Court Opinion

ID: 2744007
Source: CourtListenerOpinion
Date Created: 2014-10-21 12:04:47.492764+00
Date Added: 2024-06-11T09:29:14.380647
License: Public Domain

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

                                NO. COA14-120
                       NORTH CAROLINA COURT OF APPEALS

                               Filed: 21 October 2014
JOHN A. CASHION,
     Plaintiff,

      v.                                       Davidson County
                                               No. 11 CVS 3202
LEXINGTON MEMORIAL HOSPITAL, INC.
AND DAVIDSON HEALTH CARE, INC.,
     Defendants.

      Appeal    by   plaintiff     and   cross-appeal          by    defendants     from

order entered 18 October 2013 by Judge Theodore S. Royster, Jr.

in   Davidson    County    Superior      Court.       Heard         in   the   Court   of

Appeals 27 August 2014.

      Wyatt Early Harris Wheeler, LLP, by Kim R. Bauman, for
      plaintiff-appellant and cross-appellee.

      Smith Moore Leatherwood LLP, by Patti W. Ramseur, Alexander
      L. Maultsby, and Elizabeth Brooks Scherer, for defendants-
      appellees and cross-appellants.

      HUNTER, Robert C., Judge.

      Plaintiff appeals from the portion of the trial court’s

order   granting     defendants’      motion    for   a   directed         verdict     on

plaintiff’s     breach    of    contract    claim.        On    appeal,        plaintiff

argues that the trial court erred in granting defendants’ motion

for a directed verdict because, reviewing the evidence in the
                                        -2-
light most favorable to plaintiff, he presented evidence that he

was still an employee in April 2011, the date defendants stopped

providing him compensation and benefits.                   Thus, he argues that

defendants breached the Employment Agreement by failing to pay

him   his   salary   and    benefits     until       the   Employment    Agreement

expired on 25 September 2011.           Defendants contend that plaintiff

resigned and that any salary or benefits he received after his

resignation were gratuitous; therefore, they did not breach the

Employment     Agreement      because     plaintiff        was   no     longer    an

employee.      After careful review, because there is a factual

issue as to whether plaintiff resigned or was still an employee

at the time defendants stopped providing him any compensation or

benefits, we reverse the           portion of the          trial court’s        order

granting a directed verdict for defendants and remand for trial.

      In    addition,      defendants     have       cross-appealed      from    the

portion of the trial court’s order granting, on its own motion,

a directed verdict for plaintiff on defendants’ counterclaims of

breach of fiduciary duty and constructive fraud.                        On cross-

appeal,     defendants     contend    that     the    evidence    presented      was

sufficient to submit their counterclaims to the jury.                     We agree

and   reverse     the      trial     court’s     dismissal       of   defendants’

counterclaims because the evidence was at least sufficient to
                                         -3-
raise an issue of fact whether plaintiff breached his fiduciary

duty and committed constructive fraud.

                                     Background

    Beginning in 1995, plaintiff John Cashion was president and

CEO of defendants Davidson Health Care, Inc. (“DHC”) and its

affiliate        Lexington        Memorial       Hospital,          Inc.     (“LMH”)

(collectively, DHC and LMH are referred to as “defendants” or

“the hospitals”).        By 2008, defendants were in serious financial

trouble, and they began discussing the possibility of a merger

with Wake Forest University Baptist Medical Center (“WFUBMC”),

Novant,   and    various     other     potential      partners.       By   September

2008, it became clear that WFUBMC was the front-runner for the

merger.

    On    24    September    2008,     plaintiff      met    with    Steve   Schultz

(“Mr. Schultz”), a WFUBMC representative.                   The details of this

meeting   were       summarized   in    a    letter   to    plaintiff      which   was

included in the record on appeal.              At the meeting, plaintiff was

informed that, after the merger, defendants and WFUBMC would be

“turn[ing]       a     new    page      in     [their]       leadership       team.”

Specifically, plaintiff would no longer be president and CEO of

the newly merged hospital; instead, WFUBMC would “consider new

roles” for plaintiff.         However, if a new role was not found for
                                           -4-
plaintiff, the parties would discuss their “plans to implement

the severance agreement provided for [plaintiff] by LMH.                              In

either    event,      [the    parties      would]    also       agree   on     the   most

appropriate                  positioning                  of            [plaintiff’s]

resignation/retirement/termination from LMH.”

       The next day, on 25 September, the hospitals’                           Board of

Directors      met,   without       plaintiff,      and    approved     a    three-year

Employment Agreement (the “Employment Agreement”) for plaintiff

to remain as president and CEO of the hospitals.1                       Plaintiff and

defendants       executed     the    Employment     Agreement       that     same    day.

Prior to execution of the Employment Agreement, the parties had

entered into a one-year initial employment agreement in 1995

(the     “1995    employment        agreement”),      which      had    been     renewed

annually.

       The     Employment     Agreement      covered       a    three-year       period,

commencing 25 September 2008 and ending three years later on 25

September 2011.         Under the terms of the Employment Agreement,

defendants were entitled to terminate plaintiff with or without

cause.       Termination without cause required a majority vote of

the    Board     of   Directors      and    45   days      of    written     notice    to

plaintiff.       In the event plaintiff was terminated without cause,

1
  According to defendants, the Board of Directors for both LMH
and DHC were made up of the same individuals.
                                           -5-
plaintiff was entitled to severance pay and certain benefits for

24 months.        Plaintiff was entitled to terminate his employment

at    any   time;   to    do     so,    plaintiff    was    required     to   provide

defendants 90 days of written notice.                     Should plaintiff invoke

this   right,     defendants       would    be    “released      from   any   and   all

further obligations” under the Employment Agreement.

       The day after plaintiff executed the Employment Agreement

with defendants, on 26 September 2008, plaintiff sent a copy of

the 24 September 2008 letter from Mr. Schultz to Chuck Taylor

(“Mr. Taylor”), the hospitals’ Board chairman.                      The merger with

WFUBMC was approved by the hospitals’ Board of Directors on 25

September, the same day the Board offered plaintiff the new

Employment Agreement, and made public 1 October 2008.

       On   2   October    2008,       plaintiff    sent    a    memorandum   to    the

Executive Committee of the hospitals’ Board of Directors and two

representatives of WFUBMC detailing his “Career Plan.”                         In it,

plaintiff outlined his “personal preference” and plan to “wind[]

down [his] career.”         He stated that he would like to continue as

president/CEO until 1 November                   2010 in order to receive the

full   benefit      of    his    retirement      plan.      In    the   alternative,

plaintiff offered to remain in the president/CEO position for

the    full     three    years    covered     by    his    Employment     Agreement.
                                        -6-
However,    he   also    noted    that,    “[s]hould        [defendants]       prefer,

however, to transition to a new President/CEO at an earlier

junction,   I    would    like   to    suggest      that    it    be   handled     as   a

termination without cause             on December 31, 2009 with pay and

benefits    to    continue       through      the    remaining         term   of    the

[Employment Agreement].”          On 28 October 2008, plaintiff sent out

an email and press release noting that he would be “leaving the

role of President and CEO.”             Afterward, plaintiff moved all of

his belongings out of the president’s office and ceased doing

any work.

    Discussions         continued     throughout      the    beginning        of   2009

regarding whether plaintiff would be working in a new capacity

for the merged hospital.            Emails sent between plaintiff and Mr.

Schultz, who had been named the new president and CEO of the

merged hospital, indicate that both the economic downturn and

organizational delays adversely impacted the discussions about

plaintiff’s “new role.”           On 2 January 2009, Mr. Schultz sent

plaintiff an email noting that until the discussions concerning

plaintiff’s      new   role   were     complete,     “the        current   Employment

Agreement remain[ed] in force.”                However, the discussions did

not result in a new job for plaintiff at the merged hospital.
                                                -7-
      The     record        contains        numerous          correspondence       between

plaintiff and defendants over the next year and a half.                               On 17

May 2010, plaintiff sent Mr. Schultz an email noting that, since

he is “winding down [his] two years,” he proposed a buy-out of

his company vehicle.           In an email dated 8 July 2010, Mr. Schultz

listed      several        things        they     needed      to    discuss     including

“confirmation of the specific end date of severance payments to

be made.”     Mr. Schultz also requested that plaintiff provide him

with the amount of any income he received “during the period of

[his] severance” because his severance compensation would need

to   be   offset     by     this    amount       pursuant      to   the    terms   of   the

Employment Agreement.              Again, on 20 September 2010, Mr. Schultz

sent plaintiff a letter describing the “details for closure of

the arrangements regarding [his] severance payments and benefits

continuation.”            On   26    January          2011,   defendants’      accounting

office sent an email to plaintiff requesting him to provide them

with the “usage” amounts on the company car for tax purposes.

Plaintiff responded that he used the car 65% as personal and 35%

as   business.        As    one     of    the    final     pieces   of     correspondence

between the parties, Mr. Schultz sent plaintiff a letter on 14

February      2011        outlining         the       outstanding         financial     and

administrative matters that needed to be resolved “[a]s [they]
                                       -8-
move    to     conclude     and    finalize    all    arrangements     between

[plaintiff] and [the merged hospital] pursuant to the terms of

[the] Employment Agreement[.]”

       On 10 December 2010, plaintiff’s attorney sent a letter to

WFUBMC claiming for the first time that plaintiff was “not in

‘severance’       status”      but,     instead,      remained     “employed.”

Accordingly, plaintiff’s counsel claimed that he was entitled to

continued employee benefits through 25 September 2011, when the

Employment Agreement would expire.            Ultimately, all compensation

from defendants to plaintiff ended 6 April 2011.                 In sum, over

the 29 months after plaintiff announced that he was leaving his

position,      plaintiff    received    payments     of   over   $560,000   and

several benefits that he otherwise would not have been entitled

to if he was in severance.

       After     defendants       refused     to     provide     any   further

compensation or benefits, on 29 September 2011, plaintiff filed

suit against them alleging breach of the Employment Agreement.

Defendants filed counterclaims for breach of fiduciary duty and

constructive fraud.         The matter came on for trial on 3 September

2013.    After four days of plaintiff’s evidence, defendants moved

for a directed verdict.           The trial court denied their motion and

also, sua sponte, granted a directed verdict for plaintiff on
                                  -9-
defendants’ counterclaims and dismissed them.            Defendants did

not   present   any   evidence   at     trial   and,   after   additional

evidence, renewed their motion for a directed verdict.             Having

heard all the evidence and additional arguments, the trial court

granted defendants’ motion and dismissed plaintiff’s breach of

contract claim.   Both plaintiff and defendants timely appealed.

                         Standard of Review

      Our review of a trial court’s order granting a motion for a

directed verdict is well-established:

          The standard of review of [a] directed
          verdict is whether the evidence, taken in
          the light most favorable to the non-moving
          party, is sufficient as a matter of law to
          be submitted to the jury.      In determining
          the sufficiency of the evidence to withstand
          a motion for a directed verdict, all of the
          evidence which supports the non-movant’s
          claim must be taken as true and considered
          in the light most favorable to the non-
          movant, giving the non-movant the benefit of
          every   reasonable    inference   which   may
          legitimately    be   drawn    therefrom   and
          resolving   contradictions,   conflicts,  and
          inconsistencies in the non-movant’s favor.

Rink & Robinson, PLLC v. Catawba Valley Enterprises, LLC, __

N.C. App. __, __, 725 S.E.2d 426, 429 (internal citations and

quotation marks omitted), disc. review denied, 366 N.C. 241, 731
S.E.2d 414 (2012).

                        Plaintiff’s Arguments
                                     -10-
    The gist of plaintiff’s arguments is that because there is

an issue of fact as to whether plaintiff was still an employee

at the time defendants stopped paying him any compensation or

benefits, the trial court should not have entered a directed

verdict for defendants.           Specifically, plaintiff contends that

defendants “treated and paid [him] as an employee, not as an ex-

employee     under    severance.”       Furthermore,    he    argues     that

defendants breached the Employment Agreement when they stopped

providing him the compensation and benefits he was entitled to

before the Employment Agreement expired on 25 September 2011.

We agree with plaintiff that the evidence creates an issue of

fact as to plaintiff’s employment status at the time defendants

stopped paying him any compensation or benefits.             Therefore, the

issue should have been submitted to the jury.

    The Employment Agreement covered a period of three years

and would expire on 25 September 2011.          The Employment Agreement

contemplated three different scenarios for the termination of

plaintiff’s employment: (1) plaintiff could be terminated with

cause   by   the     Board   of   Directors;   (2)   plaintiff   could    be

terminated without cause by the Board of Directors which would

entitle him to 24 months of severance; and (3) plaintiff could

terminate his own employment which would end all of defendants’
                                        -11-
obligations to him under the Employment Agreement.                               However,

contrary   to     some   of     the   arguments      advanced    in    their       brief,

defendants conceded at oral argument that their only argument on

appeal is that plaintiff resigned on 28 October 2008 and claimed

that any benefits or compensation provided to plaintiff after

this    point    were    gratuitous.            In    other     words,          defendants

specifically admitted that plaintiff was not in severance status

and,     consequently,          abandoned      this     argument           on     appeal.

Furthermore, while plaintiff admitted that he stepped down from

his position as CEO and president, he specifically denied that

he ended his employment relationship with defendants under the

Employment Agreement.           Thus, the only issue on appeal is whether

the evidence, when reviewing it in a light most favorable to

plaintiff, was sufficient to show that plaintiff was still an

employee    at    the    time    defendants       stopped     providing          him   any

compensation or benefits.

       Here, our review of the record leads us to conclude that

there    was     sufficient      evidence   for       the   jury      to    find       that

plaintiff was still an employee on 6 April 2011.                       Although the

Employment Agreement related only to plaintiff’s employment as

president and CEO of the hospitals, it also noted that plaintiff

may be required to perform “other duties as may from time to
                                         -12-
time   be   assigned     by   the   Boards      of   Directors.”          Thus,   these

“other duties” may include things that were not ancillary to

being in the role of CEO or president.                     In his 2 October 2008

memorandum    to   the    hospitals’       Board      of    Directors,      plaintiff

indicated his willingness to remain the president/CEO of the

newly merged hospital until the Employment Agreement expired.

Moreover, even after plaintiff had officially left his position

on 28 October, correspondence from defendants indicated that the

Employment Agreement was still valid and in force.                        Mr. Schultz

sent plaintiff an email specifically stating that plaintiff’s

Employment Agreement remained “in force” on 2 January 2009.                          In

fact, defendants’ correspondence suggested that the Employment

Agreement was still in effect until 14 February 2011 when Mr.

Schultz indicated his desire to wrap up some lingering matters

with   plaintiff   “pursuant        to    the    terms      of    [the]    Employment

Agreement.” If plaintiff had resigned, as defendants contend,

then the Employment Agreement would no longer apply.                         In other

words, there is a conflict between what defendants said in their

correspondence and their argument on appeal that defendant had

resigned in October 2008.

       Furthermore,      it   is    important        to    note   that     defendants

continued to pay plaintiff as if he were still an employee.                        Not
                                      -13-
only did he receive his base compensation, but he also received

certain   benefits,    including      an     automobile,     cell   phone,    and

secretarial assistance, that he would not be entitled to if he

resigned or was in severance status.                Defendants even inquired

as to plaintiff’s business “usage” of the automobile for tax

purposes and raised no objection when plaintiff claimed he used

it 35% of the time for business purposes.               Finally, there is no

evidence in the record that plaintiff provided 90 days written

notice    that   he   was    terminating      his     employment.       Although

plaintiff’s press release indicated that he was “stepping down”

from his position, he also noted that he would be employed in

another capacity with the newly merged hospital.

    In    sum,   there      is   a   conflict    in    the   evidence    as   to

plaintiff’s employment status that should have been resolved by

the jury.    Construing the evidence in plaintiff’s favor, there

was sufficient evidence that he remained an employee; thus, the

trial court erred in granting a directed verdict in defendants’

favor.    Accordingly, we reverse the portion of the trial court’s

order granting a directed verdict for defendants on plaintiff’s

breach of contract claim and remand for trial.

                         Defendants’ Cross-Appeal
                                          -14-
      In their cross-appeal, defendants contend that the trial

court committed reversible error by granting a directed verdict

on   their      counterclaims     before      they   had    a    chance    to    present

evidence and that there was sufficient evidence on their claims

for breach of fiduciary duty and constructive fraud to submit

the issue to the jury.           Defendants’ breach of fiduciary duty and

constructive fraud claims are based on their allegations that

plaintiff,       as     president       and   CEO,      failed     to     disclose   to

defendants that, at the time he signed the Employment Agreement

and secured himself much better benefits should he be terminated

without      cause,     he    already    knew    that    his     position    would   be

terminated once the merger occurred.

      “A     claim      for    breach    of     fiduciary       duty    requires     the

existence of a fiduciary duty,” T-WOL Acquisition Co., Inc. v.

ECDG S., LLC, __ N.C. App. __, __, 725 S.E.2d 605, 617 (2012),

and that “the fiduciary failed to act in good faith and with due

regard     to    [the    other   party’s]       interests,”       Toomer    v.   Branch

Banking & Trust Co., 171 N.C. App. 58, 70, 614 S.E.2d 328, 337

(2005).

      Even assuming, without deciding, that the trial court was

not procedurally prohibited from granting a directed verdict for

plaintiff        on     defendants’       counterclaims          before     defendants
                                         -15-
presented any evidence, we conclude that                    it was improper in

light of the evidence at the time it was entered.                        Here, it is

undisputed that plaintiff owed defendants a fiduciary duty as

the    president      and   CEO.        Defendants     contend     that    plaintiff

breached that duty by wrongfully failing to disclose to them

that he already knew that he would be replaced once the merger

occurred.       Construing the evidence in defendants’ favor, the

evidence      was   sufficient     to     submit     the   issue    to    the     jury.

Defendants      had    no   knowledge      about     plaintiff’s        meeting    with

WFUBMC’s representatives on 25 September 2011, the day before

defendants      approved     the   Employment        Agreement     for    plaintiff.

Specifically, defendants were unaware of the fact that plaintiff

had    been   informed      that   he    would   not   remain      in    his   current

position as president and CEO once the merger occurred.                            Even

knowing this, plaintiff secured himself a better deal should he

be    terminated      without   cause    because     the   Employment       Agreement

would give him 24 months of severance as opposed to only 12 in

the 1995 employment agreement.             Thus, defendants pled sufficient

facts to at least raise an issue of fact as to whether plaintiff

breached his fiduciary duty.
                                              -16-
          Similarly,       the        evidence       was   sufficient      to     submit

defendants’ constructive fraud claim to the jury.                             This Court

has noted:

              A constructive fraud complaint must allege
              facts and circumstances (1) which created
              the relation of trust and confidence, and
              (2)   led   up   to    and   surrounded   the
              consummation of the transaction in which
              defendant is alleged to have taken advantage
              of his position of trust to the hurt of
              plaintiff. Further, an essential element of
              constructive fraud is that defendants sought
              to benefit themselves in the transaction.

State ex rel. Long v. Petree Stockton, L.L.P., 129 N.C. App.
432, 445, 499 S.E.2d 790, 798 (1998) (internal citations and

quotation marks omitted).                As discussed, construing the evidence

in    a    light    most     favorable        to   defendants,      the   evidence    was

sufficient         to    support      their    contention     that    plaintiff       took

advantage of his position and wrongfully failed to disclose that

his    position         would    be    terminated      once   the    merger    occurred.

Furthermore, this omission led to a better deal for plaintiff

once the merger occurred because he would receive double the

amount of severance under the terms of the Employment Agreement.

Accordingly, the evidence was sufficient to raise an issue of

fact      whether       plaintiff      committed     constructive     fraud,    and    the

issue should have been resolved by the jury.
                                   -17-
      In summary, defendants pled sufficient facts in support of

their counterclaims that required their submission to the jury.

Consequently, we reverse the portion of the trial court’s order

granting, on its own motion, a directed verdict for plaintiff on

defendants’ counterclaims.

                                Conclusion

      In sum, because the evidence was sufficient to at least

raise an issue of fact as to whether plaintiff was an employee

at   the   time   defendants   stopped    paying   him   compensation     and

benefits, the trial court erred in granting defendants’ motion

for a directed verdict.        Therefore, we reverse the trial court’s

order entering a directed verdict for defendants on plaintiff’s

breach of contract claim.        In addition, construing the evidence

in a light most favorable to defendants, there was sufficient

evidence    to    support   defendants’   counterclaims    for   breach    of

fiduciary duty and constructive fraud, and they were also an

issue for the jury.          Accordingly, we also reverse the trial

court’s order dismissing defendants’ counterclaims.

      REVERSED AND REMANDED.

      Judges DILLON and DAVIS concur.

      Report per Rule 30(e).