North Carolina Lawyers Weekly
The plaintiff-corporation seeks to enforce the redemption provision in the shareholder agreement signed by the defendant-executor’s decedent. Plaintiff’s additional claim that the executor has breached a fiduciary duty by failing to comply with a provision in the will – which directs the executor to comply with shareholder agreements – is barred by the economic loss rule, which generally bars recovery in tort for damages arising out of a breach of contract.
The court dismisses plaintiff’s breach of fiduciary duty claim with prejudice. The court dismisses plaintiff’s claim for a declaratory judgment under the will without prejudice.
The shareholder agreement purports to bind a signatory’s “heirs, personal representatives, successors or assigns” and provides for the redemption of shares upon the death of a shareholder.
Although the duty of an executor to carry out a testator’s directives as set forth in his will is recognized under North Carolina law, it is hard to imagine a clearer example than the present action of a case in which the parties’ actual dispute hinges on the terms of a contract. The essence of plaintiff’s grievance is the executor’s alleged failure to comply with the estate’s obligations under the shareholder agreement. On these facts, it simply cannot be said that plaintiff’s will-based breach of fiduciary duty claim is the sort of standalone tort claim that could exist independently from its contractual claim.
It is true that § 5(a) of the will directs the executor to comply with the shareholder agreement. However, § 5(a) falls far short of independently imposing upon the estate a substantive obligation to sell the decedent’s shares to plaintiff.
Indeed, § 5(a) does not even mention by name either plaintiff or its shareholder agreement. To the contrary, this provision of the will contains only a broad reference to the existence of shareholder agreements generally. Moreover, it directs that any sales of the decedent’s shares be conducted “in accordance with those agreements”—thereby recognizing that the terms of any such shareholder agreements would control.
Any remedy to which plaintiff may be entitled is grounded in contract rather than tort.
With respect to plaintiff’s claim for a declaratory judgment, plaintiff has failed to convince the court that there is any actual dispute over the proper interpretation of the will that would make a declaratory judgment on that subject appropriate. The real issue in this case concerns the proper interpretation of the shareholder agreement with regard to the disposition of the decedent’s shares. The court is unable to discern any legally permissible construction of the will that would alter the contractual duties that exist based on the terms of the agreement.
Motion granted.
PHE, Inc. v. Dolinsky (Lawyers Weekly No. 020-062-22, 17 pp.) (Mark Davis, J.) Michael Allen, Jack Bayliss, Rachel Decker, Patrick Haywood and Brandon Kenneth Jones for plaintiff; Andrew Erteschik, Keith Johnson, Colin McGrath and Cosmo Zinkow for defendant. 2022 NCBC 62
