Public Utilities – EMC – Deceased Members – Capital Credits – Retirement – Discount – Tort/Negligence – Breach of Fiduciary Duty Claim

Lockerman v. South River Electric Membership Corp. (Lawyers Weekly No. 12-15-0851, 16 pp.) (James L. Gale, J.) 2012 NCBC 44

Holding: Plaintiffs have failed to show that there is a fiduciary relationship between an electric membership corporation and its members. Therefore, plaintiffs have failed to prove the defendant-electric membership corporation breached a fiduciary duty when it discounted deceased members’ capital credits before paying them.

Defendant’s motions for partial summary judgment are granted.

The plaintiff-estates’ decedents were members of defendant, a non-for-profit electric membership corporation. When the decedents died, their accounts with defendant held capital credits. The estates applied for retirement of those capital credits, and defendant discounted the credits before paying the estates.

Discount Procedure

The estates don’t challenge defendant’s authority to adopt a discounted capital account retirement procedure; rather, the estates contend that the way in which defendant “adopted, failed to disclose and carried out its discounting scheme makes the scheme improper and actionable.” The court disagrees.

The estates argue that defendant did not provide advance notice to its members of its intent to modify its bylaws; however, the court finds no basis to require such advance notice or to invalidate the capital-credit retirement discount bylaw because of a lack of such notice.

Clearly, at the time they requested early retirement of capital credits, the estates were well aware that defendant would implement a discounting program for early retirements. The early retirement of a decedent’s capital credit requires advance application by and consent to retirement by the decedent’s personal representative. Each of the application forms presented by the estates in this case expressly note that a discounting procedure would be employed.

Defendant is entitled to a declaration that it lawfully adopted the procedure defined by Bylaw Section 7.03 for retiring capital credits of deceased patrons using the discounting method provided by that section, and that this procedure is lawful when applied in accordance with its terms.

Fiduciary Duty

The parties do not stand in a legal relationship which imposes a de jure fiduciary relationship. The court must determine whether plaintiffs have adequately asserted a de facto fiduciary relationship.

No member or representative of a deceased member is required to have a capital credit retired early. Early capital credit retirement is entirely a voluntary program dependent upon a written request on behalf of the deceased member.

The request form discloses on its face that a discount factor will be applied in determining the amount of capital credit to be refunded, and each of the applications the estates signed included this notice.

There is no reasoned basis in light of the disclosures on the form to assert that a special relationship of trust and confidence arose because defendant had historically retired deceased credits at full value.

Furthermore, the bylaws outlining the discount policy were available to the estates upon request.

Defendant’s members have no guarantee that their credits will be retired early. Defendant’s bylaws provide for redeeming capital credits only where doing so will not be adverse to defendant’s financial health.

It is true that defendant perhaps did not, without request, disclose all knowledge it had about the transactions in retiring credits, such as the exact balance of the deceased members’ capital credits before discount, and the exact formula used for calculation of the discount. However, these circumstances without more do not evidence the domination and control which leads to a finding of a fiduciary relationship.

The estates also shared some control over the retirement transaction. They retained the right to choose whether to receive an early payout or to wait for payout when the capital credits reached their scheduled date of maturity.

The estates may ultimately be able to prove that their consent was not an informed one, but such an inquiry should not be governed by the law of fiduciary duty. Contractual expectations did not create a special relationship that rise to the level necessary to impose fiduciary duties on defendant.

Defendant’s liability, if any, is in the nature of contract, a breach of which, depending upon proof, may have been accompanied by factual misrepresentations.

Motions granted.