Nalley v. Langdale

• Decision Date: 30 November 2012
• Docket Number: A12A1606,A12A1605,A12A1603,Nos. A12A1602,A12A1607.,A12A1604,s. A12A1602
• Citation: 734 S.E.2d 908
• Parties: NALLEY et al. v. LANGDALE. Nalley et al. v. Langdale. Nalley et al. v. The Langdale Company. Nalley et al. v. Langdale. Nalley et al. v. Langdale. Langdale v. Nalley et al.
• Court: Georgia Court of Appeals

734 S.E.2d 908

NALLEY et al.

v.LANGDALE.

Nalley et al.

v.Langdale.

Nalley et al.

v.The Langdale Company.

Nalley et al.

v.Langdale.

Nalley et al.

v.Langdale.

Langdale

v.Nalley et al.

Nos. A12A1602, A12A1603, A12A1604, A12A1605, A12A1606, A12A1607.

Court of Appeals of Georgia.

Nov. 30, 2012.

James E. Butler Jr., John Coleman Morrison III, Columbus, George W. Fryhofer III, Tedra Cannella Hobson, Atlanta, William E. Moore Jr., Gregory Alan Voyles, Valdosta, for Appellants.

H. Jerome Strickland, Matthew Thomas Strickland, Christopher James Arnold, Macon, John M. Tatum, Rachel Christina Young, Matthew Charles Henderson, Savannah, William Edward Holland, Valdosta, William V. Custer IV, Raymond Joseph Burby IV, Edwin Montgomery Cook, Atlanta, Frank Faison Middleton IV, Evans J. Plowden Jr., Louis Edward Hatcher, Sarah Finney Kjellin, Albany, for Appellee.

ELLINGTON, Chief Judge.

These consolidated cases concern a trust created in 1959 by Judge Harley Langdale, Sr. (“Judge Langdale”). The plaintiffs, who are beneficiaries under the trust or their legal representatives, filed suit in the Superior Court of Lowndes County, claiming, inter alia, that the trustees breached their fiduciary duties in administering the trust and in distributing the trust corpus, which was comprised of stock held in The Langdale Company (“TLC”). The parties filed cross-motions for summary judgment, which the trial court granted in part, largely in favor of the defendants. The plaintiffs appeal, and one of the former trustees, defendant Harley Langdale, Jr. (“Harley Jr.”), has filed a cross-appeal. For the reasons explained below, we affirm in part and reverse in part.

In order to prevail on a motion for summary judgment under OCGA § 9–11–56,

the moving party must show that there exists no genuine issue of material fact, and that the undisputed facts, viewed in the light most favorable to the nonmoving party, demand judgment as a matter of law. Moreover, on appeal from the denial or grant of summary judgment[,] the appellate court is to conduct a de novo review of the evidence to determine whether there exists 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.

(Citations omitted.) Benton v. Benton, 280 Ga. 468, 470, 629 S.E.2d 204 (2006).

1. Viewed in the light most favorable to the nonmovants, the record shows the following relevant facts.

(a) The Langdale Company. In 1947, Judge Langdale incorporated TLC,¹ a closely-held, family-owned business headquartered in Valdosta. The ownership of TLC was initially divided evenly between its first directors, Judge Langdale and his three sons, Harley Jr., John Langdale Sr. (“John Sr.”), and William Langdale (“Billy.”) Judge Langdale also had a daughter, Virginia Langdale Miller (“Virginia”). Between 1956 and 2000, each of the sons served a few years as an officer of TLC or a member of the Board of Directors, and Virginia served as a director for approximately 12 years.

Over the years, TLC appraised its stock ² using the “Stanley methodology,” a formula developed by Dr. Kenneth Stanley, a professor in the business school at Valdosta State College and a paid consultant of TLC, for estimating the value of stock in private, closely-held corporations. According to Stanley, because there typically is no active market for a minority interest in a private, closely-held corporation, it is difficult to estimate the value of the stock.³

There is some evidence that a disagreement existed in the Langdale family concerning the governance of TLC. Billy and his sons formed one faction, and Harley Jr., John Sr., and John Sr.'s son, John W. Langdale, Jr. (“Johnny”) formed the other. There is some evidence that Harley Jr., John Sr., and Johnny planned to consolidate ownership and control of TLC in Johnny's line of descendants.⁴ There is no evidence, however, that Billy and his sons actively competed for control of TLC. Billy and his sons sold their interest in TLC to the company in 2009 following a lawsuit.⁵

The record shows that, beginning in 1976, TLC executed a number of shareholders' agreements restricting the sale of TLC stock. On February 25, 1994, all of TLC's shareholders, including the trust through its trustees, Harley Jr. and John Sr., entered into a new shareholders' agreement governing the purchase and sale of TLC stock. The 1994 shareholders' agreement provided that no shareholder could sell or transfer TLC stock to a third party without first offering to sell or transfer the stock to TLC or the remaining shareholders. It also provided that the “agreed value [of the stock] shall be arrived at using a new evaluation employing the same methods and guidelines used by [Stanley] in his appraisal dated the 29th day of December 1993, and using [TLC's] profit and loss statements for the fiscal year immediately preceding the date of evaluation.”

(b) The Trust Agreements. Judge Langdale sought to provide for his daughter, Virginia, who was not one of the original TLC shareholders, by placing his shares of TLC stock in trust for her and for her descendants. On December 8, 1959, Judge Langdale executed an irrevocable trust agreement for her benefit. ⁶ Judge Langdale, on that same day, funded the trust with his interest in TLC, 250 shares of common stock. He appointed John Sr. and Harley Jr. as co-trustees, and both co-trustees signed the trust agreement. The trustees controlled the trust property, and were given wide discretion to manage and invest the trust corpus as the “[t]rustees may deem advisable.” This discretion included selling or transferring trust holdings “either at public or private sale, at such prices and places and at such times as they consider[ed] best, without advertisement” or court order, in “their uncontrolled discretion,” so long as it was “in the best interest of [the] Trust.”

At the time the trust was created, Virginia had three living children, Langdale Nalley (“Dale”), James R. Miller (“Jimmy”), and Virginia Ruth Miller. The trust agreement provided that the net income of the trust was to be distributed annually to Virginia and her children and that, after the death of Virginia, “the net income shall be divided annually into as many shares as there are children of [Virginia] living and deceased children with lineal descendants living.” The agreement also provided that the trust “shall terminate on the 21st anniversary of the death of the last surviving beneficiary who was in life at the date of the execution” of the agreement, that is, Virginia, Dale, Jimmy, and Virginia Ruth. On the date that the trust terminated, the agreement directed that “[a]ll property remaining in the corpus of [the] Trust shall then, or as soon thereafter as practicable, be distributed to the persons then entitled to the income, to be theirs absolutely in the same proportion as they are entitled to the income.” Thus, this agreement was a generation-skipping trust.⁷

On December 16, 1959, John Sr. sent a conformed copy ⁸ of this agreement to Virginia and to Judge Langdale's accountant. A 1997 letter to Harley Jr. from Virginia's estate planning attorney indicated that both Virginia and her attorney believed the trust agreement was the operative agreement and noted that “the Trust works very well for Virginia and her descendants, in that it skips generations for estate tax purposes [.]” Virginia's accountant, who also had a copy of the generation-skipping trust agreement, had the same understanding of the trust.

Almost immediately after executing the generation-skipping trust agreement, however, Judge Langdale apparently changed his mind ⁹ about when the trust should terminate, and he executed a new trust document, the “1999 terminating trust agreement.” ¹⁰ The terms of the 1999 terminating trust agreement and the generation-skipping trust agreement are almost identical. Both agreements provide that the corpus of the trust would be comprised of 250 shares of TLC common stock, name John Sr. and Harley Jr. as co-trustees, and provide that the net income of the trust is to be distributed annually to Virginia and to her children equally, with her grandchildren to receive per stirpes the share of a deceased parent. Unlike the generation-skipping trust agreement, however, the 1999 terminating trust agreement provides that “[the] Trust shall terminate on the 31st day of December, 1999. All property remaining in the corpus of this Trust shall then, or as soon thereafter as practicable, be distributed to the persons then entitled to the income, to be theirs absolutely in the same proportion as they are entitled to the income.”

Harley Jr. served as a co-trustee of the trust until December 27, 2010, and he was the trustee who primarily communicated with the income beneficiaries. John Sr. served as a co-trustee until a serious illness prompted him to resign on December 30, 1994.¹¹ His son, Johnny, succeeded him as a co-trustee in 1994 pursuant to a document executed in October 1993 by Harley Jr. and John Sr. ¹² The plaintiffs contend that they were not aware that Johnny had been appointed trustee. Johnny, however, was aware that he was a trustee. On May 27, 1999, Johnny resigned as trustee with the consent of the trust's beneficiaries. Bob, Billy's son, was appointed to replace Harley Jr. in 2010.

(c) The Sale and Distribution of the Trust Corpus. It is unclear from the record who initially proposed allowing TLC to redeem the stock held in the trust. The record shows, however, that discussions concerning the disposition of that stock were underway in late 1997. On August 8, 1997, Virginia's lawyer, Jay Reynolds, wrote to Harley Jr. and asked for information concerning the trust, its assets, and its trustees, so he could advise Virginia about her estate planning. On August 13, Harley Jr. responded, informing Reynolds that the value of the stock was difficult to estimate and that TLC had used the Stanley...