4th Circuit says widow’s deal with city may have resulted from undue influence

An elderly widow with limited income may be entitled to set aside her contract with the city of Charlotte releasing any claims based on undue influence, the 4th U.S. Circuit Court of Appeals has ruled, reversing summary judgment in favor of the city.

A widow in her late 70s lived in a Charlotte home that connected to the city’s sewer system. In the early morning of Feb. 15, 2022, sewage back flowed through her toilet, covering her home in several inches of raw sewage.

Through its sewer backup policy, the city offered the widow $15,000, the maximum it would pay for property damage.

But when the widow chose one of the recommended contractors, she received a quote of $38,200 for repairs. After being referred to counsel, the widow attempted to negotiate.

In August 2022, the city council updated the policy with retroactive effect, increasing the payment cap to $45,000.

The city offered this increased amount to the widow. Her counsel indicated that it would not cover a significant portion of her other damages, including her furniture and other personal property, but the city rejected the widow’s suggestion to settle for $65,000.

Now desperate, about to lose her alternate housing and facing sleeping in her car, the widow signed a release and wrote under her signature “I’m homeless and I don’t have another choice!”

When the city refused to accept the release, she signed a clean copy. The city paid her $45,000 and the widow repaired portions of her home, though water and sewer issues persist.

The widow then sued the city of Charlotte, claiming that she had signed the release under undue influence and adding negligence, nuisance, inverse condemnation and takings claims.

After the district court granted summary judgment in favor of the city, the widow appealed.

Writing for the majority in Walker v. City of Charlotte, North Carolina, Judge James Andrew Wynn affirmed in part and reversed in part, joined by Judge DeAndrea Gist Benjamin, in an unpublished opinion.

The court first disagreed with the widow that the district court erred when it limited initial discovery to the issue of undue influence without hearing from the parties or performing an analysis under Rule 42(b) of the Federal Rules of Civil Procedure.

“Here, the district court identified the validity of the release as a potentially dispositive, threshold issue,” the court wrote. “If [the widow’s] undue-influence argument failed, the court would not reach the merits of the remainder of the suit. Thus, we conclude that the district court did not abuse its discretion by limiting initial discovery to the issue of undue influence.”

However, the court agreed with the widow that a jury question on undue influence remained.

An inherently subjective term, finding the existence of undue influence requires engaging in a heavily fact-specific inquiry, the court explained, with many factors to be considered.

The widow forecast evidence that was sufficient to raise a question of fact, beginning with evidence that her age, economic condition and emergency situation made her more susceptible to undue influence. In addition, the evidence suggested that the city knew about her circumstances.

“We do not suggest that the City of Charlotte acted with bad faith or ill motive, but undue influence may void a transaction even ‘without an affirmative intention of wrong-doing or an evil purpose,’” the court wrote. “Rather, a party that ‘tak[es] advantage of another’s weakness’ to the extent that it supplants the other party’s will has exerted undue influence.”

The widow also proffered evidence that the result of the transaction indicated undue influence by pointing to the disparity between her damages and the settlement amount.

A jury could find that the settlement amount did not include important damages amounts, the court noted, including the cost of temporary lodging, replacing the home’s contents and emotional damages.

While the court recognized that the city also had strong evidence that pointed away from undue influence – specifically, the fact that the widow was represented by counsel when she signed the lease – this single factor was not dispositive.

“Indeed, here [the widow’s] counsel has conceded that he was entirely unable to aid [her] in negotiations,” the court said. “Because a jury could reasonably find that the presence of counsel did not outweigh the other factual circumstances that created undue influence, we reverse the grant of summary judgment.”

The court acknowledged concern that invaliding contracts like the one at issue would make it difficult for parties to strike bargains that offer sorely needed relief.

“But it is also true that ‘[m]atters stand differently when the complaining party’s financial distress is due to the other party’s conduct,’” the court said. “In such circumstances, a release may present a party with ‘little more than a ‘Hobson’s choice.’ … [U]nder North Carolina law, when a negligent actor creates physical peril for a victim and then conditions rescue funds on the release of the victim’s claims, there is at least a question of fact on whether the release was obtained through undue influence. That is the factual question that the record before us presents that should be resolved by a jury, not summary judgment.”

Judge Paul V. Niemeyer filed an opinion concurring in part and dissenting from the reversal of summary judgment.

“Settlements involve compromise and negotiation, and parties often feel that they have either overpaid or been undercompensated,” he wrote. “But those are the risks that parties accept when they choose to settle matters outside the judicial system. The controlling point is, however, that dissatisfaction with one’s own bargaining power is not undue influence by another who has a greater bargaining power. Yet the majority seems to assume so.”

Shane Perry of Williams & Perry in Mooresville, who represented the widow, said the decision provides multiple lessons for lawyers.

“First, it lets you know that you can use undue influence for more than just wills,” he said. “Undue influence can be used as a second form of attack to break a contract when there was a problem with its formation.”

He also emphasized that no single factor in the undue influence analysis is dispositive, noting that although the defense emphasized the fact his client was represented by counsel when she signed the release, representation is just one of many factors to be considered.

Raleigh attorney Steven A. Bader of Cranfill Sumner, who represented the city of Charlotte, did not respond to a request for comment.