Rollins v. Rollins , 294 Ga. 711 ( 2014 )

FINAL COPY
294 Ga. 711S13G1162. ROLLINS et al. v. ROLLINS et al.
THOMPSON, Chief Justice.
O. Wayne Rollins established ten irrevocable trusts, the Rollins Children’s
Trust (“RCT”), and nine Subchapter S-trusts, each for the benefit of his nine
grandchildren. Wayne’s sons, Gary and Randall, and a close friend of the
settlor, Henry Tippie, are the trustees of RCT.
RCT was established in 1968 and was funded initially with Rollins, Inc.
stock. By its terms, beneficiaries are to receive “statements disclosing the
condition of the trust estate” no more than every six months. Wayne created
several family entities to hold assets within RCT: ROL, Inc., LOR, Inc., the
Rollins Grandchildren’s Partnership (“RGP”) and the Rollins Holding Company
(“RHC”).
The Subchapter S-trusts were created in 1986. The original assets in the
S-trusts were interests in LOR. Wayne created another family entity in 1988,
RIF, which was held within the S-trusts. Gary and Randall shared voting
control of the family entities, but Gary is the sole trustee of the S-trusts. The S-
trusts require that all trust income be distributed annually to the beneficiaries,1
but do not speak to the issue of accountings.
In 2010, four of the nine beneficiaries of the S-trusts brought suit against
the trustees alleging breach of trust and breach of fiduciary duty and seeking,
inter alia, an accounting of the family entities. The trial court awarded summary
judgment to the trustees and refused to order a judicial accounting of the entities
which hold the trust assets. In this regard the trial court noted, in part, that
although the trustees failed to provide an accounting of the trust assets, plaintiffs
ultimately received a report on trust assets and “complete relief” on their
requests for an accounting through discovery. The Court of Appeals reversed
and remanded, concluding (1) plaintiffs were entitled to an accounting of the
family entities, (2) the trustees may be held to trustee-level fiduciary standards
with regard to the family entities, and (3) genuine issues of material fact remain
as to whether the trustees breached their fiduciary duties in administering the
trusts. Rollins v. Rollins, 321 Ga. App. 140 (741 SE2d 251) (2013). We granted
the trustees’ petition for certiorari and posed these questions:
1
See also OCGA § 53-12-244 (“A trustee shall distribute all net income derived from
the trust at least annually.”).
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1. Whether the Court of Appeals erred when it ruled in
Division 1 of its opinion that the trial court should have ordered an
accounting of the family entities that are held within the trusts at
issue and are within the trustees’ control.
2. Whether the Court of Appeals erred when it ruled in
Division 2 (a) of its opinion that the appellants have trustee-level
fiduciary duties as to their actions related to or taken through the
family entities that are held within the trusts at issue and are within
the trustees’ control.
We answer these questions affirmatively.
1. To determine whether the Court of Appeals erred in overruling the trial
court and ordering the trustees to provide plaintiffs with an accounting of the
family entities held within the trusts, we first look to OCGA § 53-12-243, which
defines the scope of a trustee’s duty to provide reports and accounts and which
provides, in pertinent part:
(a) On reasonable request by any qualified beneficiary or
the guardian or conservator of a qualified beneficiary who is not
sui juris, the trustee shall provide the qualified beneficiary with a
report of information, to the extent relevant to that beneficiary’s
interest, about the assets, liabilities, receipts, and disbursements
of the trust, the acts of the trustee, and the particulars relating to
the administration of the trust, including the trust provisions that
describe or affect such beneficiary’s interest.
(b) (1) A trustee shall account at least annually, at the
termination of the trust, and upon a change of trustees to each
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qualified beneficiary of an irrevocable trust to whom income is
required or authorized in the trustee’s discretion to be distributed
currently, and to any person who may revoke the trust. At the
termination of the trust, the trustee shall also account to each
remainder beneficiary. Upon a change of trustees, the trustee
shall also account to the successor trustee. In full satisfaction of
this obligation, the trustee may deliver the accounting to the
guardian or conservator of any qualified beneficiary who is not
sui juris.
(2) An accounting furnished to a qualified beneficiary
pursuant to paragraph (1) of this subsection shall contain a
statement of receipts and disbursements of principal and income
that have occurred during the last complete fiscal year of the trust
or since the last accounting to that beneficiary and a statement of
the assets and liabilities of the trust as of the end of the
accounting period.
Based on these provisions, the terms of the RCT trust instrument, and
New York case law,2 the Court of Appeals held that the trial court erred in
failing to order an accounting of the family entities under the trustees’
control. Although this decision may ultimately prove to be correct, we find it
2
See, e.g., In re Murray’s Will, 88 NYS2d 579, 581-582 (N.Y.Sur.Ct. 1949) (trustee
is obligated to render full and accurate account of transactions including management of
corporation in which trust holds controlling interest); In re Estate of Barrett, 6 NYS2d 689(N.Y.Sur.Ct. 1938) (court will direct fiduciary to provide all information in his control which
bears on the estate); In re Estate of Witkind, 4 NYS2d 933, 944 (N.Y.Sur.Ct. 1938) (where
court can “require fiduciaries to report the transactions of corporations in which the estate
is interested the question of appropriateness should not be raised”).
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to be erroneous at this juncture because the Court of Appeals failed to give
due deference to the discretion of the trial court in this matter.
“Trusts are peculiarly subjects of equity jurisdiction. . . .” OCGA § 53-
12-6 (a). Thus, in determining whether a trustee’s accounting is sufficient
under a given set of circumstances, an appellate court must consider whether
a trial court properly exercised its equitable discretion; and the decision of
the trial court should be sustained where such discretion has not been abused.
See Prime Bank v. Galler, 263 Ga. 286, 288 (4) (430 SE2d 735) (1993);
Estate of Hershel, 336 P2d 571 (168 Cal.App.2d 658) (1959) (whether
trustee’s account is sufficiently detailed is matter committed to sound
discretion of trial court). See also OCGA § 53-12-243 (e) (Ga. L. 2010, pp.
579, 611) (“Nothing in this Code section shall affect the power of a court to
require or excuse an accounting.”). On the face of its opinion, however, it
appears that the Court of Appeals failed to give any consideration to the trial
court’s discretion to require or excuse an accounting. Accordingly, we find it
necessary to vacate and remand this issue to the Court of Appeals to enable
the appellate court to reweigh the accounting issue by placing the sound
discretion of the trial court on the scales.
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2. The second issue presented in this appeal requires us to consider
whether the Court of Appeals applied the proper fiduciary standard to the
conduct of the trustees with regard to their management of the corporate
family entities.
The extent to which a court may interfere with the
conduct of corporate affairs by the directors of an
estate owned corporation, is a question that does not
lend itself to a simple answer. . . . [T]he problem is
one that usually falls “somewhere between the field
of the law of corporations and that of the law of
estate and trust administration. Its solution will
generally be dictated by considerations of policy and
the relative rights and interests of estate beneficiaries,
creditors of the corporation and other stockholders,
as well as the power, authority and opportunities of
the executor director.” [Cit.]
In re Estate of Schnur, 242 N.Y.S.2d 126, 132 (N.Y.Sur.Ct. 1963).
The Court of Appeals held that actions taken by the trustees in their
capacities as managers of the family entities must be scrutinized according to
heightened trustee-level fiduciary standards instead of the more deferential
standards that apply to the conduct of corporate entity managers. Although
that holding may be appropriate as a general rule,3 it is inappropriate in this
3
See generally Hanson v. First State Bank & Trust Co., 259 Ga. 710, 711-713 (385
SE2d 266) (1989).
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case both because the cardinal rule in trust law is that the intention of the
settlor is to be followed, Griffith v. First Nat. Bank & Trust Co., 249 Ga. 143,
146 (287 SE2d 526) (1982), and because the trusts hold only a minority
interest in the family entities. See Rosencrans v. Fry, 91 A2d 162 (N.J.
Super. Ct. 1952), aff’d, 95 A2d 905 (N.J. 1953).
Looking to the intention of the settlor, we find that he took great pains
to ensure that the trustees could not take actions at the family entity level
solely to benefit plaintiffs as S-trust beneficiaries — unless those actions
were also in the interests of the other shareholders. The settlor accomplished
this by making Gary Rollins the sole trustee of the S-trusts, but giving him
shared control of LOR, RHC and RIF with his brother Randall, who has no
obligations to the beneficiaries as a trustee of the S-trusts. Moreover, like the
testator in Rosencrans v. Fry, supra, the settlor in this case, O. Wayne
Rollins, was “a man of considerable business experience. He could not but
have appreciated the delicate role which he assigned to [the trustees]. [He]
presumably was confident that [the trustees] would act with fairness in
discharging [their] corporate duties and [their] fiduciary duty under the [trust
instrument].” Id. at 167. On these facts, the only reasonable conclusion with
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regard to the settlor’s intention is that he did not intend for the trustees to be
held to trustee level fiduciary standards when performing their corporate
duties. See In re Estate of Schnur, supra at 132 (in determining obligations
of fiduciary “paramount consideration [should be given] to the testamentary
plan and scheme, and effectuating it in the manner prescribed by the
testator”). That being so, the trustees in this case “cannot be criticized upon
the naked basis of potentially conflicting interests, nor can the existence of
that potentiality per se constitute a culpable circumstance to be charged
against [them] in determining whether [they] violated [their] duty as
trustee[s].” Rosencrans v. Fry, supra at 166. See also In re Estate of Halas,
568 NE2d 170, 178 (Ill.App.Ct. 1991) (“creator of the trust can waive the
rule of undivided loyalty by expressly conferring upon the trustee the power
to act in a dual capacity, or he can waive the rule by implication where he
knowingly places the trustee in a position which might conflict with the
interests of the beneficiaries”).
The standard set forth by the Court of Appeals is also inappropriate in
this case because the trusts hold only a minority interest in the family entities.
Under this circumstance, it is generally best to allow the trustees to act in the
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interest of all the shareholders and to require that they be held to a corporate
level fiduciary standard when acting as directors. See In re Estate of Carlisle,
278 N.Y.S.2d 1011, 1017 (N.Y.Sur.Ct. 1967) (where trust asset is minority
interest in corporate stock, court will not interfere in internal affairs of
corporation unless acts of directors are harmful to interest of corporation);
Rosencrans v. Fry, supra at 168 (where trust asset is minority interest in
corporate stock a trustee/director does not have “a duty to advance the
interest of a beneficiary at the expense of the corporation and other
outstanding stockholders’ interests”).
In sum, under the circumstances of this case, it was error for the Court
of Appeals to hold that the trustees’ management of the family entities should
be scrutinized using a heightened trustee level fiduciary standard. While
other courts may have held otherwise,4 we hold that where, under the terms
of a trust, the trustee is put in control of a corporate entity in which the trust
owns a minority interest, the trustee should be held to a corporate level
fiduciary standard when it comes to his or her corporate duties and actions.
4
See, e.g., In re Scuderi, 667 N.Y.S.2d 913 (N.Y.App.Div. 1998); In re Shehan’s Will,
141 N.Y.S.2d 439 (N.Y.App.Div. 1955).
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Our holding in this regard is buttressed by the legislature’s 2010 amendment
to the Trust Code which expressly recognizes that trustees may act in a dual
role where the trust estate owns an interest in a corporation or business
enterprise, as long as it is “fair to the beneficiaries.” OCGA § 53-12-246 (b).
On remand, the Court of Appeals is directed to apply a corporate
fiduciary standard when considering the trustees’ conduct with regard to their
management of the corporate family entities held within the trusts.
Judgment reversed in part and vacated in part, and case remanded with
direction. Hines, P. J., Benham, Hunstein, Nahmias, Blackwell, JJ., and
Judge Robert D. Leonard II, concur. Melton, J., not participating.
Decided March 3, 2014.
Certiorari to the Court of Appeals of Georgia – 321 Ga. App. 140.
Troutman Sanders, John J. Dalton, James A. Lamberth, Alan W.
Bakowski, Katie L. Balthrop, Lynette E. Smith, Summerville Moore, Sidney
L. Moore III, for appellants.
Bondurant, Mixson & Elmore, H. Lamar Mixson, Timothy S. Rigsbee,
Lisa R. Strauss, for appellees.
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Ean K. Cullefer, Rogers & Hardin, Robert B. Remar, Chilivis, Cochran,
Larkins & Bever, John K. Larkins III, Caplan Cobb, James W. Cobb, Ellis,
Painter, Ratterree & Adams, Paul W. Painter, Jr., amici curiae.
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