Ward v. Fogel

• Decision Date: 02 December 2014
• Docket Number: No. COA14–417.,COA14–417.
• Citation: 768 S.E.2d 292
• Court: North Carolina Court of Appeals
• Parties: Jo Ann WARD, Plaintiff, v. 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.

768 S.E.2d 292

Jo Ann WARD, Plaintiff

v.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.

No. COA14–417.

Court of Appeals of North Carolina.

Dec. 2, 2014.

Brady Morton, PLLC, by Travis K. Morton, for plaintiff-appellant.

Ward and Smith, P.A., Raleigh, by Gary J. Rickner, for defendants-appellees Mark E. Fogel and William B. Wright, Jr., co-trustees.

Narron, O'Hale & Whittington, P.A., Benson, by Jason W. Wenzel, for defendant-appellee Robert E. Ward, III.

Howard, Stallings, From & Hutson, P.A., Raleigh, by John N. Hutson, Jr., for defendant-appellee Robert E. Ward, IV.

Opinion

HUNTER, ROBERT C., Judge.

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 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 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 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 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

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 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 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...