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Rollins v. Lor, Inc.

Court of Appeals of Georgia, Fourth Division

May 21, 2018

ROLLINS et al.
LOR, INC., et al. LOR, INC., et al.
ROLLINS et al.

          DILLARD, C. J., DOYLE, P. J., and MERCIER, J.


         These consolidated appeals involve various interfamilial disputes over the alleged mismanagement of a family business associated with a large estate. Specifically, Gary Rollins's four children, who are trustees of a marital trust established solely for the benefit of their mother (collectively, the "trustees"), sued LOR, Incorporated ("LOR"); their father, Gary; and their uncle, Randall Rollins (collectively, the "LOR Defendants"). The trustees asserted several claims on behalf of the trust, which is a minority shareholder of LOR, including, inter alia, that Gary and Randall breached their fiduciary duties to the trust in myriad ways, improperly converted trust assets to their own use, committed corporate waste, and engaged in self-dealing. The LOR Defendants moved for summary judgment, and the trial court granted the motion as to the majority of the trustees' claims, finding that they were time-barred or should have been brought in a derivative action, but denied it as to the remaining claims.

         In Case No. A18A0638, the primary appeal, the trustees argue that the trial court (1) erroneously found that the statute of limitation as to several of their claims was not tolled by fraudulent concealment; (2) misapplied a prior decision of this Court in a related case[1] in rejecting their challenge to LOR's dividend policies; and (3) erred in granting summary judgment as to their breach-of-fiduciary-duty claim related to the creation and distribution policies of certain partnerships, which decreased the dividends distributed to the marital trust.

         And in Case No. A18A0668, the cross-appeal, the LOR Defendants argue that the trial court erred in finding that (1) absent the time-bar, the trustees' breach-of-fiduciary-duty claim regarding the aforementioned partnerships could survive summary judgment; (2) the trustees' theory of damages as to some of their claims was not too speculative to be decided by a jury; (3) the trustees could, on behalf of the trust, bring direct claims for alleged mismanagement of LOR and corporate waste; (4) the trustees' claims were not barred by a release signed by their mother, the sole beneficiary of the trust; and (5) the trustees' claims that Gary and Randall's personal use of certain LOR assets was unfair to the corporation could be brought as direct claims and were not barred by the aforementioned release.

         For the reasons set forth infra, we affirm in the primary appeal and reverse in the cross-appeal.

         Creation and Structure of LOR

         The factual background necessary to understand this case is lengthy and involves decades of estate-planning and business decisions related to various Rollins family entities and trusts. But in relevant part, and viewing the evidence in the light most favorable to the trustees (i.e., the nonmoving parties), [2] the record establishes that the four appellant trustees in this case are the children of Gary and Ruth Rollins: Glen Rollins, Ruth "Ellen" Rollins, Nancy Rollins, and O. Wayne Rollins, II. In 1978, Gary and Randall's father (and the trustees' grandfather), O. Wayne Rollins, Sr., [3]founded LOR as a way to manage the family's wealth. Then, in 1986, O. Wayne elected for LOR to be taxed as a closely-held "S-corporation, " which meant that it would not be subjected to federal income taxes, and instead, those taxes would pass through to LOR's shareholders. When O. Wayne made this election, he also set up nine "Qualified S-trusts" to hold stock in LOR for the benefit of each of his grandchildren, and Gary was the trustee for each of his children's S-trusts. Under the terms of the S-trusts, the assets of each trust were to be distributed to its beneficiary when each grandchild turned 45 years old, but until then, LOR's non-voting stock was held by O. Wayne, Gary, Randall, and the nine S-trusts collectively.

         Initially, O. Wayne held the majority of the voting stock, while his sons, Gary and Randall, were minority shareholders. But when O. Wayne died in 1991, his LOR stock passed to Gary and Randall, and since that time, they have possessed all of the LOR voting stock and have had sole control of the corporation. Also, upon O. Wayne's death, Randall became president of LOR, Gary became vice president, and Joe Young, who served as secretary-treasurer of LOR, was appointed to become the third member of LOR's board of directors. Years later, when Young resigned, Donald Carson became president of the Rollins family office and replaced Young as the third LOR board member.

         The 1993 Gary W. Rollins Marital Trust

         In 1993, after consultation with their attorneys and Glenn Grove, a senior LOR official, Gary and Randall initiated the Rollins Family Capital Preservation Plan (the "capital plan"), which included a series of estate-planning transactions. As part of the capital plan, Gary transferred a lifetime interest in his LOR non-voting stock (i.e., 56, 507 shares) to the newly created 1993 Gary W. Rollins Marital Trust (the "marital trust"), an irrevocable trust for the sole benefit of his wife, Ruth, with their children designated as the trustees. During her life, Ruth was to be the sole beneficiary of the marital trust, and under its terms, Gary had no right to or interest in any of the trust property. Further, the marital trust was established as a grantor trust, which means that Gary was the grantor and was liable for any taxes on the trust's income. Notwithstanding those provisions, in January and March 1995, Gary transferred a total of $5, 675, 000 from the marital trust's bank account into his personal account. Additionally, on various occasions between 2001 and 2008, a total of $8, 336, 311 in dividends declared by LOR and owed to the marital trust were used to pay taxes directly to the Internal Revenue Services rather than to the trust.[4] Since 1993, the marital trust has held approximately 18.3 percent of LOR's outstanding non-voting stock, which Gary previously held individually, and the trust's only income is the payout of dividends distributed to it by LOR.

         In December 1993, Gary held a family meeting with Ruth and their children, at which Grove informed them of the new capital plan, but neither Gary nor Grove explained any of the transactions in detail. Instead, the trustees were simply told that Gary and Grove "had planned some transactions for the family involving trusts for which [Gary] would serve as [the] trustee during his lifetime and [Glen] and [his] siblings . . . would serve as trustees thereafter." Gary and Grove "seemed excited and happy about the transactions[, ]" which gave the trustees "the impression that the transactions were a good thing for the family." At some point following the meeting, the trustees, at Gary's request, signed a series of blank, unnumbered signature pages, which included only a signature line with their names followed by the designation "Trustee" or "Grantor" without indicating to what document or entity the signature page related. The trustees either did not review or could not remember reviewing the trust documents before signing the signature pages, but in any event, those signature pages were later appended to the corresponding trust instruments.[5] This was not necessarily unusual because, from time to time over the years, Gary or the Rollins family office asked the trustees to sign signature pages without giving them the full documents to review.

         In signing the 1993 trust documents, the trustees relied on their father's representation that he would serve as the trustee of the marital trust until his death, at which point they would become the trustees. And thereafter, whenever the trustees were asked to sign documents related to the marital trust, they were told that their signatures were needed "for administrative purposes without any explanation of the documents or transactions and that [their] father was taking care of the marital trust." Additionally, although Glen maintains that he was unaware that he was a trustee of the marital trust, he signed the trust's tax returns every year from 1995 until 2009 above the designation "signature of fiduciary, " without questioning why he was being asked to do so. According to Glen, he signed the tax returns because he had "a relationship of trust and confidence with [his] father and the Rollins family office, " and he continued to rely on Gary's representations that he would not actually become a trustee of the marital trust until Gary passed away but that his signature was nevertheless needed for administrative purposes.

         The Shareholder Agreements

         On February 19, 1994, the trustees each signed the signature page for the "1994 Master Custody Agreement, " above the denomination "trustee" and below the account name, "THE 1993 GARY W. ROLLINS MARITAL TRUST." The 1994 agreement established a custodial account for the marital trust with The Northern Trust Company and provided that all communications regarding the account be sent to LOR, rather than the trustees. Thereafter, Grove, as an officer of LOR, consulted Gary, rather than the trustees or Ruth, in determining the distributions to be paid to Ruth from the trust. Indeed, the marital trust was administered through Gary and the family office without any consultation with the trustees, but Gary continued to assure them that he was "taking care" of the trust.[6] While the trustees do not specifically recall signing the 1994 Master Custody Agreement, they concede that they may have signed a signature page, which was later attached to the agreement. But the trustees stated that, if they did sign the signature page, they did not know that they were doing so in their capacities as trustees of the marital trust because, at the time, they were still relying on their father's representation that he was the trustee.

         On April 15, 1996, the trustees signed another signature page, which was later appended to the "1996 Shareholder Agreement, " in which they consented to the amendment of LOR's articles of incorporation. Each trustee signed above the title "co-trustee" and directly under (and on the same page with) the heading, "THE 1993 GARY W. ROLLINS MARITAL TRUST." But the trustees were not given an opportunity to read the agreement, and at the time, they were still unaware that they were trustees of the marital trust. Then, on November 8, 1999, each of the trustees, except for Wayne, signed yet another LOR shareholder agreement underneath and on the same page with the heading, "THE 1993 GARY W. ROLLINS MARITAL TRUST" and above the title "Trustee." As with the 1996 Shareholder Agreement, the trustees were not given the 1999 Shareholder Agreement to review, and in signing the signature page, they continued to rely on their father's representation that he would be the trustee of the marital trust until his death.

         The RFPS Investment Partnerships

         In 2002, Gary, Randall, and Grove began planning the formation of three new partnerships to hold stock in various Rollins public companies, which had previously been held by LOR, as well as other Rollins family entities, members, and trusts. These partnerships would become known as the "RFPS Investment Partnerships, " and they were purportedly created to prevent certain tax penalties from being imposed on LOR. The RFPS Investment Partnerships had a two-class partnership structure, with LOR among a small class of common partners, and other Rollins family entities, family members, and trusts participating as preferred partners. Each member of the Rollins family was given the option to become a preferred partner in the RFPS Investment Partnerships, which allegedly would allow them to receive higher distributions than the dividends they had been receiving from the Rollins public companies. In exchange, the preferred partners would forgo the increase in value of the Rollins public companies' stock over time.

         One of the key terms of the RFPS Investment Partnerships was that the preferred partners would receive 99 percent of the annual distributions and the common partners, such as LOR, would receive the remaining 1 percent until the preferred partners reached a specified "Annual Preferred Target." Instead of the high allocation of income received by the preferred partners, common partners would allegedly have the potential to realize certain tax-deferral benefits and the benefit of long-term capital appreciation. Although the trustees were not given much information about the RFPS Investment Partnerships, they were told that their father believed that the formation of these partnerships would result in tax advantages. Ultimately, as to the trustees, Nancy and Wayne elected to become preferred partners, but Glen and Ellen did not.

         LOR Investment Company ("LORIC"), which is controlled by Gary and Randall, determines how much money the RFPS Investment Partnerships distributes to their partners. The trustees were given an interest in LORIC, and at some point, the Rollins family office asked them to sign paperwork confirming their agreement to the distribution decisions Gary and Randall would make in their management of LORIC. The trustees agreed, and in March 2005, even though they did not understand what LORIC was or how the RFPS Investment Partnerships' distribution scheme worked, they signed three resolutions consenting to Gary and Randall's distribution decisions. In the "mid 2000s, " around the same time that LORIC established its distribution policies, Gary, Randall, and Carson (as LOR's board of directors) set the LOR dividend distributions at a fixed rate of $2 million per year, rather than calculating a fluctuating amount every year based on LOR's performance or capital needs because "it was decided that the [m]arital [t]rust would get $360, 000 a year."

         The Trustees' Loss of Confidence in Gary and Randall

         At a Rollins family meeting on August 10, 2010, Gary and Randall presented a plan to change the legal structure of various Rollins family entities and trusts, and they asked the trustees to sign documents to approve the new plan. Although Gary and Randall insisted that the trustees sign the documents while at the meeting, the trustees felt uncomfortable with the proposal and refused to sign any documents before obtaining additional information. In response, Gary and Randall threatened to cease distributions to the trustees from various Rollins family entities if they did not sign the documents. When the trustees still refused to comply, Gary and Randall stated that they would implement the plan without the trustees' approval, which "did not seem right" to them. As a result of this meeting, the trustees lost confidence in Gary, Randall, and the Rollins family office, and began to believe that Gary and Randall were acting in their own self-interest, rather than in the best interest of the trustees.

         Then, on August 23, 2010, the appellant trustees, in their individual capacities, sued Gary and Randall, individually and as trustees, for an accounting of the S-trusts, for which the trustees were the beneficiaries (the "Children's Trusts litigation"). In retaliation, Gary and Randall ceased distributions to the trustees from various family entities as well as distributions from their S-trusts. Around the same time, Gary also ceased acting as the trustee for the "1993 trusts, " and on December 8, 2010, Carson sent an e-mail to the trustees, informing them for the first time that they were the current trustees of the marital trust. Upon learning this information, the trustees began controlling and administering the marital trust.

         To that end, the trustees consulted their attorneys and hired accountants, who began gathering information to help them administer the marital trust and "make sense of the web of family entities in which [they] had an interest." It was during this information-gathering process the trustees discovered, inter alia, that the sole source of the marital trust's income is the dividend payments it receives as a shareholder of LOR, which totaled approximately $360, 000 per year and was distributed to Ruth in $30, 000 monthly payments. And based on financial information that Glen received during the Children's Trusts litigation, he also learned that the dividends being paid by LOR to the marital trust were "quite low in comparison to the value of LOR's assets or to LOR's total net income." Further, certain financial statements made Glen concerned that Gary and Randall might have engaged in self-dealing transactions while in control of LOR.

         Personal Use of LOR Assets

         As discovery in the Children's Trusts litigation ensued, the trustees learned that various cattle ranches, which they had always believed to be personally owned by either Gary or Randall, were actually owned by LOR. Gary and Randall "always referred to the ranches as theirs, and [the trustees] never had any reason to believe otherwise." Although there are cattle operations on some of the ranches, the trustees' understanding is that the ranches generally were not profitable. The trustees also learned that Gary and Randall have leases for some of the acreage on the LOR ranch properties, for which they paid only nominal amounts of money. Unlike Gary and Randall, the trustees were never given the opportunity to lease property from LOR at similarly low rates. And since filing the 2010 Children's Trusts lawsuit, the trustees have not been permitted to use the ranch properties.

         Additionally, as far back as the trustees can remember, Gary and Randall flew by private plane, and they referred to the particular plane each primarily used as "Gary's plane" and "Randall's plane, " respectively. But documents produced during the Children's Trusts litigation revealed that "Randall's plane" was actually owned by LOR, and "Gary's plane" was owned by another family business. According to Gary and Randall, they paid $1, 000 per hour for private use of these corporate planes, and they have always considered their personal use of LOR's plane as compensation for the services they provide to LOR. Also during the 2010 litigation, the trustees discovered that LOR owned a customized luxury bus, which had been purchased in the mid-2000s. The trustees were aware that the bus had been purchased, but at the time, they were told that Randall owned it, and they are currently unaware of it ever being used for any business purpose.

         On July 25, 2014, the trustees filed the instant action on behalf of the marital trust, alleging several claims against Gary, Randall, and LOR. Specifically, as to LOR, the trustees asserted a shareholder demand for inspection of corporate records (Count I), as well as claims for failure to pay dividends declared and owed (Count IV) and for dissolution (Count VI). The complaint also alleged claims against only Gary for conversion/money had and received (Count III) and unjust enrichment (Count V). And as to both Gary and Randall, the trustees alleged that they breached their fiduciary duties to the marital trust in several ways (Count II).

         Subsequently, the LOR Defendants filed a motion to dismiss the complaint and for a judgment on the pleadings as to all claims except the claim for inspection of corporate records, arguing, inter alia, that some of the trustees' claims were derivative and could not be brought in a direct action and that other claims were barred by Ruth and Gary's 2013 divorce-settlement agreement. But following further briefing from the parties, the trial court denied the motion. Discovery ensued, and on April 26, 2016, the LOR Defendants filed a motion for summary judgment as to all counts of the complaint, arguing, inter alia, that most of the claims were time-barred and all of the claims are derivative. Following the trustees' response and a hearing, the trial court granted the motion in part and denied it in part. These cross-appeals follow.

         Summary judgment is, of course, proper when "there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law."[7] Additionally, a de novo standard of review applies to an appeal from a grant or denial of summary judgment, and "we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant."[8] With these guiding principles in mind, we turn now to the parties' specific claims of error.

         Case No. A18A0638

         1. In the main appeal, the trustees first argue that the trial court erroneously found that the statute of limitation for many of their claims was not tolled by Gary and Randall's fraudulent concealment of the information giving rise to those claims. We disagree.

         To begin with, the trustees have not argued, either below or on appeal, that the trial court erred in applying a four-year statute of limitation to the claims at issue (i.e., breach of fiduciary duty, conversion, failure to pay dividends declared and owed, and unjust enrichment). Consequently, we need not address the propriety of the trial court's ruling in this regard.[9] Nevertheless, we note that claims for conversion and unjust enrichment are subject to a four-year limitation period under OCGA § 9-3-32 and OCGA § 9-3-26, respectively.[10] Furthermore, in Georgia there is "no specific statute of limitation for breach of fiduciary duty claims[, ] [and] [i]nstead, we examine the injury alleged and the conduct giving rise to the claim to determine the appropriate statute of limitation."[11] But here, the trial court correctly applied a four-year statute of limitation to each of the trustees' breach-of-fiduciary-duty claims because each claim alleged that the marital trust, as a shareholder of LOR, suffered economic losses as a result of the breach. Indeed, under OCGA § 9-3-31, a four-year statute of limitation applies when the claim alleges injuries to personalty.[12] Similarly, the trustees' claim for failure to pay dividends declared and owed is subject to a four-year statute of limitation under OCGA § 9-3-31, as it also alleges an economic loss.[13]

         As previously noted, the trustees filed their complaint on July 25, 2014, which means that each cause of action that accrued prior to July 25, 2010, is time-barred.[14]Nevertheless, the trustees argue that the statute of limitation for their claims[15] was tolled until sometime after August 10, 2010, by Gary and Randall's fraudulent concealment of the appellant trustees' status as trustees of the marital trust, as well as by the concealment of the various fraudulent acts underlying each of their claims.[16]In this regard, OCGA § 9-3-96 provides that "[i]f the defendant[s] . . . are guilty of a fraud by which the plaintiff has been debarred or deterred from bringing an action, the period of limitation shall run only from the time of the plaintiff's discovery of the fraud." And to toll the statute of limitation under this statute, a plaintiff must show that: "(1) a defendant committed actual fraud;[17] (2) the fraud concealed the cause of action from the plaintiff; and (3) the plaintiff exercised reasonable diligence to discover the cause of action despite her failure to do so within the statute of limitation."[18] Further, a plaintiff bringing an action for fraud has "the burden of showing the existence of facts that would toll the statute of limitation."[19]

         In considering what actions will toll the running of a limitation period, the Supreme Court of Georgia has "distinguished between cases where the underlying claim is actual fraud, and cases where the underlying claim is something other than fraud."[20] When the gravamen of the underlying complaint is actual fraud, "the limitation period is tolled until such fraud is discovered, or could have been discovered by the exercise of ordinary care and diligence."[21] On the other hand, when the gravamen of the underlying action is not a claim of fraud, the statute of limitation is tolled only upon a showing of "a separate independent actual fraud involving moral turpitude which deters a plaintiff from filing suit."[22] Additionally, when the complaint does not allege actual fraud,

before the running of the limitation period will toll, it must be shown that the defendant concealed information by an intentional act-something more than a mere failure, with fraudulent intent, to disclose such conduct, unless there is on the party committing such wrong a duty to make a disclosure thereof by reason of facts and circumstances, or the existence between the parties of a confidential relationship.[23]

         Nevertheless, because the existence of a confidential relationship between the parties "does not affect the existence of fraud-that is, the intention to conceal or deceive-a confidential relationship cannot, standing alone, toll the running of the statute."[24] Instead, a confidential relationship means only that "the plaintiff has cause to rely upon, and place confidence in, the defendant."[25] Thus, the existence of such a relationship "affects only the extent of (a) the defendant's duty to reveal fraud, and (b) the plaintiff's corresponding obligation to discover the fraud for herself."[26] Put another way, when a confidential relationship exists, "a plaintiff does not have to exercise the degree of care to discover fraud that would otherwise be required, and a defendant is under a heightened duty to reveal fraud where it is known to exist."[27]But significantly, even when a confidential relationship exists, "the fraud itself-the defendant's intention to conceal or deceive-still must be established, as must the deterrence of a plaintiff from bringing suit."[28]

         Turning to the case at hand, the trustees argue that the trial court erred in finding that (1) fraud was not the gravamen of their complaint, (2) there was no evidence of actual fraud or concealment, and (3) they did not exercise any due diligence to discover the purported fraudulent concealment of their claims.[29] But pretermitting whether fraud was the gravamen of their complaint and assuming that the parties had a confidential relationship, we agree with the trial court that the record is devoid of any evidence that Gary and Randall prevented or deterred the trustees from discovering their status as trustees of the marital trust or obtaining information that they were legally entitled to as trustees, or that the trustees exercised any level of diligence to do so.

         (a) Actual Fraud and Concealment. The trustees, who have been trustees of the marital trust since it was created in 1993, contend not only that the LOR Defendants concealed from them that they were the trustees, but that Gary affirmatively lied to them when he repeatedly assured them that they were not the trustees. In support, the trustees claimed that when they signed signature pages on behalf of the trust, they were not given the corresponding documents to review. But Glen, the eldest Rollins sibling, testified in a 2010 deposition that he was given a copy of the original 1993 trust documents, and he at least "skimmed them."[30] And the opening paragraph of the trust instrument unambiguously provides that Gary is the grantor of the trust property, the appellant trustees are the trustees, and the trust would be known as "The 1993 Gary W. Rollins Marital Trust." Moreover, in many instances, even if the trustees were not given the corresponding trust documents for the initial signature page they were asked to sign, they subsequently signed several signature pages that designated them as trustees or co-trustees under the heading "THE 1993 GARY W. ROLLINS MARITAL TRUST" on the same page just above their signatures.[31] Thus, even if the trustees were unaware of what they were signing, they knew or certainly should have known that they were signing documents or agreements of some kind as trustees on behalf of the marital trust.

         Additionally, between 1995 and 2009, Glen signed numerous tax returns on behalf of the marital trust above the designation "signature of fiduciary." In doing so, he declared-under penalty of perjury-that he had examined the returns, as well as any corresponding documents, and that, to the best of his knowledge, the information provided in those documents was accurate. Thus, regardless of any misrepresentations made by Gary, if Glen had viewed the tax returns, he would have seen that, at least according to the Georgia Department of Revenue and the United States Department of the Treasury, he and his siblings were the fiduciaries of record for the marital trust. And while Glen maintains that, at the time, he still believed Gary was the trustee, he concedes he never asked anyone why he was being asked to sign tax returns on behalf of the marital trust instead of Gary. According to Glen, he was given dozens of tax documents to sign every year, consisting of hundreds of pages, and he did not have the time to read them all. But ...

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