All opinions are subject to modification and technical correction prior to official publication in the North Carolina Reports and North Carolina Court of Appeals Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the North Carolina Reports and North Carolina Court of Appeals Reports, the latest print version is to be considered authoritative.
JAMES H. SLAUGHTER, Trustee of the Freeman C. Slaughter and
Genevieve P. Slaughter Charitable Remainder Trust, FREEMAN C.
SLAUGHTER, and GENEVIEVE P. SLAUGHTER, Plaintiffs, v. J. TODD
SWICEGOOD, RAYMOND JAMES & ASSOCIATES, INC., RAYMOND JAMES
FINANCIAL SERVICES, INC., THE ESTATE OF ROBERT LEE SAUNDERS,
SAMUEL T. GOFORTH, and SAUNDERS & GOFORTH, ATTORNEYS AT LAW,
Filed: 3 February 2003
1. Appeal and Error--appealability--interlocutory order--denial of motion to compel
Although the denial of a motion to compel arbitration is an appeal from an interlocutory
order, the right to arbitrate a claim is a substantial right which may be lost if review is delayed
and the order is therefore immediately appealable.
2. Arbitration--motion to compel_-validity of arbitration agreement
The trial court did not err in an action arising out of the mishandling of a trust by denying
defendants' motion to compel arbitration and by concluding that no arbitration agreement existed
between the parties even though a customer agreement allegedly required all plaintiffs to submit
their claims to arbitration, because defendants failed to meet their burden of proof to show that a
valid agreement existed between the parties when: (1) an affidavit submitted generally describing
the process for entering customer agreements and other documents did not indicate that the
affiant witnessed defendant former trustee's signing of the customer agreement and did not
explain why the customer agreement was scanned into the filing system eleven years after it was
allegedly signed; and (2) although defendants submitted an affidavit by another witness in
support of their motion for reconsideration which stated that the affiant saw defendant former
trustee sign the customer agreement, this affidavit was not before the trial court when it heard the
motion to compel arbitration, and thus, it cannot be considered by the Court of Appeals.
3. Appeal and Error-_appealability--interlocutory order--denial of motion for
Although defendants contend the trial court erred in an action arising out of the
mishandling of a trust by denying defendants' motion to reconsider the 31 October 2002 order
that denied defendants' motion to compel arbitration, this assignment of error is dismissed
because: (1) defendants failed to offer any grounds justifying appellate review of the 3 January
2003 order denying the motion for reconsideration; and (2) it is the appellants' burden to present
appropriate grounds for the Court of Appeals' acceptance of an interlocutory appeal.
4. Trusts--standing--individual capacity
The trial court erred in an action arising out of the mishandling of a trust by failing to
dismiss plaintiffs' claims in their individual capacity, because: (1) the common law rule provides
that any injury to the property placed in a trust may only be redressed by the trustee, and
plaintiffs do not fit within any exception to the common law rule to allow plaintiffs to sue as
beneficiaries; and (2) there is no support for plaintiffs' contention that the status of settlors,
standing alone, provides them with standing.
Appeal by defendants from orders entered 31 October 2002 and
3 January 2003 by Judge Catherine C. Eagles in Guilford County
Superior Court. Heard in the Court of Appeals 1 December 2003.
Forman, Rossabi, Black, P.A., by Amiel J. Rossabi, for
Hunton & Williams, by Scott M. Ratchick and Amy K. Alcoke, pro
hac vice, for defendant-appellants.
J. Todd Swicegood, Raymond James & Associates, Inc. (RJA), and
Raymond James Financial Services, Inc. (RJFS) appeal from the trial
court's 31 October 2002 order (1) denying their motion to compel
arbitration, and (2) refusing to dismiss plaintiffs Freeman and
Genevieve Slaughters' individual claims. Defendants Swicegood,
RJA, and RJFS (collectively defendants) also appeal from the trial
court's 3 January 2003 order denying their motion to reconsider the
31 October 2002 order. The remaining defendants named in the
complaint (the Estate of Robert Lee Saunders, Samuel T. Goforth and
Saunders and Goforth, P.A.) are not parties to this appeal. We
affirm in part, reverse in part and dismiss in part.
In 1989, plaintiffs Freeman and Genevieve Slaughter (the
Slaughters) consulted with attorney Robert Saunders for retirement
and estate planning. Defendant Saunders advised the Slaughters to
create a charitable remainder unitrust to provide maximum financial
benefit to their estate. On 7 October 1989 the Slaughters
established the Freeman C. Slaughter and Genevieve P. Slaughter
Charitable Remainder Trust (the Trust). Defendant Saunders wasappointed as trustee. The Slaughters transferred title to
approximately 155 acres of real property to the Trust. The Trust
sold the real property in December 1989 and collected the proceeds
of the sale in installment payments over several years. The Trust
agreement required that the Slaughters be paid a sum equal to
fourteen percent of the Trust's value each year. Upon the death
of both Freeman and Genevieve Slaughter, the Trust's remainder
would be distributed to Duke University Medical Center.
Defendant Saunders initially invested the Trust assets with
Interstate Johnson Lane, Co. Saunders placed the Trust funds in an
account with defendant RJA on 7 December 1990. Defendant J. Todd
Swicegood served as an investment advisor and managed the Trust
account with RJA. Swicegood is an employee of defendant RJA, which
is a subsidiary of defendant RJFS. When establishing the Trust's
RJA account, defendant Saunders, as trustee, allegedly signed a
Raymond James Customer Agreement (Customer Agreement) that
contained the following clause:
The undersigned client agrees, and by carrying
an account for the undersigned client you
agree, that all controversies [that] may arise
between us concerning any transaction or the
construction, performance of breach of this or
any other agreement between us pertaining to
securities or other property, whether entered
into prior, on, or subsequent to the date
hereof, shall be determined by arbitration.
Any arbitration shall be in accordance with
the rules, then applying, of either the
National Association of Securities Dealers,
Inc., New York Stock Exchange, Inc., American
Stock Exchange, Inc., or where appropriate,
the Chicago Board Options Exchange, Inc., as I
Defendant Swicegood discouraged the Slaughters from being involved
personally in the management of the trust assets. He assured theSlaughters on several occasions that the trust investments were
The Slaughters were informed in early November 1999 that
defendant Saunders was critically ill. Saunders died on 8 November
1999. Before his death, Saunders resigned as trustee of the Trust
and appointed defendant Swicegood as a successor trustee on 27
The Slaughters were notified in early 2001 that defendant
Swicegood had transferred the Trust funds to an annuity account.
Swicegood explained that the transfer would protect the Trust's
assets from the falling prices of the stock market. Freeman and
Genevieve Slaughter became concerned about defendant Swicegood's
management of the Trust account and attended several meetings with
On 9 July 2001, defendant Swicegood, at the Slaughters'
request, resigned as trustee and appointed James H. Slaughter as
trustee. The files relating to management of the trust were
presented to Trustee Slaughter in disarray, including unopened
correspondence and overdue bills from the Internal Revenue Service.
Trustee Slaughter contacted defendant Swicegood on 29 August 2001
by certified mail to request that the Trust account be closed.
Trustee Slaughter, on behalf of the Trust, sued all defendants
on theories of fraud, negligent misrepresentation, breach of
fiduciary duty, negligence, breach of contract, unfair and
deceptive trade practices, securities violations, civil conspiracy
and demanded an accounting of trust funds. Freeman and Genevieve
Slaughter joined the lawsuit in their individual capacities. Defendants Swicegood, RJA and RJFS moved to dismiss the Slaughters'
individual claims for lack of standing. Additionally, defendants
moved to compel arbitration of plaintiffs' claims. The trial court
denied both motions in an order filed 31 October 2002. Defendants'
motion for reconsideration was denied by the trial court in an
order filed 3 January 2003. Defendants appeal.
Defendants first argue that the trial court erred in finding
that no arbitration agreement existed. Defendants contend that the
Customer Agreement, signed by defendants Swicegood and Saunders,
contained an agreement requiring all plaintiffs to submit their
claims to arbitration. Plaintiffs deny that a valid arbitration
agreement exists and question the authenticity of the Customer
 As an initial matter, we note that the denial of a motion
to compel arbitration is interlocutory in nature. See Raspet v.
Buck, 147 N.C. App. 133, 135, 554 S.E.2d 676, 677 (2001). However,
this Court has held that '[t]he right to arbitrate a claim is a
substantial right which may be lost if review is delayed, and an
order denying arbitration is therefore immediately appealable.'
Boynton v. ESC Med. Sys., Inc., 152 N.C. App. 103, 106, 566 S.E.2d
730, 732 (2002) (quoting Howard v. Oakwood Homes Corp., 134 N.C.
App. 116, 118, 516 S.E.2d 879, 881 (1999)).
 If a party claims that a dispute is covered by an
agreement to arbitrate but the adverse party denies the existence
of an arbitration agreement, the trial court shall determine
whether an agreement exists. See N.C.G.S. § 1-567.3 (2001). Thequestion of whether a dispute is subject to arbitration is an issue
for judicial determination. Raspet, 147 N.C. App. at 136, 554
S.E.2d at 678 (citing AT&T Technologies v. Communications Workers,
475 U.S. 643, 89 L. Ed. 2d 648 (1986)). This determination
involves a two-step analysis requiring the trial court to
ascertain both (1) whether the parties had a valid agreement to
arbitrate, and also (2) whether 'the specific dispute falls within
the substantive scope of that agreement.' Raspet, 147 N.C. App.
at 136, 554 S.E.2d at 678 (quoting PaineWebber Inc. v. Hartmann,
921 F.2d 507, 511 (3d Cir. 1990)).
A dispute can only be settled by arbitration if a valid
arbitration agreement exists. N.C.G.S. § 1-567.2 (2001). [T]he
party seeking arbitration must show that the parties mutually
agreed to arbitrate their disputes. Routh v. Snap-On Tools Corp.,
108 N.C. App. 268, 271-72, 423 S.E.2d 791, 794 (1992); see Thompson
v. Norfolk S. Ry. Co., 140 N.C. App. 115, 120, 535 S.E.2d 397, 400
(2000). The trial court's findings regarding the existence of an
arbitration agreement are conclusive on appeal where supported by
competent evidence, even where the evidence might have supported
findings to the contrary. Sciolino v. TD Waterhouse Investor
Servs., Inc., 149 N.C. App. 642, 645, 562 S.E.2d 64, 66 (citing
Routh, 108 N.C. App. at 272, 423 S.E.2d at 794), disc. review
denied, 356 N.C. 167, 568 S.E.2d 611 (2002). However, the trial
court's determination of whether a dispute is subject to
arbitration is a conclusion of law that is reviewable de novo on
appeal. Raspet, 147 N.C. App. at 136, 554 S.E.2d at 678; Brevorkav. Wolfe Constr., Inc., 155 N.C. App. 353, 356, 573 S.E.2d 656, 659
(2002), disc. review denied, 357 N.C. 61, 579 S.E.2d 385 (2003).
Here, the trial court found that defendants failed to prove
that a valid arbitration agreement existed between the parties.
Defendants, as the parties seeking to compel arbitration, held the
burden of proof. Defendant Saunders purportedly signed the
Customer Agreement on 7 December 1990. Saunders was deceased at
the time of the motion hearing and was therefore unavailable to
testify. Freeman and Genevieve Slaughter submitted affidavits
stating they were not aware that the Trust account was subject to
an arbitration agreement. Defendants submitted an affidavit by
Mary Raver, an employee of defendant RJFS, stating that the
Customer Agreement was scanned into the Raymond James electronic
filing system on 28 December 2001. Raver's affidavit generally
described the process for entering customer agreements and other
documents in the RJFS computer system. This affidavit did not
indicate that she witnessed Saunders sign the Customer Agreement
and did not explain why the Customer Agreement was scanned into the
filing system eleven years after it was allegedly signed.
Defendants did not present any evidence whatsoever concerning,
e.g., the general business practices surrounding the signing of
similar customer agreements, or whether it was the usual policy of
RJA advisors to require prospective clients to sign such agreements
before providing investment advice and other services. We note
that defendants submitted an affidavit by defendant Swicegood in
support of their motion for reconsideration. In this affidavit,
Swicegood stated that he witnessed Saunders sign the CustomerAgreement. Because Swicegood's affidavit was not before the trial
court when it heard the motion to compel arbitration, it cannot be
considered by this Court in determining whether the court erred in
refusing to find a binding arbitration agreement.
Defendants' motion to compel was based upon the validity of
the arbitration agreement contained within the Customer Agreement.
On these facts, the trial court could properly find that there was
not a binding arbitration agreement. The trial court's findings of
fact are supported by competent record evidence and support its
conclusion that no arbitration agreement existed between the
parties. This assignment of error is overruled.
 Defendants further argue that the trial court erred by
denying their motion to reconsider the 31 October 2002 order.
The order denying the motion to compel arbitration is
interlocutory in nature. Defendants' brief states that the
original order filed 31 October 2002 and the order denying the
motion to reconsider were both interlocutory orders. Defendants
contend that the 31 October order denying the motion to compel
arbitration affected a substantial right and should be reviewed on
appeal. However, defendants failed to offer any grounds justifying
appellate review of the 3 January 2003 order denying the motion for
The North Carolina Rules of Appellate Procedure require a
statement asserting grounds for appellate review:
When an appeal is based on Rule 54(b) of the
Rules of Civil Procedure, the statement shall
show that there has been a final judgment as
to one or more but fewer than all of the
claims or parties and that there has been a
certification by the trial court that there isno just reason for delay. When an appeal is
interlocutory, the statement must contain
sufficient facts and argument to support
appellate review on the ground that the
challenged order affects a substantial right.
N.C.R. App. P. 28(b)(4). '[I]t is the appellant's burden to
present appropriate grounds for this Court's acceptance of an
interlocutory appeal . . . and not the duty of this Court to
construct arguments for or find support for appellant's right to
appeal[.]' Thompson, 140 N.C. App. at 121, 535 S.E.2d at 401
(quoting Country Club of Johnston County, Inc. v. U.S. Fidelity and
Guar. Co., 135 N.C. App. 159, 162, 519 S.E.2d 540, 543 (1999)); see
Munden v. Courser, 155 N.C. App. 217, 574 S.E.2d 110 (2002). The
Rules of Appellate Procedure are mandatory and failure to follow
the rules subjects an appeal to dismissal. Wiseman v. Wiseman, 68
N.C. App. 252, 255, 314 S.E.2d 566, 567 (1984). As a result of
defendants' failure to argue why this Court should review the 3
January 2003 interlocutory order, we dismiss this assignment of
 Defendants also contend that Freeman and Genevieve
Slaughters' claims should have been dismissed because they do not
have standing to sue individually. Defendants argue that Trustee
James Slaughter's lawsuit on behalf of the Trust adequately
represents Freeman and Genevieve Slaughters' individual interests
as beneficiaries. The Slaughters contend that they have standing
to sue individually resulting from defendant Swicegood's direct
representations to them as settlors and beneficiaries of the Trust.
On the facts presented in this case, the Slaughters' argument is
unpersuasive. The North Carolina Rules of Civil Procedure require that
[e]very claim shall be prosecuted in the name of the real party in
interest. N.C.G.S. § 1A-1, Rule 17(a) (2003). A real party in
interest is 'a party who is benefited or injured by the judgment in
the case' and who by substantive law has the legal right to enforce
the claim in question. Carolina First Nat'l Bank v. Douglas
Gallery of Homes, 68 N.C. App. 246, 249, 314 S.E.2d 801, 802 (1984)
(quoting Reliance Ins. Co. v. Walker, 33 N.C. App. 15, 18-19, 234
S.E.2d 206, 209 (1977)). A party has standing to initiate a
lawsuit if he is a real party in interest. See Energy Investors
Fund, L.P. v. Metric Constructors, Inc., 351 N.C. 331, 337, 525
S.E.2d 441, 445 (2000) (citing Krauss v. Wayne County DSS, 347 N.C.
371, 373, 493 S.E.2d 428, 430 (1997)). A motion to dismiss a
party's claim for lack of standing is tantamount to a motion to
dismiss for failure to state a claim upon which relief can be
granted according to Rule 12(b)(6) of the North Carolina Rules of
Civil Procedure. See Street v. Smart Corp., 157 N.C. App. 303,
305, 578 S.E.2d 695, 698 (2003). An appellate court should review
a trial court's order denying a motion for failure to state a claim
to determine 'whether, as a matter of law, the allegations of the
complaint, treated as true, are sufficient to state a claim upon
which relief may be granted under some legal theory.' Hargrove v.
Billings & Garrett, Inc., 137 N.C. App. 759, 760, 529 S.E.2d 693,
694 (2000) (quoting Shell Island Homeowners Ass'n. Inc. v.
Tomlinson, 134 N.C. App. 217, 225, 517 S.E.2d 406, 413 (1999)).
This Court has recognized that when an individual grantor
places his property in an active trust, the grantor's legal titleto that property passes to the trustee. See In Re Estate of
Washburn, 158 N.C. App. 457, 581 S.E.2d 148 (2003); Lentz v. Lentz,
5 N.C. App. 309, 168 S.E.2d 437 (1969); Mast v. Blackburn, 248 N.C.
231, 102 S.E.2d 812 (1958). The common law rule provides that any
injury to the property placed in a trust may only be redressed by
the trustee. That rule is summarized as follows:
The trustee has a title (generally legal
title) to the trust property, usually has its
possession and a right to continue in
possession, and almost always has all the
powers of management and control which are
necessary to make the trust property
productive and safe. Any wrongful interference
with these interests of the normal trustee is
therefore a wrong to the trustee and gives him
a cause of action for redress or to prevent a
continuance of the improper conduct. Although
the beneficiary is adversely affected by such
acts of a third person, no cause of action
inures to him on that account. The right to
sue in the ordinary case vests in the trustee
as a representative.
. . . .
In the absence of special circumstances, the
beneficiary is not eligible to bring or
enforce these causes of action which run to
his trustee. Thus in the usual case he cannot
sue a third person to recover possession of
the trust property for himself or the trustee,
or for damages for conversion of or injury to
the trust property, or for recovery of its
income or to compel an agent of the trustee to
account, or to enjoin a threatened injury to
trust property by a third person.
George G. Bogert & George T. Bogert, The Law of Trusts and Trustees
§ 869 at 112-13, 115-17 (rev. 2d ed. 1995).
Several exceptions to the common law rule barring individual
lawsuits by beneficiaries have been recognized. When the
beneficiary is in actual physical possession of trust property, he
can sue for injury to the possession or to enjoin a disturbance ofpossession of the property. See Bogert, § 869 at 117; Restatement
(Second) of Trusts § 281. If a conflict of interest arises between
the trustee and a beneficiary, or between two beneficiaries, a
beneficiary has standing to sue individually. See Bogert, Law of
Trusts, § 593 at 422 (rev. 2d ed. 1980). Also, if the trustee
refuses or fails to initiate a meritorious lawsuit against a third
party, the beneficiary may file a cause of action to protect his
own interests. See Bogert, § 869 at 118-21. This exception to the
common law rule is outlined in the Restatement (Second) of Trusts,
(1) Where the trustee could maintain an
action at law or suit in equity or other
proceeding against a third person if the
trustee held the property free of trust,
the beneficiary cannot maintain a suit in
equity against the third person, except
as stated in Subsections (2) and (3).
(2) If the trustee improperly refuses or
neglects to bring an action against the
third person, the beneficiary can
maintain a suit in equity against the
trustee and the third person.
(3) If the trustee cannot be subjected to the
jurisdiction of the court or if there is
no trustee, the beneficiary can maintain
a suit in equity against the third
person, if such suit is necessary to
protect the interest of the beneficiary.
Restatement (Second) of Trusts, § 282. North Carolina has not
expressly adopted § 282, although our Supreme Court has recognized
the Restatement (Second) of Trusts as persuasive authority. See
Fortune v. First Union Nat. Bank, 323 N.C. 146, 149, 371 S.E.2d
483, 484 (1988). Several jurisdictions have adopted § 282 to
prevent lawsuits by individual beneficiaries unless subsection (2)
or (3) applies. See Orentreich v. Prudential Insurance Co., 275A.D.2d 685, 713 N.Y.S.2d 330 (2000) (holding that only trustee
could seek rescission of insurance policies owned by trust);
Pillsbury v. Karmgard, 22 Cal. App. 4th 743 (1994) (holding that a
beneficiary did not have standing to sue unless beneficiary showed
that trustee's refusal to bring lawsuit against third party was
negligent or improper); Anderson v. Dean Witter Reynolds, Inc., 841
P.2d 742 (Utah Ct. App. 1992) (holding that beneficiary had
standing to sue when trustee failed to bring lawsuit against
brokerage firm that distributed assets in violation of trust
agreement); Axelrod v. Giambalvo, 472 N.E.2d 840 (Ill. App. Ct.
1984) (applying Restatement (Second) of Trusts § 282 to hold that
plaintiff trust beneficiaries did not have standing to sue former
trustee for breach of fiduciary duty when successor trustee
withdrew complaint filed on behalf of the trust); Appollinari v.
Johnson, 305 N.W.2d 565 (Mich. Ct. App. 1981) (holding that
beneficiaries' guardian did not have standing to sue a third party
because the trustee held title to trust assets).
North Carolina courts have granted beneficiaries standing to
sue individually for breach of fiduciary duty against current
trustees who allegedly mismanaged trust funds. See Fortune, 323
N.C. 146, 371 S.E.2d 483. The Fortune holding is consistent with
Section 282 of the Restatement (Second) of Trusts and the common
law conflict of interest exception allowing a lawsuit by the
Freeman and Genevieve Slaughter contend that their status as
settlors of the Trust provides them with standing to sue
individually. The Slaughters offer no support for their contentionthat the status of settlor, standing alone, provides them with
standing. Consistent with prior holdings, title to property placed
in a trust passes to the trustee. The Slaughters' argument that
they have standing because they were the settlors of the Trust
Freeman and Genevieve Slaughter also argue that they have
standing to sue as beneficiaries. However, the facts presented in
the instant case do not fit within any exception to the common law
rule to allow the Slaughters standing to sue as beneficiaries.
Here, individual beneficiaries and the successor trustee are suing
a former trustee, now a third party to the Trust, simultaneously.
Trustee Slaughter issued the complaint on behalf of all plaintiffs,
with identical claims against all defendants. The plaintiffs'
complaint fails to differentiate between the alleged harm done to
the Trust, the harm to the charitable remainder beneficiary and any
injury to the Slaughters as individual beneficiaries. Freeman and
Genevieve Slaughter do not claim that Trustee Slaughter's lawsuit
on behalf of the Trust will fail to repair any injury accruing to
them as individual beneficiaries. They fail to allege any conflict
of interest between the charitable and lifetime beneficiaries or
between the beneficiaries and Trustee Slaughter. No party disputes
that the trial court had jurisdiction over all defendants. Trustee
Slaughter did not refuse or neglect to bring an action against
defendants to protect the Trust. Taking all of the allegations in
the complaint as true, Freeman and Genevieve Slaughter failed to
allege any facts that would allow them to sue individually under an
exception to the common law rule barring individual claims bybeneficiaries. Accordingly, we hold that the trial court erred in
concluding that the Slaughters had standing to pursue their
individual claims against defendants.
We affirm the portion of the 31 October 2002 order denying the
motion to compel arbitration and reverse the portion allowing
Freeman and Genevieve Slaughters' individual claims against
Affirmed in part; reversed in part; dismissed in part.
Chief Judge EAGLES concurred prior to 31 January 2004.
Judge MARTIN concurs.