Sharon J. Rhoades and Greenbriar Corporation, etc.

In this diversity case, Greenbriar Corp. (Greenbriar) brings claims
of fraud, constructive fraud, unfair trade practices, and indemnifica-
tion against Floyd Rhoades, its former CEO and the former majority
shareholder of American Care Communities, Inc., a North Carolina
corporation (American Care-NC), which was acquired by Greenbriar
in 1996. Greenbriar alleges that Floyd Rhoades breached his fiduciary
duties to American Care-NC and Greenbriar in connection with an
employment agreement which he negotiated with his wife, Sharon
Rhoades, who at the time was a minority shareholder of American
Care-NC. The district court found that Greenbriar was clearly and
fully informed as to the terms of Sharon Rhoades's employment
agreement and ratified it. Accordingly, the district court granted sum-
mary judgment in favor of Floyd Rhoades. Finding no reversible
error, we affirm.

In 1992, Floyd and Sharon Rhoades married. In 1993, Floyd
Rhoades founded American Care-NC. Floyd Rhoades owned more
than 70% of the company's stock and served as both president and a
director of the company. Sharon Rhoades owned 10% of the stock of
American Care-NC and was the company's Vice President for Operations, as well as a member of the company's board of directors. Gary
Smith was a shareholder and the only other director of American
Care-NC.

In 1995, the Rhoadeses began experiencing marital difficulties, and
as a result, they separated in February 1996. Between February and
December 1996, they considered divorce, discussed the division of
marital property, and discussed alimony. On December 11, 1996,
Floyd Rhoades, but not Sharon, signed one of several drafts of a Separation Agreement and Property Settlement, but no final agreement
was reached until November 5, 1997. In the preliminary agreement of
December 11, Floyd Rhoades promised to provide Sharon Rhoades
with an employment contract with American Care-NC.1 Two days
later, Floyd Rhoades, on behalf of American Care-NC, signed an
Employment Agreement with Sharon Rhoades which altered her
duties and which increased her salary from $80,000 to $125,000 for
a period of three years. Under the contract, Sharon Rhoades was to
report only to the President of the company who, until October 1998,
was Floyd Rhoades. Smith was not informed of the employment
agreement, nor was it approved by American Care-NC's Board of
Directors.

During December of 1996, American Care-NC and Greenbriar
completed the final stages of negotiating a merger of the two companies. The merger resulted in Greenbriar assuming the obligations of
American Care-NC.2 During the merger negotiations, Greenbriar was
not aware that the Rhoadeses had discussed Sharon Rhoades's
employment agreement in the context of their divorce settlement. As
the discussion in Part II below demonstrates, however, Greenbriar
was fully informed of all material terms of the Sharon Rhoades
employment agreement prior to the consummation of the merger.

Sharon Rhoades filed her complaint in state court against Green-
briar Corporation and American Care Communities, Inc. and Floyd
Rhoades on August 1, 1999. This case was removed to the district
court based on diversity of citizenship.3 On March 28, 2001, following discovery, the district court, in the portion of its order relevant to
this appeal, granted summary judgment for Sharon Rhoades on her
claims against Floyd Rhoades and Greenbriar and dismissed all of
Greenbriar's crossclaims against Floyd Rhoades. The judgment made
Floyd Rhoades and Greenbriar jointly and severally liable to Sharon
Rhoades for $111,642.44. Greenbriar timely appealed from both the
grant of summary judgment in Sharon Rhoades's favor and the dismissal of its counterclaims against Sharon Rhoades and crossclaims
against Floyd Rhoades. Greenbriar and Sharon Rhoades have settled
their dispute, and Sharon Rhoades has been dismissed as a party to
this appeal.

Greenbriar argues on appeal that Floyd Rhoades's motive for exe-
cuting the employment agreement with Sharon Rhoades was a desire
to reduce or eliminate alimony payments; that this motive was a material fact which was not disclosed to American Care-NC's board of
directors or to Greenbriar; that the terms of the agreement were not
effectively disclosed to Greenbriar; and that as a result, Floyd
Rhoades did not disclose material facts which he had a fiduciary duty
to disclose regarding the transaction. Consequently, Greenbriar argues
that it has established the predicate for its fraud, constructive fraud,
unfair trade practices, and indemnification claims, and it argues further that it cannot be deemed to have ratified the employment agreement.

* * *

Click the case caption above for the full text
of the Court's opinion.

Affirmed

Unknown

Unknown

E-mail suggested corrections, comments and/or corrections to:
Kent Morlan

Welcome Video