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Rollins v. Rollins
Citations: 321 Ga. App. 140; 741 S.E.2d 251; 2013 Fulton County D. Rep. 1307; 2013 WL 1277824; 2013 Ga. App. LEXIS 332Docket: A12A2516
Court: Court of Appeals of Georgia; March 29, 2013; Georgia; State Appellate Court
Four siblings, Glen W. Rollins, Ruth Ellen Rollins, Nancy Louise Rollins, and O. Wayne Rollins II, are beneficiaries of multiple trusts and have initiated legal action against their father, Gary W. Rollins, their uncle, R. Randall Rollins, and family friend Henry B. Tippie, alleging breach of trust and fiduciary duty. They appeal a trial court ruling that denied their request for an accounting of family entities within the trusts and rejected their claims that certain actions by the defendants at the entity level constituted breaches of trust. The Beneficiaries argue that the trial court incorrectly assessed actual harm and improperly granted summary judgment to the defendants.
The appellate court conducts a de novo review of the trial court's decision, examining a comprehensive record spanning 40 years of trust history. O. Wayne Rollins, known as the Settlor, founded several successful businesses and established five trusts: the Rollins Children’s Trust, RC Trust, and four Subchapter S-Trusts. The irrevocable RC Trust, created in 1968 for the benefit of his grandchildren, includes the four Beneficiaries among its nine total beneficiaries. The trust's assets, originally comprising primarily Rollins, Inc. stock, are subject to discretionary distribution by the trustees—Gary, Randall, and Tippie—who can encroach on the trust corpus as needed for the grandchildren's benefit.
To mitigate tax liabilities in the 1970s and 1980s, the Settlor established several family entities that manage trust assets, including ROL, Inc., LOR, Inc., and the Rollins Holding Company. In 1986, he created irrevocable Subchapter S-Trusts for each grandchild, with Gary serving as the sole trustee. The S-Trusts were initially funded with interests in LOR, Inc., and the trustee acquired this stock from the family partnerships using promissory notes. The appellate court reverses the trial court's judgment and remands the case for further proceedings.
In 1988, the Settlor established the Rollins Investment Fund (RIF) within the S-Trusts to reduce tax liability. The S-Trusts' trust indenture mandates that the trustee distribute all trust income annually to beneficiaries but allows discretion in defining income and principal. Upon reaching age 45, beneficiaries are to receive all remaining property in their trust, subject to any debts. Only Glen Rollins, one of four beneficiaries, has reached this age. Following the Settlor's death, the beneficiaries allege that the appellees altered the structure and governance of the family entities within the S-Trusts and the RC Trust, shifting power to themselves and making beneficiary interests illiquid and non-transferable, which contradicts the trust indentures and the Settlor's intent. These changes are claimed to constitute breaches of trust and fiduciary duty.
The Beneficiaries assert that the trial court incorrectly denied a "judicial accounting" of trust assets, although their motion for partial summary judgment did not include a request for this accounting. The court acknowledged breaches of fiduciary duty due to the trustees' failure to provide an accounting before the complaint was filed, eventually receiving a report from Ernst & Young. The court granted the Beneficiaries' motion for summary judgment on the issue of fiduciary breaches but denied all other relief. The Beneficiaries sought a third-party review of various trust-related books and a comprehensive accounting of the trusts and investments. However, the Ernst & Young report only covered the S-Trusts and the RC Trust. Under OCGA 53-12-243, trustees must provide qualified beneficiaries with a report on trust assets and administration upon reasonable request, and the RC Trust requires periodic statements at least every six months; the S-Trusts do not specify accounting requirements.
Appellees argue that they are not required to provide an accounting for family entities within the trusts, claiming that such an obligation arises only when a trust holds a controlling interest in an entity. They reference New York case law suggesting fiduciaries must account for corporate assets when they or the trust hold a controlling position. However, the court finds these cases suggest a broader interpretation, as illustrated by a case where a fiduciary's combined holdings granted them control over a corporation, obligating them to account for corporate transactions despite holding a minority interest.
In the current matter, the evidence indicates the appellees are controlling members of the family entities, and they do not dispute their ability to provide the requested information. While no Georgia authority directly addresses this issue, cases from other jurisdictions support the principle that fiduciaries must disclose information within their control. The court concludes that the trial court erred in denying an accounting of the family entities, noting that the Georgia Code mandates trustees to provide information about trust assets without requiring a controlling interest for accountability. The appellees do not dispute that the family entities qualify as assets of the trusts.
The court possesses the authority to mandate fiduciaries to disclose corporate transactions related to estates, and the appropriateness of such disclosures should not be questioned prior to their presentation. The importance of the facts revealed through an accounting can only be determined post-exhibition. Consequently, whenever the court can compel fiduciaries to disclose corporate activities, it is expected to do so favorably. Under OCGA 53-12-243 (a), trustees are required to report on trust assets, liabilities, and administration details. The trial court erred by not ordering an accounting of Family Entities controlled by the appellees, leading to a reversal of its judgment and remand for further proceedings.
The Beneficiaries argue that the appellees violated their fiduciary duties concerning actions taken at the entity level, including management of Family Entities like LOR, Inc., RIF, and RHC, which are part of the trusts. The appellees, while not directly addressing this claim, contend that their dual roles as trustees and managers of the Family Entities were approved by the Settlor. The Beneficiaries assert breaches occurred through asset transfers from the trusts to the Family Entities, their management, distributions, and changes to voting rights and control. The trial court concluded that since decisions were made at the entity level, claims based on S-Trust terms were misplaced, and found no actionable misconduct in conditioning distributions on adherence to a behavioral code not included in the trust indenture.
However, the court disagrees, stating that fiduciary duties cannot be abandoned in the management and distribution from Family Entities held in trust. Before assessing whether the appellees’ specific actions constituted breaches of trust or fiduciary duties, it must first be determined if such duties extend to their actions concerning the Family Entities. While direct case law is limited, precedent from Hanson v. First State Bank and Trust Co. indicates that fiduciary duties can apply to nontrustees whose actions significantly influence trustee-controlled entities. In that case, a family member's substantial control over a trustee's actions led to the bank's removal as trustee due to inherent conflicts of interest.
A corporate director, while not formally a trustee, nonetheless has a fiduciary duty to shareholders with respect to property under his control, necessitating full disclosure of material facts regarding that property’s value. The Supreme Court emphasized that the director acts as a trustee in a significant sense, asserting that fiduciary responsibilities transcend mere titles and focus on substance. In Georgia, a director controlling an entity within a trust holds fiduciary duties to asset holders, consistent with rulings in other jurisdictions where corporate directors, also serving as trustees, are required to maintain loyalty to both the corporation and trust beneficiaries. Courts have mandated that fiduciaries in dual roles must manage interests impartially, excluding personal gains. Notably, a New York case illustrated that a fiduciary with control over a corporation, even with a minority interest, could be held accountable for breaches of fiduciary duty regarding the trust. In In the Matter of the Estate of Schulman, a trustee was found liable for mismanaging corporate assets, demonstrating that the authority derived from trusteeship subjects the trustee to stricter fiduciary standards rather than the business judgment rule. The trustees in the current case similarly acquired authority through their trusteeships and, despite not holding majority interests, control the Family Entities within the trusts, requiring adherence to fiduciary standards in managing those entities.
Trustees who self-elect as officers and directors operate the business on behalf of the estate, thereby subjecting themselves to trustee-level fiduciary standards regarding the Family Entities they control within the relevant trusts. The trial court incorrectly concluded that fiduciary duties do not extend to actions at the entity level. The Beneficiaries allege multiple breaches of fiduciary duty by the appellees, including improper administration of trusts, conditional distributions based on Beneficiaries' behavior, non-pro rata distributions, conversion of liquid assets into illiquid investments, and inappropriate management control shifts that violate trust indentures. They assert these actions have significantly diminished their inherited trust assets, indicating self-dealing and conflicts of interest due to Gary and Randall's dual roles as trustees and managers of the Family Entities.
To succeed in their motion for partial summary judgment, the Beneficiaries needed to demonstrate undisputed facts proving the appellees' breach of fiduciary duties, while to counter the appellees’ summary judgment motion, they had to show remaining material issues for jury consideration. In breach of fiduciary duty claims, three elements must be established: the existence of a fiduciary duty, its breach, and damages caused by that breach. The court confirmed that the appellees do indeed have trustee-level fiduciary duties regarding their actions with the Family Entities. Under Georgia law, trustees are held to the highest legal standards, required to act in good faith and for the benefit of the beneficiaries. Violations of these duties constitute breaches of trust, making trustees personally liable for resulting damages. The Beneficiaries contend the trial court erred by not recognizing breaches relating to unilateral changes to the RIF partnership agreement, which originally included equal ownership interests among the parties involved. However, the court noted that unresolved factual questions preclude summary judgment on this matter.
Each partner in the RIF partnership agreement had equal management rights, with amendments requiring unanimous consent. The original agreement stipulated that cash flow distributions would be made pro rata according to each partner's interest. In 1993, following the Settlor’s death, Gary and Randall amended the agreement to centralize management authority and allow discretionary non-pro rata distributions. This amendment granted Gary and Randall exclusive management authority, with no participation from other partners.
Gary, acting as trustee for the Beneficiaries' S-Trusts, and Randall signed both the original and amended agreements, but none of the Beneficiaries signed either document or were aware of the changes. On March 1, 2011, Gary and Randall executed a unanimous consent to distribute $9 million to select partners, excluding the Beneficiaries and their S-Trusts, who claim they suffered harm from these non-pro rata distributions. They argue that Gary and Randall exceeded their authority in amending the agreement without their knowledge.
Gary and Randall contend that their actions were authorized by the S-Trust Indenture, which allows trustees to manage interests in businesses and adopt management practices. They assert that the amendment aimed to reduce capital gains taxes and facilitate distributions to the Beneficiaries' S-Trusts, while maintaining that they have made more significant distributions to the Beneficiaries post-amendment than they have taken for themselves, though lacking supporting evidence.
The amendment's implications raise questions about whether Gary and Randall acted in good faith, fulfilling their fiduciary duties at the entity level. Despite the broad discretion provided by the trust instrument, trustees must act in good faith, and courts may intervene if there is an abuse of authority.
Trustees are obligated to act in the best interest of the beneficiaries. The appellees' amendments to the RIF agreement, which concentrated control in Gary and Randall while excluding the Beneficiaries from decision-making and allowing discretionary non-pro rata distributions, raise significant questions about potential breaches of fiduciary duties. The Supreme Court has established that a fiduciary's mere positioning for potential conflicts of interest suffices for breach claims. Thus, a jury must determine whether the appellees acted improperly.
Additionally, the appellees' failure to inform the Beneficiaries about the RIF amendment could constitute constructive fraud under OCGA 23-2-53, which addresses the suppression of material facts. The Beneficiaries challenge the trial court's finding of no breach related to a distribution system imposed by Gary and Randall, which they argue lacked a basis in any trust document and was misleading. This system conditioned distributions on the Beneficiaries' behavior and participation, as outlined in letters from Gary and Randall where they identified themselves as "trustees" of non-trust entities, LOR, Inc. and RFA. Evidence suggests these entities are not trusts, and thus Gary and Randall are not trustees. The Beneficiaries claim they were misled into accepting these conditions, which masked inequitable distributions of their trust funds contrary to the trust instruments. Deposition testimony from Randall confirmed that the imposed requirements had no basis in the trust documents.
Gary and Randall contend that their use of the term "trust" was shorthand for a distribution program, asserting that the Beneficiaries were not misled and had knowledge that these were not actual trusts. There is evidence suggesting a jury could find that the Beneficiaries were aware of this distinction. A significant question exists regarding whether Gary and Randall abused their discretion in making distributions, as evidence indicates that Beneficiaries received non-pro rata distributions or none at all in certain years. Notably, in March 2011, after the Beneficiaries initiated legal action, Gary and Randall distributed $9 million to certain partners without including the Beneficiaries, which they claim was a reward for those who did not sue. Under both the Revised Trust Code and common law, a court can intervene if a trustee's discretion is tainted by fraud, bad faith, or arbitrary behavior. The record suggests potential arbitrary actions by Gary and Randall, which may constitute a breach of fiduciary duty. The jury must determine whether Gary and Randall acted within their granted authority and whether their representations about trust status were negligent, fraudulent, or made in good faith. The trial court's decision on the harm to Beneficiaries is also deemed erroneous, as the jury should assess this issue. Additionally, the Beneficiaries claim that the trustees breached their fiduciary duties by substituting marketable securities with illiquid investments; however, any analysis of this claim is premature pending an accounting of the trust entities. Ultimately, the trial court's judgment is reversed and the case is remanded for further proceedings consistent with this opinion.
Appellants are represented by Bondurant, Mixson, Elmore, and others, while Troutman Sanders represents the appellees. The Beneficiaries argue that the trial court erred by granting summary judgment for the trustees, asserting that this judgment denied them equitable relief related to the trustees' failure to provide accurate trust information. This relief seeks removal of trustees, receivership for trust entities, and rescission of self-dealing transactions. However, the Beneficiaries fail to provide supporting arguments or legal citations, leading to dismissal of this portion of their claim.
Additionally, the Beneficiaries request a hearing for approval of an accounting by Ernst & Young, but they did not seek this relief in the trial court, which precludes appellate consideration of this argument. The record indicates that trustees Randall and Gary Rollins exert control over distributions from the RC Trust, supported by their significant ownership interests in related family entities.
Legal principles from various cases clarify that control can be established by majority ownership, and statutory interpretation indicates that "shall" signifies a mandatory obligation. Current statutes do not have precedents regarding OCGA 53-12-243 (a). The rules allow trial courts to appoint a special master for accounting purposes. The excerpts also emphasize the potential overlap between a director's imprudent management and the management of trust assets when dual roles exist.
An individual serving as both a corporate director and a fiduciary for an estate with a proprietary interest in corporate property must be held fully accountable as an estate representative. Relevant case law establishes that a trustee cannot change their legal position simply by altering their role ("changing his cloak"). The Revised Georgia Trust Code, effective July 1, 2010, applies to all trusts regardless of their creation date, with exceptions that do not apply in the current case. The case law indicates that material issues of fact can arise, particularly where executors sell estate property, such as a family farm, without notifying interested beneficiaries or violating prior agreements with counsel. This highlights the necessity for executors to adhere to fiduciary duties and ensure proper communication with beneficiaries.