Mayfield v. Heiman

• Decision Date: 16 July 2012
• Docket Number: No. A12A0355.,A12A0355.
• Citation: Mayfield v. Heiman, 730 S.E.2d 685, 12 FCDR 2529 (Ga. App. 2012)
• Parties: MAYFIELD et al. v. HEIMAN et al.
• Court: Georgia Court of Appeals

730 S.E.2d 685

12 FCDR 2529

MAYFIELD et al.

v.HEIMAN et al.

No. A12A0355.

Court of Appeals of Georgia.

July 16, 2012.

James Everett Voyles, Mark Fielding Milhollin, Kennesaw, Patrick Bryant Moore and Ross David Ginsberg, Atlanta, for Appellant.

Anthony L. Cochran, Todd Philip Swanson, Paul Willard Burke and Eric Rosson Mull, Atlanta, for Appellee.

PHIPPS, Presiding Judge.

Curtis Mayfield III and Sharon Lavigne (“the beneficiaries”) sued Marvin Heiman, Sussex Financial Group, Inc., an accounting firm, and others for their alleged mismanagement of a family trust created by their father, a singer-songwriter and record producer, Curtis Mayfield, Jr., who died in 1999. The beneficiaries alleged against Heiman and the other defendants a cause of action for breach of fiduciary duty and “breach of trust (and self-dealing).” Some of the defendants were dismissed from the case, but Heiman and Sussex were not. Both sides moved for summary judgment. The trial court denied summary judgment to the beneficiaries and granted summary judgment to Heiman and Sussex.

The beneficiaries appeal, contending that the trial court erred by: (1) finding that their claims accrued at the time a loan transaction was closed; (2) granting summary judgment to Heiman and Sussex because genuine issues of material fact remain as to whether the beneficiaries exercised “due care” to discover their cause of action before the statute of limitation had expired; (3) not applying law which excused them, as beneficiaries of the trust, from exercising due care to discover fraud, during the existence of the trust; (4) misinterpreting OCGA § 9–3–96; (5) transferring the case to “Business Court”; (6) opening a default judgment against the accounting firm; and (7) finding that there was no basis to impose liability for damages caused by the tax strategy rendered in this case. Finding no error, we affirm.

“On appeal from the grant of summary judgment this Court conducts a de novo review of the evidence to determine whether there is a genuine issue of material fact and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law.” ¹

Viewed in the light most favorable to the beneficiaries, the record reveals that the beneficiaries had a contingent interest in the Mayfield Family Trust (“MFT” or “Trust”). Heiman served as co-trustee of the Trust from 1999 until 2003.² Heiman was the president of Sussex, an entity that performed investment and management services for the Trust.

At the center of the dispute was a loan (or “securitization”) transaction that Heiman entered into on May 4, 2000, on behalf of the Trust. In that transaction, the Trust (through a corporate entity, “MFT–I, LLC”) received proceeds from a loan which was to be repaid from the royalty stream of, among other things, certain copyright interests which the Trust/MFT–I purchased from the beneficiaries and pledged to a lender for the loan. As part of that transaction, on March 17, 2000, the beneficiaries each signed a Renewal Term Acquisition Agreement, whereby they sold to the Trust/MFT–I, for $65,000 each, their individual rights to certain copyrighted works of Curtis Mayfield, Jr.

The acquisition agreement pertinently provided:

[E]ach of the Assignors [pertinently, Curtis Mayfield III or Sharon Lavigne] represents, warrants, and covenants, for him or herself alone, undertakes and agrees for him or herself only ... (c) that ... each has been represented by independent counsel selected by each in connection with the negotiation and execution of this Agreement ... and (d) that he or she will indemnify and hold Assignee [Heiman], its successors, assigns and licensees, forever harmless.... In consideration of Assignee acquiring all Renewal Term Rights as in this Agreement provided, and in reliance upon the warranties and representations made by Assignors herein, Assignee will pay to each Assignor [pertinently, Curtis Mayfield III or Sharon Lavigne] (i) $65,000 within 5 days after Assignee receives its Loan proceeds from UCC Lending Corp.... The amount to be paid pursuant to (i) above has been computed on the basis of the following factors: (a) the number of Assignors; (b) the value of the Writer's [Curtis Mayfield, Jr.'s] share of the Renewal Term Rights based on values utilized by UCC Lending in determining the Loan amount ... (e) the fact that this Agreement is being executed by only 80% of the Writer's widow and children, and (f) that payment is being made only for the so-called Writer's Share of royalties and not the Publisher's Share. Each Assignor acknowledges his or her understanding thereof. The right of each of the individuals comprising Assignors to receive payment as aforesaid is conditioned on his or her full compliance with all of the terms, covenants and conditions herein contained.

The acquisition agreement further provided that it “shall be rescinded if UCC Lending Corp does not fund its loan to [Heiman] prior to June 30, 2000 and all Renewal Term Rights shall revert to the Assignors [pertinently, Curtis Mayfield III and Sharon Lavigne].” The same day the beneficiaries signed the acquisition agreement, they each also signed a “Fee Agreement” document, granting Heiman a power of attorney to negotiate the sale or other disposition of each beneficiary's copyright interests and agreeing,that in exchange for Heiman's services, Heiman “shall receive a fee/commission of ten percent (10%) of the gross sum obtained from the sale or other disposition” of their copyright interests.

Five days after executing the acquisition agreement, Curtis Mayfield III sent to Altheida Mayfield documentation entitled “Understanding Securitization.” Curtis Mayfield III noted to Altheida Mayfield that he was sending her the information because he thought it might be of some use to her, that the document explained in detail “some of the things that happen” in a securitization transaction, and that “Marv did take the time to explain it to me but I had to get some more documentation so that I could digest it at my own pace.”

The loan amount to the Trust was $5.41 million. Heiman received a commission of $541,000 from the loan transaction. The beneficiaries each received $65,000 for their copyright interests.

The beneficiaries moved for partial summary judgment on the ground of Heiman's “breach of the duty to exercise prudence in dealing with trust assets.” They claimed that “Mr. Heiman caused the trust to enter into a securitization transaction although all signs indicated it would result in a loss of millions of dollars to the MFT.” The beneficiaries claimed that Heiman was “motivated to close the transaction by the promise of a $541,000 commission,” and that the undisputed facts were sufficient as a matter of law to find that Heiman breached a duty of trust by his “failure to exercise prudence.”

Heiman and Sussex moved for summary judgment, arguing, among other things, that the beneficiaries' suit was barred by the statute of limitation. The trial court agreed, finding no facts to support the beneficiaries' argument that the statute of limitation was tolled by any alleged fraudulent conduct of Heiman and Sussex. In opposition to Heiman's and Sussex's motion for summary judgment, the beneficiaries claimed that Heiman was responsible for the “disastrous tax consequences” to the Trust in connection with the loan transaction.

The trial court held that because the loan transaction closed on May 4, 2000, and the beneficiaries did not file suit until January 11, 2007, they were outside the applicable six-year statute of limitation. The court rejected the beneficiaries' argument that their claim did not begin to accrue until May 2004, when the future loan payments exceeded the loan proceeds and harm thus occurred to the Trust. The court found that the beneficiaries failed to show that the loan transaction was concealed from them and that they were diligent in discovering any alleged imprudence in the transaction.

1. The beneficiaries contend that the trial court erred by finding that the statute of limitation on their claims began to run when the loan transaction was closed in 2000. They claim that the statute of limitation did not begin to run until 2004 when “appreciable harm” occurred to the Trust because it had to repay the loan with payments that exceeded net loan proceeds.

“A cause of action for breach of fiduciary duty in the management of a trust, as we have here, begins to run at the time the wrongful act accompanied by any appreciable damage occurs.” ³ In Allen v. Columbus Bank & Trust Company,⁴ a case involving alleged mismanagement of a trust and breach of fiduciary duty, we held that “it [was] clear that each time [the trustee] made an investment which the beneficiary deem[ed] to have constituted mismanagement, the trust was detrimentally affected, a cause of action accrued in favor of [the beneficiary], and the ... statute of limitation began to run.” ⁵

Here, the beneficiaries claimed that Heiman and Sussex committed a breach of fiduciary duty and breach of trust when they entered into the loan transaction. Thus, the Trust was allegedly detrimentally affected when the loan transaction closed in 2000.⁶ Accordingly, the trial court properly found that the statute of limitation on the beneficiaries' claims began to run at the time the loan transaction was closed in 2000.

2. The beneficiaries contend that the trial court erroneously granted summary judgment to Heiman and Sussex because genuine issues of material fact remain as to whether the beneficiaries exercised “due care” to discover before the six-year statute of limitations had expired that the loan transaction was imprudent.

Former OCGA § 53–12–198(a),⁷ in effect at all times relevant to this case, provided that a cause of action for a beneficiary's claim for breach of trust against a trustee must be commenced within six years after receipt of a written report that...