Rollins v. LOR, Inc.

• Decision Date: 21 May 2018
• Docket Number: A18A0638,A18A0668
• Citation: 815 S.E.2d 169
• Parties: ROLLINS et al. v. LOR, INC., et al. LOR, Inc., et al. v. Rollins et al.
• Court: Georgia Court of Appeals

345 Ga.App. 832

815 S.E.2d 169

ROLLINS et al.

v.LOR, INC., et al.

LOR, Inc., et al.

v.Rollins et al.

A18A0638

A18A0668

Court of Appeals of Georgia.

May 21, 2018

H. Lamar Mixson, Timothy Scot Rigsbee, Robert L. Ashe III, Atlanta, Thomas G. Rafferty, Antony L. Ryan, Samira Shah, for Appellant in A18A0638.

Alan William Bakowski, James Andrew Lamberth, Atlanta, William N. Withrow Jr., for Appellee in A18A0638.

Alan William Bakowski, James Andrew Lamberth, Atlanta, William N. Withrow Jr., for Appellant in A18A0668.

H. Lamar Mixson, Timothy Scot Rigsbee, Robert L. Ashe III, Atlanta, Thomas G. Rafferty, Antony L. Ryan, Samira Shah, for Appellee in A18A0668.

Dillard, Chief Judge.

These consolidated appeals involve various interfamilial disputes over the alleged mismanagement of a family business associated with a large estate. Specifically, Gary Rollins’s four children, who are trustees of a marital trust established solely for the benefit of their mother (collectively, the "trustees"), sued LOR, Incorporated ("LOR"); their father, Gary; and their uncle, Randall Rollins (collectively, the "LOR Defendants"). The trustees asserted several claims on behalf of the trust, which is a minority shareholder of LOR, including, inter alia , that Gary and Randall breached their fiduciary duties to the trust in myriad ways, improperly converted trust assets to their own use, committed corporate waste, and engaged in self-dealing. The LOR Defendants moved for summary judgment, and the trial court granted the motion as to the majority of the trustees’ claims, finding that they were time-barred or should have been brought in a derivative action, but denied it as to the remaining claims.

In Case No. A18A0638, the primary appeal, the trustees argue that the trial court (1) erroneously found that the statute of limitation as to several of their claims was not tolled by fraudulent concealment; (2) misapplied a prior decision of this Court in a related case¹ in rejecting their challenge to LOR’s dividend policies; and (3) erred in granting summary judgment as to their breach-of-fiduciary-duty claim related to the creation and distribution policies of certain partnerships, which decreased the dividends distributed to the marital trust.

And in Case No. A18A0668, the cross-appeal, the LOR Defendants argue that the trial court erred in finding that (1) absent the time-bar, the trustees’ breach-of-fiduciary-duty claim regarding the aforementioned partnerships could survive summary judgment; (2) the trustees’ theory of damages as to some of their claims was not too speculative to be decided by a jury; (3) the trustees could, on behalf of the trust, bring direct claims for alleged mismanagement of LOR and corporate waste; (4) the trustees’ claims were not barred by a release signed by their mother, the sole beneficiary of the trust; and (5) the trustees’ claims that Gary and Randall’s personal use of certain LOR assets was unfair to the corporation could be brought as direct claims and were not barred by the aforementioned release.

For the reasons set forth infra , we affirm in the primary appeal and reverse in the cross-appeal.

Creation and Structure of LOR

The factual background necessary to understand this case is lengthy and involves decades of estate-planning and business decisions related to various Rollins family entities and trusts. But in relevant part, and viewing the evidence in the light most favorable to the trustees (i.e. , the nonmoving parties),² the record establishes that the four appellant trustees in this case are the children of Gary and Ruth Rollins: Glen Rollins, Ruth "Ellen" Rollins, Nancy Rollins, and O. Wayne Rollins, II. In 1978, Gary and Randall’s father (and the trustees’ grandfather), O. Wayne Rollins, Sr.,³ founded LOR as a way to manage the family’s wealth. Then, in 1986, O. Wayne elected for LOR to be taxed as a closely-held "S-corporation," which meant that it would not be subjected to federal income taxes, and instead, those taxes would pass through to LOR’s shareholders. When O. Wayne made this election, he also set up nine "Qualified S-trusts" to hold stock in LOR for the benefit of each of his grandchildren, and Gary was the trustee for each of his children’s S-trusts. Under the terms of the S-trusts, the assets of each trust were to be distributed to its beneficiary when each grandchild turned 45 years old, but until then, LOR’s non-voting stock was held by O. Wayne, Gary, Randall, and the nine S-trusts collectively.

Initially, O. Wayne held the majority of the voting stock, while his sons, Gary and Randall, were minority shareholders. But when O. Wayne died in 1991, his LOR stock passed to Gary and Randall, and since that time, they have possessed all of the LOR voting stock and have had sole control of the corporation. Also, upon O. Wayne’s death, Randall became president of LOR, Gary became vice president, and Joe Young, who served as secretary-treasurer of LOR, was appointed to become the third member of LOR’s board of directors. Years later, when Young resigned, Donald Carson became president of the Rollins family office and replaced Young as the third LOR board member.

The 1993 Gary W. Rollins Marital Trust

In 1993, after consultation with their attorneys and Glenn Grove, a senior LOR official, Gary and Randall initiated the Rollins Family Capital Preservation Plan (the "capital plan"), which included a series of estate-planning transactions. As part of the capital plan, Gary transferred a lifetime interest in his LOR non-voting stock (i.e. , 56,507 shares) to the newly created 1993 Gary W. Rollins Marital Trust (the "marital trust"), an irrevocable trust for the sole benefit of his wife, Ruth, with their children designated as the trustees. During her life, Ruth was to be the sole beneficiary of the marital trust, and under its terms, Gary had no right to or interest in any of the trust property. Further, the marital trust was established as a grantor trust, which means that Gary was the grantor and was liable for any taxes on the trust’s income. Notwithstanding those provisions, in January and March 1995, Gary transferred a total of $5,675,000 from the marital trust’s bank account into his personal account.

Additionally, on various occasions between 2001 and 2008, a total of $8,336,311 in dividends declared by LOR and owed to the marital trust were used to pay taxes directly to the Internal Revenue Services rather than to the trust.⁴ Since 1993, the marital trust has held approximately 18.3 percent of LOR’s outstanding non-voting stock, which Gary previously held individually, and the trust’s only income is the payout of dividends distributed to it by LOR.

In December 1993, Gary held a family meeting with Ruth and their children, at which Grove informed them of the new capital plan, but neither Gary nor Grove explained any of the transactions in detail. Instead, the trustees were simply told that Gary and Grove "had planned some transactions for the family involving trusts for which [Gary] would serve as [the] trustee during his lifetime and [Glen] and [his] siblings ... would serve as trustees thereafter." Gary and Grove "seemed excited and happy about the transactions[,]" which gave the trustees "the impression that the transactions were a good thing for the family." At some point following the meeting, the trustees, at Gary’s request, signed a series of blank, unnumbered signature pages, which included only a signature line with their names followed by the designation "Trustee" or "Grantor" without indicating to what document or entity the signature page related. The trustees either did not review or could not remember reviewing the trust documents before signing the signature pages, but in any event, those signature pages were later appended to the corresponding trust instruments.⁵ This was not necessarily unusual because, from time to time over the years, Gary or the Rollins family office asked the trustees to sign signature pages without giving them the full documents to review.

In signing the 1993 trust documents, the trustees relied on their father’s representation that he would serve as the trustee of the marital trust until his death, at which point they would become the trustees. And thereafter, whenever the trustees were asked to sign documents related to the marital trust, they were told that their signatures were needed "for administrative purposes without any explanation of the documents or transactions and that [their] father was taking care of the marital trust." Additionally, although Glen maintains that he was unaware that he was a trustee of the marital trust, he signed the trust’s tax returns every year from 1995 until 2009 above the designation "signature of fiduciary," without questioning why he was being asked to do so. According to Glen, he signed the tax returns because he had "a relationship of trust and confidence with [his] father and the Rollins family office," and he continued to rely on Gary’s representations that he would not actually become a trustee of the marital trust until Gary passed away but that his signature was nevertheless needed for administrative purposes.

The Shareholder Agreements

On February 19, 1994, the trustees each signed the signature page for the "1994 Master Custody Agreement," above the denomination "trustee" and below the account name, "THE 1993 GARY W. ROLLINS MARITAL TRUST." The 1994 agreement established a custodial account for the marital trust with The Northern Trust Company and provided that all communications regarding the account be sent to LOR, rather than the trustees. Thereafter, Grove, as an officer of LOR, consulted Gary, rather than the trustees or Ruth, in determining the distributions to be paid to Ruth from the trust. Indeed, the marital trust was administered through Gary and the family office without any consultation with the trustees, but Gary continued to assure them that he was "taking care" of the trust.⁶ While the trustees do not...