Wortman v. Hutaff,
2016 NCBC 36.
STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF UNION 15 CVS 1735
JUSTIN TODD WORTMAN; )
JUDIE MOSER SHEPARD; )
CHELSEY SHEA FELTS; and )
DARBY VON WORTMAN, )
)
Plaintiffs, )
) ORDER & OPINION
v. )
)
RICHARD R. HUTAFF, )
)
Defendant. )
)
{1} THIS MATTER is before the Court on Defendant Richard R. Hutaff’s
Motion to Dismiss (“Motion”). For the reasons explained below, Hutaff’s Motion is
DENIED.
Spengler & Agans, PLLC by Eric Spengler, and Fitzgerald Law, P.C. by
Andrew L. Fitzgerald for Plaintiffs.
Poyner Spruill LLP by T. Richard Kane and John M. Durnovich for
Defendant.
Gale, Chief Judge.
I. INTRODUCTION
{2} Plaintiffs are beneficiaries of the late Dan L. Moser’s (“Mr. Moser”)
will, which they claim, in conjunction with a pourover trust, left to Plaintiffs all of
Mr. Moser’s interest in an LLC that owned a golf course as its primary asset.
Defendant Richard R. Hutaff (“Hutaff”) and former defendant Thomas M. Moyer II
(“Moyer”) were coexecutors of Mr. Moser’s estate and cotrustees of the pourover
trust. They made no effort to distribute Mr. Moser’s interest in the LLC to the
Plaintiffs before they resigned as coexecutors and cotrustees. Plaintiffs complain
that Hutaff’s and Moyer’s failure to distribute the LLC interest was a violation of
their fiduciary duties and, as a result, Plaintiffs should recover from Hutaff any
reduction in the value of the LLC interest that Hutaff could have prevented. Hutaff
contends that Plaintiffs’ claims are time-barred by the applicable statute of
limitations and that, even if the claims are not time-barred, he was not the
proximate cause of Plaintiffs’ loss.
{3} The Court concludes that a determination of the validity of Hutaff’s
various defenses must await a more-developed record and that the Motion must
therefore be denied.
II. PARTIES
{4} Plaintiff Justin Todd Wortman (“Wortman”) is a resident of Los
Angeles, California. Plaintiffs Judie Moser Shepard, Chelsey Shea Felts (“Felts”),
and Darby Von Wortman are residents of Union County, North Carolina.
{5} Hutaff is a resident of Union County, North Carolina, and is an
attorney and certified public accountant licensed to practice both disciplines in
North Carolina.
{6} Former defendant Moyer is a resident of Union County, North
Carolina, and is a certified public accountant licensed to practice in North Carolina.
III. PROCEDURAL BACKGROUND
{7} Plaintiffs first initiated a lawsuit against Hutaff and Moyer on
December 2, 2010. Plaintiffs voluntarily dismissed that lawsuit without prejudice
on July 16, 2014.
{8} Pursuant to Rule 41(a)(1) of the North Carolina Rules of Civil
Procedure (“Rules”), Plaintiffs initiated this new lawsuit against Hutaff and Moyer
on July 7, 2015. The Complaint asserted claims for breach of fiduciary duty,
professional negligence, and punitive damages. This action was designated as a
mandatory complex business case on July 15, 2015, and assigned to the
undersigned on July 16, 2015.
{9} Hutaff filed the Motion now before the Court on August 21, 2015.
{10} After the Motion was briefed, the Court heard argument on October 26,
2015. Based on arguments presented at the hearing, the Court requested that
Plaintiffs file a supplemental brief to better delineate their theory of recovery.
Plaintiffs did so on November 16, 2015. On November 18, 2015, Plaintiffs dismissed
all claims against Moyer with prejudice and filed their First Amended Complaint,
which alleges claims against Hutaff only. The parties agreed that the earlier-filed
Motion, along with their briefs, should be deemed to have been made or filed in
regard to the First Amended Complaint. On December 9, 2015, Hutaff filed his
supplemental response.
{11} The Motion is now ripe for ruling.
IV. FACTUAL BACKGROUND
{12} The Court reviews the allegations of the First Amended Complaint in
the light most favorable to the Plaintiffs. See Ford v. Peaches Entm’t Corp., 83 N.C.
App. 155, 156,
349 S.E.2d 82, 83 (1986). On a motion to dismiss made under Rule
12(b)(6), the Court must inquire “whether, as a matter of law, the allegations of the
complaint, treated as true, are sufficient to state a claim upon which relief may be
granted under some legal theory.” Crouse v. Mineo,
189 N.C. App. 232, 237,
658
S.E.2d 33, 36 (2008) (quoting Harris v. NCNB Nat’l Bank of N.C.,
85 N.C. App. 669,
670,
355 S.E.2d 838, 840 (1987)). The Court assumes the allegations in the First
Amended Complaint to be true solely for purposes of resolving the Motion.
A. Creation of Carolina Golf Developers, LLC, the Will, and the Trust
{13} On September 13, 1995, Mr. Moser, the late Carl A. Boggs, Jr.
(“Boggs”), and L. Carlton Tyson (“Tyson”) formed Carolina Golf Developers, LLC
(the “LLC”), a North Carolina limited-liability company, as equal one-third owners.
The LLC owned Emerald Lake Golf Club (“Emerald Lake”). Sometime prior to
February 20, 2006, Boggs formed KLJ Properties, LLC (“KLJ”), to which he
transferred his ownership in the LLC.
{14} On August 6, 2002, Mr. Moser executed a Last Will and Testament
(the “Will”), in which he nominated Hutaff and Moyer as coexecutors of his estate.
{15} On June 6, 2005, Mr. Moser, by amendment, appointed Hutaff and
Moyer to serve as successor cotrustees of the Dan L. Moser Revocable Trust
Amended and Restated June 6, 2005 (the “Trust”) upon Mr. Moser’s death.
{16} Mr. Moser died testate on February 20, 2006. On that date, Mr.
Moser, Tyson, and KLJ were equal one-third owners of the LLC.
B. Requirements of the Will and the Trust
{17} The Will bequeathed Mr. Moser’s tangible personal property to his
widow, Sharon Ball Moser (“Ball Moser”). The Will provided that any residual from
Mr. Moser’s estate was to be poured over into the Trust, which would then be
managed by Hutaff and Moyer as cotrustees for the benefit of the Trust’s
beneficiaries. Because the Will did not specifically bequeath Mr. Moser’s interest in
the LLC to Plaintiffs, the LLC interest became a portion of the residual that was
subject to the Will’s pourover provisions.
{18} Article VII of the Trust provided that Ball Moser was to receive the
equivalent of $1 million and that the interest in the LLC was to be delivered to
Plaintiffs.
{19} The LLC’s operating agreement stated that in the event of a member’s
death, the member’s personal representative would have all of the rights of a
member for the purpose of settling or managing the deceased member’s estate. It
also contained a process for selling a member’s interest to another member and
permitted a member’s interest to be sold to a nonmember upon the approval of a
majority of the LLC’s ownership. Further, under the operating agreement, an
interest holder had to take certain actions to effectuate sales or transfers of an
ownership interest to a third party. Plaintiffs complain that Hutaff failed to
attempt such a sale or transfer when he had the opportunity to do so.
{20} The Trust also provided that the late Lawrence P. Moser Sr. would be
the beneficiary of a private charitable trust, which would be funded by $500,000
from the Moser estate, with the residual of that trust to be paid to Mineral Springs
United Methodist Church (the “Church”) after Lawrence P. Moser Sr.’s death.
{21} Hutaff and Moyer deposited the Will with the Union County Clerk of
Court (“Clerk”) for probate on February 23, 2006, and applied for appointment as
coexecutors. Their application listed Ball Moser, Hutaff, and Moyer as beneficiaries
of the Moser estate. The Clerk appointed Hutaff and Moyer as coexecutors.
C. Hutaff’s Actions as Cotrustee and Coexecutor
{22} In July 2006, Ball Moser filed a dissent to the Will. She subsequently
filed an action against Hutaff and Moyer in their capacities as coexecutors of the
Moser estate and cotrustees of the Trust. The Church intervened. That litigation
continued until November 19, 2007.
{23} Hutaff and Moyer engaged Dixon Hughes PLLC (“Dixon Hughes”) to
value the LLC as of the date of Mr. Moser’s death. Dixon Hughes delivered the
valuation on August 7, 2006. The valuation was based on historical costs from
1995, and it assigned a fair-market value of $284,700 to Mr. Moser’s one-third
interest in the LLC as of the date of Mr. Moser’s death on February 20, 2006.
Plaintiffs complain that the valuation reflected no appreciation in value from the
1995 cost values.
{24} Sometime during 2006, Wortman learned of the valuation, called
Hutaff to object to Dixon Hughes’s failure to appraise the LLC’s land, and requested
that Hutaff and Moyer order such an appraisal. Hutaff refused, stating that he had
an obligation to minimize the tax burden on the Moser estate. Wortman did not
subsequently arrange for an appraisal.
{25} On January 17, 2007, the Clerk granted Hutaff and Moyer’s request
for executors’ commissions of $746,663.67. On February 12, 2007, Hutaff and
Moyer distributed $668,499.81 from the Trust to Ball Moser and $336,971.00 from
the Trust to the Church.
{26} On February 23, 2007, an attorney for Wortman and Felts wrote a
letter to Hutaff and Moyer requesting a full copy of the Trust documents and
indicating that the other two LLC members might be interested in purchasing the
Moser estate’s one-third interest. The letter requested that Hutaff provide
Wortman and Felts with information related to the Plaintiffs’ beneficiary interest in
the LLC. Hutaff was generally unresponsive to Plaintiffs’ questions but indicated
that he was not responsible as coexecutor or cotrustee to assist with the sale of the
Moser estate’s interest in the LLC. He offered to assist Plaintiffs with the sale if
they paid him to do so.
{27} On August 16, 2007, Wortman and Felts’s attorney sent another letter
to Hutaff that specifically requested a meeting to discuss the beneficiaries’ interests
in the LLC. Hutaff did not respond.
{28} On September 4, 2007, Ball Moser and the Church entered into an
agreement under which they agreed to divide the assets of the Moser estate, giving
certain specific assets of the estate to the Church and all other assets to Ball Moser.
The litigation involving Ball Moser, the Church, Hutaff, and Moyer was terminated
by a release and settlement agreement on November 19, 2007 (“Settlement
Agreement”). The Settlement Agreement allowed Hutaff and Moyer to resign as
coexecutors of the estate and cotrustees of the Trust, contingent on their filing of a
final accounting of the Moser estate. Ball Moser and the Church agreed not to
contest Hutaff and Moyer’s executors’ commissions.
{29} Plaintiffs were not parties to the Settlement Agreement nor were they
privy to the negotiations leading up to it. The Settlement Agreement did not
address the LLC interest. Neither Ball Moser nor the Church has asserted any
ownership interest in the LLC.
{30} On November 29, 2007, Hutaff and Moyer filed with the Clerk a final
accounting, which reflected that the Moser estate’s value as of that date was
$10,659,067.88.
{31} On December 6, 2007, Hutaff and Moyer filed a document with the
Clerk entitled “Resignation of Co-Executors and Trustees,” which contained an
effective date of December 3, 2007. Hutaff and Moyer did not notify Plaintiffs of
their resignation.1 Miley W. “Bucky” Glover (“Glover”), a certified public
accountant, was granted Letters of Administration C.T.A. for the Moser estate by
the Clerk on the same day.2
{32} While they were coexecutors and cotrustees, Hutaff and Moyer made
no effort to transfer or liquidate the Moser estate’s interest in the LLC. Plaintiffs
allege that there were willing buyers for the estate’s LLC interest during the period
that Hutaff was coexecutor.
{33} Article X(2) of the Trust provides that Ball Moser was to appoint a
successor or substitute trustee if Hutaff and Moyer ceased in their capacity as
trustees. She has not appointed any successor.
{34} In 2009, Boggs, Tyson, and their sons allowed the LLC to default on its
mortgage on Emerald Lake. They then formed a new company, Tournament Drive
Investors, LLC (“TDI”), for the purpose of acquiring Emerald Lake at a foreclosure
sale. TDI purchased Emerald Lake at foreclosure on July 7, 2009, for $1.9 million,
creating a $411,926.46 deficiency on the mortgage. Several of the Plaintiffs
complain that they were not allowed to participate in the foreclosure sale.
{35} After they initiated this litigation, Plaintiffs obtained a valuation of
Emerald Lake that values a one-third interest in Emerald Lake as of
December 3, 2007, at approximately $600,000.00. Hutaff challenges the valuation,
particularly on the grounds that it fails to account for the LLC’s debt. That specific
challenge is not a proper subject to be resolved on a Rule 12(b)(6) motion.
V. ANALYSIS
{36} Hutaff argues that Plaintiffs’ First Amended Complaint fails to state a
claim upon which relief can be granted because Plaintiffs’ claims are time-barred
1
Though Plaintiffs’ original Complaint in this action asserted that Hutaff and Moyer’s resignation as
cotrustees was ineffective, Plaintiffs’ First Amended Complaint contains no such allegation.
2 Ball Moser had nominated Glover to serve as Administrator C.T.A. of the Moser estate earlier in
December 2007.
under the applicable statute of limitations, since the acts or omissions of which
Plaintiffs complain occurred more than three years before Plaintiffs filed their
initial Complaint. Plaintiffs argue that the continuing-wrong doctrine defeats
Hutaff’s statute-of-limitations defense. Hutaff’s Motion further asserts that the
Court should conclude as a matter of law either that the Moser estate’s LLC
interest had no value or that Hutaff’s acts or failures to act were not the proximate
cause of Plaintiffs’ loss. Hutaff also argues that Plaintiffs have failed to plead
sufficient facts to warrant punitive damages.
A. The Court Cannot Resolve Whether the Claims Are Untimely Solely on the
Allegations of the Pleadings.
{37} At least for purposes of the Motion, Hutaff does not dispute that he
owed fiduciary duties while he served as coexecutor of the Moser estate or as
cotrustee of the Trust. Hutaff was statutorily responsible as coexecutor “for any
loss to the estate arising from [his] failure to act in good faith and with such care,
foresight and diligence as an ordinarily reasonable and prudent person would act
with the ordinarily reasonable and prudent person’s own property under like
circumstances.” N.C. Gen. Stat. § 28A-13-10(c) (2015). Similarly, Hutaff was
statutorily required as cotrustee to “administer the [T]rust as a prudent person
would,” id. § 36C-8-804, and to do so “in good faith, in accordance with [the Trust’s]
terms and purposes and the interests of the beneficiaries,” id. § 36C-8-801. Hutaff’s
duties continued until his resignations as coexecutor and cotrustee became effective.
Those resignations occurred within the three-year limitations periods provided by
sections 1-52 and 1-15 of the General Statutes. See id. § 1-52(1), -15(c).
{38} Plaintiffs argue that Hutaff’s wrong was not complete until he resigned
as coexecutor and cotrustee without having taken action to protect Plaintiffs’
beneficiary interest in the LLC, and as a result, Plaintiffs’ claims are timely. Hutaff
counters that the only specific acts or omissions of which Plaintiffs complain all
occurred more than three years before Plaintiffs initiated the litigation and,
therefore, the claims fall outside the limitations period.
{39} The continuing-wrong doctrine3 may serve to prevent a claim that is
based on a continuing violation from being time-barred by tolling the applicable
statute of limitations until the wrongful act ceases. Williams v. Blue Cross Blue
Shield of N.C., 357 N.C. 170, 178–81,
581 S.E.2d 415, 423–24 (2003) (holding that
the accrual of a claim that challenged the constitutionality of a statute should be
measured using the dates that the statute was wrongfully applied against the
plaintiff, not the date the statute was first enacted). The doctrine applies when
there is a wrong that was “occasioned by continual unlawful acts” but it does not
apply when there are only continual harmful effects from an earlier singular
wrongful act.
Id. at 179,
581 S.E.2d at 423 (quoting Ward v. Caulk,
650 F.2d 1144,
1147 (9th Cir. 1981)). Acts that constitute individual wrongs and that follow an
original act that was not necessarily wrongful may trigger separate claims that are
measured by their own separate limitations periods. See
id. at 178–81, 581 S.E.2d
at 423–24.
{40} On its face, the First Amended Complaint does not allow the Court to
determine the time at which Plaintiffs were harmed by Hutaff’s action or inaction.
Plaintiffs filed their suit less than three years before the effective date of Hutaff’s
resignation. It is premature to determine how the statute of limitations might
apply to the facts as they will ultimately develop. For that reason, the Court
concludes that it should not resolve the limitations defense on a Rule 12(b)(6)
motion. The issue may later be the appropriate subject for a Rule 56 motion, or
ultimately, a jury question may be presented as to the time at which Plaintiffs’
claims accrued. See Blythe v. Bell, No. 11 CVS 933, 2013 NCBC LEXIS 7, at *52
(N.C. Super. Ct. Feb. 4, 2013) (“Although defining the precise date this breach
occurred may require resolution of disputed facts, a jury can affix the breach at a
discrete point in time . . . .”).
3
This is sometimes known as the continuing-violation doctrine. See Williams v. Blue Cross Blue
Shield of N.C., 357 N.C. 170, 179,
581 S.E.2d 415, 423 (2003).
B. Plaintiffs Have Pleaded Minimally Sufficient Facts to Support that Plaintiffs’
Damages Were Proximately Caused by Hutaff’s Failure to Liquidate or
Distribute the Moser Estate’s Interest in the LLC.
{41} Hutaff contends that even a timely claim for breach of fiduciary duty
should be dismissed because Hutaff’s action or inaction cannot be found to be the
proximate cause of any loss that Plaintiffs incurred when the bank foreclosed on
Emerald Lake, the Moser estate’s one-third interest in the LLC was extinguished,
and TDI acquired Emerald Lakes through a foreclosure sale.
{42} To recover, Plaintiffs must ultimately provide proof that demonstrates
that Hutaff’s alleged breach was the proximate cause of their injuries. See Rorrer v.
Cooke, 313 N.C. 338, 355,
329 S.E.2d 355, 365–66 (1985). But again, under the
allegations in this case, the Court concludes that the issue of proximate cause
should not be decided upon a Rule 12(b)(6) motion.
{43} Plaintiffs pleaded that Hutaff knew or should have known that
Emerald Lake was a bad investment that would continue to decline in value, and
that any remaining value could be preserved only by liquidating the Moser estate’s
one-third interest in the LLC. Taken as true, the Court finds this allegation to be
minimally sufficient to support Plaintiffs’ claim that Hutaff’s failure to distribute
the interest in the LLC was a breach of his duty. See Fortune v. First Union Nat’l
Bank, 87 N.C. App. 1, 6,
359 S.E.2d 801, 805 (1987) (holding that an executor’s
retention of an estate’s asset was wrongful, when a reasonable person would not
have retained the asset), rev’d on other grounds,
323 N.C. 146,
371 S.E.2d 483
(1988).
C. The Court Defers Addressing Plaintiffs’ Punitive-Damages Claim.
{44} The Court is skeptical that this is an appropriate case for punitive
damages. However, the Court will defer its final determination as to the question of
punitive damages until it is asked to do so upon a subsequent motion based on a
more-developed record. The Court does not envision that deferring a ruling on this
issue will cause discovery to be any broader than it would otherwise be on the
liability issues in this matter. The Court can, if necessary, revisit the issue to
determine if it should allow discovery limited to the punitive damages claim.
VI. CONCLUSION
{45} For the reasons stated above, the Motion is DENIED, without
prejudice to the undersigned or to any other presiding judge revisiting questions
regarding the statute of limitations, the proximate cause of any damages, or the
right to submit the issue of punitive damages to the jury upon a more-developed
record.
IT IS SO ORDERED, this the 11th day of May, 2016.
/s/ James L. Gale
James L. Gale
Chief Special Superior Court Judge
for Complex Business Cases
