North Carolina Lawyers Weekly
Bogovich v. Embassy Club of Sedgefield. (Lawyers Weekly No. 11-07-0393, 39 pp.) (Sam Ervin IV, J.) Appealed from Guilford County Superior Court. (Steve A. Balog, J.) N.C. App. Click here for the full text of the opinion.
Holding: A sister was properly granted summary judgment on her constructive fraud claim against her brother since his conduct had defrauded her and reduced the value of her stock in a dinner club the parties jointly owned.
We affirm the challenged judgments and orders.
Background
Plaintiff Bogovich is defendant Strange’s older sister. In 1973, plaintiff purchased 50 percent of the shares in the Embassy Club. The parties are equal shareholders in and directors of Defendant Embassy Club; Mr. Strange is the corporation’s president and treasurer; Bogovich is the corporation’s vice president; and defendant Anne Strange is the corporation’s secretary. The corporation operated the dinner club from 1971 to 1976.
Mr. Strange managed the club and its employees, performed physical work on the building, and had responsibility for the corporation’s financial transactions and the maintenance of the corporation’s records. Bogovich, who has lived in Florida since purchasing shares in Embassy Club, has not had any involvement in the daily operations of the corporation. Mr. Strange never provided his sister with tax returns, balance sheets, or other corporate reports and records.
The dinner club operated by the corporation was never profitable. In December 1976, the dinner club and nearly all of Embassy Club’s corporate records were destroyed in a fire. Since the fire, the corporation’s property has not been used for any purpose.
In December 1998, Bogovich’s attorney wrote Mr. Strange for the purpose of seeking information about the status of the Embassy Club and informing Mr. Strange that Bogovich would like to accomplish various things.
After no action was taken in response to this request, Bogovich’s attorney sent another letter to Mr. Strange in February 2000 asking to be provided with an accounting and additional information about Mr. Strange’s efforts to sell Embassy Club’s property. Mr. Strange did not provide the requested information.
On July 27, 2000, Bogovich’s attorney wrote another letter to Mr. Strange’s attorney stating that Bogovich was prepared to sue Mr. Strange for breach of fiduciary duty and gave him 30 days to “make concrete efforts to sell the property.” On Aug. 10, 2000, the Stranges executed and recorded notes and deeds of trust on behalf of the corporation securing an alleged obligation from Embassy Club to the Stranges, as individuals, in an amount in excess of $1,300,000. Mr. Strange admitted he did not discuss these instruments with Bogovich before executing and recording them.
In his deposition, Mr. Strange testified that he executed and recorded these notes and deeds of trust for the purpose of ensuring that, when Embassy Club’s property was sold, he would be repaid for monies that he claimed that the corporation owed him. In his testimony, Mr. Strange attempted to substantiate his claim that Embassy Club owed him large amounts of money.
However, Mr. Strange conceded that he and Bogovich had never discussed a specific amount of unpaid wages to which the Stranges were entitled and that Bogovich never executed a written agreement providing that he would receive a salary for his services. Mr. Strange did not dispute that he had a fiduciary relationship with his sister.
On March 4, 2004, Bogovich sued, alleging that the notes and deeds of trust executed and recorded by the Stranges were invalid on the grounds that the Stranges’ conduct had defrauded Bogovich and reduced the value of her Embassy Club stock. As a result, Bogovich asked the court to invalidate the notes and deeds of trust, judicially dissolve Embassy Club, and award compensatory and punitive damages against the Stranges for breach of fiduciary duty, constructive fraud, and unfair and deceptive trade practices.
On Dec. 24, 2008, Bogovich moved for partial summary judgment. On Jan. 13, 2009, the judge entered an order granting summary judgment in favor of Bogovich with respect to the constructive fraud and unfair and deceptive trade practices claims, invalidating the notes and deeds of trust, and ordering that the corporation be judicially dissolved and liquidated. This appeal followed.
Discussion
After carefully reviewing the record, we conclude that the undisputed evidence demonstrated that Bogovich established a valid constructive fraud claim based on a breach of fiduciary duty by the Stranges.
The Stranges do not appear to deny that a fiduciary relationship existed between them and Bogovich. They acknowledge in their brief that, because Bogovich and Mr. Strange were directors of Embassy Club, “they stood in a mutual fiduciary relationship.” Since the Stranges also admit that Ms. Strange is an officer of Embassy Club, she also stands in a fiduciary relationship with Bogovich.
The execution and recordation of the notes and deeds of trust without proper approval, in amounts that greatly exceeded the value of their claimed loans, clearly constituted a breach of fiduciary duty on the part of the Stranges.
Although the Stranges effectively concede that they engaged in “wrongful conduct,” they argue that their conduct was not sufficiently egregious to support a claim for constructive fraud. The language upon which the Stranges rely specifically reiterates that an intent to deceive is not an element of constructive fraud and does not state that a “significant aggravating factor” must be proven in order to establish a valid constructive fraud claim. As a result, we conclude that this aspect of defendants’ challenge to the judge’s partial summary judgment order rests upon a misapprehension of applicable law.
The basis for the trial judge’s determination that the Stranges violated their fiduciary duty to Bogovich stemmed from the fact that they executed and recorded the challenged notes and deeds of trust without proper authorization rather than because the Stranges chose to act in this manner for any particular reason. As a result, we conclude that the fact that the Stranges claimed to be entitled to reimbursement for their claims and their contention that they would, under certain circumstances, have agreed to the cancellation of the challenged instruments does not preclude a finding that they breached their fiduciary duty to Bogovich.
The uncontradicted evidence is sufficient to support a reasonable inference that the Stranges’ actions caused the corporation’s property to remain unsold during the years that Bogovich paid the ad valorem taxes, thereby establishing a valid basis for a compensatory damages award. As a result, for all of these reasons, we conclude that the judge did not err by entering summary judgment in favor of Bogovich with respect to her constructive fraud claim.
Affirmed.
