Kemp v. Kemp

Decision Date29 June 2016
Docket NumberA16A0158
PartiesKemp v. Kemp et al.
CourtGeorgia Court of Appeals

William A. Erwin, Powell & Erwin, Camilla, for Appellant.

Scott Eric Anderson, Macon, John Flanders Kennedy, Jeffrey Merrell Rutledge, James Bates Brannan Groover, for Appellees.

Dillard

, Judge.

Sandra Kemp (“Sandra”) appeals the trial court's interim award of attorney fees to her son, Charles Alexander Kemp II, and his minor children (collectively, “Alexander”) in their action against her for breach of trust and other related claims.1 On appeal, Sandra argues that the trial court erred in awarding attorney fees to Alexander under OCGA § 53–12–302 (a) (4)

prior to the conclusion of the case because (1) such an award is not authorized by the statute, and (2) it is impossible to know at this time whether and to what extent Alexander will prevail on his claims. As to the amount of the award, Sandra maintains that the trial court erred in awarding fees for claims other than breach of trust, including claims that Alexander later abandoned. Because we agree that an award of attorney fees and costs of litigation to Alexander prior to the adjudication of his breach-of-trust claim is not authorized by OCGA § 53–12–302 (a) (4), we vacate the fee award and remand the case for further proceedings consistent with this opinion.

Relevant to this appeal, the record shows2 that Charles Alexander Kemp (“Alex”), who was Sandra's late husband and Alexander's father, was a successful businessman who founded companies that provide dialysis-management services. In February 2004, Alex executed his last will and testament, in which Sandra was named the sole executrix and trustee of a marital trust and a residual trust, both of which were created by the will. Alexander, who was 19 years old at the time, was named the first successor trustee of both trusts. Also in February 2004, Alex created the Green Tree Trust, which was the sole owner of his business that managed contracts for the operation of Wake Forest University's dialysis clinics.

Alex died on May 24, 2004, and under his will, he left substantially all of his estate to the marital trust. The remainder of the estate was left to the residual trust. Both the marital and residual trusts (like the Green Tree Trust) provided that all income derived from those trusts be paid to Sandra during her lifetime, and if such income was not sufficient, the trustee of the marital trust could draw from the principal as necessary. The will further provided that, after Sandra's death, the marital and residual trusts would be combined, with Alexander as the sole trustee and beneficiary of the income and principal. Thereafter, all trust property would eventually pass outright, free of trust, to Alexander incrementally over his lifetime.

Shortly after Alex's death, his life insurance policy paid $4,781,235.07 to Sandra, as trustee of the so-called 1990 Life Insurance Trust that Alex had created prior to his death. Under this trust, Sandra was entitled to income, but no principal absent a showing of a need for the funds. Following her death, Alexander would be the sole beneficiary of all trust property. But notwithstanding the terms of the 1990 Life Insurance Trust, Sandra distributed all of the life insurance proceeds to herself, individually. And later, when the insurance company paid $80,000 from a lawsuit settlement to Sandra, as trustee of the 1990 Life Insurance Trust, she again deposited the funds to an account in her individual name.

On October 12, 2005, Sandra's attorneys created the SS Kemp Trust to replace the Green Tree Trust. Despite being named as a trustee of the SS Kemp Trust, Alexander had no knowledge that the trust was created, never signed the trust agreement, and only discovered the trust's existence after initiating this litigation. The SS Kemp Trust was different from the Green Tree Trust in several material respects, including that Sandra reserved the right to unilaterally designate all of the trust property to pass to her future spouse or siblings, among others. In 2007, Sandra entered a new management contract for the operation of Wake Forest University's dialysis clinics, referenced supra , but she did so via a company owned by the SS Kemp Trust, instead of the one owned by the Green Tree Trust, which had been created by her late husband. The business model was identical to that created by Alex in 2004, except for the different terms set forth in the SS Kemp Trust. Subsequently, Sandra, as managing member of a new dialysis-management company owned by the SS Kemp Trust, contracted with Emory University to manage its dialysis clinics. While the marital trust and Alexander had an interest and a reasonable expectancy in the profits from this new business opportunity, the profits derived from this business were distributed solely to Sandra, outside of trust.

On October 11, 2013, Sandra created yet another irrevocable trust, the SSK Kemp Trust, to replace the SS Kemp Trust and to own 99 percent of the dialysis-management business. Under this trust's terms, Sandra was the trustee and several other individuals were her co-successors, but Alexander was neither a trustee nor a successor trustee. Indeed, prior to filing this lawsuit, Alexander had never even seen the SSK Kemp Trust. Sandra was the lifetime beneficiary of the trust, and after her death, all trust property was to be distributed to her grandchildren. Thus, the SSK Kemp Trust, unlike the Green Tree Trust from which it originated, excluded Alexander as a beneficiary.

On June 9, 2014, Alexander, individually and on behalf of his minor children, filed a complaint against Sandra, personally and as trustee of the above-referenced trusts, as well as various businesses that were owned by those trusts. The complaint asserted, in ter alia , claims for “breach of trust, misappropriation of corporate opportunity, self-dealing, conspiracy to commit breach of trust, and aiding and abetting in breach of trust.” In relevant part, Alexander contended that, as trustee of the marital trust, Sandra had “pursued and misappropriated opportunities belonging to the [m]arital [t]rust” and “entered into various businesses that compete directly with the [m]arital [t]rust.” In addition, Alexander sought preliminary and permanent injunctive relief, requesting that Sandra be immediately removed as trustee of the marital trust and Alexander be appointed as successor trustee.

Shortly after the complaint was filed, the trial court issued a temporary restraining order, providing that all defendants in the case were

restrained and enjoined from diverting, transferring, selling, secreting, encumbering, trading, pledging as collateral, contracting to sell, concealing, or otherwise disposing of or removing from the jurisdiction of [the court] any of the assets, property, contracts, equipment, accounts, corporate opportunities, or the like of any of the [d]efendant entities, [d]efendants, the [m]arital [t]rust, and [a “new trust” referenced in a letter by Sandra's attorney]—except as is customary and in the ordinary course of business and is necessary to maintain ongoing operations.

In addition, the trial court prohibited the parties from “destroying or secreting” certain records relevant to the litigation and granted Alexander access to various records and documents in the defendants' custody and control. The order also provided that all documents exchanged in discovery must remain confidential and that the complaint and any further pleadings would remain sealed as long as the temporary restraining order was in effect.

Subsequently, after the defendants filed their answers to the complaint, the trial court issued a consent order, extending the temporary restraining order until September 11, 2014, and ordering Sandra to take several actions with respect to the trusts at issue. But notwithstanding the restraining order, Sandra, intentionally and in violation of the order, transferred approximately $4,800,000 in assets held in her individual name to a new trust that was intended to replicate the 1990 Life Insurance Trust. Additionally, she purchased a new home with personal funds.

On September 3, 2014, Alexander filed an application for a contempt order against Sandra for alleged violations of the temporary restraining order. Specifically, Alexander requested an order holding Sandra in civil contempt of court, ordering her to pay a $1,000 fine for each “disobedient act,” ordering her to comply with the trial court's orders at all times, and awarding Alexander reasonable attorney fees for filing the application. According to Alexander, Sandra had breached at least two provisions of the trial court's temporary restraining order by spending $250,000 in personal funds to purchase real estate, transferring approximately $4,800,000 in securities to a new life insurance trust, listing her personal residence for sale, and disclosing the contents of the complaint and the allegations contained therein to third parties.

On October 14, 2014, the trial court granted Alexander's petition for preliminary injunctive relief. After setting forth its detailed findings, the court ordered, inter alia , that Sandra be temporarily removed as trustee of the “Kemp Trusts”3 and that Alexander be appointed as temporary trustee of those trusts. A few days later, the trial court issued another order, holding Sandra in civil contempt of its temporary restraining orders and awarding Alexander attorney fees incurred in pursuing his contempt petition. In that order, the court noted that Sandra admitted disposing of approximately $250,000 of her assets by purchasing certain real estate, she impermissibly transferred approximately $4,800,000 in securities to a life insurance trust, and she admitted making certain disclosures that violated “the spirit and the terms” of the orders' confidentiality provisions.

In late October 2014, Alexander filed the motion giving rise to this appeal, which sought...

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