Civil Practice – Pleading Problem – Aiding and Abetting Breach of Fiduciary Duty

The Supreme Court of North Carolina does not recognize the claim of aiding and abetting breach of fiduciary duty.

The Court granted the CM Defendants’ Motion, denied JDPW’s Motion, and dismissed the Receiver’s Eighth Cross Claim with prejudice.

This matter was before the Court upon (i) Defendants Richard Harris, Historic Castle McCulloch, LLC, and Castle McCulloch, Inc.’s (collectively, the Castle McCulloch Defendants or the CM Defendants) Motion for Summary Judgment on Paragraph 504 of the Receiver’s Eighth Cross Claim, and (ii) JDPW Trust’s Motion for Summary Judgment as to the Castle McCulloch Defendants, each brought pursuant to Rule 56 of the North Carolina Rules of Civil Procedure.

The Receiver for JDPW Trust sought summary judgment on behalf of JDPW against the CM Defendants on JDPW’s: (i) Fourth, Sixth and Seventh Cross Claims seeking equitable remedies; (ii) Fourth Cross Claim for monetary damages; and (iii) for relief in aid of this Court’s 6 January 2022 Amended Order and Opinion on Motions for Summary Judgment or Partial Summary Judgment (Old Battleground v. CCSEA) (the January 2022 Amended Order), which granted summary judgment to JDPW on its Fourth Claim for Relief and set aside the release deed and partial assignment of the CM Note. The CM Defendants moved for summary judgment as to Paragraph 504 of the Receiver’s Eighth Cross Claim and opposed all relief sought by the Receiver on JDPW’s Motion.

In 2019, the Court granted summary judgment dismissing the Receiver’s Cross Claim against Doug Harris set forth in paragraph 503.10 The CM Defendants subsequently moved for summary judgment to the extent the Eighth Claim for Relief sought recovery against the CM Defendants. In the Court’s 2022 Amended Order, the Court granted the CM Defendants’ motion on the same grounds it granted judgment in favor of Doug Harris.

The Receiver’s Fourth and Sixth Cross Claims presented a pleading problem. The Receiver’s Fourth Cross Claim does not mention the CM Defendants and requests relief based solely on Doug Harris’s breach of duty as trustee, “in whole or in part to benefit himself.” Similarly, the Receiver’s Sixth Cross Claim requests equitable relief returning JDPW to the position it would have had but for Doug Harris’s breach, again without mentioning the CM Defendants or asserting a theory of agency liability based on Doug Harris’s conduct.23 Indeed, the only Cross Claim allegations that even potentially suggest that the CM Defendants are liable for Doug Harris’s conduct appear in the Eighth Cross Claim. Unlike many of the Receiver’s other Cross Claims, however, the Eighth Cross Claim does not incorporate the Receiver’s allegations supporting the Fourth or Sixth Cross Claims. As a result, those Cross Claims cannot be read to incorporate any purported agency theory advanced in the Eighth Cross Claim as the Receiver contends.

Having failed to plead the CM Defendants’ liability based on Doug Harris’s conduct in either the Fourth or Sixth Cross Claims, the Receiver’s Motion for summary judgment in his favor on those Cross Claims must necessarily fail. Finally, as to the parties’ Cross Motions on Paragraph 504 of the Receiver’s Eighth Cross Claim, the Court first noted that Paragraph 504 contains three sentences. The first sentence states that “JDPW, CCSEA and DRE, further seek recovery from Castle McCulloch for aiding and abetting the wrongs set forth above through the conduct of its attorney Douglas Harris, Castle McCulloch having knowingly accepted the benefits thereof.” This Court has ruled, however, that “the Supreme Court of North Carolina will not recognize the claim of aiding and abetting breach of fiduciary duty.” Sykes v. Blue Cross & Blue Shield, 2018 NCBC LEXIS 28 at *32 (N.C. Super. Ct. Apr. 5, 2018). The Court therefore denied the Receiver’s Motion and granted the CM Defendants’ Motion as to the first sentence of the Receiver’s Eighth Cross Claim alleging a claim against the CM Defendants for aiding and abetting Doug Harris’s breach of fiduciary duty as JDPW’s trustee.

Although the Receiver argued that his allegations advance an agency theory of liability against the CM Defendants, the Court disagreed. To aid an actor, and to accept benefits from that actor, does not, without more, allege or create an agency relationship. As such, the Court denied the Receiver’s Motion and granted the CM Defendants’ Motion as to the Receiver’s Eighth Cross Claim. Considering that the Receiver pleaded the Eighth Cross Claim in 2016, discovery has long since closed, and the primary summary judgment rulings in this case were issued in 2019, 2021, and 2022, the Court concluded that permitting amendment to the Eighth Cross Claim would work a substantial and unfair prejudice on the CM Defendants. As a result, the Court dismissed the Receiver’s Eighth Cross Claim against the CM Defendants, with prejudice.

The CM Defendants’ motion is granted, JDPW’s motion is denied, and receiver’s crossclaim is dismissed.

In re Southeastern Eye Center (Lawyers’ Weekly No. 020-088-24, 16 pp.) (Louis A. Bledsoe III, J.) 2024 NCBC 88. Oak City Law LLP, by Robert E. Fields III and Samuel Pinero II, for Gerald A. Jeutter, Jr., as Receiver for JDPW Trust U/T/A Dated June 8, 2007, Central Carolina Surgical Eye Associates, P.A., HUTA Leasing LLC, Southeastern Eye Management, Inc., Southeastern Cataract Laser Center, PLLC, EMS Partners, LLC, KEPES Newco, LLC, and DRE Newco, LLC; Pinto Coates Kyre & Bowers, PLLC, by Richard L. Pinto and Kenneth Kyre for Defendants Richard Harris, Historic Castle McCulloch LLC, and Castle McCulloch Inc. North Carolina Business Court