1. Attorneys--deed of trust-_loan--additional collateral
The trial court did not err by granting partial summary judgment in favor of defendant
attorneys as to plaintiff's claim against defendants for failing to obtain a bank's agreement to
accept a deed of trust on two tracts of land as additional collateral for a $750,000 loan, because:
(1) defendants did not conceal these properties from the bank; and (2) testimony of bank
employees established that the bank was aware of the pertinent properties and simply made a
business decision not to accept the properties as collateral.
2. Attorneys--professional negligence--ratification of release
The trial court did not err by granting partial summary judgment in favor of defendants as
to plaintiff's claim against defendants for professional negligence for failing to institute an
inverse condemnation action against DOT, because plaintiff released defendants from such a
claim when there was evidence that both decedent and her estate ratified a release contained in
the Inter-Creditor Agreement, that limited defendants' liability, by accepting the benefits
provided for in said release.
3. Corporations--shareholder action--standing--special duty
The trial court did not err by concluding that plaintiff lacked standing to bring an action
against defendants as a shareholder for injuries to her corporation, because: (1) the general rule
is that shareholders cannot pursue individual causes of action against third parties for wrongs or
injuries to the corporation that result in the diminution or destruction of the value of their stock;
and (2) no facts have been alleged which lead to the inference of a special duty being owed to
plaintiff that is separate and distinct from that owed to the other entities.
4. Attorneys--malpractice--applicable standard of care
The trial court did not err by concluding that defendant attorneys and their law firm did
not breach the applicable standard of care by failing to file an inverse condemnation action when
DOT was only in the preliminary stages of planning a road which might have involved the taking
of a client's property, because plaintiff failed to present any affidavits to sufficiently forecast
evidence that would show defendants breached the applicable standard of care.
5. Statutes of Limitation and Repose-_professional malpractice--disability--
incompetency
The trial court did not err by concluding that plaintiff's professional malpractice claim
against defendant attorneys was barred by statutes of repose and limitation even though plaintiff
contends the statutes were tolled based on the disability of incompetency, because: (1) a statute
of repose serves as an unyielding and absolute barrier that prevents a plaintiff's right of action
even before his cause of action may accrue; and (2) there is no express statutory authority to toll
the statute of repose which is a bar to plaintiff's claim.
Jerry R. Everhardt for plaintiff-appellant.
Barron & Berry, L.L.P., by Vance Barron, Jr. and Jamie Lisa
Forbes, for defendants-appellees.
McGEE, Judge.
Virginia L. Livingston (plaintiff), individually and as
Administratrix C.T.A. of the estate of Virginia H. Lindley, filed
suit against Adams Kleemeier Hagan Hannah & Fouts, P.L.L.C.
(defendant firm) and individual lawyers within the firm
(collectively defendants) on 28 February 2001. Defendants Adams
Kleemeier Hagan Hannah and Fouts, P.L.L.C., Michael Godwin, and
Louise Maultsby filed an answer and counterclaims on 11 February2002. Plaintiff filed a response to these counterclaims on 12
March 2002. Subsequently, the remaining individual defendants
filed an answer on 21 March 2002. Defendants filed a motion for
summary judgment on all claims in the complaint on 5 July 2002. An
order granting partial summary judgment in favor of defendants was
entered on 30 August 2002. Plaintiff filed a notice of voluntary
dismissal without prejudice of all remaining claims on 27 September
2002. Defendants likewise filed a notice of voluntary dismissal of
counterclaims without prejudice on 27 September 2002. Plaintiff
appeals the order granting partial summary judgment. We also note
that the individual defendants filed notice of appeal but failed to
perfect their appeal.
Plaintiff is the daughter of the late John Van Lindley (Jack
Lindley) and the late Virginia H. Lindley (Virginia Lindley). Jack
Lindley established several closely held corporations during his
lifetime, including Lindley Nurseries, Inc. (LNI) and Tri-City
Terminals, Inc. (TCT). Jack Lindley was in the business of buying
and selling real estate. Most of the real estate was owned by Jack
Lindley, LNI and TCT. In order to finance the real estate
business, Jack Lindley, LNI and TCT borrowed significant sums of
money. In particular, Southern National Bank (Southern National)
loaned LNI $750,000, which Jack Lindley and Virginia Lindley
personally guaranteed.
At the time of Jack Lindley's death on 20 October 1990, he,
LNI and TCT owned only two unencumbered pieces of real property.
These two tracts of undeveloped land were located in RockinghamCounty along the Mayo River. The lower tract consisted of
approximately 350 acres and the upper tract comprised approximately
119 acres. Upon Jack Lindley's death, Southern National became
concerned about repayment of the $750,000 loan and requested the
estate of Jack Lindley, Virginia Lindley, and LNI to provide
additional collateral to secure the loan. In March 1991, an
attorney with defendant firm sent a letter to Southern National
with financial statements of LNI and TCT and a draft of estate tax
return schedules for Jack Lindley's estate. Schedule A indicated
that Jack Lindley's estate owned the two unencumbered tracts along
the Mayo River. Kemp Mattocks (Mattocks) and Richard Tucker
(Tucker), officers at Southern National, reviewed Schedule A and
were aware that the Mayo River tracts were available as collateral,
but they rejected the property as additional collateral.
Toward the end of 1991, Southern National requested a
confession of judgment from Virginia Lindley to satisfy her
guaranty of the $750,000 loan. She refused but offered another
parcel of real estate and her shares of common stock in First Polk
Bankshares as collateral. On 20 April 1992, Southern National,
Jack Lindley's estate, Virginia Lindley, LNI and TCT entered into
a forbearance agreement whereby Southern National promised to
forbear foreclosing on the real property of LNI and to forbear
bringing suit on Virginia Lindley's guaranty in exchange for 8,000
shares of her stock in First Polk Bankshares and a first deed of
trust on a contaminated piece of property. The shares were to be
released if the property appraised at a sufficient amount to coverthe guaranty. However, the property never appraised at an adequate
amount, so the shares were sold and the proceeds were paid to
Southern National.
After Southern National refused the two Mayo tracts as
additional collateral, defendant Walter Hannah (Hannah) and Jack
Lindley's estate entered into a Naked Trust Agreement on 10 June
1992 in which Hannah agreed to hold title to the upper Mayo tract
for the estate. Subsequently, Hannah and Jack Lindley's son, John
Lindley, as co-executors of the estate, directed Hannah, as
trustee, to place a lien on the upper Mayo tract to defendant firm
to secure payment of legal fees. In addition, at about the same
time, a security interest in the lower Mayo tract was granted to
defendant firm to secure fees.
In early 1992, the North Carolina Department of Transportation
(DOT) announced proposed alternative locations for a new beltway
around Greensboro. One of the proposed routes impacted a tract
owned by LNI and a tract owned by TCT. The LNI tract was
encumbered by a $750,000 deed of trust to Southern National. The
TCT tract was encumbered by a first deed of trust in the amount of
$1,800,000 and also by a second deed of trust. Hannah contacted
DOT and requested that DOT identify the property to be taken and
requested that DOT enter a settlement based on a hardship
acquisition. Hannah wrote to DOT on 9 October 1992 informing DOT
that the properties referred to in his earlier letter could not be
sold. In the letter, Hannah stated "[t]his situation creates an
inverse condemnation and the only way we can properly represent ourclients is to initiate an action in the courts for the taking."
Several attorneys at defendant firm researched the issue but no
inverse condemnation action was ever filed. Eventually, Hannah was
able to reach an agreement with DOT regarding the LNI property.
However, in the fall of 1993, Jefferson-Pilot commenced foreclosure
proceedings on the TCT tract.
An Inter-Creditor Agreement was executed by LNI, TCT, Jack
Lindley's estate, and Virginia Lindley as debtors and defendant
firm and others as creditors on 31 December 1994. Paragraph Five
of the agreement provided the following:
5. Release of Claims by Tri-City, Lindley
Nurseries, Mrs. Lindley, and the Estate.
Tri-City, Lindley Nurseries, Mrs.
Lindley, and the Estate hereby waive, release,
discharge and acquit all of the Creditors and
their successors, assigns, officers,
directors, partners, members, employees and
agents from any and all actions, causes of
action, claims, and defenses, whether known or
unknown, which they now have or may have had
prior to the date of this Agreement, on
account of or arising out of Creditors' Claims
and any other dealings between the Obligors
and the Creditors.
This Inter-Creditor agreement also established the Lindley Property
Trust Agreement and the Lindley Property Trust (the trust). The
purpose of the trust was to permit an orderly sale of the real
property which secured obligations to the creditors. The Lindley
Property Trust Agreement provided that Virginia Lindley would
receive a portion of the net proceeds from the trust. In fact,
after her death in February 1997, her estate received $101,717.45
in distribution of proceeds from the trust. [1] Plaintiff's first assignment of error asserts that the
trial court erred in granting partial summary judgment to
defendants as to plaintiff's claim against defendants for failing
to obtain the agreement of Southern National to accept a deed of
trust on the upper Mayo tract or a security agreement on the
interest of Jack Lindley's estate in the lower Mayo tract as
additional collateral for the $750,000 loan to LNI.
It is well established that the standard of
review of the grant of a motion for summary
judgment requires a two-part analysis of
whether, "(1) the pleadings, depositions,
answers to interrogatories, and admissions on
file, together with the affidavits, show that
there is no genuine issue as to any material
fact; and (2) the moving party is entitled to
judgment as a matter of law."
Von Viczay v. Thoms, 140 N.C. App. 737, 738, 538 S.E.2d 629, 630
(2000), aff'd, 353 N.C. 445, 545 S.E.2d 210 (2001) (quoting Gaunt
v. Pittaway, 139 N.C. App. 778, 784, 534 S.E.2d 660, 664, disc.
review denied, 353 N.C. 262, 546 S.E.2d 401 (2000), cert. denied,
353 N.C. 371, 547 S.E.2d 810 , 534 U.S. 950, 151 L. Ed. 2d 261
(2001)). "'An issue is material if the facts alleged would
constitute a legal defense, or would affect the result of the
action, or if its resolution would prevent the party against whom
it is resolved from prevailing in the action.'" Thompson v. First
Citizens Bank & Tr. Co., 151 N.C. App. 704, 706, 567 S.E.2d 184,
187 (2002) (quoting Koontz v. City of Winston-Salem, 280 N.C. 513,
518, 186 S.E.2d 897, 901 (1972)). "'[A]n issue is genuine if it is
supported by substantial evidence, which is that amount of relevant
evidence necessary to persuade a reasonable mind to accept aconclusion.'" Fox v. Green, 161 N.C. App. 460, 464, 588 S.E.2d
899, 903 (2003) (quoting Liberty Mut. Ins. Co. v. Pennington, 356
N.C. 571, 579, 573 S.E.2d 118, 124 (2002) (citations omitted)).
"'[T]he party moving for summary judgment has the burden of
establishing the lack of any triable issue of fact. Furthermore,
the evidence presented by the parties must be viewed in the light
most favorable to the non-movant.'" Blair Concrete Servs. v.
Van-Allen Steel Co., 152 N.C. App. 215, 217, 566 S.E.2d 766, 767
(2002) (quoting Adams v. Jefferson-Pilot Life Ins. Co., 148 N.C.
App. 356, 358, 558 S.E.2d 504, 506, disc. review denied, 356 N.C.
159, 568 S.E.2d 186 (2002) (citations omitted)).
In light of this standard, we hold the trial court did not err
in granting partial summary judgment to defendants on plaintiff's
claim against defendants for failure to obtain Southern National's
agreement to accept the Mayo tracts as additional collateral.
Plaintiff generally alleges in the complaint that defendants failed
to obtain Southern National's agreement in an effort to maintain
the unencumbered status of the tracts in order to preserve the
availability of those assets for securing legal fees owed to
defendants. However, both Mattocks and Tucker, the officers at
Southern National who were involved with this particular loan,
testified they knew the Mayo tracts were available as collateral
but decided to reject these properties. Mattocks testified that he
and Tucker "concluded that these properties had no potential for
immediate sale" because of their location. Since Southern National
only wanted property with "immediate marketability," the Mayotracts were not suitable. Similarly, Tucker testified about
discussions he had with Mattocks about these properties. Tucker
knew the properties were available but decided not to take them
because they "would have been difficult to sell" and they were
concerned about "environmental issues."
In opposition to the motion for summary judgment, plaintiff
referenced a 30 January 1992 letter written by Rodman Davis, an
attorney with defendant firm, to Southern National's attorney, as
support that there was a genuine issue of material fact. Plaintiff
notes that the letter provided information about possible
collateral that defendants had offered to Southern National, but
the Mayo properties were not mentioned as having been offered.
Plaintiff contends this letter is sufficient to establish an issue
of material fact regarding the efforts put forth by defendants in
attempting to obtain the agreement of Southern National. Despite
the fact that the Mayo properties were not mentioned in the 30
January 1992 letter, the testimony of Mattocks and Kemp clearly
established that Southern National was aware of the Mayo properties
and simply made a business decision not to accept the properties as
collateral. Defendants did not conceal these properties from
Southern National. Rather, they offered the Mayo tracts and
Southern National decided against accepting them as collateral.
Thus, the trial court did not err in granting summary judgment on
this issue. Plaintiff's first assignment of error is overruled.
[2] Plaintiff's remaining assignments of error (numbers two,
three, four, five, and six) assert various reasons why the trialcourt erred in granting partial summary judgment to defendants on
plaintiff's claim against defendants for professional negligence
for failing to institute an inverse condemnation action against
DOT. Plaintiff first argues that the undisputed facts show that
plaintiff neither released defendants from such a claim, nor
ratified the release of defendants. Plaintiff asserts that the
release in the Inter-Creditor Agreement is a violation of Rule 5.8
of the N.C. Rules of Professional Conduct that were in effect in
1994 and is thus void as a matter of public policy. Rule 5.8
provided that "[a] lawyer shall not make an agreement prospectively
limiting the lawyer's liability to a client for malpractice." N.C.
Rules of Professional Conduct, Rule 5.8 (1985). Although the
release in the Inter-Creditor Agreement did limit defendants'
liability, "a violation of a Rule of Professional Conduct does not
constitute civil liability per se." Booher v. Frue, 98 N.C. App.
570, 581, 394 S.E.2d 816, 821, disc. review denied, 327 N.C. 426,
395 S.E.2d 674 (1990). The release is therefore not invalid.
However, it is immaterial whether this release is valid on its face
because of the reasons stated below that plaintiff ratified the
release through her actions.
A release, originally invalid or
voidable, for any reason may be ratified and
affirmed by the subsequent acts of the persons
interested. Thus if one, who has been induced
by fraud and misrepresentation to execute a
release and subsequently learns the true
import thereof, knowingly takes the benefits
of it he thereby ratifies and gives it force
and effect. If the plaintiff knew the facts
and circumstances of the execution of the
release and knew its provisions, and thenaccepted its benefits he is thereby estopped
to deny its validity. With full knowledge of
its contents, he cannot accept the benefits
and deny the liabilities of the instrument_he
cannot ratify it in part and reject it in
part.
Presnell v. Liner, 218 N.C. 152, 154, 10 S.E.2d 639, 640 (1940).
It is undisputed that Virginia Lindley's estate never attempted to
repudiate the Inter-Creditor Agreement after Virginia Lindley's
death. In fact, plaintiff testified she thought having Hannah
execute the agreement on Virginia Lindley's behalf "was the right
thing for him to do at that time." Further, there is evidence that
both Virginia Lindley and her estate in fact ratified the release
contained in the agreement by accepting the benefits provided for
in said release. For example, Virginia Lindley was absolved of her
guaranty obligation on the loan from Southern National to LNI in
exchange for the release. Further, Virginia Lindley's estate
received a $50,000 distribution on 12 December 1997 and a $25,000
distribution on 31 December 1998 from the trust. Also, pursuant to
the 11 December 2000 Memorandum of Mediated Settlement Agreement,
Virginia Lindley's estate received a $26,717.45 distribution.
Thus, there is no question that the benefits of the release were
readily accepted by Virginia Lindley and by her estate.
Accordingly, assignments of error numbers two and three are
overruled.
[3] Plaintiff next argues that the undisputed facts show that
plaintiff had standing to assert such a claim. "The well-
established general rule is that shareholders cannot pursue
individual causes of action against third parties for wrongs orinjuries to the corporation that result in the diminution or
destruction of the value of their stock." Barger v. McCoy Hillard
& Parks, 346 N.C. 650, 658, 488 S.E.2d 215, 219 (1997). However,
"[t]here are two major, often overlapping,
exceptions to the general rule that a
shareholder cannot sue for injuries to his
corporation: (1) where there is a special
duty, such as a contractual duty, between the
wrongdoer and the shareholder, and (2) where
the shareholder suffered an injury separate
and distinct from that suffered by other
shareholders."
Barger, 346 N.C. at 658, 488 S.E.2d at 219 (quoting 12B Fletcher
Cyclopedia of the Law of Private Corporations § 5911, at 484 (perm.
ed. 1993)). Plaintiff argues that her relationship with defendants
fits within the first exception. "To proceed with their lawsuit
under the first exception to the general rule, plaintiffs must
allege facts from which it may be inferred that defendants owed
plaintiffs a special duty." Barger, 346 N.C. at 659, 488 S.E.2d at
220. In this case, defendants admitted they owed a duty both to
Virginia Lindley and to plaintiff to exercise their best
professional judgment to preserve the value of Jack Lindley's
estate. However, this duty does not rise to the level contemplated
under the Barger exception.
For further support of this argument, plaintiff alleged that
defendants owed a fiduciary duty to her and to LNI, TCT, and the
estate of Jack Lindley. "The existence of a special duty [] would
be established by facts showing that defendants owed a duty to
plaintiffs that was personal to plaintiffs as shareholders and was
separate and distinct from the duty defendants owed thecorporation." Id. Plaintiff correctly contends that defendants
did admit that they owed fiduciary duties to plaintiff and the
other named entities. Although a fiduciary duty may qualify as a
special duty sufficient to fit within the Barger exception,
plaintiff's claim fails because she was not owed a duty separate
and distinct from the duty owed to the other entities. In fact, a
fiduciary duty was owed to all individuals and entities involved,
including plaintiff, Jack Lindley's estate, and both corporations.
Since no facts have been alleged which lead to the inference of a
special duty being owed to plaintiff that is separate and distinct
from that owed to the other entities, plaintiff lacks standing.
Accordingly, assignment of error number four is overruled. In
addition, we note that even if plaintiff had standing to sue under
the Barger exception, her capacity to sue is not relevant based on
our determination below concerning plaintiff's claim alleging
defendants' breach of the standard of care.
[4] Plaintiff next argues the undisputed facts show that
defendants breached the applicable standard of care and that as a
result plaintiff suffered damage. An attorney's legal obligation
to a client has been described in the following manner:
"An attorney who acts in good faith and
in an honest belief that his advice and acts
are well founded and in the best interest of
his client is not answerable for a mere error
of judgment or for a mistake in a point of law
which has not been settled by the court of
last resort in his State and on which
reasonable doubt may be entertained by well-
informed lawyers."
Rorrer v. Cooke, 313 N.C. 338, 341, 329 S.E.2d 355, 358 (1985)(quoting Hodges v. Carter, 239 N.C. 517, 520, 80 S.E.2d 144, 146
(1954)). In this case, defendants supported their motion for
summary judgment with the affidavit of John B. McMillan (McMillan),
a North Carolina attorney with more than twenty years of experience
in eminent domain cases. McMillan testified that defendants did
not violate the standard of care by failing to file an inverse
condemnation action when DOT was only in the preliminary stages of
planning a road which might or might not have involved the taking
of a client's property. McMillan further testified that he
believed defendants "exercised good judgment consistent with the
standard of practice for attorneys practicing in the same, or a
similar, locality."
Plaintiff failed to present an affidavit in opposition to the
motion for summary judgment which would establish that defendants
breached the applicable standard of care. Rather, plaintiff relied
solely on a single sentence in a letter written by Hannah to DOT on
9 October 1992. The sentence was as follows: "This situation
creates an inverse condemnation and the only way we can properly
represent our clients is to initiate an action in the courts for
the taking." Rather than establishing a standard of care, this
sentence was merely used by Hannah to exert pressure on DOT to
settle a potential claim.
"In a negligence action, summary judgment for
defendant is proper where the evidence fails
to establish negligence on the part of
defendant, establishes contributory negligence
on the part of plaintiff, or establishes that
the alleged negligent conduct was not the
proximate cause of the injury."
Rorrer, 313 N.C. at 355, 329 S.E.2d at 366 (quoting Williams v.
Power & Light Co., 36 N.C. App. 146, 147, 243 S.E.2d 143, 144
(1978), rev'd on factual grounds, 296 N.C. 400, 250 S.E.2d 255
(1979)). In our case, plaintiff failed to present any affidavits
to sufficiently forecast evidence that would show that defendants
breached the applicable standard of care. Accordingly, assignment
of error number five is overruled.
[5] Plaintiff's final argument is that the undisputed facts
show that plaintiff's claim was not barred by statutes of repose
and limitation. N.C. Gen. Stat. § 1-15(c) provides in part the
following:
Except where otherwise provided by
statute, a cause of action for malpractice
arising out of the performance of or failure
to perform professional services shall be
deemed to accrue at the time of the occurrence
of the last act of the defendant giving rise
to the cause of action . . . . Provided
further, that in no event shall an action be
commenced more than four years from the last
act of the defendant giving rise to the cause
of action . . . .
N.C. Gen. Stat. § 1-15(c) (2003). Plaintiff argues this statute
must be construed with N.C. Gen. Stat. § 1-17, which provides for
a tolling of the statute of limitations if a plaintiff is under a
specified disability. Plaintiff contends that this tolling
provision is also applicable to the four year statute of repose.
However, a statute of repose "serves as an unyielding and absolute
barrier that prevents a plaintiff's right of action even before his
cause of action may accrue, which is generally recognized as the
point in time when the elements necessary for a legal wrongcoalesce." Black v. Littlejohn, 312 N.C. 626, 633, 325 S.E.2d 469,
475 (1985).
The cases relied upon by plaintiff are distinguishable because
they involve specific circumstances not applicable to plaintiff's
case. Osborne v. Annie Penn Memorial Hospital, 95 N.C. App. 96,
381 S.E.2d 794, disc. review denied, 325 N.C. 547, 385 S.E.2d 500
(1989) involved the tolling of a malpractice action of a minor.
The case before us involves the disability of incompetency rather
than minority. Osborne was based on N.C. Gen. Stat. § 1-17(b)
rather than the general tolling provision under subsection (a),
which is at issue in this case. Secondly, Bryant v. Adams, 116
N.C. App. 448, 448 S.E.2d 832 (1994), disc. review denied, 339 N.C.
736, 454 S.E.2d 647 (1995) allowed the tolling of a statute of
repose because of an express provision in the Products Liability
Act which incorporated the tolling provisions of N.C. Gen. Stat. §
1-17. However, the Products Liability Act is not involved in the
case before us and Bryant is therefore not controlling. In this
case, there is no express statutory authority to toll the statute
of repose, which is a bar to plaintiff's claim. Accordingly,
plaintiff's assignment of error number six is overruled.
Affirmed.
Judges HUDSON and CALABRIA concur.
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