Boyd v Howard, (02-534) 04/15/2003

Appeal by plaintiff from order dated 25 January 2002 by Judge Dennis J. Winner in Superior Court, Guilford County. Heard in the Court of Appeals 30 January 2002.

Morgan, Herring, Morgan, Green, Rosenblutt & Gill, PLLC, by John Haworth, for plaintiff-appellant.

Pete Bradley for defendants-appellees.

    McGEE, Judge.

    Charles E. Boyd (plaintiff) filed a complaint on 11 February 2000 against Kenneth J. Howard and Joyce M. Howard (defendants) and The Four Hunters, Inc. (the corporation). The complaint included a shareholder derivative claim and a minority shareholder claim for breach of fiduciary duty and unjust enrichment. Plaintiff sought imposition of a constructive trust on real property and collection of net rental income from defendants. Plaintiff amended his complaint on 29 February 2000 to include a claim for unfair trade practices.
    Defendants filed an answer and counterclaim against plaintiffon 17 April 2000 for breach of fiduciary duty. Plaintiff filed a reply and moved to dismiss the counterclaim on 27 April 2000. Plaintiff filed a motion for summary judgment on 18 December 2001. At the hearing, defendants orally moved for summary judgment.
    The trial court granted defendants' motion for summary judgment on plaintiff's shareholder derivative claim and denied plaintiff's motion to dismiss defendants' counterclaim on 1 November 2000. Our Court, in Boyd v. Howard, 147 N.C. App. 491, 556 S.E.2d 337 (2001), upheld summary judgment for defendants on the shareholder derivative claim.
    The trial court granted summary judgment for defendants on plaintiff's remaining claims and denied plaintiff's motion for summary judgment on defendants' counterclaim on 25 January 2002. Plaintiff appeals from the 25 January 2002 order.
    The evidence before the trial court tended to show that the corporation was engaged in the manufacture and sale of furniture products and had 750 outstanding shares held by its shareholders. Kenneth Howard (Howard) held 500 of the corporation's shares and plaintiff held the remaining 250 shares. Howard served as the president, chief executive officer, director, and majority shareholder of the corporation.
    Howard stated in his affidavit that the corporation owned property located at 701 Eden Terrace in Archdale, North Carolina. The corporation had loans to NationsBank and High Point Bank and Trust secured by deeds of trust against the real property. The NationsBank loan came due under a balloon payment clause in April1997. Howard stated that he made multiple attempts to refinance the loans but NationsBank required all shareholders of the corporation to sign personal guarantees for a new loan. NationsBank was concerned about the corporation's ability to continue doing business in light of a pending Internal Revenue Service audit that was based on allegations made by plaintiff. Howard continued making payments on the loan, but NationsBank declined to accept the payments and gave notice of foreclosure proceedings. High Point Bank and Trust filed a foreclosure action against the property in August 1997.
    A meeting of the board of directors was held on 27 August 1997 and the foreclosure of the bank loans was discussed. Howard attended a shareholders meeting held on 8 September 1997, but plaintiff did not attend. Howard voted as the majority shareholder to liquidate the corporation. A few days before the foreclosure sale, High Point Bank and Trust informed Howard that he would be personally liable for any deficiency from the foreclosure sale because he had personally guaranteed the loan. Howard purchased the property at the foreclosure sale on 10 October 1997 in order to protect himself from liability. He subsequently paid off the loans, including the promissory note to NationsBank which plaintiff had personally guaranteed. Howard stated that the corporation itself was financially unable to purchase or redeem the property and that he used only his and his wife's assets to purchase the property. Howard also stated that plaintiff's actions resulted in the corporation being dissolved and in a personal loss to Howard ofover $300,000.
    Plaintiff stated in his deposition that he received written notice of NationsBank's foreclosure proceeding and that he had approached a friend about buying the property. Plaintiff did not inform the corporation that he had a potential buyer for the real estate. He also stated that he was unaware of the pending foreclosure sale until he accidentally saw the notice in an Asheboro newspaper the day before the sale. Plaintiff's wife attended the foreclosure sale, but plaintiff did not. Plaintiff did not contend that NationsBank and High Point Bank and Trust did anything wrong in the process of foreclosing on the property.
    Plaintiff first argues the trial court erred in granting defendants' motion for summary judgment on plaintiff's minority shareholder claim. Plaintiff contends that defendants breached their fiduciary duties as officers and directors, and that Howard breached his duty as majority shareholder by purchasing the property at the foreclosure sale.
            Summary judgment should be rendered only when the pleadings, depositions, answers to interrogatories, admissions, and affidavits disclose no genuine issue of material fact entitling the moving party to judgment as a matter of law. If an issue of material fact exists, then the trial court should not grant summary judgment. The party moving for summary judgment has the burden of establishing the absence of any triable issue of fact.

Thomco Realty, Inc. v. Helms, 107 N.C. App. 224, 226, 418 S.E.2d 834, 835-36, disc. review denied, 332 N.C. 672, 424 S.E.2d 407 (1992) (citations omitted).        "The movant may meet this burden by proving that an essential element of the opposing party's claim is nonexistent, or by showing through discovery that the opposing party cannot produce evidence to support an essential element of his claim or cannot surmount an affirmative defense which would bar the claim."

Id. at 228, 418 S.E.2d at 837 (quoting Roumillat v. Simplistic Enterprises, Inc., 331 N.C. 57, 63, 414 S.E.2d 339, 342 (1992)).
    A director of a corporation must discharge his duties in good faith, conform to a reasonable standard of care, and act in a manner he reasonably believes is in the best interests of the corporation. N.C. Gen. Stat. § 55-8-30(a) (2001). Officers of a corporation must also meet these requirements in the discharge of their duties. N.C. Gen. Stat. § 55-8-42(a) (2001). Directors and officers stand in a fiduciary relationship to the corporation and its stockholders and may not use their position of trust to further their private interests. Meiselman v. Meiselman, 309 N.C. 279, 308, 307 S.E.2d 551, 568 (1983). Additionally, it is established that "a controlling shareholder owes a fiduciary duty to minority shareholders. Once a minority shareholder challenges the actions of the majority, the burden shifts to the majority to establish the fairness and good faith of its actions." Freese v. Smith, 110 N.C. App. 28, 37, 428 S.E.2d 841, 847 (1993) (citations omitted).
    "A conflict of interest transaction is a transaction with the corporation in which a director of the corporation has a direct or indirect interest. A conflict of interest transaction is not voidable by the corporation solely because of the [conflict] . . . if . . . [t]he transaction was fair to the corporation." N.C. Gen. Stat. § 55-8-31(a)(3) (2001).
    An examination of the record shows that plaintiff failed to present evidence sufficient to raise a genuine issue of material fact that defendants breached a fiduciary duty to plaintiff. Howard purchased the real property at a public sale after public notice was given and he paid off the corporation's loans, including the NationsBank loan that was personally guaranteed by plaintiff. The evidence shows that Howard purchased the property in order to protect his interest as personal guarantor of the High Point Bank & Trust loan. Plaintiff was aware of the foreclosure proceedings and had the opportunity to attend the sale, but he chose to send his wife as an observer. Plaintiff had the opportunity to enter an upset bid ten days following the foreclosure sale but declined this opportunity. The evidence in the record shows that the transaction by Howard was fair to the corporation and there is no evidence that defendants used their position of trust to further their private interests.
    Our Supreme Court has stated that a majority shareholder has the right to purchase corporate property at foreclosure proceedings in order to protect his interests. "There is nothing to prevent a stockholder or director from lending money and taking a lien on corporate property for security where no unfair advantage is taken. It logically follows that he has the right to purchase at judicial or other public sale in order to protect his interest." Poultry Co. v. Oil Co., 272 N.C. 16, 20-21, 157 S.E.2d 693, 697 (1967) (citations omitted); see also Investment Co. v. ChemicalsLaboratory, 233 N.C. 294, 298, 63 S.E.2d 637, 641 (1951) ("Where no unfair advantage is taken . . . there is nothing to hinder stockholders or directors from lending money and taking liens on corporate property as security.").
     There is no evidence that Howard took unfair advantage of the corporation or plaintiff in serving as guarantor for the High Point Bank & Trust loan or in purchasing the property to protect his interest. While defendants did not inform plaintiff that Howard intended to purchase the property at the foreclosure sale, plaintiff has failed to show a genuine issue of material fact that he was harmed by Howard's purchase of the property. The evidence presented by defendants shows that the transaction was fair to plaintiff as the minority shareholder and to the corporation. Howard was entitled to purchase the property at foreclosure to protect his interest as the guarantor of the High Point Bank & Trust loan. Additionally, our Court previously found that defendants did not breach their fiduciary duty in purchasing the property at foreclosure in affirming partial summary judgment for defendants in plaintiff's earlier shareholder derivative claim. Boyd, 147 N.C. App. at 495, 556 S.E.2d at 339 ("Because Mr. and Ms. Howard were acting in their individual capacity in bidding at the foreclosure sale, we find there was no breach of fiduciary duty by the Howards in their failure to notify the plaintiff that they intended to bid on the property."). The trial court did not err in entering summary judgment for defendants. This assignment of error is overruled.     Plaintiff also argues defendants' breach of fiduciary duty constituted an unfair and deceptive trade practice and that he is entitled to (1) imposition of a constructive trust upon corporate assets and (2) judgment for net rentals received by defendants from the property. We have already held that defendants did not breach a fiduciary duty to plaintiff in the purchase of the corporate property at foreclosure. Plaintiff is therefore not entitled to relief. These arguments are overruled.
    Plaintiff argues the trial court erred in denying plaintiff's motion to dismiss defendants' counterclaim in its order filed 25 February 2002. The trial court concluded that it did not have jurisdiction to grant summary judgment on the counterclaim because Judge Helms had previously denied plaintiff's motion for summary judgment on the counterclaim. "'[A] motion for summary judgment denied by one superior court judge may not be allowed by another superior court judge on identical legal issues.'" Furr v. Carmichael, 82 N.C. App. 634, 637, 347 S.E.2d 481, 483 (1986) (quoting American Travel Corp. v. Central Carolina Bank, 57 N.C. App. 437, 440, 291 S.E.2d 892, 894, disc. review denied, 306 N.C. 555, 294 S.E.2d 369 (1982)).
    Plaintiff sought another ruling on his motion for summary judgment on defendants' counterclaim after his initial motion was denied. However, the legal issues before Judge Helms on plaintiff's motion for summary judgment were identical to the legal issues before Judge Winner on plaintiff's renewed motion for summary judgment. Judge Winner thus correctly denied the motion. This assignment of error is without merit.
    We affirm the judgment of the trial court.
    Affirmed.
    Judges HUNTER and CALABRIA concur.
    Report per Rule 30(e).

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