation marks omitted), Wake County
Superior Court should abstain from exercising jurisdiction.
The flaw in this argument is the assumption that the
Florida court has proper jurisdiction over the trusts, which are
the subject of plaintiff’s cause of action. It is well-settled
in Florida that “the trial court [in a divorce proceeding] does
not have jurisdiction to adjudicate property rights of non-
parties.” Ray v. Ray, 624 So. 2d 1146, 1148 (Fla. Dist. Ct. App.
1993); see also Mann v. Mann, 677 So. 2d 62, 63 (Fla. Dist. Ct.
App. 1996) (holding that because title to marital property was
held by an individual not a party to the divorce proceedings,
the trial court lacked jurisdiction to control that subject
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property). Here, neither Mr. Wright nor Mr. Fogel, the trustees
of both the REW trust and the WF trust, were named as parties in
the Florida divorce action. Thus, under Ray and Mann, the
Florida trial court does not have jurisdiction to adjudicate the
property of the trusts. Furthermore, where the third party
controlling alleged marital property is a trust, the Florida
court must exercise personal jurisdiction over the trustees in
order to affect trust property. See Hanson v. Denckla, 357 U.S.
235, 245, 2 L. Ed. 2d 1283 (1958) (“Florida adheres to the
general rule that a trustee is an indispensable party to
litigation involving the validity of the trust. In the absence
of such a party a Florida court may not proceed to adjudicate
the controversy.”). As both Mr. Wright and Mr. Fogel are
residents of North Carolina and the situs of the trust is in
North Carolina, there is no indication in the record that the
Florida court would be able to exercise personal jurisdiction
over these parties in order to enter a ruling affecting the
trust property. See In re Estate of Stisser, 932 So. 2d 400, 402
(Fla. Dist. Ct. App. 2006) (holding that the law requires the
court to have personal jurisdiction over the trustees of a trust
in order to enter a ruling affecting the corpus of the trust).
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Defendants also contend that even if this action could be
brought in North Carolina, the district court, and not the
superior court, has exclusive jurisdiction. In support of this
argument, Mr. Ward cites N.C. Gen. Stat. § 7A-244 (2013), which
provides that the district court has jurisdiction over
proceedings for divorce and equitable distribution of property.
However, the North Carolina district courts only have
jurisdiction over divorce and equitable distribution when the
marital relationship exists in North Carolina and at least one
party is a North Carolina resident. N.C. Gen. Stat. § 1-
75.4(12) (2013). Because plaintiff and Mr. Ward have been
Florida residents since 2002, the district court would have
lacked jurisdiction over any potential divorce or equitable
distribution claim that plaintiff could have potentially
brought.
Nevertheless, defendants contend that the proper means of
seeking the relief requested in plaintiff’s complaint is through
the equitable distribution process. In support of this
argument, defendants rely on Garrison v. Garrison, 90 N.C. App.
670, 369 S.E.2d 628 (1988), and Hudson Int’l, Inc. v. Hudson,
145 N.C. App. 631, 550 S.E.2d 571 (2001). In each of these
cases, this Court concluded that the superior court lacked
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subject matter jurisdiction to enter orders affecting the same
marital property that was already the subject of previous
equitable distribution claims properly brought in district
court. See Garrison, 90 N.C. App. at 672, 369 S.E.2d at 629
(partition action to divide marital home improperly brought in
superior court where the marital home was already part of a
pending equitable distribution claim); Hudson, 145 N.C. App. at
636-37, 550 S.E.2d at 573-74 (declaratory action brought in
superior court by third parties concerning ownership of real
property that was the subject of a prior equitable distribution
action in district court held properly dismissed). However,
this Court subsequently noted that “[a]t the core of Garrison
and Hudson were two principles: (1) the same property was the
subject of both the superior and district court actions, and (2)
the relief sought and available was similar in each suit.”
Burgess v. Burgess, 205 N.C. App. 325, 328-29, 698 S.E.2d 666,
669 (2010) (emphasis added).
In Burgess, the Court analyzed against the backdrop of
Garrison and Hudson a wife’s claims brought in superior court
against her husband for divestiture of stock, breach of
fiduciary duty, accounting, and inspection, because an equitable
distribution suit between the husband and wife was already
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pending in district court. Id. In its analysis, the Court
focused on the similarity of the relief sought and available in
each action to determine whether the wife’s separate claims in
superior court could be “subsumed” into the equitable
distribution action in district court. Id. at 329, 698 S.E.2d
at 670. Most relevant to the analysis here is the Burgess
Court’s holding that the wife’s derivative claim premised on
breach of fiduciary duty was not sufficiently similar to the
equitable distribution action to warrant dismissal from superior
court. Id. at 332, 698 S.E.2d at 671. The Court identified the
following differences between the wife’s derivative claim
premised on breach of fiduciary duty and the equitable
distribution action: (1) the wife was entitled to a jury trial
for the derivative suit, but was barred from having a jury trial
in equitable distribution; (2) the most that the wife could
receive in equitable distribution was a larger portion of
marital or divisible property, whereas success on the derivative
suit opened access to the husband’s separate property in the
form of damages; and (3) the district court could not obtain
jurisdiction over plaintiff’s derivative suit by statute. Id.
at 331-32, 698 S.E.2d at 671. Therefore, the Court held that
because the district court would be unable to grant the wife the
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relief she sought, the superior court had subject matter
jurisdiction to decide her derivative claim. Id.
The reasoning in the Burgess Court’s holding supports
plaintiff’s argument that Wake County Superior Court has subject
matter jurisdiction over the claims pertaining to the REW trust
and the WF trust. First, there is no indication that either of
the courts that defendants claim to have more “proper”
jurisdiction than Wake County Superior Court in fact have
jurisdiction over the trusts. As discussed above, the Florida
court does not appear to have personal jurisdiction over the
trustees, and the trustees have not been named as parties in the
divorce action; therefore, the Florida court lacks jurisdiction
to adjudicate the rights pertaining to trust property. See,
e.g., In re Estate of Stisser, 932 So. 2d at 402. Additionally,
the North Carolina district court does not have jurisdiction
over a potential equitable distribution claim because plaintiff
and Mr. Ward have been Florida residents since 2002.
Even if the North Carolina district court did have
jurisdiction over the parties, an equitable distribution
proceeding would not be able to provide plaintiff the relief she
requests. Plaintiff, like the wife in Burgess, has demanded a
jury trial, to which she would be denied access in district
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court. See Kiser v. Kiser, 325 N.C. 502, 511, 385 S.E.2d 487,
492 (1989) (holding that no jury trial is available in an
equitable distribution action). Additionally, like the wife in
Burgess, plaintiff is seeking compensatory damages in excess of
$10,000.00, in addition to punitive damages, on her claims for
breach of fiduciary duty, constructive fraud, and fraudulent
inducement. If she is successful on these claims, she may get a
judgment which could be enforced against Mr. Ward’s separate
property. However, in the equitable distribution claim, the
most that plaintiff would be able to win is a favorable
distribution of marital or divisible assets. Therefore, as in
Burgess, the relief plaintiff seeks in superior court would be
unavailable in district court, leading us to conclude that Wake
County Superior Court has proper jurisdiction to adjudicate
these matters.
Thus, for the foregoing reasons, we conclude that the trial
court erred to the extent that it granted defendants’ motion for
summary judgment on the ground that Wake County Superior Court
lacked subject matter jurisdiction.
II. Statute of Limitations
Plaintiff next argues that the trial court erred to the
extent that it granted summary judgment in favor of defendants
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for plaintiff’s failure to timely file this cause of action. We
agree.
Summary judgment entered in favor of a defendant based on
the statute of limitations “is proper when, and only when, all
the facts necessary to establish the limitation are alleged or
admitted, construing the non-movant’s pleadings liberally in his
favor and giving him the benefit of all relevant inferences of
fact to be drawn therefrom.” Huss v. Huss, 31 N.C. App. 463,
468, 230 S.E.2d 159, 163 (1976).
Plaintiff’s claim for constructive fraud based on a breach
of fiduciary duty is subject to the ten-year statute of
limitations under N.C. Gen. Stat. § 1-56 (2013). Adams v.
Moore, 96 N.C. App. 359, 362, 385 S.E.2d 799, 801 (1989).
Defendants have failed to argue in their briefs how this claim
is time-barred by the ten-year statute of limitations, and there
appears to be no legal support for such a contention.
Accordingly, we conclude that the trial court erred to the
extent that it dismissed plaintiff’s claim for constructive
fraud on the basis of the statute of limitations.
Additionally, for a claim based on fraud, the statute of
limitations is three years from the date that the cause of
action accrues. “The cause of action shall not be deemed to
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have accrued until the discovery by the aggrieved party of the
facts constituting the fraud[.]” N.C. Gen. Stat. § 1-52(9)
(2013). “Discovery” is defined as actual discovery or the time
when the fraud should have been discovered in the exercise of
due diligence. See Hyde v. Taylor, 70 N.C. App. 523, 528, 320
S.E.2d 904, 908 (1984).
Whether a plaintiff has exercised due
diligence is ordinarily an issue of fact for
the jury absent dispositive or conclusive
evidence indicating neglect by the plaintiff
as a matter of law. In other words, when
there is a dispute as to a material fact
regarding when the plaintiff should have
discovered the fraud, summary judgment is
inappropriate, and it is for the jury to
decide if the plaintiff should have
discovered the fraud. Failure to exercise
due diligence may be determined as a matter
of law, however, where it is clear that
there was both capacity and opportunity to
discover the mistake.
Spears v. Moore, 145 N.C. App. 706, 708-09, 551 S.E.2d 483, 485
(2001) (citation omitted).
Defendants argue that plaintiff failed to exercise due
diligence as a matter of law. They contend that because
plaintiff filed her complaint on 29 March 2011, more than three
years after she should have known about the alleged fraud, she
is time-barred by the statute of limitations. We find this
argument unpersuasive. Plaintiff testified that she did not
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have knowledge of the terms of the REW trust until after she and
Mr. Ward separated in October 2009. This claim was corroborated
by the fact that Mr. Ward admitted that plaintiff was excluded
from the drafting of the trusts and was uninvolved with the
couple’s financial affairs. Importantly, in discussing
plaintiff’s involvement in the drafting of the REW trust, Mr.
Hall testified that he “wouldn’t even consider” discussing the
terms of a trust with the beneficiary because the grantor “may
not even want the beneficiary . . . to even know the trust
exists[.]” Mr. Ward’s and Mr. Hall’s open exclusion of
plaintiff in the drafting of the REW trust undercuts their
argument that due diligence required her to seek the document
out on her own accord and review it. “[C]onstruing the non-
movant’s pleadings liberally in [her] favor and giving [her] the
benefit of all relevant inferences of fact to be drawn
therefrom,” Huss, 31 N.C. App. at 468, 230 S.E.2d at 163, the
record does not demonstrate plaintiff’s lack of diligence as a
matter of law. Accordingly, the trial court erred to the extent
that it granted summary judgment in defendants’ favor on this
ground.
III. Substantive Claims
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Plaintiff next argues that the trial court erred by
concluding that no genuine issues of material fact exist and
defendants are entitled to judgment as a matter of law on
plaintiff’s substantive claims for fraudulent inducement,
constructive fraud, and breach of fiduciary duty. We agree with
plaintiff’s arguments regarding the WF trust, but we affirm the
trial court’s granting of summary judgment for defendants on any
claims pertaining to the REW trust.
A. The REW Trust
First, we hold that the trial court did not err by granting
summary judgment in favor of defendants on plaintiff’s claims
for breach of fiduciary duty and constructive fraud as they
relate to the REW trust. Under the Uniform Trust Code, a trust
is voidable “to the extent that its creation was induced by
fraud, duress, or undue influence.” N.C. Gen. Stat. § 36C-4-406
(2013). The elements of a claim of constructive fraud require:
“(1) a relationship of trust and confidence, (2) that the
defendant took advantage of that position of trust in order to
benefit himself, and (3) that plaintiff was, as a result,
injured.” White v. Consol. Planning, Inc., 166 N.C. App. 283,
294, 603 S.E.2d 147, 156 (2004) (citing Sterner v. Penn, 159
N.C. App. 626, 631, 583 S.E.2d 670, 674 (2003)), disc. review
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denied, 359 N.C. 286, 610 S.E.2d 717 (2005). “‘[A]n essential
element of constructive fraud is that defendants sought to
benefit themselves in the transaction.’” Sterner, 159 N.C. App.
at 631, 583 S.E.2d at 674 (quoting State ex rel. Long v. Petree
Stockton, L.L.P., 129 N.C. App. 432, 445, 499 S.E.2d 790, 798
(1998)). Like constructive fraud, “[a] claim for breach of
fiduciary duty requires the existence of a fiduciary
relationship.” White, 166 N.C. App. at 293, 603 S.E.2d at 155;
see also Keener Lumber Co. v. Perry, 149 N.C. App. 19, 28, 560
S.E.2d 817, 823 (existence of fiduciary duty is essential
element of constructive fraud claim), disc. review denied, 356
N.C. 164, 568 S.E.2d 196 (2002). Although “the relationship
between husband and wife is the most confidential of all
relationships,” our Courts have found that a spouse only
breaches a fiduciary duty owed to the other spouse “within the
context of a distinct agreement or transaction between the
spouses.” Smith v. Smith, 113 N.C. App. 410, 413, 438 S.E.2d
457, 459 (1994).
As plaintiff concedes, she is merely the beneficiary of the
REW trust and was not induced into agreeing to its terms. Thus,
the claim for fraudulent inducement in the complaint only
applies to the WF trust, not the REW trust. Although Mr. Ward
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and Mr. Hall included the divorce clause in the REW trust to
divest plaintiff of beneficiary rights in the event of divorce,
plaintiff cites no authority, and we find none, indicating that
the grantor of a trust owes a duty to the beneficiary of a trust
to refrain from including such clauses that may divest the
beneficiary’s rights upon the happening of a certain event.
Because plaintiff’s claims regarding the REW trust do not arise
“within the context of a distinct agreement or transaction
between the spouses,” Smith, 113 N.C. App. at 413, 438 S.E.2d at
459, there was no fiduciary duty owed to plaintiff sufficient to
survive summary judgment on her claims for constructive fraud
and breach of fiduciary duty.
B. The WF Trust
In contrast, taking the evidence in the light most
favorable to the non-moving party, Huss, 31 N.C. App. at 468,
230 S.E.2d at 163, we hold that plaintiff has forecast
sufficient evidence regarding the creation of the WF trust to
survive summary judgment on her claims of fraudulent inducement,
constructive fraud, and breach of fiduciary duty.
“The essential elements of fraud [in the inducement] are:
(1) false representation or concealment of a material fact, (2)
reasonably calculated to deceive, (3) made with intent to
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deceive, (4) which does in fact deceive, (5) resulting in damage
to the injured party.” Media Network, Inc. v. Long Haymes Carr,
Inc., 197 N.C. App. 433, 453, 678 S.E.2d 671, 684 (2009).
Mr. Ward told plaintiff that it was “her turn” to be the
grantor of the WF trust and indicated that the WF trust and the
REW trust were merely the inverse of each other regarding which
party was to be the grantor and beneficiary, despite the fact
that the WF trust did not contain a divorce clause and the REW
trust did. Thus, there was a misrepresentation or concealment.
Furthermore, unlike in the creation of the REW trust, Mr. Ward
owed plaintiff a fiduciary duty to disclose all material
information in the creation of the WF trust. “A duty to
disclose arises where a fiduciary relationship exists between
the parties to a transaction. The relationship of husband and
wife creates such a duty.” Sidden v. Mailman, 150 N.C. App.
373, 376, 563 S.E.2d 55, 58 (2002) (citation and quotation marks
omitted). Because Mr. Ward transferred his LLC interests to
plaintiff, who was then bidden to transfer those interests to
the WF trust as the grantor of the trust, there was a specific
transaction that produced a fiduciary relationship between Mr.
Ward and plaintiff as husband and wife. The materiality of
misrepresentations or concealments is a factual issue left for
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the jury, Latta v. Rainey, 202 N.C. App. 587, 599, 689 S.E.2d
898, 909 (2010).
Additionally, whether the representations or concealments
were calculated or intended to deceive are questions of fact
generally left for the jury if the circumstances could
demonstrate fraudulent intent. Latta, 202 N.C. App. at 600, 689
S.E.2d at 909. We believe such circumstances are apparent here.
Mr. Ward knew his former business partner had lost much of his
EPS stock to his ex-wife during a divorce, he inserted the
divorce clause into the REW trust, and he transferred his own
property to plaintiff with instructions for her to then transfer
those assets into the WF trust, which did not have a divorce
clause, for which Mr. Ward was the beneficiary. Plaintiff and
Mr. Ward agreed that plaintiff never saw a copy of the REW trust
during the marriage, she did not participate in the drafting of
the trusts, and she generally left the handling of the couple’s
assets to Mr. Ward and Mr. Wright. She also testified that she
trusted her husband to look after her best interests during the
marriage. Taking this evidence in the light most favorable to
plaintiff, we believe that the circumstances could demonstrate
fraudulent calculation and intent sufficient to go to the jury.
See id.
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Finally, the evidence shows that plaintiff has suffered
harm as a result of her reliance on Mr. Ward’s representations
or concealment because she has a continuing tax burden relating
to the WF trust as its grantor.
Accordingly, because plaintiff forecast evidence
establishing each element of fraudulent inducement relating to
the creation of the WF trust, we conclude that the trial court
erred by granting summary judgment for defendants on this claim.
Because constructive fraud and breach of fiduciary duty are less
demanding causes of action than fraudulent inducement, and the
essential elements of each overlap, we further hold that
plaintiff has presented sufficient evidence to survive
defendants’ motion for summary judgment on the remaining claims
related to the WF trust. See Terry v. Terry, 302 N.C. 77, 83,
273 S.E.2d 674, 677 (1981); Ellison v. Alexander, 207 N.C. App.
401, 408, 700 S.E.2d 102, 108 (2010).
IV. Divorce Clause
Plaintiff’s final argument on appeal is that the trial
court erred by granting summary judgment in favor of defendants
because the “divorce clause” in the REW trust is void as
contrary to public policy. We disagree.
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“A trust may be created only to the extent that its
purposes are lawful, not contrary to public policy, and possible
to achieve.” N.C. Gen. Stat. § 36C-4-404. Plaintiff contends
that because the REW trust was funded with marital property, the
divorce clause would “circumvent” the parties’ prenuptial
agreement as to distribution of marital property. We take no
position as to whether the EPS stock was separate or marital
property. Rather, we reject plaintiff’s contention that the
divorce clause runs afoul of public policy. North Carolina law
already allows for certain rights to terminate upon divorce,
such as those in a will. See N.C. Gen. Stat. § 31-5.4 (2013).
In contrast, the commentary to the Restatement (Second) of
Trusts illustrates the types of divorce clauses that may
contravene public policy. For example, it may be unlawful for a
trust to contain a provision for the payment of a sum of money
to a beneficiary if he or she were to procure a divorce, because
“enforcement would tend to the disruption of the family, by
creating an improper motive for terminating the family
relation.” Restatement (Second) of Trusts § 62 comment e.
Here, rather than serving to disrupt the family unit, the
divorce clause in the REW trust incentivized plaintiff to remain
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married to Mr. Ward so that she may continue to enjoy the
distributions from the REW trust as its beneficiary.
Furthermore, some estate planning form manuals recommend
using similar divorce clauses if the grantor so chooses. See G.
Holding and C. Reid, Estate Planning Forms Manual, 8-43 (BB&T
2011) (“If my wife and I become divorced or legally separated,
she shall be deemed deceased for all purposes of this Trust.”).
We agree with defendants that a ruling that the divorce clause
here is void as against public policy may disrupt the lives of
North Carolina citizens who have already planned their estates
based on similar clauses. This argument is overruled.
Conclusion
For the foregoing reasons, we hold that the trial court
erred by granting summary judgment for defendants on plaintiff’s
claims related to the WF trust. However, we affirm summary
judgment for defendants on the claims related to the REW trust.
AFFIRMED IN PART; REVERSED IN PART; REMANDED.
Judges DILLON and DAVIS concur.