Snook v. Trust Co. of Georgia Bank of Savannah, N.A.

• Citation: 909 F.2d 480
• Decision Date: 21 August 1990
• Docket Number: No. 89-8412,89-8412
• Parties: James A. SNOOK, Kay Sessoms Hinson and Betty S. Prevatt, Plaintiffs-Appellants, v. TRUST COMPANY OF GEORGIA BANK OF SAVANNAH, N.A., Alexander Sessoms and Raymond Johnson, Co-Trustees u/a Alex K. Sessoms and Edna S. Sessoms; Alexander Sessoms, Individually and as an Officer and Director of Timber Products Company; and Donald R. Correll, Individually and as Vice President and Trust Officer of Trust Company of Georgia Bank of Savannah, N.A., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 480

909 F.2d 480

James A. SNOOK, Kay Sessoms Hinson and Betty S. Prevatt Plaintiffs-Appellants, v. TRUST COMPANY OF GEORGIA BANK OF SAVANNAH, N.A., Alexander Sessoms and Raymond Johnson, Co-Trustees u/a Alex K. Sessoms and Edna S. Sessoms; Alexander Sessoms, Individually and as an Officer and Director of Timber Products Company; and Donald R. Correll, Individually and as Vice President and Trust Officer of Trust Company of Georgia Bank of Savannah N.A., Defendants-Appellees.

No. 89-8412.

United States Court of Appeals Eleventh Circuit.

Aug. 21, 1990.

R.M. Guttshall, III, A.P. Guttshall, Houston, Tex., for plaintiffs-appellants.

John McTier, Valdosta, Ga., John B. Miller, Savannah, Ga., William U. Norwood, III, Alexander & Vann, Thomasville, Ga., for defendants-appellees.

Appeal from the United States District Court for the Middle District of Georgia.

Before JOHNSON, Circuit Judge, HILL ^* and HENLEY ^**, Senior Circuit Judges.

HENLEY, Senior Circuit Judge:

This case between trust beneficiaries and trustees is before this circuit for the second time. In Snook v. Trust Co. of Georgia Bank of Savannah, N.A., 859 F.2d 865 (11th Cir.1988) [hereinafter Snook I ], the court reversed the district court's ¹ order granting summary judgment in favor of the defendants-trustees and remanded for further proceedings. The Snook I panel also noted that the district court had denied the plaintiffs' motion for a preliminary injunction enjoining the trustees from using trust income to pay their attorney's fees during the course of this case and related litigation, but declined to reverse that ruling because the plaintiffs had filed a new motion for similar injunctive relief subsequent to the district court's denial order. See 859 F.2d at 872. On remand the district court again denied the plaintiffs' motion to enjoin the trustees' payment of attorney's fees from trust income. The latter order is the subject of the present appeal. We affirm.

I.

We assume familiarity with the facts of Snook I and will only summarize those facts while giving additional information relevant for this appeal. The plaintiffs--James A. Snook, Kay Sessoms Hinson and Betty S. Prevatt--are beneficiaries under trust indentures created by Alex K. Sessoms ("AKS Trust") and Edna S. Sessoms ("ESS Trust"). Since 1985 the plaintiffs have been in litigation with the trustees of the AKS and ESS Trusts concerning the tax consequences of the trustees' 1984 liquidation of Timber Products Company ("TPC"), of which the AKS Trust was the principal shareholder and the plaintiffs were among the minority shareholders.

The plaintiffs originally brought suit in the Superior Court of Chatham County, Georgia, alleging that the manner in which trustees liquidated TPC was in breach of their fiduciary duties and in contravention of the AKS Trust terms, trust accounting principles and federal tax law. In response the trustees filed a declaratory judgment action against Snook, Hinson and Sessoms in the Superior Court of Clinch County, Georgia, charging that the beneficiaries had violated the AKS Trust in terrorem clause by attempting to change the trust terms through the Chatham County litigation. The Clinch County Superior Court agreed with the trustees and held that the beneficiaries had contravened the in terrorem clause and thereby had extinguished their right to future trust income. The Georgia Supreme Court reversed the Clinch County Superior Court, however, determining that the beneficiaries had not violated the in terrorem clause because "their complaints are directed against the trustees, and did not constitute an attempt to change any terms of the trust." Snook v. Sessoms, 256 Ga. 482, 350 S.E.2d 237, 238 (1986). Later the plaintiffs voluntarily dismissed the Chatham County lawsuit and filed their complaint in the instant action, alleging violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) (1988); rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. Sec. 240.10b-5 (1989); the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968 (1988); as well as pendent state law claims generally alleging that the trustees violated the AKS trust terms and breached their fiduciary duties.

The plaintiffs assert that the trustees have used AKS Trust income without prior judicial authorization to pay their attorney's fees in the Chatham County, Clinch County, and current federal litigation, as well as in tax litigation relating to the TPC liquidation. ² The plaintiffs contend that the trustees' use of trust funds to pay attorney's fees in all of this litigation is not permitted under either the terms of the AKS and ESS Trusts or Georgia law unless the trustees have first demonstrated to a court that the plaintiff's charges are unfounded. The plaintiffs filed a motion with the district court for the following equitable relief: (1) to enjoin the trustees from using income from either the AKS Trust or the ESS Trust to pay attorney expenses in the present case until the trustees have demonstrated their innocence of any wrongdoing by prevailing on the merits; (2) to require the trustees to return to the AKS Trust all income taken thus far to pay their attorney expenses in this case and the other litigation noted above; and (3) to order the trustees to distribute to the AKS Trust beneficiaries the income returned by the trustees.

In denying the plaintiffs' motion, the district court commented that it "need not determine whether the [t]rustees have exceeded the limits of discretion granted by the trust indentures" by using trust income to pay their attorney's fees, but added that it was not "convinced under the record of this case that the law requires the [t]rustees to obtain prior approval from either the Probate Court or the Superior Court for the payment of attorney's fees from trust funds as the litigation progresses." The district court appeared to base its ruling on the plaintiffs' failure to demonstrate "that the periodic payment of attorney's fees by the [t]rustees from trust funds will irreparably injure the [p]laintiffs," and concluded that "[t]he ultimate question of who pays the fees of attorneys representing the parties must await the final adjudication on the merits of the case."

II.

We will not reverse the district court's denial of a preliminary injunction unless there was a clear abuse of discretion. Haitian Refugee Center, Inc. v. Nelson, 872 F.2d 1555, 1561 (11th Cir.1989), cert. granted, --- U.S. ----, 110 S.Ct. 2584, 110 L.Ed.2d 265 (1990). In reviewing the denial order, we keep in mind the following criteria for obtaining preliminary injunctive relief:

(1) a substantial likelihood that plaintiff will prevail on the merits, (2) a showing that plaintiff will suffer irreparable injury if an injunction does not issue, (3) proof that the threatened injury to plaintiff outweighs any harm that might result to the defendants, and (4) a showing that the public interest will not be disserved by grant of a preliminary injunction.

Northeastern Fla. Chapter of the Ass'n of Gen. Contractors of Am. v. City of Jacksonville, Fla., 896 F.2d 1283, 1284 (11th Cir.1990) [hereinafter Northeastern Fla. Chapter ]. ³ We are aware that "[t]he preliminary injunction is an extraordinary and drastic remedy not to be granted unless the movant 'clearly carries the burden of persuasion' as to the four prerequisites. 'The burden of persuasion in all of the four requirements is at all times upon the plaintiff.' " United States v. Jefferson County, 720 F.2d 1511, 1519 (11th Cir.1983) (quoting Canal Authority of State of Fla. v. Callaway, 489 F.2d 567, 573 (5th Cir.1974)); accord Northeastern Fla. Chapter, 896 F.2d at 1285.

A.

We first address the question whether the plaintiffs have shown a substantial likelihood of success on the merits of their argument. Their argument is that the trustees do not have authority to use trust income to pay their attorney's expenses in this case and other litigation related to the TPC liquidation unless the trustees have first demonstrated to a court that the plaintiffs' charges of trust mismanagement are without merit.

The general rule is that a trustee may use trust funds to pay for all expenses, including attorney's fees, that are properly incurred for the administration of the trust. See Restatement (Second) of Trusts Sec. 244 (1959); see also G. Bogert & G. Bogert, The Law of Trusts and Trustees Sec. 801, at 133 (1981) ("[T]he trustee has the power and duty to pay from some trust property such expenses as are necessary to enable him to perform the duties placed upon him by the trust instrument, court order, or by statute."). An expense is properly incurred if it is either (1) "necessary or appropriate to carry out the purposes of the trust and not forbidden by the terms of the trust," or (2) "authorized by the terms of the trust." Restatement (Second) of Trusts Sec. 188 (1959). The trustee may charge the trust estate for properly incurred expenses in one of two ways--either by personally bearing the expense and then obtaining reimbursement from the trust, or by using trust funds to pay the expense directly, a procedure known as exoneration. See 76 Am.Jur.2d Trusts Sec. 523, at 742 (1975); Restatement (Second) of Trusts Sec. 244 comment b (1959).

The Georgia Code rephrases the principles stated above as follows: "Trustees are authorized, out of the income of the estate, to pay all debts incurred for its protection and preservation.... They may not encroach upon the corpus of the estate, except by order of the superior court." Ga.Code Ann. Sec. 53-13-52 (1982). The implication of this statutory provision is that although a trustee must obtain judicial authorization for using trust principal to pay trust expenses, the trustee need not have court approval before obtaining reimbursement or exoneration from trust income for expenses, provided that those expenses were...