Wells Fargo Bank, N.A. v. Cook

• Decision Date: 08 July 2015
• Docket Number: Nos. A15A0202,A15A0203.,s. A15A0202
• Parties: WELLS FARGO BANK, N.A. v. COOK et al. Cook et al. v. Wells Fargo Bank, N.A.
• Court: Georgia Court of Appeals

332 Ga.App. 834

775 S.E.2d 199

WELLS FARGO BANK, N.A.

v.COOK et al.

Cook et al.

v.Wells Fargo Bank, N.A.

Nos. A15A0202

A15A0203.

Court of Appeals of Georgia.

July 8, 2015.

Certiorari Denied Oct. 5, 2015.

Bryan Cave, Tiffany Nicole McKenzie, Jennifer Devine Odom, Atlanta, for Appellant.

James L. Ford Sr., Moraitakis & Kushel, Nicholas C. Moraitakis, Atlanta, for Appellees.

Opinion

BARNES, Presiding Judge.

These companion appeals center on the administration of a charitable remainder annuity trust (“CRAT”) that was formed in 2000. The trustee of the CRAT was Wells Fargo Bank, N.A.,¹ and the beneficiaries were Gail L. Cook and Lance A. Lipman (collectively, the “plaintiffs”). In 2011, after the corpus of the trust was exhausted, the plaintiffs sued the bank for breach of fiduciary duty and breach of contract. Following discovery, the plaintiffs moved for partial summary judgment on their breach of contract claim, and the bank moved for summary judgment on both of the plaintiffs' claims. The trial court denied both summary judgment motions but granted a certificate of immediate review. Following the grant of their applications for interlocutory appeal, the bank and the plaintiffs now challenge the trial court's summary judgment rulings.

For the reasons discussed below, we conclude that the plaintiffs' claims for breach of fiduciary duty that accrued more than two years before the filing of their lawsuit are barred by the two-year statute of limitation imposed by the Revised Georgia Trust Code of 2010, OCGA § 53–12–307(a). We conclude that the plaintiffs' remaining claims for breach of fiduciary duty fail as a matter of law because the plaintiffs did not come forward with evidence to support all of the essential elements of those claims. Lastly, we conclude that the plaintiffs claim for breach of contract is precluded by the plain language of the parties's trust agreement. Consequently, we reverse the trial court's denial of summary judgment to Wells Fargo in Case No. A15A0202, and we affirm the trial court's denial of partial summary judgment to the plaintiffs in Case No. A15A0203.

Summary judgment is proper if the pleadings and evidence “show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” OCGA § 9–11–56(c). On appeal from the trial court's denial of summary judgment, our review is de novo, and we construe the evidence in the light most favorable to the nonmoving party. Tucker Fed. S & L Assn. v. Balogh, 228 Ga.App. 482, 491 S.E.2d 915 (1997).

So viewed, the record reflects that the plaintiffs are married. Plaintiff Cook has her Masters of Business Administration, is a former certified financial planner, and previously owned a financial services company. Plaintiff Lipman owns his own video production company. From 1972 to 1999, the plaintiffs obtained, through a series of gifts from Cook's uncle, shares of stock in Analog Devices, Inc., a publicly traded digital and communications technology company.

By 2000, the shares of Analog stock owned by the plaintiffs had a market value of over $1,900,000. At that time, Plaintiff Cook was 47 years old and Plaintiff Lipman was 50 years old. Because the plaintiffs were small business owners with no corporate retirement plan, they decided to use 12,000 shares of the Analog stock to fund their future retirement. However, the plaintiffs had no tax basis in the stock, and they faced considerable capital gains taxes if the stock were sold outright because it had appreciated greatly over the years.

In early 2000, after consulting with their estate-planning attorney, the plaintiffs decided that the formation of a CRAT, with the plaintiffs designated as the lifetime beneficiaries of the trust, likely would best serve their retirement goals while also providing tax benefits. By using a CRAT, the plaintiffs could reduce their taxable income by receiving a charitable tax deduction (valued at the time the trust was created) and by deferring capital gains taxes. 26 U.S.C. § 664(b), (c) ; 26 C.F.R. § 1.664–2(d).

The Internal Revenue Code and related Internal Revenue Service (“IRS”) rules and regulations govern whether a trust qualifies as a CRAT under federal tax law. See 26 U.S.C. § 664(d)(1) ; 26 C.F.R. § 1.664–2. Under a CRAT, donors can transfer assets into a trust and then provide for, among other options, an annual distribution to one or more beneficiaries for their lifetime, with the remainder of the trust paid to a qualified charity upon the beneficiaries' death. 26 U.S.C. § 664(d)(1). The annuity amount paid to beneficiaries must be in a predetermined fixed sum (calculated on the date that the CRAT is funded), and it must be no less than 5 percent and no greater than 50 percent of the initial fair market value of the trust. 26 U.S.C. § 664(d)(1)(A).

After consulting with their estate planning attorney, the plaintiffs met with their personal banker at Wells Fargo, who referred them to the bank's trust department. The plaintiffs, their estate-planning attorney, and bank officials from the trust department then met and discussed the feasibility of a CRAT as a retirement vehicle for the plaintiffs. The parties agreed that the 12,000 shares of Analog stock would be transferred into the trust, after which the stock would be sold at some point and the proceeds used to diversify the trust's investment portfolio. The plaintiffs reiterated that they wished to receive a fixed annual distribution as beneficiaries of the trust that would last for their lifetimes without depleting the corpus of the trust.

The parties agreed that the plaintiff's estate-planning attorney would draft a trust agreement, and Wells Fargo would supply calculations suggesting the percentage rate for the annual distributions that would be paid to the plaintiffs as the lifetime beneficiaries. Subsequently, Wells Fargo provided the requested calculations and suggested an annual fixed distribution to the plaintiffs of 7.5 percent of the initial fair market value of the trust. The plaintiffs agreed to the annual distribution percentage recommended by Wells Fargo, and the trust agreement was drafted accordingly.

On February 18, 2000, the plaintiffs executed the trust agreement under which Wells Fargo was appointed as trustee of the CRAT into which the 12,000 shares of Analog stock would be transferred (the “Trust” or “Trust Agreement”). Item 2(A) of the Trust Agreement provided in relevant part:

The Trustee shall invest and reinvest the trust property and in each taxable year of this trust shall pay, in equal quarterly installments, equally to [the plaintiffs], during their lifetimes, and after the death of the first to die of the two of them, to the survivor of them, for such time as such survivor lives, the “annuity amount” equal to seven and one-half percent (7.5%) of the initial net fair market value of the property passing into this trust as finally determined for federal gift tax purposes. The annuity amount shall be paid from income and, to the extent income is not sufficient, from principal....

The Trust Agreement further provided that upon the death of the surviving plaintiff, the bank would pay “all of the then principal and income of this trust” to certain designated charitable beneficiaries.

On February 25, 2000, the plaintiffs transferred the 12,000 shares of Analog stock into the Trust. On the day of the transfer, the 12,000 shares of stock were valued at $1,904,250. Based upon the stock's fair market value of $1,904,250 at the time of the transfer, the 7.5 percent annual distribution to the plaintiffs was fixed at $142,818.

On February 28, 2000, Wells Fargo sold all of the Analog stock and used the proceeds to diversify the Trust's investment portfolio. By that date, the value of the stock had decreased to $1,678,984, a decline of $225,266 from the day of the transfer.

Wells Fargo invested and reinvested the proceeds from the sale of stock in various investment funds over the next several years and paid the required 7.5 percent annual distributions of $142,818 to the plaintiffs. However, the annual returns on the investments in the Trust did not exceed the 7.5 percent annual distribution amount, and the corpus of the Trust declined in value every year. From March 2000 through September 2011, Wells Fargo sent the plaintiffs statements on a quarterly and yearly (and sometimes monthly) basis that reflected the overall declining value of the Trust.

In May 2002, Plaintiff Cook expressed her concern about the declining value of the Trust to a Wells Fargo investment manager. Because of their continued concerns over the management of the Trust, the plaintiffs subsequently retained an attorney to represent them in the matter. In November 2003, the plaintiff's attorney sent a letter to the Wells Fargo senior vice president of charitable services expressing concern as to whether the Trust would be able to pay the plaintiffs $142,818 per year for their lives and still have a remainder to distribute to the designated charitable beneficiaries. The attorney also asserted that Wells Fargo had assumed the obligation of ensuring that there was a sufficient income stream from the Trust to make the required annual distributions to the plaintiffs for life. In December 2003, the vice president wrote back to the plaintiffs and their attorney, assuring them that the bank would continue to prudently exercise its fiduciary duties in managing the trust, but denying that the bank had ever promised to guarantee an annual distribution to the plaintiffs for their lives even if the corpus of the Trust was exhausted.

The plaintiffs and their attorney met with the Wells Fargo senior vice president in June 2004 to discuss the depletion of the Trust and their concern over its management. In July 2004, the senior vice president again wrote to the plaintiffs reiterating the bank's position that it had not guaranteed an annual distribution to the plaintiffs for life irrespective of whether...