Rollins v. Rollins

• Decision Date: 23 November 2015
• Docket Number: No. S15G0567.,S15G0567.
• Citation: 780 S.E.2d 328,298 Ga. 161
• Parties: ROLLINS, et al. v. ROLLINS, et al.
• Court: Georgia Supreme Court

298 Ga. 161

780 S.E.2d 328

ROLLINS, et al.

v.ROLLINS, et al.

No. S15G0567.

Supreme Court of Georgia.

Nov. 23, 2015.

John J. Dalton, Alan William Bakowski, James Andrew Lamberth, Katie Lamb Balthrop, Troutman Sanders, LLP, Sidney Leighton Moore, III, Summerville Moore, PC, Atlanta, for appellant.

H. Lamar Mixson, Timothy Scot Rigsbee, Lisa Rosenblum Strauss, Bondurant, Mixson & Elmore, LLP, Atlanta, for appellee.

H. Jerome Strickland, Sr., Jones, Cork & Miller, LLP, Macon, for amicus appellant.

BENHAM, Justice.

This dispute over trust management and other related issues has again come before this Court as a result of our grant of the defendants' petition for certiorari. Many details of the trusts and other entities involved in the dispute have been set forth in the initial opinion of the Court of Appeals, Rollins I;¹ the opinion of this Court upon our initial grant of certiorari review, Rollins II;² and the second opinion of the Court of Appeals upon our remand of the case to that court for further consideration, Rollins III.³ Here, we will attempt to set forth the facts and procedural posture of the case only as necessary for an understanding of our holding and, to the extent possible, to clarify and simplify the complicated structure of the trusts involved in the case and the assets held in the trusts. Confusion may result when the defendants are referred to simply as "trustees," since there are three defendants, and each of them are not involved in each allegation of wrongdoing. Moreover, with respect to the various transactions at issue in the case, one or more of the defendants may have acted as trustee, partner, or corporate manager. Consequently, in this opinion we use the term "trustee" or "trustees" only when referring to that actual status and, otherwise, we refer to the appellants as " defendants."

Each of the four plaintiffs/appellees is (or was until age 45 when the trust assets were transferred to him or her) the beneficiary of a Subchapter S–Trust established by their grandfather O. Wayne Rollins in 1986. Defendant Gary Rollins (Wayne's son and plaintiffs' father) is the trustee of these S–Trusts.⁴ Although at least two of the S–Trusts have now terminated as a result of the age of the beneficiary, and the assets of those trusts have been transferred to the individual beneficiary, for simplicity's sake we will refer to the interests originally held in these trusts as the S–Trusts.

In 1968, in what became an ongoing effort to establish a network of entities to preserve and convey assets to his heirs, Wayne first established the Rollins Children's Trust ("RCT")⁵ , and each of his grandchildren are the beneficiaries of RCT. Wayne created several family entities to hold RCT's assets, including Rollins Holding Company ("RHC") and LOR, Inc. ("LOR"). The S–Trusts hold minority interests in these family entities, and defendants Gary Rollins and his brother Randall Rollins are the managers of these entities. Later, in 1988, Wayne created a general partnership, Rollins Investment Fund, known as RIF. Each plaintiff's S–Trust is a partner in RIF, along with the S–Trusts of the other grandchildren; Gary, Randall, and the Estate of O. Wayne Rollins are also partners. Upon reaching age 45, a beneficiary's S–Trust is terminated and the beneficiary becomes a partner in RIF. As a result of this structure, most of the family-owned assets in dispute in this case are ultimately held in the RIF partnership and, until a plaintiff reaches age 45, each plaintiff's partnership interest is held in trust. The original partnership agreement authorized only pro rata distributions of cash flow to the partners "at such times as the [p]artners shall reasonably decide" to make distributions.

Wayne died in 1991. In 1993, the RIF partnership agreement was amended so that, inter alia, for the first time since its inception, non-pro rata distributions could be made in the form of redemptions from a partner's capital account. The amendment also changed the structure of the partnership by vesting exclusive authority to manage the partnership and make distribution decisions in Gary and Randall, who were named managing partners. This amendment to the partnership agreement is the catalyst around which all the disputes in this case revolve.

Gary and Randall contend that the primary purpose of this amendment was to permit Wayne's estate to redeem assets to fulfill a charitable pledge in a manner that permitted the remaining partners to avoid capital gains taxes on the assets that were liquidated. Several years after this amendment, Gary and Randall created a distribution program whereby the two of them, in their capacities as RIF managing partners, may authorize non-pro rata distributions from the partnership capital accounts of the S–Trusts, or directly to the partnership accounts of the grandchildren if their S–Trusts have terminated by virtue of their age, based upon a formula that includes a personal code of conduct for eligibility. Gary and Randall also created several new family entities controlled by them and funded by RCT assets. Gary and Randall contend these new entities were established primarily for the purpose of estate planning for future generations and also to minimize tax liability.

In their complaint, as amended, the plaintiffs raise claims of breach of fiduciary duty and breach of trust against the defendants in several particulars—by allegedly failing to make proper accountings to plaintiffs with respect to the S–Trusts and the family entities; by making trust investments in illiquid family-owned entities controlled by Gary and Randall, leaving the plaintiffs with unmarketable assets when the S–Trust assets are distributed free of trust to each beneficiary upon reaching the mandated age; by creating a distribution scheme that imposes a code of conduct upon each beneficiary to qualify for distributions from trust investments; by creating a conflict of interest as a result of Gary's and Wayne's roles as trustees of the S–Trusts and RCT while they are simultaneously managers of family entities held by the trusts; and by failing to maximize income distributions in favor of growing trust principal. Plaintiffs also assert claims for an accounting; constructive fraud/recision for failure to disclose and fraudulent misrepresentation regarding certain transactions for which Gary and Randall allegedly improperly obtained the plaintiffs' written consent; and for attorney fees. Plaintiffs seek monetary damages, the removal of the trustees of RCT and the S–Trusts, and other relief.

Both sides filed motions for summary judgment. The trial court ruled in favor of the defendants as to each of plaintiffs' claims, with the exception of the breach of trust claim for the defendants' failure, at any time prior to the filing of the lawsuit, to make required periodic accountings to the plaintiffs for the assets held in the trusts.⁶

In this case's first appearance before the Court of Appeals, in Rollins I, that court identified the following enumerations of error raised by the plaintiffs: the trial court's refusal to order an accounting of family entities held within the trusts; its refusal to find that various actions taken by Gary and Randall at the entity level, rather than the trust level, amounted to breaches of trust and fiduciary duty; its grant of the defendants' motion for summary judgment on the claim for constructive fraud and rescission with respect to the challenged transactions on the ground that the plaintiffs suffered no injury; and, in general, the grant of summary judgment to the defendants. Rollins I, supra, 321 Ga.App. at 140, 741 S.E.2d 251. The Court of Appeals reversed the trial court's ruling denying the plaintiffs' request for an accounting of the family-owned entities held in each plaintiff's S–Trust and remanded that issue to the trial court. Id. at 146(1), 741 S.E.2d 251. The Court of Appeals held that even though the S–Trusts hold only minority interests in the family-owned entities, under the facts of this case the requested information is within the control of the S–Trust trustees since Gary and Randall control these entities and it should be made available to the plaintiffs. Id. at 145(1), 741 S.E.2d 251. That court also held that Gary and Randall owe trustee-level fiduciary duties to the plaintiffs even with respect to decisions made at the entity level.

Id. at 150(2)(a), 741 S.E.2d 251. Applying that standard of care, the Court of Appeals concluded that issues of fact remain for a jury to determine with respect to the plaintiffs' claim that Gary and Randall improperly amended the RIF partnership agreement in a manner plaintiffs claim damaged them, thereby breaching Gary and Randall's fiduciary duty. Id. at 153(2)(b)(i), 741 S.E.2d 251. Likewise, that court also concluded a jury issue is created with respect to the plaintiffs' claim that Gary and Randall improperly failed to disclose certain facts to them regarding the amended partnership agreement, thereby creating liability for constructive fraud. Id. at 153 –154(2)(b) (1), 741 S.E.2d 251. Finally, the Court of Appeals concluded a question of fact exists with respect to the claim that the defendants wrongfully exceeded their scope of discretion under the trust instruments when they implemented a code of conduct for each plaintiff's eligibility for trust distributions and made allegedly arbitrary distributions amounting to a breach of trust. Id. at 156(2)(b)(ii), 741 S.E.2d 251.⁷

This Court granted the defendants' petition for certiorari review and reversed the Court of Appeals on two specific issues in Rollins II. Simply stated, this Court held the Court of Appeals erred with respect to its ruling that defendants owe the plaintiffs an accounting of the family entities, concluding that the Court of Appeals failed to give due deference to the trial court's discretion to grant or deny the equitable relief sought in the prayer for an accounting. 294 Ga. supra at 713(1), 755...