In Re Se. Eye Ctr. (Pending Matters), 2021 Ncbc 27a

• Court: North Carolina Business Court
• Decided: April 26, 2021
• Docket: 15-CVS-1648
• Status: Published

Opinion

In re Se. Eye Ctr. (Pending Matters), 2021 NCBC 27A.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION WAKE COUNTY 15 CVS 1648

IN RE SOUTHEASTERN EYE AMENDED ORDER AND OPINION CENTER-PENDING MATTERS ON MOTIONS FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT (OLD BATTLEGROUND v. CCSEA)

1. THIS MATTER is before the Court on four motions for summary judgment

or partial summary judgment filed by (i) Plaintiffs Old Battleground Properties, Inc.

and Nivison Family Investments LLC1 (partial summary judgment), (ECF No. 1377),

(ii) the Receiver for JDPW Trust 2 (partial summary judgment), (ECF No. 1383);

(iii) Defendant Douglas S. Harris (“Doug Harris”) (summary judgment), (ECF No.

1380), and (iv) Defendants Richard Harris, Castle McCulloch Inc., and Historic

Castle McCulloch, LLC 3 (summary judgment), (ECF No. 1374), (together, the

“Motions”).

2. For the reasons set forth below, the Court (i) DENIES Plaintiffs’ motion,

(ii) GRANTS in part and DENIES in part the Receiver’s motion, (iii) DENIES

Doug Harris’s motion, and (iv) GRANTS in part and DENIES in part the CM

Defendants’ motion.

1 Old Battleground Properties, Inc. is referred to herein as “Old Battleground,” Nivison Family Investments LLC is referred to as “NFI,” and they are collectively referred to as “Plaintiffs.” 2 The JDPW Trust U/T/A Dated June 8, 2007 is referred to herein as “JDPW.”

3 Castle McCulloch Inc. is referred to herein as “Castle McCulloch,” Historic Castle McCulloch, LLC is referred to as “Historic Castle,” and together with Richard Harris, they are collectively referred to as the “CM Defendants.” Smith Debnam Narron Drake Saintsing & Myers, L.L.P., by Byron L. Saintsing, for Plaintiffs Old Battleground Properties, Inc. and Nivison Family Investments, LLC.

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.

Wyatt Early Harris Wheeler LLP, by Scott F. Wyatt and Donavan J. Hylarides, for Defendants Richard A. Harris, Historic Castle McCulloch, LLC, and Castle McCulloch, Inc.

Law Offices of Richard M. Greene, by Richard M. Greene, for C. Richard Epes.

Douglas S. Harris, Pro se.

Bledsoe, Chief Judge.

I. BACKGROUND

A. Factual Background

3. The Court does not make findings of fact when ruling on a motion for

summary judgment, but “it is helpful to the parties and the courts for the trial judge

to articulate a summary of the material facts which he considers are not at issue and

which justify entry of judgment.” Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26

N.C. App. 138, 142 (1975).

4. This action represents part of a large group of cases before the Business

Court that have been consolidated into two files: In re Se. Eye Ctr.-Pending Matters

(15 CVS 1648, Wake County) and In re Se. Eye Ctr.-Judgments (12 CVS 11322,

Guilford County). The extensive background of these cases is set forth in previous orders and opinions. The Court recites only the factual background relevant to the

issues presented in these Motions.

5. Defendant Central Carolina Surgical Eye Associates, P.A. (“CCSEA”) is a

North Carolina medical services professional association located in Guilford County,

North Carolina. (See Am. Consolidated Compl. ¶ 3, ECF No. 179.) James Mark

McDaniel, Jr. (“McDaniel”) was the chief executive officer of CCSEA, and Dr. C.

Richard Epes (“Dr. Epes”) was an interest owner in CCSEA. (See Am. Consolidated

Compl. ¶¶ 8, 10, 24, Exs. A, B, ECF No. 180.) Beginning in 2002, McDaniel and Dr.

Epes took out three loans with NewBridge Bank (“NewBridge”) 4 to fund CCSEA and

other related entities (the “CCSEA Loans”). 5

6. In 2004, NewBridge loaned approximately $2 million (the “CM Loan”) to

Castle McCulloch, Historic Castle, and NSITE Management, LLC (“NSITE”), three

additional entities with ties to McDaniel and Dr. Epes. The CM Loan was

represented by a promissory note executed by Castle McCulloch, Historic Castle, and

NSITE in favor of NewBridge (the “CM Note”). (See ECF No. 1384.12; see also Am.

Consolidated Compl. Ex. N, ECF No. 183.) At all times relevant, Castle McCulloch

and Historic Castle were owned and managed, either in whole or substantial part, by

Richard Harris, brother of Doug Harris. (See Harris Dep. 31:6–24, 47:12–14, 49:8–

4 NewBridge’s predecessor in interest was FNB Southeast, and some documents in the record

refer to that entity instead of NewBridge; the Court refers to both in this Order and Opinion as “NewBridge.” 5 Although this action involves the CCSEA Loans, they are not the subject of the instant

Motions, and the Court will not recite the facts of record that bear only on those Loans. 51:23, 53:10–25, 55:2–25; 6 Am. Consolidated Compl. ¶¶ 14, 15.) As relevant here, the

CM Note was secured by two forms of collateral (the “CM Collateral”): a deed of trust

from Historic Castle in favor of NewBridge (the “CM Deed”), 7 (see ECF No. 1384.11),

and an assignment of leases and rents granted by Historic Castle in NewBridge’s

favor (the “CM Assignment”), 8 (see ECF No. 1384.10).

7. By mid-2012, the CM Loan and the CCSEA Loans were in default, with a

combined outstanding balance of over $3.3 million. (See Am. Consolidated Compl.

Ex. X [“Settlement Agrmt.”] at 2, ECF No. 185.) To partially collect on these loans,

NewBridge agreed to a settlement with the CM Defendants, NSITE, McDaniel, Dr.

Epes, and other involved parties. Under the settlement, the debtors arranged for

NewBridge to sell the involved loan documents, including the CM Loan, Note, and

Collateral, to a third party for a discounted price. (See Settlement Agrmt. at 1–6.)

8. That third party was JDPW. At all times relevant, Doug Harris (Richard

Harris’s brother) was the trustee of JDPW. (See Receiver’s Cross Claims Against

Douglas Harris [“Receiver’s Cross-cls.”] ¶ 434, ECF No. 716; Douglas S. Harris’s Ans.

Cross Claims [“Harris Ans. Cross-Cls.”] ¶ 434, ECF No. 739.) JDPW was formed by

Dwight Cox (“Cox”) as a revocable trust under a trust agreement dated June 8, 2007

(the “Trust Agreement”). (See Revocable Tr. Agrmt. Clement Dwight Cox [“Tr.

6 For ease of reference, the excerpts of Doug Harris’s deposition testimony appear at ECF

Nos. 887, 1379, 1385.6, 1394.11, 1397.1, and 1409.3. 7 The CM Deed is dated September 30, 2004, and was recorded on October 4, 2004 in Book

6182, Pages 2233–46 at the Guilford County Register of Deeds. 8 The CM Assignment is dated September 30, 2004, and was recorded on October 4, 2004 in

Book 6182, Pages 2247–59 at the Guilford County Register of Deeds. Agrmt.”] at 4, ECF No. 1376.4.) Doug Harris was appointed trustee. (See Tr. Agrmt.

¶ VI.) The Trust Agreement designated Cox as the trust’s beneficiary for the

remainder of his lifetime. (See Tr. Agrmt. ¶ V.) It further provided that upon Cox’s

death, JDPW would become irrevocable and that Cox’s wife, Kay Harris Turner

(“Turner”), would become the primary beneficiary. (See Tr. Agrmt. ¶ XIII(P), (R).)

Upon her death, any remaining trust property was to be distributed to Cox’s heirs at

law. (See Tr. Agrmt. ¶ XIII(R).)

9. With respect to property held by JDPW, the Trust Agreement stated that

Cox had transferred “all of his interest in the property described in Schedule A” to

serve as the “Trust Property.” (Tr. Agrmt. ¶ II.) But while the Trust Agreement

contained boilerplate language that “[t]he Trustee hereby acknowledges receipt of the

Trust Property,” (Tr. Agrmt. ¶ II), no Schedule A is attached to the Trust Agreement

in the evidentiary record and one has never been produced. Additionally, Doug

Harris has confirmed that the only document relating to JDPW’s creation that he had

as trustee was the Trust Agreement. (See Harris Dep. Ex. 79, ECF No. 1379.) Doug

Harris also testified that JDPW never had a bank account and that the only funds

that ever came into JDPW’s possession were those in connection with the transactions

at issue in this case. (See Harris Dep. 822:18–823:14.)

10. The only evidence of any property transferred into JDPW during Cox’s

lifetime relates to several poker machines. Doug Harris testified that shortly after

JDPW was formed, “Cox put some poker machines into it that he owned, and his

purpose was to resell them.” (Harris Dep. 611:12–14.) However, Doug Harris was not involved in these purported transactions because “Cox was still alive when they

[the poker machines] were sold and he handled that himself.” (Harris Dep. 823:16–

17.) In Doug Harris’s view, “technically speaking, they were trust stuff, but, you

know, he [Cox] was doing with them what he wanted to do with them, and I let it be.”

(Harris Dep. 823:17–19.) It is unclear whether Cox eventually sold all or only some

of the machines. (See Harris Dep. 823:20–824:3.)

11. In any event, Doug Harris never saw the machines or took possession or

control of them as trustee. There also appears to be no paper documentation

purporting to transfer them from Cox to JDPW. (See Harris Dep. 824:4–20.)

According to Doug Harris, the machines “never got physically in the possession of the

trust. And really, other than, you know, some notes to me saying that’s what he [Cox]

was going to do, I never heard anything about that.” (Harris Dep. 824:9–12.)

12. The record is undisputed that Doug Harris never made any distributions out

of JDPW to any beneficiary. (See Harris Dep. 826:9–17.) It is also undisputed that

by 2012, JDPW held no assets. (See Harris Dep. 827:17–24.) In fact, JDPW remained

more or less inactive until 2012. (See Harris Dep. 824:25–825:2.)

13. In 2012, Doug Harris saw JDPW as a potential vehicle to aid in a plan to

refinance the CM Loan and CCSEA Loans, specifically to help his brother reorganize

his businesses and minimize tax consequences. (See Harris Dep. 229:1–25, 829:17–

830:14.) During this time, Richard Harris had retained Doug Harris, who was a

licensed attorney, to represent him in negotiating the refinancing deal. (See Harris

Dep. 229:7–12; Receiver’s Cross-cls. ¶ 434; Harris Ans. Cross-Cls. ¶ 434.) As explained more thoroughly below, the plan essentially entailed JDPW’s purchase of

the CM Loan and the CCSEA Loans from NewBridge, with that purchase to be funded

by a loan from Arthur Nivison (“Nivison”), who managed Plaintiffs Old Battleground

and NFI. (See ECF No. 879, Ex. 3 [“Nivison Aff.”] ¶¶ 1, 11.)

14. Before bringing JDPW into the picture, Doug Harris made arrangements for

himself personally. In July 2012, Doug Harris—in his individual capacity—entered

into two agreements: one with Dr. Epes (the “Epes Agreement”) and one with

McDaniel, CCSEA, and a variety of other entities (the “McDaniel Agreement”). (See

ECF No. 1384.4 [“Epes Agrmt.”] at 1; ECF No. 1384.5 [“McDaniel Agrmt.”] at 1.) In

each agreement, Doug Harris promised to cause JDPW to buy the CM Loan from

NewBridge. (See Epes Agrmt. ¶ 1; McDaniel Agrmt. ¶ 1.) In exchange, Dr. Epes (in

the Epes Agreement) and McDaniel and certain companies (in the McDaniel

Agreement) promised to pay Doug Harris $1.3 million plus eight percent interest for

two years. (See Epes Agrmt. ¶ 3; McDaniel Agrmt. ¶ 3.) In the Epes Agreement, the

$1.3 million would be paid “in consideration of” Doug Harris’s personal waiver of “all

claims against Dr. Epes or his corporations.” (Epes Agrmt. ¶ 3.) In the McDaniel

Agreement, the $1.3 million would be paid “in consideration of” Doug Harris’s

personal waiver of “all past-due attorneys’ fees, costs, and any claims of stock or legal

interest in EMS Partners.” (McDaniel Agrmt. ¶ 3.) This $1.3 million purportedly

represented the amount still owed on the CM Loan. (See Epes Agrmt. ¶ 3; McDaniel

Agrmt. ¶ 3.) It appears that the $1.3 million promised in each agreement are one and the same, not two separate amounts totaling $2.6 million. (See Claim Doug Harris

Against the Receivership [“Harris Receivership Claim”], ECF No. 1385.8.)

15. The agreements also provided that Dr. Epes “or his corporations” (in the

Epes Agreement) and “McDaniel and the corporations” (in the McDaniel Agreement)

would “make all payments to Nivison” and would take actions “such that JDPW Trust

is released from any obligation to Nivison and/or his corporations.” (Epes Agrmt. ¶ 3;

McDaniel Agrmt. ¶ 3.) This appears to be a reference to the contemplated loan

Nivison would make to JDPW. Doug Harris also received confessions of judgment

from Dr. Epes, McDaniel, and the companies, which he was permitted to file in the

event that (i) payments were not made such that JDPW was sued by Nivison for

default, (ii) JDPW was not released from its contractual relationship with Nivison, or

(iii) Doug Harris was not paid within two years. (Epes Agrmt. ¶ 6; McDaniel Agrmt.

¶ 5; see also ECF Nos. 1384.14, 1384.15.) JDPW was not a party to these agreements,

nor were NewBridge, Plaintiffs, the CM Defendants, or Nivison.

16. After executing those agreements, Doug Harris and McDaniel met with

Nivison about providing a loan to JDPW to fund JDPW’s purchase of the CM Loan

and the CCSEA Loans from NewBridge. (See Nivison Aff. ¶ 11; Harris Dep. 75:14–

23, 79:11–25.) Eventually, it was agreed that either Old Battleground or NFI would

lend JDPW the necessary funds. 9

17. On September 21, 2012, Nivison and JDPW, through Doug Harris as

trustee, memorialized their agreement (the “Assignment Agreement”), which

9 It is disputed whether Old Battleground or NFI was ultimately supposed to be the lender,

but resolution of that issue is not necessary to a determination of the Motions. represented a $2.1 million loan from Nivison and his companies to JDPW (the

“Nivison Loan”). Plaintiffs contend that Doug Harris also executed a promissory note

on JDPW’s behalf, (see Am. Consolidated Compl. Ex. DD, ECF No. 187), but Doug

Harris denies signing the note, (see Am. Consolidated Compl. ¶ 53; Def. Douglas S.

Harris’s & JDPW Trust’s Ans. Am. Consolidated Compl. ¶ 53, ECF No. 221).

18. The parties dispute many of the final terms of the Assignment Agreement

and the validity of certain documents that purport to set forth its terms. It is

undisputed, however, that both versions of the Assignment Agreement provided that

the agreement was “made . . . for the purpose of transferring the security interest in

the personal property of HUTA Leasing Company, Southeastern Eye Management,

Inc., and Central Carolina Surgical Eye Associates, P.A., now held by NewBridge

Bank, to [either a legal entity designated by Old Battleground, or, in the second

version of the agreement, to NFI] in exchange for [a] $2,100,000.00 loan to JDPW

Trust which loan will be used to purchase NewBridge Bank’s security interest.”

(Compare ECF No. 1384.2 [“9AM Agrmt.”], with Am. Consolidated Compl. Exs. QQ,

TT, ECF No. 190.)

19. On the same day, JDPW, through Doug Harris as trustee, purchased the

CM Loan from NewBridge, acquiring all right, title, and interest to both the CM Note

and the CM Collateral. (See Bill of Sale, ECF No. 1384.8; Assignment Security

Instruments, ECF Nos. 1384.6, 1385.1.) 10

10 NewBridge’s assignment of the CM Deed and CM Assignment to JDPW is dated September

21, 2012, and was recorded on October 29, 2012 in Book 7407, Pages 2781–83 at the Guilford County Register of Deeds. 20. However, several problems arose after these September 2012 transactions.

It is undisputed that JDPW never had the funds to repay the Nivison Loan, failed to

repay the loan, and entered into default. (See Am. Consolidated Compl. Ex. GGG

[“Partial Summ. J. Ord.”] at 2, ECF No. 194; Demand Letter, ECF No. 1384.26; Harris

Dep. 540:2–14.) It is also undisputed that Doug Harris never took any action to

leverage JDPW’s rights to the CM Loan. He never sought to collect on the CM Note

or foreclose on the CM Collateral, and JDPW never received any payments from Dr.

Epes or McDaniel and his companies, contrary to Doug Harris’s personal

arrangements under the Epes and McDaniel Agreements. (See Harris Dep. 454:6–

24.) According to Doug Harris, the reason he never sought to recover any payments

was because the circumstances “probably just sort of drifted along somewhat.”

(Harris Dep. 454:23–24.) Doug Harris had also expected that JDPW might make a

profit in the form of a two percent interest spread on the difference between the rates

of the CM Loan and the Nivison Loan, but it appears that spread never materialized.

(See Harris Dep. 230:1–20, 828:3–829:14.)

21. Then in March 2013, Doug Harris, acting as JDPW’s trustee, effectively

transferred the CM Loan, Note, and Collateral to his brother, Richard Harris. (See

Harris Dep. 34:1–11.) Specifically, he signed over to Historic Castle a deed (the “CM

Release Deed”) that released the CM Collateral: both the real property encumbered

by the CM Deed and the rights to leases and rents under the CM Assignment. (See

ECF No. 1385.4; Harris Dep. 866:19–868:25; see also Am. Consolidated Compl. Ex. YY, ECF No. 192.) 11 He also assigned to Richard Harris all of JDPW’s rights under

the CM Note. (See Harris Dep. 628:12–635:25.) In Doug Harris’s own words, “I

assigned any and all other rights under the note to him [Richard Harris], so he’d be

in control of it instead of anybody else. For whatever--since 2004, for eight years,

those rights had been assigned to NewBridge Bank. It was my purpose to cancel each

and every one of those rights because that was the deal.” (Harris Dep. 633:1–5.) With

those transfers effected, JDPW lost all rights to the CM Loan, Note, and Collateral

but remained obligated on the Nivison Loan.

B. Procedural Background

22. In July 2014, NFI filed suit against Doug Harris, individually and as trustee

of JDPW, and against NewBridge. A few months later, Old Battleground and NFI

together filed suit against CCSEA, various CCSEA-affiliated entities, Dr. Epes and

his wife, and McDaniel and his wife.

23. In the second lawsuit, upon the parties’ joint request, the Court appointed

Gerald A. Jeutter, Jr. as a receiver (the “Receiver”) for CCSEA and several of its

affiliated entities (the “Receivership Entities”). See generally Old Battleground

Props., Inc. v. Cent. Carolina Surgical Eye Assocs., P.A., 2015 NCBC LEXIS 19 (N.C.

Super. Ct. Feb. 25, 2015). Following his appointment, the Receiver investigated and

asserted claims and demands on behalf of the Receivership Entities against Dr. Epes

and his wife. As the litigation in these two cases has progressed, the number of

11 The CM Release Deed is dated March 15, 2013, and was recorded on April 14, 2015, in

Book 7691, Pages 2387–89 at the Guilford County Register of Deeds. entities in receivership and the number of cases related to CCSEA and other parties

have grown.

24. In June 2015, the Court consolidated these two lawsuits with several other

related pending cases and directed that all subsequent filings be made in this case.

(See Ord. Mot. Consolidate 8–9, ECF No. 76.) The Court also required all persons

asserting claims against CCSEA or its affiliated entities to file their claims with the

Receiver. (See Case Management Ord. 5–8, ECF No. 82.)

25. Shortly after consolidation, the Court approved a settlement between the

Receiver and the Epeses. (See ECF No. 117.) In July and August 2015, Plaintiffs

sought leave to amend their complaints in each of their lawsuits. The Court ordered

the two lawsuits further consolidated for future proceedings and directed Plaintiffs

to file a single amended consolidated complaint. (See ECF No. 168.) Plaintiffs filed

their amended consolidated complaint in September 2015, which added the CM

Defendants to the case. (See generally Am. Consolidated Compl.)

26. In April 2016, on Plaintiffs’ motion, the Court placed JDPW into

receivership by appointing the Receiver as receiver for JDPW. (See Ord. Approving

Pls.’ Mot. Appointment Receiver JDPW Trust [“JDPW Receiver Ord.”], ECF No. 472.)

The Court did so after finding and concluding for the limited purposes of that motion

that, among other things, (i) Doug Harris had a conflict of interest in remaining in

control of JDPW and making decisions on its behalf; (ii) Doug Harris was unlikely to

investigate and pursue possible claims JDPW might have against the CM

Defendants, including his brother; and (iii) there was no perceived conflict of interest in the Receiver serving as the receiver for both JDPW and the Receivership Entities.

(See JDPW Receiver Ord. 5–6.) The Court also enjoined Doug Harris from conducting

any further business as trustee of JDPW. (See JDPW Receiver Ord. 17.)

27. Along with placing JDPW into receivership, the Court also approved a

settlement agreement between Plaintiffs, the Receivership Entities, and JDPW.

Among other things, the settlement allowed Plaintiffs a $2.1 million claim against

JDPW, arising out of the Nivison Loan for the same amount. (See Ord. Approving

Nivison Settlement & Related Transactions [“Ord. Approving Nivison Agrmt.”] at 8,

ECF No. 471.) This represented a substantial reduction from the amount originally

sought by Plaintiffs against JDPW. (See Ord. Approving Nivison Agrmt. 8.) Plaintiffs

voluntarily dismissed their claims against the Epeses in June 2016 and dismissed

their claims against NewBridge several months later.

28. In February 2017, Plaintiffs, Nivison, Doug Harris, and the CM Defendants

all filed motions for summary judgment. After a stay pending resolution of an

interlocutory appeal to the Supreme Court of North Carolina, the Court held a

hearing on the motions. In May 2019, the Court ruled on the motions in a published

opinion that narrowed the remaining claims. See In re Se. Eye Ctr.-Pending Matters,

2019 NCBC LEXIS 29 (N.C. Super. Ct. May 7, 2019). The case was then set for a

December 2019 trial. (See ECF No. 1171.)

29. However, subsequent developments delayed trial. In August 2019, Turner,

represented by Doug Harris, moved to intervene in this case in her purported capacity

as the beneficiary of JDPW. She also sought to remove Plaintiffs’ $2.1 million allowed claim against JDPW and to have JDPW removed from receivership. In January 2020,

the Court disqualified Doug Harris as Turner’s counsel and struck Turner’s motions

without prejudice to her refiling them when represented by other counsel. See

generally In re Se. Eye Ctr.-Pending Matters, 2020 NCBC LEXIS 12 (N.C. Super. Ct.

Jan. 30, 2020). Turner obtained new counsel and refiled her motions. In August

2020, the Court granted Turner’s motion to intervene but denied her motion to set

aside the $2.1 million claim and remove JDPW from receivership. See generally In re

Se. Eye Ctr.-Pending Matters, 2020 NCBC LEXIS 95 (N.C. Super. Ct. Aug. 17, 2020).

Even though the Court granted Turner permission as an intervenor “to seek to protect

her claimed interest in the [JDPW] Trust as she deems appropriate[,]” id. at *8,

Turner has not made any filings in this case since.

30. In October 2020, the Court held a status conference. At the conference,

Plaintiffs’ counsel and the Receiver’s counsel informed the Court that while the

deadline for dispositive motions had expired, they wished to file additional summary

judgment motions in an effort to streamline and clarify the matters remaining for

trial. Counsel noted that this additional round of motions could be particularly

beneficial given that a trial would likely be delayed for some time due to the ongoing

COVID-19 pandemic. After hearing from all parties, the Court decided to permit any

party to file a dispositive motion and set a briefing schedule accordingly. (See ECF

No. 1347.)

31. Plaintiffs, the Receiver, Doug Harris, and the CM Defendants filed the

Motions on this second round. Although permitted to intervene, Turner did not file any briefs supporting or opposing any of the Motions, even though the Motions raise

issues directly implicating JDPW’s validity and her status as a beneficiary. Turner’s

counsel also did not appear at the hearing on the Motions.

32. The Court held a hearing on the Motions on February 11, 2021, via WebEx

videoconference, at which counsel for all parties who filed a motion or a response to

a motion were present. The Motions are now ripe for resolution.

II. LEGAL STANDARD

33. Under Rule 56, summary judgment is appropriate “if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any material fact and that

any party is entitled to a judgment as a matter of law.” N.C. R. Civ. P. 56(c); see also

Da Silva v. WakeMed, 375 N.C. 1, 10 (2020). “An issue is ‘genuine’ if it can be proven

by substantial evidence and a fact is ‘material’ if it would constitute or irrevocably

establish any material element of a claim or a defense.” Lowe v. Bradford, 305 N.C.

366, 369 (1982). “ ‘Substantial evidence is such relevant evidence as a reasonable

mind might accept as adequate to support a conclusion’ and means ‘more than a

scintilla or a permissible inference.’ ” Head v. Gould Killian CPA Grp., P.A., 371 N.C.

2, 8 (2018) (quoting Ussery v. Branch Banking & Tr. Co., 368 N.C. 325, 335 (2015)).

The Court views all evidence “in the light most favorable to the non-moving party.”

Da Silva, 375 N.C. at 10.

34. The moving party bears the burden of proving that there is no genuine issue

of material fact. See Liberty Mut. Ins. Co. v. Pennington, 356 N.C. 571, 579 (2002). The moving party may meet this burden: (1) “by proving an essential element of the

opposing party’s claim does not exist, cannot be proven at trial, or would be barred by

an affirmative defense”; or (2) “by showing through discovery that the opposing party

cannot produce evidence to support an essential element of [its] claim.” Dobson v.

Harris, 352 N.C. 77, 83 (2000). “If the movant successfully makes such a showing,

the burden then shifts to the nonmovant to come forward with specific facts

establishing the presence of a genuine factual dispute for trial.” Pennington, 356 N.C.

at 579. The responding party may not “rest upon the mere allegations or denials”

within its pleadings, but “must set forth specific facts showing that there is a genuine

issue for trial.” N.C. R. Civ. P. 56(e).

35. When the party with the burden of proof moves for summary judgment, the

movant “must show that there are no genuine issues of fact, that there are no gaps in

his proof, that no inferences inconsistent with his recovery arise from the evidence,

and that there is no standard that must be applied to the facts by the jury.” Parks

Chevrolet, Inc. v. Watkins, 74 N.C. App. 719, 721 (1985); see also Kidd v. Early, 289

N.C. 343, 370 (1976).

III. ANALYSIS

36. Plaintiffs’ motion seeks summary judgment declaring: (i) that JDPW is

invalid as an express trust under the North Carolina Uniform Trust Code (the

“Uniform Trust Code”), and (ii) that a resulting or constructive trust should be

imposed in Plaintiffs’ favor as to the CM Note and CM Collateral. (See Pls.’ Mot.

Partial Summ. J., ECF No. 1377; Pls.’ Br. Supp. 9–16, ECF No. 1378.) 37. The motions filed by the Receiver, Doug Harris, and the CM Defendants

overlap substantially, primarily seeking summary judgment on a number of the

Receiver’s crossclaims asserted on behalf of JDPW. Additionally, the CM Defendants’

motion seeks affirmative summary judgment on several of their own crossclaims.

(See Receiver’s Mot. Summ. J., ECF No. 1383; Receiver’s Br. Supp., ECF No. 1386;

Harris Mot. Summ. J., ECF No. 1380; Harris Br. Supp., ECF No. 1381; CM Defs.’

Mot. Summ. J., ECF No. 1374; CM Defs.’ Br. Supp., ECF No. 1375.)

38. The Court will begin its analysis by addressing Plaintiffs’ motion. The Court

will then turn to the Receiver’s, Doug Harris’s, and the CM Defendants’ motions as

to the Receiver’s crossclaims. Finally, the Court will address the remainder of the

CM Defendants’ motion regarding their own crossclaims.

A. Plaintiffs’ Motion

39. As noted, Plaintiffs’ motion seeks summary judgment on two discrete issues:

first, that JDPW is invalid as an express trust; and second, that a resulting or

constructive trust should be imposed in Plaintiffs’ favor as to the CM Loan and CM

Collateral. They contend that JDPW is not (and perhaps never was) a valid, express

trust because (i) Cox never transferred any property into JDPW before his death;

(ii) even if Cox transferred property into JDPW, the trust was empty at his death; or

(iii) JDPW failed as an express trust upon Cox and Turner’s divorce. (See Pls.’ Br.

Supp. 9–16.)

40. The CM Defendants oppose the motion, first contending that the doctrine of

judicial estoppel bars Plaintiffs from denying the validity of JDPW. (See CM Defs.’ Resp. Pls.’ Mot. Partial Summ. J. 1–5, ECF No. 1391.) Because applying judicial

estoppel would preclude Plaintiffs’ motion in whole, the Court begins with that issue.

41. “Judicial estoppel ‘protects the integrity of the judicial process by

prohibiting parties from deliberately changing positions according to the exigencies

of the moment.’ ” Powell v. City of Newton, 364 N.C. 562, 568 (2010) (alteration

omitted) (quoting New Hampshire v. Maine, 532 U.S. 742, 749–50 (2001)). The Court

may invoke the doctrine to “prevent[ ] a party from acting in a way that is inconsistent

with its earlier position before the court.” Id. at 569 (citing Whitacre P’ship v.

Biosignia, Inc., 358 N.C. 1, 28–29 (2004)). The doctrine “serve[s] to moderate the

unjust results that would follow from the unbending application of common law rules

and statutes.” Id. (quoting Brooks v. Hackney, 329 N.C. 166, 173 (1991)).

42. Judicial estoppel is an equitable doctrine that may be invoked in the Court’s

sound discretion. See id.; Whitacre P’ship, 358 N.C. at 38–39. It is “inherently

flexible[,]” and there is no mechanical test to determine its application. Powell, 364

N.C. at 569 (quoting Whitacre P’ship, 358 N.C. at 28). Nevertheless, our Supreme

Court has observed that when determining whether to invoke the doctrine,

three frequently considered aspects of a case are whether: (1) the party’s subsequent position is “clearly inconsistent with its earlier position”; (2) judicial acceptance of a party’s position might threaten judicial integrity because a court has previously accepted that party’s earlier inconsistent position; and (3) “the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party” as a result.

Id. at 569 (quoting Whitacre P’ship, 358 N.C. at 29). The first factor—whether the

party has taken a clearly inconsistent position—is “the only factor that is an essential

element which must be present for judicial estoppel to apply[.]” Wiley v. United Parcel Serv., Inc., 164 N.C. App. 183, 188 (2004); see also Whitacre P’ship, 358 N.C. at 29

n.7; Price v. Price, 169 N.C. App. 187, 190 (2005). Additionally, “a reasonable

justification for a party’s change in position” may weigh against application of the

doctrine. Whitacre P’ship, 358 N.C. at 34.

43. In its discretion, the Court concludes that judicial estoppel applies here.

Plaintiffs’ newly asserted position that JDPW is invalid as an express trust is clearly

inconsistent with the position it has maintained over the almost seven years since

Plaintiffs commenced these cases. Plaintiffs have consistently maintained that

JDPW was at the center of the transactions at issue, and they should not be permitted

to pivot to a new theory during this second round of dispositive motions.

44. In fact, it was not until the Receiver raised the question of JDPW’s validity

in September 2019 during the course of briefing Turner’s first motion to intervene

that Plaintiffs began questioning JDPW’s validity. (See Receiver’s Resp. Kay Turner

Mot. Intervene 1–4, ECF No. 1201; Scheduling Ord. & Am. Notice Hearing

[“Scheduling Ord.”], ECF No. 1240; Pls.’ & Receiver’s Joint Mem. L. Addressing

Suppl. Issues [“Pls.’ Suppl. Br.”], ECF No. 1254.) Notably, after the Receiver alerted

the Court to the issue, the Court specifically requested supplemental briefing on

whether any estoppel principles applied to the question of JDPW’s validity. (See

Scheduling Ord. ¶ 5(a)(i)(4).) But Plaintiffs declined to address the issue, stating they

would not do so unless another party were to “articulate a purported basis for an

estoppel as to the existence of an express trust[.]” (Pls.’ Suppl. Br. 12–13.) In other words, even once they began questioning JDPW’s validity, Plaintiffs delayed by

failing to meaningfully engage with the estoppel issue when asked to do so. 12

45. Plaintiffs admit that the existence and validity of JDPW has been a

fundamental assumption throughout this case. (See Pls.’ Reply Br. 2, ECF No. 1403

(“The fact remains that all of the parties and this Court have relied upon Doug

Harris’s continuous assertions that JDPW Trust was a valid express trust.”).)

Despite this concession, they contend that they are not taking a clearly inconsistent

position because, as they put it, their focus has been on their dealings with Doug

Harris as JDPW’s trustee, without regard to JDPW’s validity. They contend they had

no obligation to investigate his authority or JDPW’s validity. See N.C.G.S. § 36C-10-

1012(b) (“A person other than a beneficiary who in good faith deals with a trustee is

not required to inquire into the extent of the trustee’s powers or the propriety of their

exercise.”); id. § 36C-10-1012(d) (“A person other than a beneficiary . . . who in good

faith and for value deals with a former trustee, without knowledge that the

trusteeship has terminated is protected from liability as if the former trustee were

still a trustee.”).

46. Although those statutes may afford certain protections to Plaintiffs in their

dealings with Doug Harris and JDPW, they do not give Plaintiffs the right to ignore

questions about JDPW’s validity during litigation and then later seek to change

12 Additionally, simply because the Court requested supplemental briefing on JDPW’s validity does not mean the Court is obligated to directly resolve that issue. Indeed, in permitting this second round of dispositive motions, the Court specifically stated that “[t]he Court’s decision to permit the filing of dispositive motions after the expiration of the dispositive motion deadline does not restrict or limit any defense a party may wish to make in response to such a motion, including on grounds of timeliness.” (ECF No. 1347 ¶ 6(b).) positions. The issue for purposes of judicial estoppel is the consistency of Plaintiffs’

position during litigation, not what assumptions they were entitled to make in their

dealings prior to litigation. Those statutory shields in no way absolve Plaintiffs and

their counsel from their obligation during litigation to thoroughly investigate issues

and raise them in a timely fashion.

47. Timeliness is the key issue here, and Plaintiffs’ new position is not timely.

They argue that they were not on notice about doubts as to JDPW’s validity until

recently. They point to August 2019, when Turner intervened in this case and was

deposed, as the first time they became aware of facts suggesting JDPW was never a

valid trust. (See Pls.’ Br. Supp. 2–3, 7–8.) But the record reveals otherwise. The

evidence Plaintiffs primarily rely on is not Turner’s testimony but rather Doug

Harris’s testimony and the Trust Agreement, which have been in the record for

almost five years. (See Pls.’ Br. Supp. 3–5, 7, 10–14.)

48. Doug Harris was deposed from March 2015 to June 2016—several years

before Plaintiffs asserted this new position. His testimony was more than sufficient

to put Plaintiffs—or any party—on notice of questions about JDPW’s validity. Doug

Harris testified that JDPW never had a bank account and that the only funds that

ever came into JDPW were those in connection with the transactions at issue in this

case—which occurred long after Cox had passed away. (See Harris Dep. 822:18–

823:14.) He also testified that he never received or took physical possession of the

poker machines that Cox purportedly transferred into JDPW. (See Harris Dep.

824:4–20.) He further stated that it was possible that all of the poker machines were sold by Cox before his death. (Harris Dep. 823:16–824:3.) Doug Harris made clear

that he never made any distributions out of JDPW to any beneficiary, (see Harris

Dep. 826:9–12), and that by 2012, JDPW held no assets and was essentially inactive

until 2012, (see Harris Dep. 824:25–825:2, 827:17–24).

49. Moreover, in February 2015, Doug Harris certified that the Trust

Agreement (without an attached Schedule A) was the sole document in his possession

relating to JDPW’s creation. (See Harris Dep. Ex. 79.) That alone should have raised

questions about whether a Schedule A ever existed. Plaintiffs also had access to

Nivison’s 2015 deposition, in which he testified that JDPW was “simply an empty

vehicle being used for tax purposes.” (Nivison Dep. 102:4–6, ECF No. 1392.1.) Thus,

the record contained sufficient evidence to put Plaintiffs on notice long ago to

investigate JDPW’s validity if they deemed it prudent and advantageous to do so.

50. Plaintiffs argue that Turner’s recent deposition “exposed” that JDPW was

not a valid trust. (Pls.’ Reply Br. 2.) Yet Turner’s testimony only corroborates Doug

Harris’s earlier testimony; it adds nothing new. Plaintiffs cite to testimony by Turner

that JDPW was never funded, that she never received any distributions from it, and

that Cox intended to place unidentified real property into the trust but never did.

(See Turner Dep. 16:21–19:22, ECF No. 1379.) That testimony simply duplicates

Doug Harris’s earlier testimony. 13

13 It is unclear whether the parties were aware that Cox and Turner divorced in 2007 until

Turner was deposed. But in any event, their divorce would not have terminated the trust. As discussed more thoroughly later in this Order and Opinion, their divorce did not terminate the trust; it simply terminated Turner’s status as a beneficiary under the trust. 51. Not only is Plaintiffs’ position clearly inconsistent and untimely, but

JDPW’s existence has formed the basis for much of the litigation so far such that

accepting this new position “might threaten judicial integrity[.]” Powell, 364 N.C. at

569 (citing Whitacre P’ship, 358 N.C. at 29). Indeed, to say the parties and the Court

have relied on JDPW’s validity is a vast understatement. JDPW was one of the first

parties Plaintiffs sued, and neither their complaint against JDPW nor their suit

against CCSEA and its related entities raised any questions as to JDPW’s validity.

More importantly, the now-operative pleading, Plaintiffs’ amended consolidated

complaint, relies heavily on JDPW’s existence and role in the transactions and events

at issue. It even seeks to recover from JDPW. (See, e.g., Am. Consolidated Compl.

¶¶ 12, 13, 49, 54, 67, 112–17.) Plaintiffs have also pursued claims against the CM

Defendants based on a theory in part premised on Plaintiffs’ contract with JDPW.

(See, e.g., Am. Consolidated Compl. ¶¶ 168–81, 229–36, 248–53, 332–40.) And at no

point have Plaintiffs sought to amend any of their pleadings to reflect questions about

JDPW’s validity.

52. Furthermore, the Court has awarded partial relief to Plaintiffs on the basis

of JDPW’s existence and involvement. (See Partial Summ. J. Ord. 1–3.) The Court

placed JDPW into receivership, on Plaintiffs’ own motion, and authorized the

Receiver to bring claims on its behalf and to deal with claims against it. (See generally

Pls.’ Mot. Appointment Receiver JDPW Trust, ECF No. 305; JDPW Receiver Ord.)

The Court approved a settlement between Plaintiffs and JDPW. (See generally Ord.

Approving Nivison Agrmt.) And the Court issued a 159-page summary judgment order and opinion that detailed and relied on JDPW’s role throughout the events and

transactions at issue to resolve the issues presented. See generally In re Se. Eye Ctr.-

Pending Matters, 2019 NCBC LEXIS 29.

53. This case is in its late stages. Discovery closed long ago. The Court has

already ruled on one round of summary judgment motions. If not for the COVID-19

pandemic and related delays, this case would have already gone to trial without this

second round of dispositive motions. For the Court to now determine that JDPW is

not a valid trust would likely unravel the years of progress made in this litigation.

54. In fact, because all parties have operated on the assumption that JDPW is

a valid trust, there is no harm in continuing with that premise and no material

prejudice to Plaintiffs. As they admit, they dealt with Doug Harris and JDPW on the

assumption that JDPW was valid. Therefore, continuing to treat JDPW as valid

preserves their expectations and the status quo, keeping them in the exact same

position that they thought they were in all along.

55. Finally, it is also relevant that Plaintiffs might derive an “unfair advantage”

from this new position. Powell, 364 N.C. at 569 (quoting Whitacre P’ship, 358 N.C.

at 29). In resolving the first round of summary judgment motions, the Court

dismissed the last of Plaintiffs’ claims. It would be fundamentally unfair to allow

Plaintiffs to breathe new life into their case by permitting them to raise a new position

when their claims were already addressed on a contrary premise. They chose to

proceed for years without investigating or raising this issue. It is now too late for

Plaintiffs to advance their new and contradictory theory. 56. In sum, this situation represents the very reason judicial estoppel exists: to

protect the integrity of the judicial system and to facilitate consistency. See Old

Republic Nat’l Title Ins. Co. v. Hartford Fire Ins. Co., 369 N.C. 500, 506 (2017)

(invoking judicial estoppel to prevent a party from relitigating matters on grounds it

had previously abandoned and observing that a party may not “be allowed to blow

hot and cold in the same breath” (quoting Whitacre P’shp, 358 N.C. at 12)); Whitacre

P’ship, 358 N.C. at 26 (observing that “except in proper instances, a party to a suit

should not be allowed to change his position with respect to a material matter in the

course of litigation” because “a party ‘cannot swap horses in midstream’ ” (quoting

Roberts v. Grogan, 222 N.C. 30, 33 (1942))).

57. Therefore, the Court concludes in its discretion that the doctrine of judicial

estoppel bars Plaintiffs from denying the existence and validity of JDPW as an

express trust.

58. The remainder of Plaintiffs’ motion is premised on JDPW’s invalidity.

Having concluded that Plaintiffs are judicially estopped from denying the existence

and validity of JDPW as an express trust, Plaintiffs’ other arguments are moot. The

Court therefore denies Plaintiffs’ motion for partial summary judgment.

B. Motions as to the Receiver’s Crossclaims

59. The Receiver has moved for affirmative summary judgment as to his second

through seventh crossclaims on JDPW’s behalf against Doug Harris. (See generally

Receiver’s Mot. Summ. J.; Receiver’s Br. Supp.) Doug Harris and the CM Defendants

have also moved for summary judgment seeking dismissal of most of the Receiver’s

crossclaims against Doug Harris. Doug Harris seeks summary judgment as to the Receiver’s second, third, fourth, sixth, and seventh crossclaims. (See Harris Mot.

Summ. J.; Harris Br. Supp. 2–3.) Similarly, the CM Defendants seek summary

judgment on the Receiver’s sixth, seventh, and eighth crossclaims to the extent they

seek to set aside the transfer of the CM Note and CM Release Deed, as well as on any

remaining claims by the Receiver to the extent they are asserted against the CM

Defendants. (See generally CM Defs.’ Mot. Summ. J.; CM Defs.’ Br. Supp.)

1. The Receiver’s Crossclaims as to the CM Defendants

60. The CM Defendants contend that the Receiver has asserted no crossclaims

against them and seek summary judgment on any purported crossclaims on that

basis. They argue that none of the crossclaims satisfy Rule 8’s pleading standards

because the CM Defendants are not mentioned in any of them. (See CM Defs.’ Br.

Supp. 8–9.) The Receiver does not address this argument in his brief, but the Court

remains obligated to ascertain whether the CM Defendants have met their burden to

obtain summary judgment.

61. Upon careful review, the Court disagrees that the CM Defendants should be

dismissed from the crossclaims at this stage. Although the crossclaims at issue set

forth Doug Harris’s alleged misconduct, the relief the Receiver seeks directly

implicates the CM Defendants. (See, e.g., Receiver’s Cross-cls. ¶¶ 481, 485, 496, 498–

502.) Not only were the CM Defendants parties to some of the transactions at issue,

but some of the property and obligations at issue are theirs too. For example, the CM

Deed is to real property owned by the CM Defendants, and the CM Note is collectable

against them. Because granting the relief the Receiver seeks would result in a judgment implicating the CM Defendants, they are necessary parties to the claims.

See N.C. R. Civ. P. 19(a); Thomas v. Thomas, 43 N.C. App. 638, 643 (1979) (observing

that “the heart of the Rule lies in the proposition that all parties should be joined

whose presence is necessary to a complete determination of the controversy”).

62. The Court therefore concludes that while the Receiver’s crossclaims do not

directly allege wrongdoing by the CM Defendants, they are necessary parties because

of the relief sought. Accordingly, it would be improper to dismiss them. The Court

denies the CM Defendants’ motion for summary judgment to the extent they seek

dismissal of any crossclaim based on this argument.

2. The Receiver’s Second Crossclaim (Professional Negligence)

63. The Receiver’s second crossclaim is for professional negligence. (See

Receiver’s Cross-cls. ¶¶ 476–79.) Although the Receiver includes this claim in his

motion, he does not advance any arguments in support. Instead, he focuses solely on

his arguments that Doug Harris breached his duties as JDPW’s trustee under the

Uniform Trust Code, which is the subject of the Receiver’s fourth crossclaim. Also,

while Doug Harris and the CM Defendants purport to move for summary judgment

on this claim, they have not advanced any specific arguments to support its dismissal.

Accordingly, no moving party has met its burden to obtain summary judgment. See

N.C. R. Civ. P. 56(c); Vizant Techs., LLC v. YRC Worldwide, Inc., 373 N.C. 549, 555

(2020) (“The party moving for summary judgment has the burden of showing that

there is no triable issue of material fact.” (quoting Nicholson v. Am. Safety Util. Corp.,

346 N.C. 767, 774 (1997)). The Court therefore denies the Receiver’s, Doug Harris’s, and the CM Defendants’ motions for summary judgment as to the Receiver’s second

crossclaim for professional negligence.

3. The Receiver’s Third Crossclaim (Breach of Fiduciary Duty/Constructive Fraud)

64. The Receiver’s third crossclaim is for breach of fiduciary duty and

constructive fraud. (See Receiver’s Cross-cls. ¶¶ 480–83.) As an initial matter, to the

extent the Receiver’s claim is for constructive fraud, the Court denies the Receiver’s,

Doug Harris’s, and the CM Defendants’ motions for summary judgment. Neither the

Receiver nor the CM Defendants even address a purported constructive fraud

crossclaim in their briefing or argument on the Motions. And the argument Doug

Harris advances is deficient. Without citing any authorities, Doug Harris briefly

argues that any constructive fraud claim fails because JDPW was not harmed by the

transactions at issue. (See Harris Opp’n Receiver’s Mot. for Summ. J. 7–8, ECF No.

1394.) But this argument is unpersuasive. For one thing, as more thoroughly

discussed elsewhere in this Order and Opinion, there is record evidence that JDPW

did suffer harm because of Doug Harris’s conduct. And for another, our Supreme

Court recently held that “potential liability for nominal damages is sufficient to

establish the validity of claims for breach of fiduciary duty and constructive fraud

and can support an award of punitive damages.” Chisum v. Campagna, 2021-NCSC-

7, ¶ 44. Thus, “the absence of evidence of actual damages does not defeat this claim.”

Kixsports, LLC v. Munn, 2021 NCBC LEXIS 32, at *41 (N.C. Super. Ct. Apr. 1, 2021)

(denying motion for summary judgment). 65. To the extent this claim is for breach of fiduciary duty, however, it overlaps

to a degree with the Receiver’s fourth crossclaim for breach of trustee duties.

Therefore, the Court will analyze that part of the claim together with the breach of

trustee duties claim in the next section. But to the extent this claim is premised on

any other duty, the Court denies the Receiver’s, Doug Harris’s, and the CM

Defendants’ motions for summary judgment for the same reasons discussed with

respect to the Receiver’s second crossclaim.

4. The Receiver’s Fourth Crossclaim (Breach of Trustee Duties)

66. The Receiver’s fourth crossclaim asserts that Doug Harris committed a

breach of trust by breaching his fiduciary duties to JDPW and its beneficiaries as

JDPW’s trustee. (See Receiver’s Cross-cls. ¶¶ 484–87.) The Receiver on the one hand,

and Doug Harris and the CM Defendants on the other, have each moved for summary

judgment.

a. The Receiver’s Standing

67. The CM Defendants argue that the Receiver lacks standing to sue to void

any transactions under N.C.G.S. § 36C-8-802(b). (See CM Defs.’ Br. Supp. 6–8.)

“[S]tanding is a ‘necessary prerequisite to a court’s proper exercise of subject matter

jurisdiction.’ ” Corwin v. Brit. Am. Tobacco PLC, 371 N.C. 605, 611 (2018) (quoting

Willomere Cmty. Ass’n, Inc. v. City of Charlotte, 370 N.C. 553, 561 (2018)). As such,

the Court is obligated to satisfy itself that it has subject matter jurisdiction to hear

the claims before it. See N.C. R. Civ. P. 12(h)(3); In re T.R.P., 360 N.C. 588, 590

(2006); McDaniel v. Saintsing, 260 N.C. App. 229, 232 (2018). 68. The CM Defendants point to the language in section 36C-8-802(b) providing

that a conflict of interest transaction “is voidable by a beneficiary affected by the

transaction[.]” N.C.G.S. § 36C-8-802(b) (emphasis added). Because the statute

specifically identifies the affected beneficiaries as those who may seek to void the

transaction, they contend that the statute limits the class of persons with standing

and that the Receiver falls outside of that class.

69. The Court disagrees. When appointed, the Receiver was “vested with the

full authority available to a receiver under North Carolina law to serve as a quasi-

trustee acting for and under the direction of the Court to take control of and to

administer the assets of JDPW[.]” (JDPW Receiver Ord. 7 (emphasis added).) The

Receiver’s equitable powers are broad. See, e.g., Lambeth v. Lambeth, 249 N.C. 315,

321 (1959) (recognizing the inherent authority of the Court to appoint receivers); EHP

Land Co. v. Bosher, No. COA15-881, 2016 N.C. App. LEXIS 325, at *6 (N.C. Ct. App.

Apr. 5, 2016) (observing that “the scope of a receiver’s authority is circumscribed by

the appointment of the court creating it” (citing Harrison v. Brown, 222 N.C. 610, 614

(1943))). Those powers explicitly included the authority to “sue and defend in his own

name as Receiver of [JDPW] in all courts of this State”; to “exercise all of the powers

of [JDPW] through or in place of its Trustee, Douglas S. Harris, to the extent

necessary to manage the affairs of [JDPW] in the best interests of its beneficiary and

creditors”; and to “seek to have set aside the transfer of any assets of [JDPW] which

the Receiver believes to have been improper.” (JDPW Receiver Ord. 8 (emphasis

added).) 70. As a quasi-trustee, the Receiver’s powers undoubtedly extend to suing to

void conflict of interest transactions under section 36C-8-802(b), and to suing for a

breach of trust generally. See N.C.G.S. § 36C-10-1001 official cmt. (“[C]otrustees

have standing to bring a petition to remedy a breach of trust. Following a successor

trustee’s acceptance of office, a successor trustee has standing to sue a predecessor

for breach of trust.”). 14 The Receiver’s broad powers under North Carolina statutory

and common law enable him to step into the shoes of JDPW’s former trustee and

current beneficiaries and to assert claims accordingly. Besides, even if section 36C-

8-802(b) was not available to the Receiver, all of the relief the Receiver seeks is also

available under section 36C-10-1001, which does not contain any language that might

be interpreted as limiting standing to a trust’s beneficiaries. 15

14 See also Restatement (Second) of Trusts § 200 cmt. a (noting that “a suit may be brought

by one of several co-trustees against the other or others . . . or by a successor trustee against his predecessor”); Restatement (Second) § 200 cmt. f (“If the trustee commits a breach of trust and is thereafter removed as trustee or otherwise ceases to be trustee and a successor trustee is appointed, the successor trustee can maintain a suit against him to redress the breach of trust.”); Restatement (Third) of Trusts § 94(1) (“A suit against a trustee of a private trust to enjoin or redress a breach of trust or otherwise to enforce the trust may be maintained only by a beneficiary or by a co-trustee, successor trustee, or other person acting on behalf of one or more beneficiaries.”); Restatement (Third) of Trusts § 94 cmt. c (“If a trustee who commits a breach of trust is thereafter removed or otherwise ceases to serve as trustee, a successor trustee can maintain a suit against the former trustee . . . to redress the breach of trust. . . . If a trustee who commits a breach of trust is not removed but continues to serve as trustee, . . . a trustee ad litem may be appointed for that purpose.”). 15 At the hearing, the CM Defendants also suggested that the Receiver’s authority is somehow

limited because there is no evidence in the record that the Receiver has ascertained the identities of all of JDPW’s purported beneficiaries or that all of the beneficiaries have consented to the Receiver’s acting as a quasi-trustee. These arguments have no merit. While the Receiver’s duties as receiver of JDPW arguably include ascertaining JDPW’s beneficiaries and communicating with them as needed, an absence of evidence in the record that the Receiver has done so is not somehow proof that the Receiver is not properly carrying out his duties. The CM Defendants’ attempt to use lack of evidence as proof in this context is unpersuasive. Further, with respect to the CM Defendants’ contention that JDPW’s 71. Given the broad authority of receivers generally and the specific role of the

Receiver as a quasi-trustee of JDPW, the Court is satisfied that the Receiver has

standing to sue to void conflict of interest transactions under section 36C-8-802(b).

b. Legal Standard for Trustee Duties

72. Having concluded that the Receiver has standing to sue under section

36C-8-802(b), the Court turns to the merits of the Receiver’s crossclaim on the

undisputed evidence. To establish a claim for breach of fiduciary duty, including a

trustee’s duty of loyalty, “a plaintiff must show that: (1) the defendant owed the

plaintiff a fiduciary duty; (2) the defendant breached that fiduciary duty; and (3) the

breach of fiduciary duty was a proximate cause of injury to the plaintiff.” 16 Sykes v.

Health Network Sols., Inc., 372 N.C. 326, 339 (2019) (citing Green v. Freeman, 367

beneficiaries never gave consent to the Receiver’s acting as quasi-trustee, this argument lacks merit for two reasons. First, this was not one of the grounds on which the CM Defendants objected to the appointment of the Receiver over JDPW in the first place. (See generally Obj. Castle McCulloch Defs. Nivison Pls.’ Mot. Appointment Receiver JDPW Trust, ECF No. 342.) The CM Defendants were on notice of this issue long ago and failed to timely raise it. Second, the Court had the broad discretionary authority to remove Doug Harris as trustee and to appoint the Receiver as a special quasi-trustee with or without the beneficiaries’ consent. See, e.g., N.C.G.S. § 36C-7-706(a), (b)(3)–(4) (providing that “a trustee may be removed by the court on its own initiative” if, among other things, (i) “[b]ecause of unfitness, unwillingness, or persistent failure of the trustee to administer the trust effectively, the court determines that removal of the trustee best serves the interests of the beneficiaries,” or (ii) “[t]here has been a substantial change of circumstances, the court finds that removal of the trustee best serves the interests of all of the beneficiaries”); id. § 36C-7- 704(e) (“Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust.”). 16 Our Supreme Court recently clarified that “proof of actual injury” is not necessary “to support a claim for breach of fiduciary duty or constructive fraud.” Chisum, 2021-NCSC-7, ¶ 44. Rather, “the incurrence of nominal damages” is sufficient and can support an award of punitive damages because nominal damages “reflect the existence of a legal harm and the fact that the policy of North Carolina law is to discourage breaches of fiduciary duty and acts of constructive fraud.” Id. N.C. 136, 141 (2013)). Specifically, in the context of a trust, “[a] violation by a trustee

of a duty the trustee owes under a trust is a breach of trust.” N.C.G.S. § 36C-10-

1001(a).

73. It is undisputed that Doug Harris owed a fiduciary duty of loyalty and trust

as JDPW’s trustee at all times relevant. See N.C.G.S. § 36C-8-802(a) (stating that a

trustee owes a fiduciary duty to “administer the trust solely in the interests of the

beneficiaries”); In re Se. Eye Ctr.-Pending Matters, 2019 NCBC LEXIS 29, at *177–

78 (“[A] trustee under any trust is a fiduciary and owes certain duties to the

beneficiaries of that trust.” (citing N.C.G.S. §§ 32-2(a), 36C-8-802)).

74. Trustees are held to a high standard. They must “maintain complete loyalty

to the interests of” the beneficiaries, Wachovia Bank & Trust Co. v. Johnston, 269

N.C. 701, 711 (1967), and they “can never paramount their personal interest over the

interest of those for whom they have assumed to act[,]” Miller v. McLean, 252 N.C.

171, 174 (1960). That is, a trustee “is held to something stricter than the morals of

the market place [sic]. Not honesty alone, but the punctilio of an honor the most

sensitive, is then the standard of behavior.” Johnston, 269 N.C. at 711 (quoting

Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (Cardozo, C.J.)).

75. One way a trustee commits a breach of trust is by entering into a conflict of

interest transaction. A transaction involving the trust “entered into by the trustee

for the trustee’s own personal account, or that is otherwise affected by a conflict

between the trustee’s fiduciary and personal interests, is voidable by a beneficiary

affected by the transaction, without regard to whether the transaction is fair to the beneficiary[.]” N.C.G.S. § 36C-8-802(b). A conflict of interest can arise in many

forms. Of course, a transaction is tainted by a conflict of interest if the trustee himself

has some personal interest or involvement in it. See id. Additionally, if a trustee

enters into a transaction with a sibling (or other closely related persons), the

transaction is “rebuttably presumed to be affected by a conflict of interest[.]” Id.

§ 36C-8-802(c)(2).

76. The trustee’s duty of loyalty, while demanding, is justified:

A man cannot serve two masters. He cannot fairly act for his interest and the interest of others in the same transaction. Consciously or unconsciously, he will favor one side or the other, and where placed in this position of temptation, there is always the danger that he will yield to the call of self- interest.

Johnston, 269 N.C. at 715; see also THZ Holdings, LLC v. McCrea, 231 N.C. App. 482,

487 (2013). If a conflict of interest arises, a trustee has two choices. He “must either

remove the personal interest or resign his position as trustee.” In re Tr. Under Will

of Jacobs, 91 N.C. App. 138, 143 (1988).

c. Analysis

77. The Receiver has moved for summary judgment. He contends that the

undisputed record establishes that Doug Harris committed breaches of trust by

entering into transactions that were (i) tainted by conflicts of interest, and (ii) not in

the best interests of JDPW and its beneficiaries. (See Receiver’s Br. Supp. 4–7;

Receiver’s Reply Br. 3–4, 7, ECF No. 1410.) Doug Harris and the CM Defendants

oppose the motion and have also moved for summary judgment in their favor. They

contend that Doug Harris’s conduct was not a breach of trust and that, regardless, he

is entitled to certain safe-harbor protections under the Uniform Trust Code. 78. Upon careful review, the Court concludes that Doug Harris’s conduct

constituted a breach of trust as a matter of law. For the reasons discussed below, the

undisputed record establishes that Doug Harris breached his fiduciary duties as

JDPW’s trustee by entering into conflict of interest transactions and by involving

JDPW in transactions that were not in the best interests of JDPW or its beneficiaries.

79. The undisputed record establishes that, prior to bringing JDPW into the CM

Defendants’ refinancing plan, Doug Harris entered into personal arrangements to

personally profit from JDPW’s involvement in the refinancing plan. Under the Epes

and McDaniel Agreements, Doug Harris obtained promises that he would be

personally paid $1.3 million in exchange for causing JDPW to purchase the CM Loan

from NewBridge. (See Epes Agrmt.; McDaniel Agrmt.; Harris Dep. 642:20–643:23.)

At that point, Doug Harris had a conflict of interest: his personal financial stake in

the refinancing versus his duties to JDPW as its trustee. Once Doug Harris obtained

that financial stake, each transaction that followed was inherently and

fundamentally tainted by that conflict of interest. Indeed, the record is replete with

instances in which Doug Harris expressly admitted to having personal financial

interests in the transactions. (See, e.g., Harris Dep. 467:5–16, 812:5–7, 849:15–19,

849:24–850:12.)

80. Not only does the record establish Doug Harris’s personal pecuniary

interest, but it also reveals his personal familial interest. Richard Harris—Doug

Harris’s brother—was also involved in these transactions, both personally and

through his two companies, Historic Castle and Castle McCulloch. Moreover, Doug Harris represented Richard Harris as his attorney during the CM Defendants’

refinancing negotiations. Again, the record is replete with examples of Richard

Harris’s role in the transactions, Doug Harris’s relationship with him (both as his

brother and his attorney), and actions Doug Harris took for Richard Harris’s benefit

(including using JDPW as a pass-through vehicle to direct funds to Richard Harris).

(See, e.g., Harris Dep. 38:24–39:11, 39:18–24, 40:2–11, 56:21–57:3, 229:1–25, 862:2–

863:18, 864:17–865:16, 866:4–18.) As Doug Harris put it, “I was there to protect my

brother’s interest. I was retained by my brother. I went there to represent my

brother.” (Harris Dep. 57:12–14.)

81. These undisputed facts reveal Doug Harris’s clear, unambiguous personal

interest in the transactions he caused JDPW to enter into, including the Nivison

Loan, JDPW’s purchase of the CM Loan, and Doug Harris’s transfers of the CM Note

to Richard Harris and the CM Release Deed to Historic Castle. Indeed, his conflict

of interest persists to this day: Doug Harris continues to maintain a claim with the

Receiver for $1.3 million pursuant to the Epes and McDaniel Agreements. (See

Harris Receivership Claim; Harris Dep. 467:5–16, 795:4–8; Harris Opp’n Receiver’s

Mot. Summ. J. 10, ECF No. 1394 (“Both contracts affirm that Doug Harris is owed

$1.3 million.”).)

82. Doug Harris’s testimony shows that he subordinated JDPW’s interests to

those of others, including his own. As he stated at his deposition, “McDaniel and Dr.

Epes needed some kind of vehicle” for the refinancing because otherwise, “they were

going to have terrific taxes to pay.” (Harris Dep. 829:17–20.) In addition, “they also had the little side problem with me [Doug Harris].” (Harris Dep. 829:20–21.) As a

result, Doug Harris saw JDPW as the “perfect go-between.” (Harris Dep. 830:13–14.)

83. And the record makes undeniable that Doug Harris did not choose JDPW

for the contemplated transactions to benefit the trust or out of loyalty to the trust.

While he described the arrangement as a business opportunity for JDPW, (see Harris

Dep. 829:4–6), Doug Harris testified that “there was no specialty in it being JDPW

Trust. It could have been some individual. It could have been some corporation.

[JDPW] just happened to be the one that came to mind . . . and I knew that it would

work.” (Harris Dep. 830:8–12.) JDPW was a prime candidate “since it had nothing,

you know, it really didn’t hurt anything.” (Harris Dep. 830:12–13.) There was

“[n]othing to lose. . . . just no muss, no fuss, you know.” (Harris Dep. 830:15–19; see

also Nivison Dep. 102:4–6 (“[M]y impression of JDPW Trust is that it was simply an

empty vehicle being used for tax purposes.”).)

84. This testimony both reiterates Doug Harris’s many conflicts of interest and

further demonstrates that his admitted purpose in involving JDPW in these

transactions was to benefit himself and his brother, not JDPW. Indeed, the record

makes plain that any possible benefit to JDPW was incidental and unintentional.

Therefore, the undisputed evidence establishes that Doug Harris did not act in the

best interests of JDPW and its beneficiaries.

85. Therefore, the Court concludes that the undisputed record establishes that

Doug Harris committed a breach of trust by promising to cause JDPW to purchase

the CM Loan in exchange for a personal payment to himself of $1.3 million. The Court further concludes that the undisputed record establishes that, in light of Doug

Harris’s personal interests described above, each transaction that followed that was

related to the refinancing plan was also tainted by those same conflicts of interest.

The undisputed record, particularly through Doug Harris’s own testimony, also

establishes that Doug Harris did not act in the best interests of JDPW or its

beneficiaries because he sought to use JDPW to benefit himself, his brother, and other

parties without prioritizing JDPW, as required by law.

86. The Court further concludes that the undisputed record establishes that

Doug Harris committed a breach of trust by causing JDPW to take out the Nivison

Loan. To begin, this debt was incurred to facilitate JDPW’s purchase of the CM Loan.

(See, e.g., 9AM Agrmt.; Am. Consolidated Compl. Exs. QQ, TT; Nivison Aff. ¶ 11;

Harris Dep. 75:14–23, 79:11–25.) Due to Doug Harris’s personal interests as already

described, this constituted a conflict of interest transaction. See THZ Holdings, 231

N.C. App. at 486 (holding that trustee’s interest in the transaction at issue made it

“clearly” a conflict of interest transaction that was voidable “under the plain language

of the statute”); N.C.G.S. § 36C-8-802(b).

87. Moreover, causing JDPW to enter into the Nivison Loan was also a breach

of trust because it is undisputed that the Nivison Loan was not taken out for any

direct benefit to JDPW. Instead, its purpose was to help Doug Harris and his brother

achieve a favorable refinancing for their own affairs. JDPW never benefitted from

the Nivison Loan—nor could it have, since the entire plan, as Doug Harris testified,

was to benefit everyone but JDPW and avoid appearances of tax impropriety. (See Harris Dep. 829:15–831:16.) Additionally, Doug Harris never made any effort to

cause JDPW to repay the Nivison Loan or to assert JDPW’s rights against the other

persons who were purportedly obligated to repay the loan for JDPW. This resulted

in JDPW’s default on the Nivison Loan. (See Partial Summ. J. Ord. 1–2; Demand

Letter; Harris Dep. 540:2–14.)

88. The Court further concludes that the undisputed record establishes that

Doug Harris committed a breach of trust by transferring the CM Note to his brother

and by transferring the CM Release Deed to Historic Castle, one of his brother’s

companies. (See ECF No. 1385.4; Harris Dep. 628:12–635:25, 866:19–868:25.) Due

to Doug Harris’s personal interests as already described, these transfers constituted

conflict of interest transactions. See THZ Holdings, 231 N.C. App. at 486; N.C.G.S.

§ 36C-8-802(b).

89. Moreover, Doug Harris’s transfers of the CM Note and the CM Release Deed

were also breaches of trust because it is undisputed that those transfers were

financially devastating to JDPW. As already stated, at the time of the transfers,

JDPW was already in default on its obligations under the Nivison Loan because Doug

Harris had made no attempts to repay that loan. (See, e.g., Harris Dep. 540:2–21.)

Doug Harris never took any actions to collect on the CM Note or to foreclose on the

CM Deed. Accordingly, when Doug Harris transferred away the CM Note and the

CM Release Deed, JDPW became insolvent. See N.C.G.S. § 39-23.2(a) (“A debtor is

insolvent if, at a fair valuation, the sum of the debtor’s debts is greater than the sum

of the debtor’s assets.”). In fact, Doug Harris transferred assets out of JDPW that— according to his stated plan—might have facilitated a profit to JDPW in the form of

the interest spread between the Nivison Loan and the CM Loan. (See Harris Dep.

829:7–14.)

90. Nowhere in any of his briefs does Doug Harris respond to the Receiver’s

argument that these transactions were tainted by several conflicts of interest.

Indeed, the phrase “conflict of interest” does not appear in any of his briefs except in

a single quote from some deposition testimony. (See Harris Opp’n Receiver’s Mot.

Summ. J. 1–11; Harris Br. Supp. 1–18; Harris Reply Br. 1–13, ECF No. 1407.) And

the CM Defendants expressly concede the point. (See CM Defs.’ Br. Supp. 4

(“Arguably, Doug Harris’s transfer of the Castle McCulloch Note and release of the

Castle McCulloch Collateral were presumably affected by a conflict of interest

because the transactions were with Doug Harris’s brother, Richard Harris.”).)

91. The Receiver, therefore, has met his burden to show there is no genuine

issue of material fact remaining on his third crossclaim for breach of fiduciary duty

(to the extent premised on Doug Harris’s duties as trustee) and his fourth crossclaim

for breach of trustee duties against Doug Harris and that summary judgment for the

Receiver and against Doug Harris on those crossclaims is proper as a matter of law.

See Pennington, 356 N.C. at 579 (“If the movant successfully makes such a showing

[of the absence of a genuine issue of material fact], the burden then shifts to the

nonmovant to come forward with specific facts establishing the presence of a genuine

factual dispute for trial.”); Steele v. Bowden, 238 N.C. App. 566, 577 (2014) (observing

that the nonmovant must “forecast sufficient evidence to show the existence of a genuine issue of material fact in order to preclude an award of summary judgment”);

N.C. R. Civ. P. 56(e) (“If [the nonmovant] does not so respond, summary judgment, if

appropriate, shall be entered against him.”); rFactr, Inc. v. McDowell, 2020 NCBC

LEXIS 144, at *41 (N.C. Super. Ct. Dec. 8, 2020) (granting summary judgment in

favor of movant when nonmovant failed to respond to the argument).

d. Defenses

92. Although neither Doug Harris nor the CM Defendants rebut the Receiver’s

argument that the transactions were tainted by conflicts of interest, they raise

several other arguments to oppose the Receiver’s motion and to support their own

motions seeking dismissal of the claim. The Court will address each in turn.

93. First, Doug Harris does not meaningfully argue that some question of fact

precludes summary judgment. Rather, he tries to justify his conduct by arguing that

each individual transaction operated perfectly in accordance with the broader plan

he envisaged with the CM Defendants, Dr. Epes, McDaniel, and Nivison. Pointing to

the transaction documents and to his own testimony and that of Turner and Nivison,

he argues that it was never anyone’s intention for JDPW to be liable on the Nivison

Loan or for it to keep the CM Note and Collateral. (See Harris Br. Supp. 4–9.) He

also argues that had JDPW kept the CM Note and Collateral, it would have amounted

to “an astoundingly large windfall in exchange for the minor services that JDPW

performed for the deal.” (Harris Br. Supp. 7.)

94. But that is not the standard for a breach of trust. Under the Uniform Trust

Code, Doug Harris’s conduct must be viewed through the lens of his duties to JDPW, not in light of other persons’ intent or their overall plan. The question is whether

Doug Harris had a conflict of interest or otherwise failed to act in the best interests

of JDPW and its beneficiaries. Doug Harris’s argument fails to confront or

meaningfully address those questions. The question of breach looks to Doug Harris’s

conduct vis-à-vis his duties to JDPW, not whether the plan “worked” vis-à-vis his

personal interests and the other parties’ intentions. Therefore, this argument does

not present a jury question or provide a legal defense to liability.

95. Moreover, Doug Harris’s argument that he did not commit a breach of trust

because JDPW’s enforcement of its rights to the CM Loan would amount to a

“windfall” defies logic. Growing a trust’s property and enforcing its rights is exactly

what a trustee should do under the law. See, e.g., N.C.G.S. §§ 36C-8-804 (“A trustee

shall administer the trust as a prudent person would[.]”), 36C-8-811 (“A trustee shall

take reasonable steps to enforce claims of the trust and to defend claims against the

trust.”); see also, e.g., id. §§ 36C-9-901, 36C-9-902. The undisputed record shows that

Doug Harris chose not to enforce JDPW’s rights to the CM Loan or protect JDPW

from default under the Nivison Loan so as to avoid harm to himself, his brother, his

brother’s companies, and the “master plan.” In so doing, he ignored the reality that

under the Uniform Trust Code, taking actions to benefit and protect JDPW was his

lawful duty.

96. Doug Harris and the CM Defendants also argue that he did not commit a

breach of trust with respect to the Nivison Loan because there was never any risk of

harm to JDPW. They contend that the Assignment Agreement limited JDPW’s liability on the Nivison Loan to forfeiting certain equipment. (See 9AM Agrmt. § 5.)

Because JDPW was never liable for the full amount, the argument goes, he did not

breach his duties by exposing JDPW to more than $2.1 million in liability. (See Harris

Br. Supp. 9–15; Harris Opp’n Receiver’s Mot. Summ. J. 6; CM Defs.’ Resp. Receiver’s

Mot. 1–3, ECF No 1390.)

97. As noted, the parties dispute which version of the Assignment Agreement

controls, and only one version contains the limitation of liability provision. But

taking the evidence in the light most favorable to Doug Harris and assuming the

limitation of liability applies, Doug Harris’s argument lacks merit for a more

fundamental reason. As repeated many times in this Order and Opinion so far, a

conflict of interest transaction is voidable regardless of its benefit—or as Doug Harris

contends in this case, absence of harm—to the trust. The conflict of interest that

permeated the Nivison Loan renders it a breach of trust without any need to assess

the limitation of liability.

98. Doug Harris’s entire defense can be summarized as this: he did not commit

a breach of trust because JDPW was not harmed and because JDPW was limited to

a passive role in a set of transactions to minimize taxes for other parties. On this

basis, he contends that JDPW’s interest in any assets that passed through it should

be ignored because JDPW was just a vehicle—a tax shell. (See Harris Br. Supp. 4–

9.) But his argument ignores the high standard to which a trustee is held. As the

Receiver correctly points out, “Harris’ obligation was not just to avoid harm to the [JDPW] Trust. His obligation was to obtain those benefits that were available to the

[JDPW] Trust.” (Receiver’s Reply Br. 7.)

99. Furthermore, if the Court were to accept this framing of the transactions,

Doug Harris may stand to lose more than he stands to gain. The arrangement Doug

Harris describes, if true, is suggestive of potential tax fraud. A longstanding principle

of tax law is that transactions must have economic substance—that is, persons

involved in a transaction must end up in different economic positions, and there must

be a purpose to the transaction other than tax reduction or avoidance. 17 To accept

Doug Harris’s argument that JDPW was merely a tax shell to achieve tax avoidance

would be akin to construing the parties’ conduct as tax fraud. Engaging in tax fraud

undoubtedly constitutes a breach of trust. Thus, even if the Court were to accept

Doug Harris’s overarching argument, it would simply lead to a different breach of

trust: involving JDPW in a scheme to perpetrate federal and state tax crimes.

17 As the United States Supreme Court has observed,

taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed—the actual benefit for which the tax is paid. In a number of cases, the Court has refused to permit the transfer of formal legal title to shift the incidence of taxation attributable to ownership of property where the transferor continues to retain significant control over the property transferred. In applying this doctrine of substance over form, the Court has looked to the objective economic realities of a transaction rather than to the particular form the parties employed. The Court has never regarded the simple expedient of drawing up papers as controlling for tax purposes when the objective economic realities are to the contrary. In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding. Nor is the parties’ desire to achieve a particular tax result necessarily relevant.

Frank Lyon Co. v. United States, 435 U.S. 561, 572–73 (1978) (cleaned up); see also Boulware v. United States, 552 U.S. 421, 429–30 (2008). 100. The CM Defendants and Doug Harris also attempt to excuse Doug Harris

from liability in another way. They argue that, even if Doug Harris’s actions were

tainted by conflicts of interest, they are nonetheless protected by certain safe harbors

established by the Uniform Trust Code. (See CM Defs.’ Br. Supp. 4–6; Harris Br.

Supp. 15–17.) This argument also lacks merit.

101. The Uniform Trust Code’s safe harbors protect a trustee from liability in

limited circumstances. As relevant here, a conflict of interest transaction is not

voidable if “[t]he terms of the trust authorized the transaction” or “[t]he beneficiary

consented to the trustee’s conduct, ratified the transaction, or released the trustee in

compliance with G.S. 36C-10-1009[.]” N.C.G.S. § 36C-8-802(b)(1), (4). Also, a trustee

is not liable for a breach of trust if (i) “the beneficiary consented to the conduct

constituting the breach, released the trustee from liability for the breach, or ratified

the transaction constituting the breach,” or (ii) the trustee “act[ed] in reasonable

reliance on the terms of the trust[.]” Id. §§ 36C-10-1009(a), 36C-10-1006.

102. Taken together, the Uniform Trust Code establishes two relevant

protections. A trustee’s conduct cannot give rise to liability or voiding of transactions

if either: (1) the beneficiaries consented to or ratified the transaction or released the

trustee from liability, or (2) the terms of the trust authorized the transaction or the

trustee reasonably relied on the terms of the trust. On the undisputed record, though,

neither of these safe harbors is available to Doug Harris.

103. Consent, Ratification, and Release. The record is undisputed that not all of

JDPW’s beneficiaries consented to or ratified the transactions or released Doug Harris from liability. Therefore, this safe harbor does not protect Doug Harris. The

CM Defendants argue that, at the time of the transactions, Doug Harris reasonably

believed that Turner was JDPW’s beneficiary. And according to Turner’s testimony,

she authorized and ratified Doug Harris’s decision to transfer the CM Note to Richard

Harris and the CM Release Deed to Historic Castle. (See Turner Dep. 125:3–126:12,

ECF No. 1376.2; Aff. Kay Harris Turner Supp. Rule 60(b)(4)(5)(6) Mot. ¶¶ 14–18, ECF

No. 1376.3.) The CM Defendants and Doug Harris contend that her authorization

and ratification absolve Doug Harris.

104. In response, the Receiver argues that Turner’s purported authorization and

ratification were not effective for two independent reasons: (i) Turner was not a

beneficiary of JDPW, and (ii) even if she was, none of the other beneficiaries

consented to or ratified the transactions or released Doug Harris. (See Receiver’s

Reply Br. 5–6; Receiver’s Br. Opposing Summ. J. Mots. Filed Doug Harris & CM Defs.

[“Receiver’s Opp’n”] at 11–12, ECF No. 1396.)

105. After careful review, the Court agrees with the Receiver. First, Turner was

not a beneficiary of JDPW. Although the trust instrument designated Turner as

JDPW’s beneficiary upon Cox’s death, Turner and Cox divorced after Cox executed

the Trust Agreement. Divorce after execution of a revocable trust “revokes all

provisions in the trust in favor of the settlor’s former spouse[.]” N.C.G.S. § 36C-6-

606. In that event, “[p]roperty prevented from passing to the former spouse because

of revocation by divorce . . . passes as if the former spouse failed to survive the settlor,

and other provisions conferring some power or office on the former spouse are interpreted as if the former spouse failed to survive the settlor.” Id. Thus, under

section 36C-6-606, while divorce does not terminate a trust when its beneficiary is

the former spouse, any property that would have passed to the former spouse instead

passes to whomever the beneficiary would be had the spouse predeceased the settlor.

Under this statute, then, Turner was no longer a beneficiary upon her subsequent

divorce from Cox.

106. Doug Harris argues that Turner did not cease to be a beneficiary because

Cox must have executed JDPW’s Trust Agreement with knowledge that he and

Turner were divorcing. (See Harris Reply Br. 12–13.) He points out that the Trust

Agreement was executed on June 8, 2007, (see Tr. Agrmt. at 4), and that Cox and

Turner’s divorce was finalized only a few weeks later, on July 2, 2007, (see Aff. Kay

Turner [“Turner Aff.”] ¶ 3, ECF No. 1408.13). Turner testified that she and Cox had

been separated for at least a year before he executed the Trust Agreement, and she

had also filed for divorce at some unspecified time before execution of the Trust

Agreement. (See Turner Aff. ¶ 3.) According to Doug Harris, this is evidence that

Cox intended Turner to be JDPW’s beneficiary regardless of their marital status. (See

also Turner Aff. ¶ 4.)

107. But external evidence of Cox’s intent cannot be considered because that

intent was not expressed in the terms of the Trust Agreement. When a trust

instrument is “in writing, and manifest[s] no ambiguity which would require resort

to extrinsic evidence,” the construction of the instrument is “for the Court.” Nevitt v. Robotham, 235 N.C. App. 333, 335 (2014) (cleaned up) (quoting Atkinson v. Atkinson,

225 N.C. 120, 124–25 (1945)).

108. Section 36C-6-606 strictly provides that divorce revokes all provisions in

favor of the former spouse. By statute, therefore, the only exception to section

36C-6-606 is if the trust’s terms explicitly provide otherwise. See N.C.G.S. § 36C-1-

105(b) (providing that “[t]he terms of a trust prevail over any provision in this

Chapter except” certain enumerated exceptions not including section 36C-6-606). 18

The intent to override section 36C-6-606 must be expressed in the trust instrument.

See also Nevitt, 235 N.C. App. at 336 (stating that in interpreting a trust instrument,

“courts must give effect to the intent of the settlor, so long as such intent does not

conflict with the demands of law” (emphasis added) (cleaned up)); In re Ruth Cook

Blue Living Tr., 2011 NCBC LEXIS 5, at *8 (N.C. Super. Ct. Mar. 8, 2011) (“The

intent of one who creates a trust is to be determined by the language chosen[.]”

(emphasis added) (citing Callaham v. Newsom, 251 N.C. 146, 149 (1959))).

109. But the Trust Agreement contains no language suggesting any intent on

Cox’s part to override section 36C-6-606. Had there been some ambiguity in the Trust

Agreement suggesting Cox’s possible intent, that might present a question of fact

precluding summary judgment. But the Trust Agreement’s provisions addressing

18 See also N.C.G.S. § 36C-6-606 official cmt. (“[Section 36C-6-606] tracks generally and makes applicable to revocable trusts the provisions of [N.C.]G.S. 31-5.4 revoking the provisions in a will in favor of the testator’s former spouse upon the dissolution of the marriage by absolute divorce or annulment. It does not bring forward the language in [N.C.]G.S. 31-5.4 that the revocation of the provisions in favor of the former spouse does not apply if the instrument provides otherwise. This language was omitted in view of the general provision in [N.C.]G.S. 36C-1-105(b) that the terms of the trust prevail over any provision in Chapter 36C, subject to certain exceptions not applicable to [N.C.]G.S. 36C-6-606.”). beneficiaries are unambiguous on their face. And parol evidence—here, Turner’s

testimony about Cox’s intent—cannot be considered when the Trust Agreement

contains no ambiguity. Therefore, section 36C-6-606 strictly governs as a matter of

law. Upon their divorce, Turner’s status as a beneficiary was revoked, and any

purported consent, ratification, or release by her after that point had no effect. 19

110. Second, even if Turner was a beneficiary, her purported authorization and

release would only absolve Doug Harris of liability to Turner, not to JDPW’s other

beneficiaries. Under the plain language of the Trust Agreement, Turner was not

JDPW’s only beneficiary. The Trust Agreement designates Turner as JDPW’s

primary beneficiary upon Cox’s death but it further provides that “[a]t the death of

[Turner], such property if any as survives in the trust shall be distributed to [Cox’s]

heirs at law.” (Tr. Agrmt. ¶ XIII(R).) Under the Trust Agreement’s unambiguous

terms, therefore, Cox’s heirs at law are contingent residuary beneficiaries of JDPW.

See Wachovia Bank & Tr. Co., N.A. v. Chambless, 44 N.C. App. 95, 105–06 (1979)

(first citing G. Bogert, The Law of Trusts and Trustees § 182, pp. 413–14 (Rev. 2d Ed.

1979); and then citing 13 Strong’s N.C. Index 3d, Wills § 35.2 (1978)). As such, they

19 The parties have expressed uncertainty as to whether North Carolina or South Carolina

law applies to the question of the effect of Cox and Turner’s divorce. But the Court need not resolve that choice of law question because the result would be the same under either North Carolina or South Carolina law. Both states have adopted versions of the Uniform Trust Code, and the South Carolina Trust Code’s provisions on this issue are substantially the same as those in the North Carolina Uniform Trust Code. See S.C. Code Ann. § 62-7-607 (“If after executing a revocable trust the settlor is divorced . . . , the divorce . . . revokes any disposition or appointment of property including beneficial interests made by such trust to the spouse . . . , unless the trust expressly provides otherwise. Property prevented from passing to a spouse because of revocation by divorce . . . passes as if the spouse failed to survive the settlor[.]”); id. § 62-7-105(b) (providing that “[t]he terms of a trust prevail over any provision of this article except” certain enumerated exceptions not including S.C. Code Ann. § 62-7- 607). are beneficiaries within the meaning of the Uniform Trust Code. See N.C.G.S.

§ 36C-1-103(3)(a) (defining a beneficiary as any person who “[h]as a present or future

beneficial interest in a trust, vested or contingent” (emphasis added)).

111. Nothing in the Uniform Trust Code permits one beneficiary to unilaterally

consent, ratify, or release on behalf of the rest of the trust’s beneficiaries. 20 Therefore,

even if Turner properly authorized and ratified the transactions, those acts were

effective only as to her, not as to JDPW’s remaining beneficiaries. Here, the record

is undisputed that the only individual that possibly authorized and ratified the

transaction was Turner. Because she is not the only beneficiary of JDPW (assuming

for this purpose that she is one at all), her consent and ratification did not fully

exonerate Doug Harris.

112. Therefore, even if Turner’s authorization and ratification were valid as to

her, the Receiver can still seek to remedy Doug Harris’s breach of trust (i) as a quasi-

20 This conclusion is reinforced by the operation of other parts of the Uniform Trust Code.

Other statutes limit the class of beneficiaries needed to be involved in a particular trust action to “qualified beneficiaries,” which do not include all contingent beneficiaries. See N.C.G.S. § 36C-1-103(15). For example, a trustee may resign if notice is given to all “qualified beneficiaries,” not to every single beneficiary. Id. § 36C-7-705(a)(1). In contrast, the Uniform Trust Code provisions on consent, ratification, and release do not limit the required involvement to only qualified beneficiaries. Instead, all beneficiaries must be involved. trustee of JDPW to remedy a prior trustee’s breaches, 21 and (ii) on behalf of JDPW’s

other beneficiaries. 22

113. The CM Defendants argue in a single sentence that Doug Harris’s

reasonable belief that Turner was JDPW’s sole beneficiary is sufficient to excuse his

failure to obtain consent from JDPW’s other beneficiaries. (See CM Defs.’ Br. Supp.

5.) They cite no authority for that proposition, however, and the Court’s research

reveals no caselaw or other authority suggesting that a nonbeneficiary’s purported

consent is effective for all trust beneficiaries if a trustee reasonably believes that

person to be the sole beneficiary. Absent controlling authority establishing such an

exception, the Court will not recognize one here.

114. Besides, no reasonable jury could find that Doug Harris’s belief that Turner

was the sole beneficiary was a reasonable belief. Section 36C-6-606 unambiguously

provides for revocation of a former spouse’s interest upon divorce. Doug Harris had

a duty as trustee to know that. Additionally, the Trust Agreement clearly and

unambiguously establishes other beneficiaries. The only way Doug Harris could have

believed there were no other beneficiaries would have been by ignoring or failing to

21 See N.C.G.S. § 36C-10-1001 official cmt. (“[A] successor trustee has standing to sue a predecessor for breach of trust.”); Restatement (Second) of Trusts § 200 cmt. a (noting that “a suit may be brought by one of several co-trustees against the other or others . . . or by a successor trustee against his predecessor”); Restatement (Second) § 200 cmt. f (“If the trustee commits a breach of trust and is thereafter removed as trustee or otherwise ceases to be trustee and a successor trustee is appointed, the successor trustee can maintain a suit against him to redress the breach of trust.”). 22 See Receiver Order at 8 (granting the Receiver the authority to “exercise all of the powers

of [JDPW] through or in place of its Trustee, Douglas S. Harris, to the extent necessary to manage the affairs of [JDPW] in the best interests of its beneficiary and creditors[,]” and to “seek to have set aside the transfer of any assets of [JDPW] which the Receiver believes to have been improper”). read the Trust Agreement’s plain language. In sum, Doug Harris’s subjective belief

is irrelevant for purposes of consent, ratification, and release. And even were it

relevant, it cannot be disputed on the record evidence that his belief was

unreasonable.

115. Terms of the Trust Instrument. Nor may Doug Harris and the CM

Defendants rely on the terms of the Trust Agreement to exonerate Doug Harris’s

actions. A conflict of interest transaction is not voidable if “[t]he terms of the trust

authorized the transaction[,]” N.C.G.S. § 36C-8-802(b)(1), and a trustee is not liable

for a breach of trust if he “act[ed] in reasonable reliance on the terms of the trust as

expressed in a trust instrument[,]” id. § 36C-10-1006. Both of these sections look to

the terms of the trust instrument itself.

116. The CM Defendants point to broad language in the Trust Agreement,

contending that it “gave Doug Harris plenary authority to enter into transactions

with Trust property.” (CM Defs.’ Br. Supp. 5.) It provides that Doug Harris’s powers

as trustee “include, but are not limited to . . . [t]he Power to manage the trust and the

trust property therein as if the Trustee were the absolute owner of it[, and] [t]he

Power to execute any documents necessary to administer any Trust created by this

Declaration of Trust and to execute any documents on behalf of the Trust in the same

manner as if the Trustee were the absolute owner of it.” (Tr. Agrmt. ¶ XIII(B), (L).)

117. The Receiver argues that for the Trust Agreement to authorize a transaction

within the meaning of section 36C-8-802(b)(2), the authority granted “would have to

be specific enough to acknowledge the conflict of interest but approve the transaction anyway—such as an express self-gifting power.” (Receiver’s Opp’n 15.) The Court

agrees. For one thing, the language relied on by the CM Defendants is a boilerplate

conferral of power, mirroring the Uniform Trust Code itself. See N.C.G.S. § 36C-8-

815(a)(2)(a), (b) (conferring on a trustee “[a]ll powers over the trust property that an

unmarried competent owner has over individually owned property” and “[a]ny other

powers appropriate to achieve the proper investment, management, administration,

or distribution of the trust property”); see also Nevitt, 235 N.C. App. at 335 (observing

that when a trust instrument is “in writing, and manifest[s] no ambiguity which

would require resort to extrinsic evidence,” the construction of the instrument is “for

the Court” (cleaned up)). Interpreting that language as the CM Defendants suggest

would actually run contrary to other language in the Trust Agreement. (See Tr.

Agrmt. ¶ XIII(O) (“Any income not spent for the benefit of the Grantor shall be

accumulated and added to the Trust property.”).)

118. Not only is the CM Defendants’ interpretation contrary to the plain

language of the Trust Agreement, but it is inconsistent with the Uniform Trust Code.

Our state’s appellate courts have not yet had occasion to provide explicit guidance on

the meaning of section 36C-8-802(b)(2) or section 36C-10-1006 in this context. The

Court is unaware of any reported decision from our state courts addressing what it

means for the trust’s terms to authorize a transaction or for the trust instrument to

give rise to reasonable reliance. But by looking at our state courts’ interpretation of

the Uniform Trust Code in other circumstances and by considering decisions of other states’ courts on this issue, the Court concludes that the Trust Agreement cannot

confer the broad protections the CM Defendants suggest.

119. First, the Trust Agreement does not explicitly authorize the transactions at

issue. Explicit authorization arises in instances in which the settlor seeks to

preemptively permit a particular transaction that would be a conflict of interest for

the trustee. To permit the transaction but preempt liability, the settlor may include

language in the trust instrument that specifically identifies the transaction or type

of transaction and then authorizes the trustee to engage in it. See, e.g., Restatement

(Third) of Trusts § 78 cmt. c(2) (“For example, the terms of a trust may permit the

trustee personally to purchase trust property or borrow trust funds, or to sell or lend

the trustee’s own property or funds to the trust.”).

120. But explicit authorization does not give the trustee a blank check. The

trustee must still comply with his overarching fiduciary duty to ensure that the

transaction is in the best interests of the trust and its beneficiaries. Express

authorization may nullify the particular conflict of interest, but the trustee’s broader

fiduciary duties are still preserved. See id. (“Even an express authorization of this

type, however, would not completely dispense with the trustee’s underlying fiduciary

obligations to act in the interest of the beneficiaries and to exercise prudence in

administering the trust. Accordingly, no matter how broad the provisions of a trust

may be in conferring power to engage in self-dealing or other transactions involving

a conflict of fiduciary and personal interests, a trustee violates the duty of loyalty to

the beneficiaries by acting in bad faith or unfairly.”). 121. Here, the Trust Agreement does not involve any such explicit authorization.

It contains no language directly anticipating the transactions or types of transactions

at issue and expressly approving of them. Perhaps recognizing this lack of express

authority, Doug Harris and the CM Defendants argue the Trust Agreement should

be interpreted as implicitly permitting Doug Harris’s conduct. But they do not

explain how and simply recite the language without meaningful analysis. As already

noted, the Trust Agreement language amounts to nothing more than a boilerplate

conferral of the regular and traditional powers of a trustee.

122. But even if the Court were to accept Doug Harris and the CM Defendants’

interpretation that the Trust Agreement conferred substantial discretionary

authority on JDPW’s trustee, that language can only permit as much authority as

allowed by law. And by law, a trust’s terms cannot supersede a trustee’s duties “to

act in good faith and in accordance with the terms and purposes of the trust and the

interests of the beneficiaries” and cannot supersede “[t]he requirement that a trust

and its terms be for the benefit of its beneficiaries[.]” N.C.G.S. § 36C-1-105(b)(2), (3).

Additionally, “[a] term of a trust relieving a trustee of liability for breach of trust is

unenforceable to the extent that it relieves the trustee of liability for breach of trust

committed in bad faith or with reckless indifference to the purposes of the trust or

the interests of the beneficiaries.” Id. § 36C-10-1008.

123. The Uniform Trust Code even goes so far as to address purported conferrals

of broad discretion on trustees. Indeed, even when a trust’s terms confer broad

discretion on a trustee, they do not give the trustee unfettered plenary power: Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of terms such as “absolute”, “sole”, or “uncontrolled”, a trustee abuses the trustee’s discretion in exercising or failing to exercise a discretionary power if the trustee acts with bad faith, acts dishonestly, acts with an improper motive, even though not a dishonest motive, or if the trustee fails to use the trustee’s judgment in accordance with the terms and purposes of the trust and the interests of the beneficiaries.

Id. § 36C-8-814(a).

124. These limitations are squarely applicable here. Even if the Trust Agreement

implicitly granted Doug Harris broad authority to enter into any transaction, as he

and the CM Defendants contend, the Uniform Trust Code does not allow any such

authority to be exercised without restraint. Rather, the law—regardless of the terms

of the trust instrument—restricts the trustee’s power and preserves the trustee’s

underlying fiduciary duties to the trust and the beneficiaries. See N.C.G.S. § 36C-1-

105(b). Whatever a trust’s terms allow, a trustee’s actions must still be for the benefit

of the beneficiaries and the trust. As discussed at length above, it is undisputed that

Doug Harris did not enter into the transactions for JDPW’s or the beneficiaries’

benefit but solely for his own benefit and the benefit of his brother and others.

Therefore, no matter how the Trust Agreement is interpreted, Doug Harris’s conduct

violated his duties as JDPW’s trustee.

125. This conclusion is reinforced by decisions from our state courts and from

state courts around the country. In THZ Holdings, our Court of Appeals held that a

trustee breached his duty of loyalty even though the trust instrument conveyed broad

authority similar to that in JDPW’s Trust Agreement. 231 N.C. App. at 483, 485–87.

There, the trust instrument gave the trustee the power to “amend or terminate [the]

agreement and direct distribution of the trust estate in such manner as . . . [the trustee] deem[ed] advisable” and to “borrow money for any purpose, on such terms

and from such source as the trustee deemed proper.” Id. at 483 (internal quotation

marks omitted). If anything, that language was even more broad and discretionary

than that in JDPW’s Trust Agreement. Yet even in the face of that broad authority,

the Court of Appeals concluded that the trustee breached his duty of loyalty by

discharging a debt owed to himself by the trust with trust property. Id. at 485–87.

In doing so, the court also recognized that the “long-standing rule of our common law

that trustees may not self-serve” is a duty separate and apart from section

36C-8-802’s duty to avoid conflict of interest transactions. Id. at 487.

126. The Kansas Court of Appeals has recognized a very similar principle,

holding that “[e]ven where the grantor intended the trustee to have as much power

as possible over the trust, the law restricts that power.” Roenne v. Miller, 475 P.3d

708, 716 (Kan. Ct. App. 2020). In Roenne, the court was confronted with a trustee’s

conduct when the terms of the trust gave him “uncontrolled discretion.” Id. at 718.

Interpreting the Kansas Uniform Trust Code (which is substantively the same as the

North Carolina Uniform Trust Code 23), the court held that “[w]hile a trust can

eliminate strict prohibitions, such as that against self-dealing, it cannot eliminate the

duty of loyalty. That limit preserves the fundamental fiduciary character of trust

relationships recognized by law.” Id. at 716. Even though the trust’s terms expressly

authorized the conflict of interest transaction at issue, the trustee’s conduct still had

to be viewed through the lens of whether the trustee “acted in good faith in the

23 Compare N.C.G.S. §§ 36C-1-105(b)(2)–(3), 36C-8-802(b)(1), (4), 36C-8-814(a), 36C-10-1008,

with Kan. Stat. Ann. §§ 58a-105(b)(2)–(3), 58a-802(b)(1), (4), 58a-814, 58a-1008(a)(1). interests of the beneficiaries.” Id. at 718. The “uncontrolled discretion” granted to

the trustee “did not relieve him from his fiduciary duties as a trustee to act

impartially in the interests of all the beneficiaries, rather than just himself. His

fiduciary duties of loyalty and impartiality were limitations on his powers as trustee.”

Id. The court ultimately concluded that “[a] trustee, even one with great authority

and discretion to act as [the trustee] did here, has the duty to act as a fiduciary to all

the beneficiaries.” Id. 24

127. To conclude, no matter what the Trust Agreement might have implicitly

authorized, Doug Harris’s undisputed conduct is clearly forbidden by the Uniform

Trust Code.

128. Similarly, Doug Harris could not have reasonably relied on the Trust

Agreement’s terms to carry out the acts in question. Had the Trust Agreement

explicitly identified these transactions as permitted, it may have been reasonable for

Doug Harris to have relied on that permission. But that is not the case here. In light

of the high standards imposed on a trustee by the duty of loyalty, the Court concludes

24 Courts in other states have come to similar conclusions. See also, e.g., Cassibry v. Cassibry, 217 So. 3d 698, 706 (Miss. Ct. App. 2017) (holding that the same exception under the Mississippi Uniform Trust Code “would not permit a trustee to disregard completely his duties as a fiduciary”); In re Beverly J. Laforest Living Tr., No. 323296, 2016 Mich. App. LEXIS 3, at *6 (Mich. Ct. App. Jan. 5, 2016) (holding that, under the same exception under the Michigan Trust Code, “[w]hile the trust granted appellant the power as trustee to make transfers of trust property, it did not grant her the right to engage in self-dealing”); Mennen v. Wilmington Tr. Co., No. 8432-ML, 2015 Del. Ch. LEXIS 122, at *84–85 (Del. Ch. Apr. 24, 2015) (noting that “no matter how broad the provisions of a trust may be in conferring power to engage in self-dealing or other transactions involving a conflict of fiduciary and personal interests, a trustee violates the duty of loyalty to the beneficiaries by acting in bad faith or unfairly” (quoting Restatement (Third) of Trusts § 78 cmt. c(2))); Hoffman v. First Va. Bank of Tidewater, 263 S.E.2d 402, 408 (Va. 1980) (holding that when a trustee is granted “the widest possible discretionary powers[,]” such conferral does not permit actions taken if “the fiduciary acted dishonestly or in bad faith, or abused the discretion vested in it”). as a matter of law that no reasonable trustee could interpret the standard, boilerplate

language in the Trust Agreement as authorizing the transactions at issue here.

129. Even if the Trust Agreement’s language could have been a basis for

reasonable reliance, the Court must reject the CM Defendants’ argument for yet

another reason: there is no evidence in the record of actual reliance by Doug Harris.

The CM Defendants quote the statute but point to no evidence that Doug Harris

actually relied on the Trust Agreement’s terms. Doug Harris identifies no evidence

either. Because Doug Harris and the CM Defendants have failed to offer evidence of

Doug Harris’s actual reliance on the Trust Agreement, they have failed to meet their

burden to present or forecast sufficient evidence to create a genuine question of

material fact. See Vizant Techs., 373 N.C. at 555; Steele, 238 N.C. App. at 577. In

light of the absence of any question of material fact, the Court concludes as a matter

of law that Doug Harris and the CM Defendants have failed to show that Doug Harris

is entitled to the reasonable reliance protection of section 36C-10-1006.

e. Conclusion

130. For all of the reasons stated, the Court concludes that the undisputed record

establishes that the transactions discussed constituted breaches of trust by Doug

Harris as conflict of interest transactions. Additionally, the Court concludes that the

undisputed record establishes that these transactions constituted breaches of trust

by Doug Harris separate and apart from their status as conflict of interest

transactions. The Receiver has met his burden to establish that there is no genuine

issue of material fact remaining for trial and that summary judgment is proper on those issues as a matter of law. Doug Harris and the CM Defendants have not

presented or forecasted any evidence rebutting the transactions’ status as conflict of

interest transactions or explaining how the transactions were in the best interests of

JDPW and its beneficiaries. Therefore, judgment is appropriate as a matter of law.

131. The Court grants the Receiver’s motion for partial summary judgment as to

the Receiver’s third crossclaim for breach of fiduciary duty to the extent it is premised

on Doug Harris’s duties as trustee and as to the Receiver’s fourth crossclaim for

breach of trustee duties. The Court denies Doug Harris’s and the CM Defendants’

motions for partial summary judgment as to the same crossclaims.

f. Remedies

132. Having concluded that summary judgment is proper on these claims, the

Court now turns to the relief the Receiver seeks. See Frank H. Conner Co. v. Spanish

Inns Charlotte, Ltd., 294 N.C. 661, 676 (1978) (“Under Rule 56(d) summary judgment

may be granted, not only as to an issue of liability, but also as to ‘the amount of

damages or other relief’ where such issues are not in controversy.” (quoting N.C. R.

Civ. P. 56(d))).

133. The Court possesses broad authority to remedy a trustee’s misconduct. To

begin, any conflict of interest transaction is automatically voidable. See N.C.G.S.

§ 36C-8-802(b); THZ Holdings, 231 N.C. App. at 488. The plaintiff need not establish

that there was fraud or that the transaction was unfair, only that there was a conflict

of interest. See id. § 36C-8-802(b) (stating that a conflict of interest transaction is

voidable “without regard to whether the transaction is fair”); Johnston, 269 N.C. at 710–11 (“It is an inflexible rule, that when a trustee buys at his own sale, even if he

gives a fair price, the cestui que trust has his election to treat that sale as a nullity,

not because there is but because there may be fraud.” (quoting Brothers v. Brothers,

42 N.C. 150, 151 (1850))).

134. Section 36C-8-802 provides this one specific remedy for conflict of interest

transactions, but the Uniform Trust Code also grants the Court broad power to take

a number of actions “[t]o remedy a breach of trust that has occurred or may occur[.]”

N.C.G.S. § 36C-10-1001(b). Among other things, the court may:

(3) Compel the trustee to redress a breach of trust by paying money, restoring property, or other means; .... (9) Subject to [N.C.]G.S. 36C-10-1012, void an act of the trustee, impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed of and recover the property or its proceeds; or (10) Order any other appropriate relief.

Id. § 36C-10-1001(b)(3), (9), (10).

135. Voiding or rescinding transactions is therefore not the only remedy. The

breaching trustee himself is also personally liable for his conduct. “A trustee who

commits a breach of trust is liable for the greater of: (1) [t]he amount required to

restore the value of the trust property and trust distributions to what they would

have been had the breach not occurred; or (2) [t]he profit the trustee made by reason

of the breach.” Id. § 36C-10-1002(a); see also id. § 36C-10-1010(b) (“A trustee is

personally liable for torts committed in the course of administering a trust, or for

obligations arising from ownership or control of trust property . . . if the trustee is

personally at fault.”). 136. The Receiver’s motion seeks three types of relief at this time. First, the

Receiver requests that the Court set aside Doug Harris’s transfer of the CM Note to

Richard Harris and his transfer of the CM Release Deed to Historic Castle. Second,

the Receiver requests that the Court enter a money judgment in JDPW’s favor

against Doug Harris for: (i) the full amount due to Plaintiffs on the Nivison Loan,

(ii) the amount of the interest spread that JDPW should have earned under the deal

as envisaged by Doug Harris, and (iii) the $1.3 million due and payable on the CM

Note over and above the $2.1 million JDPW borrowed from Plaintiffs. Third, the

Receiver requests that the Court enter judgment declaring Doug Harris has no

personal right to the $1.3 million under the Epes and McDaniel Agreements and

setting aside Doug Harris’s asserted claim for that amount. (See Receiver’s Mot.

Summ. J. 3–4; Receiver’s Br. Supp. 4–7.) The Court concludes that, as a matter of

law and on the undisputed record, summary judgment is appropriate with respect to

certain portions of the relief requested as set forth below.

137. Voiding the Transfers of the CM Note and CM Release Deed. First, the

Court grants JDPW’s request to set aside Doug Harris’s transfer of the CM Note to

Richard Harris and his transfer of the CM Release Deed to Historic Castle. The Court

has determined that these transfers were conflict of interest transactions. As such,

they are voidable “under the plain language of the statute.” THZ Holdings, 231 N.C.

App. at 486; see also N.C.G.S. § 36C-8-802(b). Accordingly, voiding these transfers is

plainly authorized by law in this situation. 138. Voiding these transfers is also authorized by section 36C-10-1001(b) as a

means of redressing Doug Harris’s breach of trust. As previously observed, that

statute independently authorizes the Court to remedy any breach of trust—whether

a conflict of interest transaction or otherwise—by voiding a trustee’s act, tracing trust

property wrongfully disposed of, recovering the property or its proceeds, and ordering

any other appropriate relief. See id. § 36C-10-1001(b)(9), (10).

139. Accordingly, pursuant to sections 36C-8-802(b) and 36C-10-1001(b) (each as

independent grounds for relief), the Court will void these transfers and order the CM

Defendants to take any and all lawful action necessary to restore the CM Note and

Collateral to JDPW’s possession.

140. Monetary Judgment Against Doug Harris. Second, the Court grants

JDPW’s request to enter a money judgment in JDPW’s favor against Doug Harris for:

(i) the full amount JDPW owes to Plaintiffs on the Nivison Loan and (ii) the $1.3

million due and payable on the CM Note over and above the $2.1 million JDPW

borrowed under the Nivison Loan. As already observed, the Court may “[c]ompel the

trustee to redress a breach of trust by paying money, restoring property, or other

means[.]” N.C.G.S. § 36C-10-1001(b)(3); see also id. § 36C-10-1002(a) (“A trustee who

commits a breach of trust is liable for the greater of: (1) [t]he amount required to

restore the value of the trust property and trust distributions to what they would

have been had the breach not occurred; or (2) [t]he profit the trustee made by reason

of the breach.”); id. § 36C-10-1010(b) (“A trustee is personally liable for torts committed in the course of administering a trust, or for obligations arising from

ownership or control of trust property . . . if the trustee is personally at fault.”).

141. As already discussed, Doug Harris committed a breach of trust by incurring

the Nivison Loan on JDPW’s behalf, both because it was a conflict of interest

transaction and because it was not in the best interests of JDPW or its beneficiaries.

Because of Doug Harris’s personal involvement and entanglement in the loan and

affiliated transactions (including his side arrangements to personally profit from

causing JDPW to take out the Nivison Loan and purchase the CM Loan), the

undisputed record demonstrates that Doug Harris is personally at fault. Accordingly,

the Court concludes that Doug Harris is personally liable to JDPW for the full amount

JDPW owes Plaintiffs on the Nivison Loan.

142. In addition, JDPW is entitled to a monetary judgment against Doug Harris

for the $1.3 million due and payable on the CM Note over and above the amount

JDPW borrowed from Plaintiffs via the Nivison Loan. Had Doug Harris not

committed a breach by transferring away the CM Note and Release Deed and failing

to enforce JDPW’s rights to the CM Loan, JDPW would not only have been able to

repay the Nivison Loan, but it would have also profited from the CM Loan by

receiving the difference ($1.3 million) between what JDPW could have collected on

the CM Loan and what it owed on the Nivison Loan. But instead, Doug Harris

arranged to receive that amount for himself personally through other channels,

pursuant to the Epes and McDaniel Agreements. Thus, even absent a breach of trust,

Doug Harris may be held personally liable for that amount. See N.C.G.S. § 36C-10- 1003(a) (“A trustee is accountable for any profit made by the trustee arising from the

administration of the trust, even absent a breach of trust.”).

143. Therefore, Doug Harris may be held personally liable for this amount to the

extent that JDPW is unable to recover the full amount on the CM Loan once the

transfers of the CM Note and CM Release Deed are voided.

144. However, the Court concludes that JDPW is not entitled to a monetary

judgment against Doug Harris for the amount of the potential interest spread that

JDPW might have earned. The Receiver argues that JDPW should have earned a

profit from these transactions in the form of a two percent interest spread on the

difference between the rates of the CM Loan and the Nivison Loan, but that the

spread never materialized because Doug Harris never sought to collect on the CM

Loan. But awarding JDPW the amount of the interest spread would be a form of

double recovery because the trust will already be made whole by the other forms of

relief sought—namely, by recovering the amount it had to pay (i.e., the Nivison Loan)

and the value of what it lost (i.e., the CM Loan), less the value it will obtain from

voiding the transfers of the CM Note and CM Release Deed. See, e.g., Chemimetals

Processing, Inc. v. Schrimsher, 140 N.C. App. 135, 138 (2000) (noting that “[i]t is well-

settled that although [plaintiff] is entitled to full recovery for its damages, [plaintiff]

is not entitled to a ‘double recovery’ for the same loss or injury” (quoting Markham v.

Nationwide Mut. Fire Ins. Co., 125 N.C. App. 443, 455 (1997)).

145. Setting Aside Doug Harris’s Personal Claim to $1.3 Million. Finally, the

Court grants JDPW’s request to enter judgment declaring Doug Harris has no personal right to $1.3 million under the Epes and McDaniel Agreements and setting

aside Doug Harris’s asserted claim for that amount. As the Court has already

concluded, Doug Harris’s conduct in arranging to receive $1.3 million under the Epes

and McDaniel Agreements through his use of JDPW was a breach of trust as a conflict

of interest transaction. Through those agreements, Doug Harris endeavored to

personally profit from his role as JDPW’s trustee at the expense of the trust. To allow

Doug Harris to continue to assert this personal interest would perpetuate his

misconduct and enable him to personally profit from his wrongdoing. As noted above,

a trustee is not permitted to personally profit from his administration of a trust, even

in the absence of a breach of trust. See N.C.G.S. § 36C-10-1003(a). Accordingly,

under all of the authorities discussed above, the Court determines that Doug Harris’s

breach should be further remedied by preventing him from asserting any personal

financial stake in the CM Loan or related transactions. Thus, the Court will enter

judgment declaring that Doug Harris has no personal right to any amounts arising

out of these transactions.

146. Doug Harris asserted a claim with the Receiver for this $1.3 million (plus

eight percent interest) pursuant to the Epes and McDaniel Agreements. (See Harris

Receivership Claim.) Accordingly, the Court will enter judgment dismissing and

setting aside that claim and voiding Doug Harris’s personal interest in the two

confessions of judgment provided him under the Epes and McDaniel Agreements. 5. The Receiver’s Fifth Crossclaim (Section 75-1.1)

147. JDPW seeks summary judgment as to the Receiver’s fifth crossclaim for

unfair or deceptive trade practices under N.C.G.S. § 75-1.1, but its brief makes no

argument on this claim. Also, the Court has already dismissed this claim in its

entirety. See In re Se. Eye Ctr.-Pending Matters, 2019 NCBC LEXIS 29, at *180–82,

*195. The Court therefore denies as moot JDPW’s motion for partial summary

judgment as to the Receiver’s fifth crossclaim.

6. The Receiver’s Sixth and Seventh Crossclaims (Equitable Relief)

148. The Receiver’s sixth and seventh crossclaims are broad and seek a host of

equitable relief. But JDPW’s motion simply seeks the same relief under these

crossclaims that the Court has already granted in this Order and Opinion under the

Receiver’s third and fourth crossclaims. The Court therefore denies as moot JDPW’s

affirmative motion for partial summary judgment on the Receiver’s sixth and seventh

crossclaims.

149. Dismissing these two claims entirely, as Doug Harris and the CM

Defendants request in their motions, however, is not proper. As the Court has

observed, an equitable remedy is not available “where the party seeking it has a full

and complete remedy at law.” Id. at *183 (quoting Daugherty v. Cherry Hosp., 195

N.C. App. 97, 102 (2009)). An adequate remedy at law “is not a partial remedy” but

“a full and complete remedy, and one that is accommodated to the wrong which is to

be redressed by it.” Id. (quoting Moore v. Moore, 297 N.C. 14, 16 (1979)). “Thus, to

preclude the availability of equitable relief, the remedy available at law ‘must be as practical and as efficient to the ends of justice and its prompt administration as the

remedy in equity.’ ” Id. at *183–84 (quoting Moore, 297 N.C. at 16).

150. Doug Harris moved for summary judgment on these claims once before. In

denying his motion then, the Court observed that “[t]he insolvency of multiple

parties, and the resulting importance of their physical assets and other collateral, has

been a common thread running throughout this case.” Id. at *184. Even if some of

the Receiver’s crossclaims were successful, the Court at that time was “not convinced,

on the current record, that such relief will be full and complete or fully collectable.”

Id. This remains true. Although the Court has now granted partial summary

judgment in the Receiver’s favor on his third and fourth crossclaims, other claims and

matters are still unresolved. Doug Harris and the CM Defendants have not shown

at this stage that the Receiver’s potential remedies at law are fully adequate. The

Court therefore denies Doug Harris’s and the CM Defendants’ motions for summary

judgment as to the Receiver’s sixth and seventh crossclaims.

7. The Receiver’s Eighth Crossclaim (All Other Causes of Action)

151. The CM Defendants seek summary judgment on the Receiver’s eighth

crossclaim on the same grounds that the Court already dismissed that crossclaim

against Doug Harris. (See CM Defs.’ Br. Supp. 8–9.) JDPW’s brief makes no

response. As the Court previously observed, this crossclaim “asserts nothing more

than a general right to recover under ‘all other causes of action allowed by North

Carolina or federal law[.]’ ” In re Southeastern Eye Center-Pending Matters, 2019

NCBC LEXIS 29, at *188 (citing Receiver’s Cross-cls. ¶ 503). Simply put, it “does not make out any legally cognizable claim against [the CM Defendants] and is not

sufficiently stated to allow an adverse party in [the CM Defendants’] position to

understand the nature of the claim brought[.]” Id. Accordingly, the Court concludes

that just as the Receiver failed to state a claim under this count against Doug Harris,

so too has the Receiver failed to state a claim against the CM Defendants in his eighth

crossclaim. The Court therefore grants the CM Defendants’ motion for summary

judgment as to the Receiver’s eighth crossclaim.

C. The CM Defendants’ Motion as to Their Crossclaims

152. The CM Defendants’ motion also seeks affirmative summary judgment as to

several of their own crossclaims for surety, indemnity, and contribution. (See CM

Defs.’ Br. Supp. 9–13; see also Def. Richard A. Harris’s 2d Am. Cross-cls. ¶¶ 402–08,

415–28, ECF No. 852; Def. Castle McCulloch, Inc.’s 2d Am. Cross-cls. ¶¶ 402–08, 415–

28, ECF No. 853; Def. Historic Castle McCulloch, LL’s 2d Am. Cross-cls. ¶¶ 402–08,

415–28, ECF No. 855.) The Receiver and Dr. Epes oppose the motion. (See Receiver’s

Opp’n 16–17; Opp’n Dr. C. Richard Epes Castle McCulloch Defs.’ Summ. J. Mot., ECF

No. 1395.)

153. There seems to be some confusion as to what contracts the CM Defendants

premise these claims on, since the documents they attach to their motion do not

appear to fully match those attached to their pleadings. But regardless, summary

judgment is not proper because none of these claims has yet accrued.

154. A surety contract “involves a direct promise to perform the obligation of the

principal in the event the principal fails to perform[.]” New Amsterdam Cas. Co. v.

Waller, 233 N.C. 536, 538 (1951). An indemnity agreement “obligates the indemnitor to reimburse his indemnitee for loss suffered or to save him harmless from liability,

but never directly to perform the obligation indemnified.” Id. And separate from the

right to contribution in tort, co-obligors have a right to contribution when they are

jointly and severally liable. See N.C.G.S. §§ 26-5, 1B-7; Coll. Rd. Animal Hosp., PLLC

v. Cottrell, 236 N.C. App. 259, 263–64 (2014); Irvin v. Egerton, 122 N.C. App. 499, 501

(1996).

155. The parties dispute whether the CM Defendants even have a contractual

right to indemnity, surety, or contribution. But the Court need not reach those issues

because no claim has yet accrued. A cause of action for indemnity does not accrue

until the indemnitee suffers actual loss. See Schenkel & Shultz, Inc. v. Hermon F.

Fox & Assocs., P.C., 180 N.C. App. 257, 267 (2006), aff’d, 362 N.C. 269 (2008).

Similarly, a cause of action for surety does not accrue until the making of a demand

or the rendition of a judgment. See George v. Hartford Accident & Indem. Co., 102

N.C. App. 761, 765 (1991), aff’d as modified on other grounds, 330 N.C. 755 (1992).

And a cause of action for contribution does not accrue until the contributee has paid

or discharged the obligation. See Irvin, 122 N.C. App. at 501.

156. The CM Defendants have not presented or forecasted any evidence that they

have suffered any loss, that a judgment has been entered against them, or that they

have paid or discharged any obligation in full. Thus, none of the CM Defendants’

crossclaims are ripe. The Court therefore denies the CM Defendants’ motion for

summary judgment as to their crossclaims for indemnity, surety, and contribution. IV. CONCLUSION

157. WHEREFORE, the Court hereby ORDERS as follows:

158. Plaintiffs’ motion for partial summary judgment is DENIED.

159. Doug Harris’s motion for summary judgment is DENIED.

160. The CM Defendants’ motion for summary judgment is GRANTED in part

and DENIED in part as follows:

To the extent the CM Defendants’ motion requests summary judgment

on the Receiver’s eighth crossclaim against the CM Defendants, the

motion is GRANTED, and that claim is dismissed with prejudice.

In all other respects, the motion is DENIED.

161. The Receiver’s motion for partial summary judgment is GRANTED in part

To the extent the Receiver’s motion requests summary judgment on the

Receiver’s second crossclaim for professional negligence and third

crossclaim to the extent it is premised on grounds other than Doug

Harris’s duties as trustee of JDPW, the motion is DENIED.

To the extent the Receiver’s motion requests summary judgment on the

Receiver’s fifth crossclaim for unfair or deceptive trade practices, sixth

crossclaim for equitable relief, and seventh crossclaim to set aside Doug

Harris’s transfers of the CM Note and CM Release Deed, the motion is

DENIED as moot. To the extent the Receiver’s motion requests summary judgment on the

Receiver’s third crossclaim to the extent it is premised on Doug Harris’s

duties as trustee of JDPW and fourth crossclaim for breach of trustee

duties, the motion is GRANTED, and the Court hereby enters judgment

for JDPW, through the Receiver, and against Doug Harris as to liability

on those claims.

162. Pursuant to the Court’s authority under the Uniform Trust Code to order

appropriate relief to remedy a trustee’s breach of trust, and pursuant to the judgment

entered on the Receiver’s third and fourth crossclaims, the Court hereby further

ORDERS as follows:

Doug Harris’s transfer of the CM Release Deed to Historic Castle is

hereby VOIDED, RESCINDED, and SET ASIDE. Historic Castle

shall take any and all lawful action necessary to restore to JDPW

(through the Receiver) all right, title, and interest it formerly held to the

CM Collateral before the CM Collateral was released by the CM Release

Deed.

Doug Harris’s transfer of the CM Note to Richard Harris is hereby

VOIDED, RESCINDED, and SET ASIDE. Richard Harris shall take

any and all lawful action necessary to restore to JDPW (through the

Receiver) all right, title, and interest it formerly held to the CM Note

before the CM Note was transferred to Richard Harris. JDPW shall be entitled to the full amount due and payable on the CM Note at the time

of the transfer.

The Court hereby ENTERS JUDGMENT establishing liability against

Doug Harris personally for the full amount JDPW owes Plaintiffs on the

Nivison Loan. The Court will defer consideration of a monetary

judgment resulting from this liability until factual determinations are

made at trial that bear on the specific amount that Doug Harris may

owe as a result of his conduct in connection with the Nivison Loan.

The Court hereby ENTERS JUDGMENT establishing liability against

Doug Harris personally for the full amount JDPW is owed on the CM

Loan less any sums JDPW realizes upon the voiding of transfers of the

CM Note and CM Release Deed. The Court will defer further

proceedings in connection with this issue until a request for a monetary

judgment is presented by proper motion, briefing, and presentation of

evidence.

The Court hereby DECLARES that Doug Harris shall not be entitled

to any claim or interest to personally collect any amounts due to him

under the Epes Agreement or the McDaniel Agreement or under any

other agreement—implied or express—stemming from those

agreements. The Court DISMISSES and SETS ASIDE the claim Doug

Harris has asserted with the Receiver for $1,300,000.00 plus eight

percent interest. The Court VOIDS any right or interest Doug Harris has or may assert to the two confessions of judgment provided to him

under the Epes Agreement and the McDaniel Agreement.

The Court retains jurisdiction to enter any additional orders as needed

and appropriate to facilitate and further effectuate the relief granted

herein.

SO ORDERED, this the 6th day of January, 2022.

/s/ Louis A. Bledsoe, III Louis A. Bledsoe, III Chief Business Court Judge