KAHN et al.
BRITT, JR. et al. NEIMARK
KAHN et al. BRITT, JR. et al.
KAHN et al.
DOYLE, P. J., MILLER and DILLARD, JJ.
These consolidated appeals arise out of the transfer of assets from Roger F. Kahn to RK Trust, of which Kahn is the lifetime beneficiary. Kahn's judgment creditors filed suit against Kahn and RK Trust, alleging, in part, that the asset transfers constituted a fraudulent conveyance. RK Trust settled the suit and sold a cattle ranch to fund the settlement. Thereafter, Kahn, in his individual capacity, and RK Trust's trustees (collectively, the "Kahn Plantiffs") sued Daniel Lamar Britt, Jr., Britt & Associates, Cort A. Neimark, and Myles Eastwood, the attorneys who represented RK Trust in the settlement, and William W. Gwaltney, another attorney and a former co-trustee, claiming professional negligence, breach of fiduciary duty, simple negligence, conversion, trespass, wrongful eviction, and aiding and abetting.
The parties filed cross-motions for summary judgment. The trial court granted summary judgment to the defendants in part and denied it in part, ruling that there were genuine issues of material fact as to the negligence and breach of fiduciary duty claims against Britt and Neimark and the conversion claim against Britt & Associates. These cross-appeals ensued.
In Case No. A14A1015, the Kahn Plaintiffs contend that the trial court erred in granting summary judgment to the defendants on their negligence claims against Britt and Neimark regarding the appointment of Gwaltney as a temporary co-trustee; the breach of fiduciary duty and negligence claims against Eastwood; the breach of fiduciary duty claims against Gwaltney; and Kahn's individual claims against Neimark; the claims regarding conversion, trespass and wrongful eviction, and aiding and abetting; and the claims for punitive damages and attorney fees. The Kahn Plaintiffs further contend that the trial court erred in denying their partial motion for summary judgment on claims that Gwaltney breached his fiduciary duty to RK Trust and that Britt and Neimark committed legal malpractice and breached their fiduciary duties to the trust.
In Case No. A14A1016, Neimark contends that the trial court erred in denying his motion for summary judgment on claims of professional and simple negligence and breach of fiduciary duty arising out of his role in the asset transfer.
In Case No. A14A1017, Britt and Britt & Associates contend that the trial court erred in denying their motion for summary judgment on negligence and breach of fiduciary duty claims against Britt and the conversion claim against Britt & Associates.
For the reasons that follow, we affirm in part and reverse in part the trial court's judgment in Case No. A14A1015. We affirm the trial court's denial of Neimark's motion for summary judgment in Case No. A14A1016 and affirm the trial court's denial of the motion for summary judgment filed by Britt and Britt & Associates in Case No. A14A1017.
The evidence shows that Kahn's mother set up RK Trust in 1979, designating Kahn as the primary lifetime beneficiary and as one of the two trustees. The RK Trust contained a spendthrift provision that protected the income and corpus of the trust from the claims of creditors, but provided the trustees with the discretion to make payments to the beneficiaries' creditors.
From 1998 to 2002, Kahn received approximately $36 million from RK Trust. Of that amount, only about $4.8 million constituted required beneficiary distributions, while the rest of the distributions were, according to Kahn, loans authorized by him and co-trustee Elliot Cohen. Kahn used these loans to purchase a cattle ranch in Bartow County (the "Cattle Ranch") and to twice run for political office. The Cattle Ranch was held by Kahn Cattle Company, LLC, of which Kahn was the sole member.
Around 2002, Cohen informed Kahn that the lack of documentation for the loans would subject Kahn to significant estate tax liability. Upon Cohen's suggestion, Kahn executed approximately 20 unsecured and backdated promissory notes in favor of RK Trust. The promissory notes either had one-year terms or were payable on demand.
By 2004, the promissory notes had not been paid off, and Cohen devised a plan to transfer all of Kahn's personal assets to RK Trust to partially satisfy Kahn's debts to RK Trust. Kahn did not approve the plan and no transfers were made at this time.
In June 2005, Kahn's niece, Cathy McSweeney, and her children (the "McSweeney Children") filed suit against Kahn for fraud, civil conspiracy, breach of fiduciary duty, unjust enrichment, and conversion in connection with his acquisition of McSweeney's interest in a land investment. See McSweeney v. Kahn, 347 Fed.Appx. 437, 439 (11th Cir. 2009) ("McSweeney"). By September 2006, Cohen had resigned as co-trustee of RK Trust, and James Union was appointed to succeed him.
In December 2006, Kahn contacted Britt seeking legal representation for RK Trust because the McSweeney plaintiffs were investigating Kahn's debt to RK Trust. Britt understood that Kahn wanted to protect the trust's assets and Kahn's assets from the McSweeney plaintiffs. Britt proposed several options to Kahn and Union, and Kahn ultimately agreed that the trust should call the promissory notes due and demand the transfer of his assets to satisfy his indebtedness .
Thereafter, to avoid the appearance of self-dealing, Kahn appointed Gwaltney co-trustee in his place on an interim basis while McSweeney was pending. Around this time, Neimark was also hired to represent RK Trust. Union and Gwaltney, as co-trustees, then informed Kahn that RK Trust was calling his loans due and asked that he make arrangements to satisfy his debt by payment or by transferring his assets.
On April 4, 2007, Kahn and the co-trustees executed a repayment agreement, which acknowledged that Kahn owed RK Trust $36, 800, 560 and listed some of Kahn's assets that were to be conveyed to RK Trust in satisfaction of the promissory notes. Among the assets that would be transferred was the Kahn Cattle Company. The parties stipulated that the cattle company had land holdings worth $18.8 million, however there is no evidence that anyone had the land appraised. To effectuate the asset transfers, Neimark prepared a blanket assignment dated April 4, 2007, and Kahn assigned his interest in Kahn Cattle Company to RK Trust.
In August 2008, the jury returned a verdict in McSweeney, finding Kahn liable to the McSweeney Children in the amount of $3, 527, 605. See McSweeney, supra, 347 Fed.Appx. at 439-440. When the judgment remained unpaid, the McSweeney Children filed an action in federal court ("Schleta") against Kahn, the Kahn Cattle Company, and Gwaltney and Union, as co-trustees of RK Trust, claiming that they fraudulently transferred assets into the trust in order to prevent the plaintiffs from collecting on their judgment. Gwaltney and Union hired Eastwood as additional counsel to assist Britt in the defense of RK Trust, and Neimark, although not counsel of record in Schleta, was apprised of the proceedings in that case.
In August 2010, the Schelta parties participated in a court-ordered mediation, resulting in a proposed settlement. In exchange for a release of all claims against RK Trust and the trustees, as well as Kahn and Kahn's children and grandchildren, RK Trust agreed to pay the Schleta plaintiffs $4 million plus potential late payment fees, with the settlement payment to be funded by the auction of part or all of the Cattle Ranch.
Following a hearing on the settlement agreement and after receiving testimony as to the value of the Cattle Ranch and the proposed auction, the federal district court approved the settlement over Kahn's objections in October 2010. Because of his objections to the manner in which the sale of the Cattle Ranch was to be conducted, Kahn was not a signatory to the agreement, although all claims against him were released by the Schleta plaintiffs. The auction of the Cattle Ranch took place on October 27, 2010. The Cattle Ranch and Kahn Cattle Company's personal property located on the ranch, including fixtures, farm equipment, vehicles, and farm inventory, were sold for $6.5 million. Thereafter, RK Trust paid the Schleta plaintiffs and netted $1.219 million from the sale of the ranch. Gwaltney and Union subsequently resigned as trustees and filed a final accounting of the trust. Shortly thereafter, Kahn and the new trustees of RK Trust initiated this suit.
Case No. A14A1015
On appeal from the grant or denial of a motion for summary judgment, we conduct a de novo review of the law and evidence, viewing the evidence in the light most favorable to the nonmovant, to determine whether a genuine issue of material fact exists and whether the moving party was entitled to judgment as a matter of law. (Citation omitted.) Golden Atlanta Site Dev. v. Nahai, 299 Ga.App. 646, 649 (2) (683 S.E.2d 166) (2009). With these principles in mind, we turn to the Kahn Plaintiffs' contentions.
1. The Kahn Plaintiffs contend that the trial court erred in granting summary judgment to Britt and Neimark on professional and simple negligence claims relating to Gwaltney's initial appointment as temporary co-trustee, because the trust instrument did not allow such appointments. We disagree.
"In construing trusts as well as other instruments the appellate courts must interpret the language to effectuate the intent of the settlor within the guidelines of the law." (Citation and punctuation omitted.) Ferst v. Ferst, 208 Ga.App. 846, 847 (432 S.E.2d 227) (1993). Here, Section 2.1 of the RK Trust instrument provides that each co-trustee shall, while serving as trustee, "have the power to designate successor Trustees (other than the Grantor) with respect to his trusteeship." Consequently, the trust instrument allowed Kahn, as a co-trustee, to designate Gwaltney as his successor trustee, and nothing precluded Kahn from doing so on a temporary basis. Therefore, the trial court did not err in granting summary judgment to Britt and Neimark as to the Kahn Plaintiffs' claims related to Gwaltney's temporary appointment.
2. The Kahn Plaintiffs also contend that Eastwood breached his fiduciary duty to Kahn and RK Trust and committed professional negligence by failing to inquire into Gwaltney's authority to act as co-trustee, failing to notify Kahn of the terms of the Schleta settlement agreement or the terms of the sale, and authorizing the sale of the Cattle Ranch below fair market value. We disagree.
(a) Since we conclude below in Division 3 (c) that Kahn ratified Gwaltney's authority to act as co-trustee in his place following McSweeney, there was no harm in Eastwood's purported failure to inquire into Gwaltney's authority. Accordingly, these claims based on Eastwood's omissions fail.
(b) As for Eastwood's failure to notify Kahn of the terms of the settlement agreement, the evidence belies this claim. The undisputed evidence shows that Kahn's personal attorney was involved in the settlement negotiations and was aware of the settlement terms. It is well settled that notice to an attorney is notice to the client employing him, and that knowledge of an attorney is knowledge of his client. See Roylston v. Bank of America, N.A., 290 Ga.App. 556, 560 (1) (b) (660 S.E.2d 412) (2008). Moreover, Kahn made specific objections to the settlement agreement before the same was approved by the federal district court. Consequently, Kahn was aware of the settlement terms, and Eastwood was entitled to summary judgment on this claim.
(c) With respect to the sale of the Cattle Ranch, the undisputed evidence shows that Kahn did not object to the sale of the Cattle Ranch as part of the Schleta settlement. Instead, Kahn objected only to the manner in which the ranch was sold.
Gwaltney hired the company that marketed the property and conducted the auction. At the auction, a bid of $5.5 million was received, but the trustees – Gwaltney and Union – did not feel comfortable accepting this amount. When neither Kahn nor Eastwood could be reached for further direction, the trustees negotiated with the bidder to sell the ranch and Kahn Cattle Company's personal property for $6.5 million. Eastwood testified that he was not present at the auction, and there is no evidence to show that he otherwise participated in negotiating the sale of the Cattle Ranch. Consequently, Eastwood was entitled to summary judgment on claims that he breached a fiduciary duty or committed professional negligence in the sale of the ranch.
3. The Kahn Plaintiffs also contend that the trial court erred in granting summary judgment to Gwaltney on the claims that Gwaltney breached his fiduciary duty to Kahn and RK Trust. We agree in part.
"A violation by the trustee of any duty that the trustee owes the beneficiary shall be a breach of trust." OCGA § 53-12-300. Establishing a claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by the breach. Nalley v. ...