author: Ray, Judge.

text:
    A12A2516.
    ROLLINS et al. v. ROLLINS et al.
    (790 SE2d 157)
   Ray, Judge.

This case involves a dispute over trusts associated with a large estate. It comes to our Court for the third time, having also twice visited the Supreme Court of Georgia. The case began in 2010 when four of the nine beneficiaries of trusts set up by their grandfather, successful businessman O. Wayne Rollins (the “Settlor”), sued their father, Gary W. Rollins, and their uncle, R. Randall Rollins, individually and as trustees; and Henry B. Tippie, as trustee (collectively, the “Defendants”). Their amended complaint alleged, in brief, breaches of trust and of fiduciary duty regarding a failure to make proper accountings, making trust investments in illiquid family-owned entities, creating a conduct-based distribution scheme, creating conflicts of interest, and failing to maximize income distributions. They also asserted claims for an accounting, constructive fraud/rescission, and fraudulent misrepresentation. Rollins v. Rollins, 298 Ga. 161, 163-164 (780 SE2d 328) (2015) (Rollins IV). The parties filed cross-motions for summary judgment. The trial court ruled in the Defendants’ favor on each of the Plaintiffs’ claims, except for a breach of trust claim related to the Defendants’ failure, at any time prior to the filing of the suit, to make required periodic accountings to the Plaintiffs of the assets held in the trusts. See id. at 164 and n. 6. The Plaintiffs filed the instant appeal, which continues to wend its way between our appellate courts.

In their original appeal before this Court, see Rollins v. Rollins, 321 Ga. App. 140 (741 SE2d 251) (2013) (Rollins I) the Plaintiffs argued that the trial court erred in not granting them an accounting of the business entities, held within the trusts, which hold trust assets. They also argued that the trial court erred in failing to rule that: the Defendants breached their fiduciary duties or duties of trust by their conduct at the business entity level, rather than at the trust level; in creating a “false and misleading” distribution scheme imposing conduct-based requirements not found in any trust instrument; by replacing marketable securities in the trusts with illiquid investments in debt-ridden trust entities under the trustees’ permanent control; in ruling that the Plaintiffs had to show actual harm to prevail on their fiduciary duty claims and in finding that they were not harmed by being “cut off” from trust distributions and assets; and in granting summary judgment to the Defendants because material factual disputes remained.

The further procedural history of the case is rather involved, and as the Supreme Court outlines this in Rollins IV, supra at 164-167, we will not unnecessarily repeat it here. Rather, we will simply note that in Rollins IV, the Supreme Court determined, inter alia, whether the applicable Defendants were to be held to a corporate- or partner-level fiduciary standard or to a trustee-level fiduciary standard related to the actions and decisions about which the Plaintiffs complain. The Supreme Court vacated our opinion in Rollins v. Rollins, 329 Ga. App. 768 (766 SE2d 162) (2014) (Rollins III) and remanded the case to us with direction. See Rollins IV, supra. We thus proceed accordingly.

Summary judgment is proper “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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).

Summary judgments enjoy no presumption of correctness on appeal, and an appellate court must satisfy itself de novo that the requirements of OCGA § 9-11-56 (c) have been met. In our de novo review of the grant [or denial] of a motion for summary judgment, we must view the evidence, and all reasonable inferences drawn therefrom, in the light most favorable to the nonmovant.

(Citations and punctuation omitted.) Cowart v. Widener, 287 Ga. 622, 624 (1) (a) (697 SE2d 779) (2010). See also Morgan Enterprises, Inc. v. Gordon Gillett Business Realty, Inc., 196 Ga. App. 112, 112 (395 SE2d 303) (1990) (defining standard on cross-motions for summary judgment).

This case turns on claims of breach of fiduciary duty and breach of trust. “It is well settled that 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.” (Citations omitted.) Griffin v. Fowler, 260 Ga. App. 443, 445 (1) (579 SE2d 848) (2003). “A breach of trust is a violation by the trustee of any duty which as trustee he owes to the beneficiary.” (Citation and punctuation omitted.) Citizens and Southern Nat. Bank v. Haskins, 254 Ga. 131, 134 (I) (1) (327 SE2d 192) (1985).

As outlined by the Supreme Court, the facts are as follows:

Each of the four [P]laintiffs/appellees is (or was until age 45 when the trust assets were transferred to him or her) the beneficiary of a Subchapter S-Trust established by their grandfather O. Wayne Rollins in 1986. Defendant Gary Rollins (Wayne’s son and [P]laintiffs’father) is the trustee of these S-Trusts. Although at least two of the S-Trusts have now terminated as a result of the age of the beneficiary, and the assets of those trusts have been transferred to the individual beneficiary, for simplicity’s sake we will refer to the interests originally held in these trusts as the S-Trusts.
In 1968, in what became an ongoing effort to establish a network of entities to preserve and convey assets to his heirs, Wayne first established the Rollins Children’s Trust (“RCT”), and each of his grandchildren are the beneficiaries of RCT. Wayne created several family entities to hold RCT’s assets, including Rollins Holding Company (“RHC”) and LOR, Inc. (“LOR”). The S-Trusts hold minority interests in these family entities, and defendants Gary Rollins and his brother Randall Rollins are the managers of these entities. Later, in 1988, Wayne created a general partnership, Rollins Investment Fund, known as RIF. Each [P]laintiffs S-Trust is a partner in RIF, along with the S-Trusts of the other grandchildren; Gary, Randall, and the Estate of O. Wayne Rollins are also partners. Upon reaching age 45, a beneficiary’s S-Trust is terminated and the beneficiary becomes a partner in RIF. As a result of this structure, most of the family-owned assets in dispute in this case are ultimately held in the RIF partnership and, until a [P]laintiff reaches age 45, each [P] laintiffs partnership interest is held in trust. The original partnership agreement authorized only pro rata distributions of cash flow to the partners “at such times as the [p]artners shall reasonably decide” to make distributions.
Wayne died in 1991. In 1993, the RIF partnership agreement was amended so that, inter aha, for the first time since its inception, non-pro rata distributions could be made in the form of redemptions from a partner’s capital account. The amendment also changed the structure of the partnership by vesting exclusive authority to manage the partnership and make distribution decisions in Gary and Randall, who were named managing partners. . . .
Gary and Randall contend that the primary purpose of this amendment was to permit Wayne’s estate to redeem assets to fulfill a charitable pledge in a manner that permitted the remaining partners to avoid capital gains taxes on the assets that were liquidated. Several years after this amendment, Gary and Randall created a distribution program whereby the two of them, in their capacities as RIF managing partners, may authorize non-pro rata distributions from the partnership capital accounts of the S-Trusts, or directly to the partnership accounts of the grandchildren if their S-Trusts have terminated by virtue of their age, based upon a formula that includes a personal code of conduct for eligibility Gary and Randall also created several new family entities controlled by them and funded by RCT assets. Gary and Randall contend these new entities were established primarily for the purpose of estate planning for future generations and also to minimize tax liability

(Footnotes omitted.) Rollins IV, supra at 162-163.

1. We first address the questions of whether Gary and Randall, acting as partners, breached their applicable duties when they executed the RIF amendment; and whether Gary, acting as a trustee of his children’s S-Trusts, breached his trustee-level duties when he voted on behalf of the S-Trust partners to execute the amendment. See Rollins IV, supra at 171-172 (1) (c) (i).

Specifically, the Plaintiffs argued that in 1993, Gary and Randall executed a “unilateral” amendment to the RIF partnership agreement, which, as noted above, allowed non-pro rata redemptions from partners’ capital accounts, named Gary and Randall as managing partners, and gave them exclusive authority to manage the partnership and make distribution decisions. As the Supreme Court noted, “[t]his amendment to the partnership agreement is the catalyst around which all the disputes in this case revolve.” Rollins IV, supra at 163.

(a) Gary’s actions as trustee of his children’s S-Trusts. The Supreme Court held that in voting for the amendment as a trustee for the Plaintiffs’ S-Trusts, Gary is to be held to the applicable duty a trustee owes to beneficiaries, in light of the terms of the trust instrument and the Settlor’s intent. Rollins IV, supra at 171-172 (1) (c) (i). Because fact questions remain, we find that the trial court erred in granting summary judgment on this point.

Georgia trust law requires trustees to “administer the trust[s] solely in the interests of the beneficiaries[,]” OCGA § 53-12-246 (a), and imposes upon them a duty of impartiality unless the “trust instrument clearly manifests an intention that the trustee shall or may favor one or more of the beneficiaries[.]” OCGA § 53-12-247.

Evaluating this question in light of the trust instrument and the Settlor’s intent, our law is clear that a trustee has a duty to exercise discretionary powers in good faith. OCGA §§ 53-12-7 (a) (4); 53-12-260. Further, “[n]o provision in a trust instrument shall be effective to relieve the trustee of liability for a breach of trust committed in bad faith or with reckless indifference to the interests of the beneficiaries.” OCGA § 53-12-303 (a). As noted above, each beneficiary’s S-Trust is or was a partner in RIF. When a beneficiary reaches age 45, his or her S-Trust terminates, and the beneficiary himself or herself becomes a partner in RIF. Rollins IV, supra at 162-163. Thus, under the original RIF agreement, when each beneficiary reached the age of 45 and became a RIF partner, that beneficiary would have had a say in any distribution plan.

When Gary and Randall amended the RIF, they concentrated all voting power in themselves and removed it from the beneficiaries, putting themselves exclusively in charge of non-pro rata distributions. The amended RIF agreement provides that the partnership “intends to make periodic distributions of cash to the Partners at such times, in such amounts, and among the Partners in such proportions as the Managing Partners may determine in their sole and absolute discretion.” (Emphasis supplied.) The amendment also provides that the managing partners, Gary and Randall, “shall have complete and exclusive authority to manage and conduct the Partnership’s business and affairs. No other Partner shall participate . . . or have any right or authority[.]” (Emphasis supplied.) As the Supreme Court noted, the Plaintiffs’ S-Trusts, whose partner interests Gary voted to amend the RIF agreement, granted broad discretion to Gary as trustee. He was able

to do all things ... as may be deemed necessary and proper, including . . . [t]o retain and carry on any business in which the trust acquires an interest, ... to join with other owners in adopting any form of management for any business or property in which the trust may have an interest, [and] to become or remain a partner, general or limited, in regard to any such business or property ....

Rollins IV, supra at 169 (1) (b) (ii) (citing the S-Trust indenture). The Supreme Court has noted that a trustee’s duty is to administer the trust in accordance with its terms and purposes. Hasty v. Castleberry, 293 Ga. 727, 733 (3) (749 SE2d 676) (2013). So, although there can be no debate that Gary as trustee had the power to agree to an amendment of the RIF partnership on behalf of the S-Trusts, this does not foreclose the requirement under general trust law that Gary, in his role as trustee, had to do so in good faith and consistent with the trust’s terms and purposes.

“Notwithstanding the breadth of discretion granted to a trustee in the trust instrument, including the use of such terms as ‘absolute,’ ‘sole,’ or ‘uncontrolled,’ the trustee shall exercise a discretionary power in good faith.” OCGA § 53-12-260 (emphasis supplied). The trust instrument at issue here does not use such terms, though it does grant the trustees the power to adopt “any form of management.” See also Harp v. Pryor, 276 Ga. 478, 479 (578 SE2d 424) (2003) (“Generally, it is not permitted for a fiduciary to be in a position where his interests might conflict with that of a beneficiary”) (citation omitted).

The Plaintiffs point to Gary and Randall’s post-amendment execution of a “Unanimous Consent of the Managing Partners of Rollins Investment Fund to Action Without a Meeting,” in which they decided to distribute $9 million to “certain partners in RIF.” The Plaintiffs contend that neither they nor their S-Trusts received any part of this distribution; that the money was distributed to Randall’s children, who did not sue; and that absent the amendment, they would have been entitled to these and other distributions pro rata. They also contend that by dismantling the Settlor’s pro rata structure, Gary and Randall created a conflict of interest under which they could favor themselves and others over the Plaintiffs when making distributions from RIF. They point out, for example, that in 2009, S-Trust distributions between partners varied widely, including a $1 million distribution to Gary, while plaintiff Wayne Rollins’s S-Trust received nothing.

Gary and Randall counter that the agreement was amended “with expert legal advice and assistance from King & Spalding” to provide for non-pro rata distributions so that the estate of O. Wayne Rollins, which was a partner, could redeem stock to fulfill a charitable pledge. They contend that the amendment’s purpose was to minimize capital gains taxes for all partners and to allow them to make distributions to the beneficiaries’ S-Trusts but not their own. They also contended that, following the amendment, they made a significantly greater proportion of distributions from RIF to the Plaintiffs than they have taken for themselves.

In assessing Gary’s intent at the time the amendment was made, a jury would look not just at the bare language of the amendment itself and Gary’s use of his authority in making it, but also at the subsequent fruits of that amendment and what they reveal about Gary’s intent at the time he executed the amendment. For example, Gary and Randall later implemented a code of conduct which applied to the beneficiaries, but not to Gary and Randall. This code conditions distributions — whether pro rata or not — from various entities on the beneficiaries’ adherence to behavioral strictures. As Gary testified, he and Randall made non-pro rata distributions from RIF in which they sometimes gave money to themselves but not to the Plaintiffs’ S-Trusts. Gary further acknowledged telling the Plaintiffs, in relation to the instant lawsuit, “[a]ny litigation and there will be no distribution.” Gary and Randall also caused formerly marketable assets to be invested in illiquid family entities and altered the power structure of RIF such that the beneficiaries lost the right, granted in the original amendment, to vote their own interests once they turned 45. In depositions, Gary acknowledged wanting to lock up trust assets and saying that the Plaintiffs were “not going to get the assets that are in this trust” in reference to the S-Trusts and “any” other trust in which the Plaintiffs had an interest. Further, the RIF amendment limited Gary and Randall’s liability in their new roles as managing partners to a greater extent than under the original RIF’s partnership liability standard. For example, the original RIF agreement limited each partner’s liability to the partn ership only for acts within the scope of authority conferred by the agreement, whereas the amended RIF agreement limits the managing partners’ liability to both the partnership and the individual partners.

From these facts, a jury could find that Gary and Randall acted against the interests of the Plaintiffs in bad faith, and even in an arbitrary or retaliatory manner. A jury could believe that differential distributions indicated a conflict of interest, and that the Plaintiffs were harmed not just by loss of access to assets but also by a loss of voting rights and power that would have accrued when they turned 45. As Gary and Randall sought “expert legal advice and assistance from King & Spalding” in their quest to amend the partnership agreement, a jury could decide that they had both the time and means to structure the amendment in an attempt to disguise improper motives.

As the Revised Trust Code and the common law agree, ... a court may interfere with an exercise of discretion by a trustee only if that discretion is “infected with fraud or bad faith, misbehavior, or misconduct, arbitrariness, abuse of authority or perversion of the trust, oppression of the beneficiary, or want of ordinary skill or judgment.”

(Emphasis supplied.) McPherson v. McPherson, 307 Ga. App. 548, 552 (1) (b) (705 SE2d 314) (2011), citing Haskins, supra at 142 (II) (9). For example, our Supreme Court has determined that a trial court had the authority to intervene in the administration of a trust where the primary trust purpose was to provide for the beneficiary’s welfare, but the trustees arbitrarily limited support payments because they disliked the beneficiary’s wife and wanted to preserve the corpus for residual beneficiaries. Citizens & Southern Nat. Bank v. Orkin, 223 Ga. 385, 390-391 (1) (156 SE2d 86) (1967). See also Wachovia Bank of Ga., N.A. v. Namik, 275 Ga. App. 229, 234 (3) (b) (620 SE2d 470) (2005) (bad faith is not merely bad judgment or negligence, but imports, inter alia, some “moral obliquity” andbreach of duty through a motive of interest or ill will).

On the other hand, Gary and Randall presented testimony that there were legitimate bases for the RIF amendment’s provision for non-pro rata distributions that related to tax advantages and/or liability and to fulfill a charitable pledge, and that the concentration of management power was a benefit to their descendants. Again, those decisions were supposedly made with expert advice from King & Spalding, and in considering this and other factors, a jury could find that Gary and Randall made every possible effort to act appropriately, with proper motives, and in the utmost good faith. Namik, supra. Because fact questions exist, we again find that the trial court erred in its summary judgment decision.

(b) Gary and Randall’s decision, as individual RIF partners, to vote in favor of the amendment. OCG A § 14-8-18provides: “The rights and duties of the partners in relation to the partnership shall be . . . subject to any agreement between them[.]”

The original RIF partnership agreement states that it may be amended with the “consent of all Partners,” and it was amended through a unanimous vote of the partnership interests of Gary and Randall, and their voting, as trustees, of the beneficiaries’ S-Trust partnerships and the O. Wayne Rollins estate partnership. See Rollins IV, supra at 170 (1) (c). The original partnership agreement also authorizes “[a]ny one of the Partners ... to execute documents on behalf of the Partnership.” Additionally, the original partnership agreement gives the partners the authority and discretion to “deal with themselves or one another in the conduct of the Partnership’s business and affairs and no prohibition or restriction shall be deemed to be placed thereon” and to “take any actions . . . that the Partners deem reasonably appropriate to carry out the objectives of the Partnership.” While the agreement does not specifically list “objectives,” it states, in pertinent part, that the “character of the business of the Partnership shall be to make, acquire, hold, manage, assign, convey and dispose of investments on behalf of the Partners[.]” The agreement also states that the partners are not liable to the partnership for any acts within the scope of their authority under the agreement, other than their own acts of “malfeasance, gross negligence or intentional misrepresentation.” As the Supreme Court found,

any duty owed by Gary and Randall [in their role as RIF general partners] to disclose the terms and consequences of the amendment to the other RIF partners was owed to the S-Trusts and not the beneficiaries themselves. Since Gary is the trustee of each of his children’s S-Trusts he would have owed this partnership duty of disclosure to himself as the representative authorized to act and make decisions on behalf of each of these S-Trust partners.

(Footnote omitted.) Rollins IV, supra at 172 (1) (c) (ii).

For this reason, and also given the terms of the original agreement, there can be no debate that Gary and Randall had the power to agree, as partners, to the amendment of the RIF partnership on behalf of the S-Trusts, and no fact question remains as to whether they are liable to the partnership itself in this regard, as the Plaintiffs acknowledge. However, while the original partnership agreement limits an individual partner’s liability to “the Partnership,” it does not limit a partner’s liability to his or her individual partners as does the amended agreement. See Rollins IV, supra at 173 (1) (c) (ii), n. 16. And, although the duties of partners are subject to anything on which they agree, OCGA § 14-8-18, partners still must act toward other partners with the “utmost good faith and with the finest loyalty.” (Citations and punctuation omitted.) AAF-McQuay, Inc. v. Willis, 308 Ga. App. 203, 211 (1) (c) (707 SE2d 508) (2011).

As we determined in Division 1 (a), above, fact questions remain as to whether Gary acted in good faith in executing the amendment in his role as trustee. Even though in this iteration of the claim Gary has donned his partner cloak, logic of course dictates that those same fact questions would arise in his decision to execute the amendment as a RIF partner. As discussed above, the Supreme Court has determined that Gary owes partnership duties only to the Plaintiffs’ S-Trusts and owes duties of disclosure only to himself as trustee. Unsurprisingly, the record contains no indication that Gary has taken any action as trustee on behalf of the S-Trusts in challenging the RIF amendment. The Plaintiffs argue that, notwithstanding this determination, as beneficiaries of trusts that are partners in RIF, they may sue Gary and Randall directly for violation of their fiduciary duties because they have no one else to protect their rights.

As an initial matter, to the extent that certain Plaintiffs have reached age 45 and become partners, there would of course be a partnership duty of good faith owed directly to those beneficiary-partners, and no longer to their S-Trusts. As a result, in this context and for the reasons outlined above, we find that issues of fact remain and the trial court erred.

As for those Plaintiffs who have yet to reach age 45, as the Plaintiffs argue, there still might be a right of action. See Restatement (Second) of Trusts § 282 (2) (1959) (“If the trustee improperly refuses or neglects to bring an action against the third person, the beneficiary can maintain a suit in equity against the trustee and the third person”). There is support for this idea in Georgia law. “As a general rule, where the legal title is in a trustee, such trustee is the proper person to maintain or defend actions involving the trust estate. An exception to this rule is where the trustee refuses to act.” (Citations omitted.) Stout v. Mass. Mut. Life Ins. Co., 183 Ga. 649, 658 (4) (189 SE 248) (1936). See also Field v. Mednikow, 279 Ga. App. 380, 381 (1) (a) (631 SE2d 395) (2006) (“[W]here the executor refuses to pursue a claim by the estate to set aside an allegedly invalid deed, the beneficiaries of the estate may assert the claim”).

However, the trial court never has ruled on the issue of whether the trustee refused or failed to act on the Plaintiffs’ behalf or on whether the individual beneficiaries must show or have been relieved of showing a failure to act in the face of any demand for action made upon the trustee. Nor did the trial court’s order discuss any statute of limitation issues that may exist. See Mayfield v. Heiman, 317 Ga. App. 322, 325 (1), 329 (4) (b) (730 SE2d 685) (2012). As a result, we must remand this matter to the trial court for consideration.

2. The Plaintiffs also argue that the trial court erred in failing to find that Gary and Randall breached their fiduciary duties when they implemented a “false and misleading distribution scheme” with no basis in any trust instrument. The Plaintiffs argue that the “scheme” conditioned financial distributions on the Plaintiffs’ adherence to a behavioral code of conduct and, thus, allowed the trustees to manipulate income distributions.

The distributions came from the Plaintiffs’ own trust assets, according to Randall’s testimony. Those accounts are assets of each Plaintiff’s S-Trust, if he or she has not yet reached age 45. As we noted in Division 1 (a), above, Gary and Randall did not subject themselves to this code of conduct. As a result, under the RIF amendment allowing non-pro rata distributions, Gary and Randall sometimes gave themselves distributions through RIF, but did not make distributions to the Plaintiffs’ S-Trusts. As the Supreme Court determined, Gary and Randall implemented these conduct-based criteria in their capacity as managing partners of the amended RIF partnership agreement and, thus, must be held to the partnership standard of duty. See Rollins IV, supra at 173-174 (2).

The amended RIF agreement gives Gary and Randall as managing partners “complete and exclusive authority” to manage and conduct the partnership’s business and affairs. The amendment also gives Gary and Randall discretion to make periodic cash distributions to partners at such times and in such amounts as they determine. However, even assuming (which we do not, as outlined in Division 1) that Gary and Randall were authorized to amend the RIF agreement such that a code of conduct could be utilized to facilitate non-pro rata distributions, they still would be required under the partnership standard of duty to implement such a code in good faith. They also would be required to make any distribution decisions, even discretionary ones, in good faith. As OCGA § 23-2-58 provides, in the relationship between partners, “the law requires the utmost good faith [.] ” See AAF-McQuay, supra at 211 (1) (c) (partners owe one another duties of the “utmost good faith” and “finest loyalty”) (citation and punctuation omitted).

The Plaintiffs argue that the code of conduct evidences bad faith because it applies only to the grandchildren-beneficiaries and not to Gary and Randall. The Plaintiffs also argue that Gary and Randall showed bad faith in using the code to control the Plaintiffs and prevent them from accessing their own trust assets. As an example of how Gary and Randall attempted to control their behavior, the Plaintiffs cite to Gary’s deposition testimony, where he acknowledged telling them, in relation to the instant lawsuit, “[a]ny litigation and there will be no distribution.” They also point to a conflict of interest, given that the code of conduct has no basis in any trust instrument and thus had to be implemented at the partnership level in order to skirt trust requirements.

Gary and Randall present no argument as to how the code of conduct served the partnership. See Solomon v. Solomon, 2 Ga. 18, 25 (1) (1847) (partners are bound to use partnership property for the benefit of the partnership interest). They instead focus their contentions on the fact that the code of conduct, which required attendance at family meetings and engagement in meaningful pursuits such as full-time work or full-time parenting, applied equally to all beneficiaries, not just the Plaintiffs. They also argue that they were not required to make any distributions from RIF.

The Plaintiffs clearly have provided evidence that they do not have the same access to partnership assets as do Gary and Randall. See Bennett v. Smith, 108 Ga. 466, 468 (34 SE 156) (1899) (“As a general rule, one partner is as much entitled to possession of the assets of the firm as the other.”). Again, partners have a duty to act toward other partners with loyalty and good faith. See AAF-McQuay, Inc., supra. In the civil context, our appellate courts have determined that “[b]ad faith is not simply bad judgment or negligence, but it imports a dishonest purpose or some moral obliquity, and implies conscious doing of wrong, and means breach of known duty through some motive of interest or ill will.” (Punctuation and footnote omitted.) Namik, supra at 234 (3) (b). See generally Vickers v. Motte, 109 Ga. App. 615, 620 (137 SE2d 77) (1964) (bad faith “contemplates a state of mind affirmatively operating with a furtive design” and while it “may not always denote malicious intent to injure, the term should be construed within the context of the subject matter involved”).

As the Supreme Court determined, in contexts such as this, Gary and Randall owe or owed no partnership duty to the Plaintiffs where only the Plaintiffs’ trust accounts rather than the Plaintiffs themselves held partnership status, and that Gary, as trustee of his children’s trusts, owed partnership duties only to himself. See Rollins IV, supra at 172 (1) (c) (ii). However, as we determined in Division 1 (b), given that Gary allegedly has not taken action on behalf of the Plaintiffs’ S-Trust partners and that the Plaintiffs may have no other recourse to protect their interests, they might be able to pursue their claims as beneficiaries. See Restatement (Second) of Trusts § 282, supra; Stout, supra; Field, supra. Again, for those Plaintiffs who have not reached age 45, the trial court must determine whether the trustee refused or failed to act on their behalf or whether the individual beneficiaries must show or have been relieved of showing a failure to act in the face of any demand for action made upon the trustee. For those Plaintiffs who are 45, they are entitled to pursue said claims directly as partners.

Even evaluating Gary and Randall’s actions under the more lenient partnership standard (as opposed to the more stringent trustee standard), a jury could find evidence of bad faith. A jury could find evidence of bad faith because Gary and Randall created a code of conduct that applied only to the grandchildren-beneficiaries, did not apply to Gary and Randall, and facilitated the Plaintiffs’ loss of access to their own assets, and because said code of conduct arguably did not promote any partnership interest. A jury also could find evidence that Gary and Randall knew they owed the Plaintiffs a duty of good faith, but exercised a “motive of interest” in choosing to control the Plaintiffs’ assets and make disparate distributions through a behavioral code they did not apply to themselves. See Namik, supra. On the other hand, if a jury finds that Gary and Randall acted in good faith to implement the amended RIF agreement permitting non-pro rata distributions, they also could find that the code of conduct was implemented in good faith because it, at least facially, applies equally to all the grandchildren-beneficiaries. Either way, a question of fact remains for the jury

3. The Plaintiffs allege that they have been harmed by various decisions Gary and Randall made in their management of and distributions from the family entities RHC and LOR. They argue, inter alia, that Gary and Randall “locked up” control over assets, inappropriately diverted assets between family entities, saddled the Plaintiffs’ interests with debt, and inappropriately retained and distributed assets. See Rollins IV, supra at 167 (1) (a).

As the Supreme Court has noted, the Plaintiffs’ S-Trusts hold minority interests in these family entities. In the specific context at issue here, Gary and Randall are held to a “corporate level fiduciary standard when acting as directors,” Rollins v. Rollins, 294 Ga. 711, 715 (2) (755 SE2d 727) (2014) (Rollins II), and in regard to their management of the corporate family entities held in the trusts. Rollins IV, supra at 167-168 (1) (a).

Acorporate officer or director owes to the corporation and its stockholders a fiduciary or quasi-fiduciary duty, which requires that they act in utmost good faith. Directors and officers in the management and use of corporate property in which they act as fiduciaries and are trustees are charged with serving the interests of the corporation as well as the stockholders.

(Citation and punctuation omitted.) Enchanted Valley RV Park Resort v. Weese, 241 Ga. App. 415, 423 (5) (526 SE2d 124) (1999). See also OCGA §§ 14-2-830 (a) (1); 14-2-842 (a) (1). Further, directors owe the corporation and stockholders three primary duties: to exercise only such “corporate powers” granted by the corporation’s own rules, to exercise reasonable care, and to provide a duty of “undivided good faith since they are fiduciaries and trustees of their corporation and stockholders.” (Citations and punctuation omitted.) Milton Frank Allen Publications v. Ga. Assn. of Petroleum Retailers, 224 Ga. 518, 527-528 (4) (162 SE2d 724) (1968).

In arguments that overlap in both presentation and discussion and are thus somewhat unclear and contradictory, the Plaintiffs contend that distributions stemming from these family entities were subjected to the code of conduct, resulting in “wildly varying distributions for each beneficiary” However, they also acknowledge that Gary and Randall “could not make disparate dividends from LOR and RHC” and so “simply slashed dividends from these corporate entities and engaged in transactions to divert income from these entities to other entities they control[.]” They contend that Gary and Randall used the code of conduct and the amendment allowing non-pro rata distributions through RIF as a vehicle for reducing the LOR and RHC pro rata dividends by more than 90 percent, while pumping up their own distributions by diverting assets through the non-pro rata system allowed by the RIF amendment. The Plaintiffs also argue that they were misled by Gary and Randall’s claims of being “trustees” who could alter the distribution systems of family entities, including LOR, that were not trusts based on a code of conduct.

The “corporate powers” as laid out in the RHC Articles of Incorporation give the Board of Directors the power to make distributions from “capital surplus,” entitle the holders of various classes of stock to receive dividends in cash or other property “when and as declared by the Board,” which included Gary and Randall, “on such dates as may from time to time be determined by the Board[.]” LOR’s articles of incorporation and various amendments contain similar provisions.

Thus, to the extent that the Plaintiffs are claiming that Gary and Randall have reduced the pro rata dividends paid through LOR and RHC compared with prior years, or have retained earnings, we find no breach of fiduciary duty and no fact questions because Gary and Randall had authority through the corporate bylaws to make those decisions. However, to the extent that the Plaintiffs argue that Gary and Randall subjected the Plaintiffs’ pro rata distributions to the code of conduct (for which there is no provision in LOR or RHC), a fact question remains for trial.

4. The Plaintiffs argue that the trial court erred in failing to grant their motion for summary judgment on the issue of whether Gary and Randall breached their fiduciary duties when they executed RHC and LOR shareholder agreements that prohibit shareholders from selling or disposing of their shares to those outside the family without company consent. In 1999, Gary executed the RHC and LOR shareholder agreements at issue on behalf of the Plaintiffs’ S-Trusts in his capacity as trustee, and we evaluate his actions under a trustee-level standard of fiduciary duty. See Rollins IV, supra at 170 (1) (b) (ii) and n. 11.

The Plaintiffs allege that Gary and Randall breached their fiduciary duty as directors in “locking up” or inhibiting the alienability of the stock, which passed or will pass to the beneficiaries “free of trust” when they reach age 45.

The S-Trust agreement authorizes trustees to “do all things and to execute such instruments as maybe deemed necessary andproper[,]” to “agree to or take any other action in regard to any . . . proceeding affecting any stock,” and to “retain and carry on any business in which the trust acquires an interest . . . [and] to join with other owners in adopting any form of management for any business or property in which the trust may have an interest[.]”

It seems clear that under the broad discretion granted to him by the S-Trust, Gary had the authority to execute such shareholder agreements. However, a jury could find that Gary did so in bad faith to prevent the Plaintiffs from selling their stock if they wished to do so. On the other hand, the Defendants presented evidence that the purpose of these amendments was to protect the S-Corporation status of RHC and LOR, and to keep assets, including Rollins, Inc. stock, in the family, which the jury could find to be legitimate goals exercised in the utmost good faith. Thus, a fact question remains and summary judgment was improperly granted as to Gary’s actions on this point.

5. In the context of their enumerations and arguments related to the management of the family entities, the Plaintiffs also contend that the trial court erred in failing to find that the trustees breached their fiduciary duties when they replaced marketable securities in RCT with illiquid investments in debt-ridden entities created and controlled by Gary and Randall. The RCT Trust Indenture lists Gary, Randall, andTippie as trustees. See Rollins IV, supra at 168 (1) (b) (i).

Specifically, the Plaintiffs argue that in 2002, $150 million in liquid assets were transferred from RCT to RCT, LLC, a new entity controlled by Gary and Randall for the purpose of ensuring that Gary and Randall maintained control of all liquid marketable securities even after they were distributed to the beneficiaries. They argue that marketable stock was replaced with partnership interests that hold only the right to receive debt payments from the Plaintiffs themselves through their S-Trusts. They argue that Gary and Randall “locked up” Rollins, Inc. stock originally held in RCT by transferring it to entities they control.

The Plaintiffs argue that the trustees knew these restructurings would cause them each to lose more than $14.5 million in present-day value from their RCT interests. The Defendants point to record evidence that the Plaintiffs participated in the restructurings of which they now complain, and that the purpose of those transactions was to minimize tax liability to future generations. They have provided evidence that the estate tax burden on the fourth and fifth generations has been reduced from 50.23 percent to 1.88 percent, generating an estimated value of $58 million to the fourth generation (which includes the Plaintiffs’ children) and $131 million to the fifth generation.

The RCT indenture provides in pertinent part:

The Trustees shall pay over to any one or more of my said grandchildren [including the Plaintiffs in the instant case] a part, all or none of the net income from said trust as will be appropriate, in the sole discretion of my said Trustees for the comfortable support and maintenance or education of said grandchildren. The Trustees need not apportion said income in equal amounts to said grandchildren and may refrain from paying any amoun ts whatsoever to any of such grandchildren.

(Emphasis supplied.) The trustees also are authorized to sell, convey, or dispose of any trust property, and the power to sell or retain stocks or other properties. The indenture gives the trustees the “power to do all things which may be necessary or proper to protect and preserve the trust estate” and to do “any and all things in connection with such transactions as could be done by the Trustees if they owned the trust property in their own right and for their own benefit.” Further, the trust provides that in distributing income, “[t]ax factors may also be taken into consideration by the Trustees to the end that Donor’s family as a whole shall be subjected to the least practicable income and estate taxation.” (Emphasis supplied.)

This last provision, authorizing the trustees to make management decisions based on tax considerations for the entire Rollins family — not just the Plaintiffs — when coupled with the trustees’ broad authority as granted in the indenture, negates any possible fact question that could have arisen between the Plaintiffs’ contention that they lost present-day value in their RCT assets, and the Defendants’ showing of significant tax savings to present and future generations. See generally Meyer v. Citizens and Southern Nat. Bank, 677 FSupp. 1196, 1202 (II) (B) (1) (M.D. Ga. 1988) (“The fact that losses were suffered does not prohibit a court from approving the actions of a trustee”) (citation omitted).

Trustees, of course, must administer a trust “in good faith, in accordance with its provisions and purposes.” OCGA § 53-12-240 (b). They also must “exercise the judgment and care of a prudent person acting in a like capacity and familiar with such matters, considering the purposes, provisions, distribution requirements, and other circumstances of the trust.” OCGA § 53-12-241. Given the broad powers granted to the trustees as shown by the trust instrument, as cited above, and the clear intent of the Settlor as shown by that trust instrument, see Griffith v. First Nat. Bank & Trust Co., 249 Ga. 143, 146 (1) (287 SE2d 526) (1982), no fact question arises as to whether the trustees’ actions were consistent with the authority granted to them in the RCT indenture. Nor is there any fact question as to their good faith, again in the context of the latitude of their authority under the indenture. The trial court did not err.

6. The Plaintiffs now argue that Gary and Randall also committed constructive fraud and are liable for amending the RIF partnership agreement without their knowledge or participation, and for suppressing material facts. See Rollins IV, supra at 172-173 (1) (c) (ii). The Plaintiffs did not argue this point in their initial appellate brief, so we do not address it here. See Blockum v. Fieldale Farms Corp., 271 Ga. App. 591, 592 (1) (610 SE2d 82) (2005).

7. The Plaintiffs argue that, other than giving them an accounting of trust assets, the trial court erred in granting summary judgment to the Defendants on the other aspects of the Plaintiffs’ breach of trust claims. The Plaintiffs initially had sought, inter alia, rescission, removal of the trustees, and appointment of a receiver. Given our determinations in the instant opinion that certain fact questions remain for jury resolution, the trial court would need to reassess these issues in light of a jury’s determination as to whether or not Gary and Randall acted in good faith or breached their fiduciary duties or duties of trust. As a result, we remand these matters to the trial court.

8. The Plaintiffs also argue that Gary and Randall breached their fiduciary duties as trustees in seeking to implement the Rollins Perpetual Management Trust, which was intended “to serve as the vehicle through which the governance of the family and its assets is established in perpetuity” However, as the Plaintiffs acknowledge that they refused to sign the documents to implement this trust, we find no breach of fiduciary duty. The trial court did not err.

9. On remand, the Plaintiffs argue that Gary violated his trustee-level fiduciary duties by failing to “generate income” for the S-Trusts.

Although the parties argued this point on summary judgment, the trial court ruled on the issue only in the context of how trust income was classified. The trial court found that because the S-Trust indenture gave the trustees the authority to classify money as either income or principal, the trustees had no duty to “maximize” the income distributions and had breached no duty. Because the trust indenture gives the trustees the discretion to determine whether items should be charged or credited to income or principal, the trial court’s decision on this point was correct.

In the context of pure income generation, however, the trial court made no ruling on whether the Defendants had a duty to maximize earnings or to generate funds for the S-Trusts (regardless of whether those monies were later classified as income or principal), or on whether the Defendants had breached any duty in this regard. As a result, we remand this issue to the trial court for further consideration.

Decided July 15, 2016

Reconsideration denied July 27, 2016

Bondurant, Mixson & Elmore, H. Lamar Mixson, Timothy S. Rigsbee, Lisa R. Strauss, for appellants.

Troutman Sanders, John J. Dalton, Lynette E. Smith, James A. Lamberth, Alan W. Bakowski, Katie L. Balthrop, S. Leighton Moore III, for appellees.

10. Finally, the Plaintiffs argue that the trial court erred in failing to order a judicial or third-party accounting and an accounting of the business entities held within the trusts and controlled by the trustees.

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.”).

(Punctuation omitted.) Rollins II, supra at 713 (1). The trial court denied the accounting request in the context of its decision denying the Plaintiffs’ other claims on summary judgment. Given that our instant opinion has determined that some of those issues are appropriate for jury resolution, the trial court would need to exercise its discretion anew in light of the different, circumstances now presented, and in light of a jury’s decision on issues placed before them for resolution. We, thus, vacate the trial court’s decision on the accounting issue and remand for further consideration in light of any subsequent jury determination.

Judgment affirmed in part, reversed in part, and vacated in part, and case remanded.

Branch, J., concurs. Miller, P. J., concurs in judgment only.

Rogers & Hardin, John K. Larkins III, amicus curiae.

        Rollins v. Rollins, 321 Ga. App. 140 (741 SE2d 251) (2013) (Rollins I), reversed in part, vacated in part, and remanded by Rollins v. Rollins, 294 Ga. 711 (755 SE2d 727) (2014) (Rollins II); Rollins v. Rollins, 329 Ga. App. 768 (766 SE2d 162) (2014) (Rollins III), vacated and remanded by Rollins v. Rollins, 298 Ga. 161 (780 SE2d 328) (2015) (Rollins IV).

       Glen W. Rollins, Ruth Ellen Rollins, Nancy Louise Rollins, and O. Wayne Rollins II (collectively, ‘the Plaintiffs”).

       The Supreme Court most recently granted certiorari to determine whether this Court erred in determining that a jury must decide which fiduciary standard applies. When the Supreme Court
      considers only a portion of a Court of Appeals’ opinion and reverses, it is for the Court of Appeals to determine on remand whether the portions of its earlier opinion that were not considered by this Court are consistent with this Court’s ruling. If such portions are consistent with this Court’s ruling, then they become binding upon the return of the remittitur. If, however, such portions are not consistent with this Court’s ruling, the Court of Appeals must enter an appropriate disposition concerning those portions that reconciles them with this Court’s ruling.

        Shadix v. Carroll County, 274 Ga. 560, 563 (1) (554 SE2d 465) (2001). See also Rollins IV, supra at 166, n. 8.

       Because the arguments in this case have evolved somewhat over its history, it is important to note that supplemental briefs, while useful to the Court, may not be used to expand the issues beyond those identified in the original enumerations of error. Blockum v. Fieldale Farms Corp., 271 Ga. App. 591, 592 (1) (610 SE2d 82) (2005).

       The original RIF partnership agreement provided: “ ‘Cash Flow’ for any year . .. shall be distributed to the Partners at such times as the Partners shall reasonably decide, pro rata to each Partner’s interest.” (Emphasis supplied.)

       In volunteering information about the advice they received from King & Spalding, and also from Arthur Andersen, in connection with certain relevant transactions, it is unclear to this Court if the Defendants mean to waive or have waived attorney-client and accountant-client privilege, thus making such information discoverable at trial. This issue remains for the trial court to resolve.

       The beneficiaries, as individuals, initially were not partners in RIF. Rather, each S-Trust was a RIF partner, and the trustee had the authority to vote on behalf of his children’s S-Trusts.

       Compare Saltzman v. Commr. of Internal Revenue, 131 F3d 87, 90 (I) (2nd Cir. 1997) (“A trustee cannot alter his legal position by changing his cloak”) (citation and punctuation omitted).

       Indeed, the Plaintiffs sued Gary and Randall in their individual capacities.

       In deposition testimony, Randall was asked, “[E] ven though you were taking money from the assets held in trust for my clients, you and Gary were imposing requirements on these distributions that did not have any basis in the trust instruments, correct?” To which Randall replied, “That’s correct.”

       We note that the original partnership agreement did not permit non-pro rata distributions, although the amended agreement under which the code of conduct was implemented does. We also note, as discussed elsewhere in this opinion, that the amended RIF agreement somewhat diminishes Gary and Randall’s liability for their partnership decisions.

       The Plaintiffs contend broadly that the trial court erred in ruling that they failed to show actual harm to support a claim for breach of fiduciary duty. The trial court specifically ruled on this point only in the context of the imposition of the code of conduct on S-Trust distributions. Although the Defendants argue otherwise, because a jury question exists as to whether Gary and Randall acted in good faith, we cannot say that the Plaintiffs would suffer no harm when they are denied access to assets for extended periods of time, or in perpetuity, and where they must resort to protracted litigation to attempt to obtain access to those assets. See Glisson v. Freeman, 243 Ga. App. 92, 104 (1) (532 SE2d 442) (2000). See also Ringer v. Lockhart, 240 Ga. 82, 84-85 (239 SE2d 349) (1977).

       We find no enumeration, argument, or record citations in the Plaintiffs’ original appellate brief raising the issue of retained earnings in LOR. Thus, we do not address this issue. Blockum, supra at 592 (1).

       On this point, a jury could consider Gary and Randall’s representation of themselves as trustees of trusts that did not exist in order to impose conduct-based criteria on the Plaintiffs’ money as evidence of bad faith. “Good faith . . . requires that the stockholders be treated fairly[.]” Comolli v. Comolli, 241 Ga. 471, 474 (1) (246 SE2d 278) (1978) (in case involving directors’ use of corporate funds to purchase corporation’s own stock as means of depreciating minority shareholder’s interests and freezing his investment). See generally Nalley v. Langdale, 319 Ga. App. 354, 365 (2) (734 SE2d 908) (2012) (where a fiduciary has falsely represented information related to a transaction, “whether that representation was made negligently, fraudulently, or in good faith remains for the jury to resolve”).

       The Defendants point out that three of the four Plaintiffs, Glen, Ellen, and Nancy Rollins, signed the LOR amendment in their capacities as trustees for a separate trust. However, as they did not sign in their capacities as beneficiaries, we do not address this issue further.

       The trust indenture provides for specific distributions of principal upon the beneficiaries reaching their 25th and 30th birthdays. The record shows that the Plaintiffs already had received those distributions by 2 002, the time of the transaction of which they complain, though they argue that they received illiquid assets. The trust provides that a final distribution is to occur when the trust terminates on the date of death of the last grandchild who was living when the trust was created on February 1, 1968. This final contingency has yet to occur.

       As the Defendants point out, there is evidence that the Plaintiffs actually participated in transactions about which they now complain, whereby certain partnership interests held in the RCT were transferred to family entities, specifically, RCT, LLC, and RCTLOR, LLC. We note that beneficiaries may be estopped from complaining about alterations to which they agreed. See Clayton v. First Nat. Bank of Atlanta, 237 Ga. 604, 604 (229 SE2d 346) (1976).

       The Plaintiffs’ argument that Gary and Randall’s actions were inappropriate because the third trustee, Tippie, was not involved in management decisions made at the entity level does not succeed. The record shows that Tippie participated in the vote to put RCT assets into RCT, LLC, and we find no requirement in the trust indenture that all three trustees be involved in or make unanimous decisions related to assets held within corporate entities held within the trust.

       We recognize that our decision herein is different from the decision on this point in Rollins I. However, in footnote 8 of Rollins IV, supra at 166, the Supreme Court concluded we had chosen in Rollins III to reconsider our previous opinion in its entirety upon remand, and further, the Supreme Court in Rollins IVvacated our opinion in its entirety.


source: Caselaw Access Project

author: ANDREWS, Presiding Judge.

license: Public Domain

text:
    A16A0063.
    MOCERI v. THE STATE.
    (788 SE2d 899)
   ANDREWS, Presiding Judge.

Dominic Joseph Moceri III appeals from the judgment of conviction and sentence entered on a jury verdict finding him guilty of homicide by vehicle in the first degree. For the following reasons, we affirm.

1. A jury found Moceri guilty of first degree vehicular homicide in violation of OCGA § 40-6-393 (a) based on evidence that he caused the death of the passenger in the car he was driving when he crashed the car into a utility pole while fleeing and attempting to elude a pursuing police vehicle in violation of OCGA § 40-6-395 (a).

On November 4, 2007, Officer Baird, a uniformed police officer employed by the Athens-Clarke County Police Department was on patrol in his marked police vehicle at 1:20 a.m. when he observed a BMW automobile traveling about 46 miles per hour in a 35 miles per hour speed zone while drifting from side to side within the traffic lane. As the car went through a curve in the road, the officer observed the car drift in one direction and then correct in the other direction with a “quick jerk.” When the speed limit on the road changed to 40 miles per hour, the car accelerated to 55 miles per hour. Based on the fact that the car continued to drift back and forth within the lane and the speed of the car, the officer was concerned the driver may have been impaired and followed the car, with the police vehicle’s video camera activated, to observe how the car was being driven. As the car approached an intersection with another road, the officer activated his vehicle’s blue lights to stop the car to investigate whether the driver was impaired. At that point, the car changed to the right turn lane and turned right at the intersection. The officer followed the car with blue lights activated as the car drove ahead and passed several businesses where the driver could have safely stopped the car. Another police officer (Officer Bennett) traveling in a marked vehicle, saw Officer Baird with blue lights activated following the car and pulled in behind Officer Baird with the intention of driving by the traffic stop. Officer Bennett confirmed that, as Officer Baird followed, the car continued past locations where the driver could have safely stopped. Officer Baird testified that he blew his air horn to give the driver an audible stop signal in addition to the blue lights, and that, when he did so, “instead of pulling over to the right hand side of the road[, the car] accelerate[d] rapidly and began to separate from me.” Officer Bennett also testified that, when Officer Baird “bump[ed] his air horn . . . [she] saw the BMW take off at a high rate of speed.” Seconds later, with Officer Baird in pursuit, the car failed to negotiate a sharp curve in the road and crashed into a utility pole. The entire sequence of events, including the car’s high-speed acceleration away from the police vehicle and the subsequent crash, was captured on Officer Baird’s video camera and was viewed by the jury At the crash scene, Officer Baird immediately called for an ambulance, exited his vehicle, and identified two people as occupants of the car — Moceri, who was the driver of the car, and a female passenger. The passenger side of the car was heavily damaged in the crash, and the passenger, who was not breathing and had no pulse at the scene, was taken by ambulance to a hospital. On arrival at the hospital emergency room, the passenger was declared dead. Evidence showed that the passenger died as a result of multiple injuries she suffered in the crash. Although Moceri insisted he was not injured, he was also taken to the hospital to be examined. At the scene of the crash, Moceri denied drinking any alcohol, but a blood test at the hospital showed that he had a blood alcohol level of 0.059, below the legal limit of 0.080. A nurse who helped examine Moceri at the hospital shortly after the crash said that he was “laughing off the police,” claimed he had been a race car driver, and said, “I should have been able to get away”

There was ample evidence to support the jury’s determination that Moceri was guilty beyond a reasonable doubt. Jackson v. Virginia, 443 U. S. 307 (99 SCt 2781, 61 LE2d 560) (1979).

2. Moceri claims the trial court erred by excluding evidence that the 1995 BMW M3 car he was driving had a possible mechanical malfunction which he contends caused or contributed to the fatal crash. The trial court entered a pre-trial order excluding the evidence based on findings that the defendant violated provisions of the Criminal Procedure Discovery Act (the “Discovery Act” or the “Act”) (OCGA § 17-16-1 et seq.) by failing to preserve the car for inspection by the state as ordered by the court; that the defendant’s failure was in bad faith; and that the state was prejudiced. OCGA § 17-16-6.

It is undisputed that the defendant elected to have the Discovery Act apply to his case, and therefore the reciprocal discovery obligations in the Act applied to the prosecution and the defense. OCGA § 17-16-2 (a). Where the prosecution or the defense fails to comply with discovery obligations in the Act, the trial court has broad discretion to fashion a remedy to ensure a fair trial. Leger v. State, 291 Ga. 584, 586 (2) (732 SE2d 53) (2012). “[T]he remedy a trial court fashions to cure a discovery violation is reviewed on appeal only for abuse of discretion.” Jones v. State, 290 Ga. 576, 578 (2) (722 SE2d 853) (2012). Moreover, if the defendant fails to comply with a discovery obligation in the Act, the trial court

. . . may order the defendant to permit the discovery or inspection, interview of the witness, grant a continuance, or, upon a showing of prejudice and bad faith, prohibit the defendant from introducing the evidence not disclosed or presenting the witness not disclosed, or may enter such other order as it deems just under the circumstances. . . .

OCGA § 17-16-6.

The record shows the following procedural history leading to the court’s order pursuant to OCGA § 17-16-6 prohibiting the defense from introducing evidence of mechanical malfunction. After new defense counsel was substituted in March 2009, the case was set for a June 24, 2009 calendar call during which a discussion occurred as to whether the defendant intended to use expert testimony to assert a claim that there was a mechanical malfunction of the car. After defense counsel stated that a malfunction claim was under consideration, the court ordered pursuant to OCGA §§ 17-16-4 and 17-16-8 that, before July 31, 2009, all discovery disclosures related to expert evidence in support of the claim be made and witness lists be exchanged. The defense failed to comply with the court order. At the July 31, 2009 calendar call, defense counsel announced ready for trial and stated that the defense would comply with the court order and provide the discovery to the state in one day Based on that assurance, the trial court set the case for a status conference on September 4, 2009, and for trial on September 28, 2009. The record at the September 4 status conference shows the defense failed to timely comply with the court’s prior discovery order. The defense provided the state with: (1) (on August 14, 2009) a witness list which included the names of two persons the defense expected to use as expert witnesses (though not identified as experts on the list); (2) (on September 2, 2009) a certifiedcopy of BMW recall campaign 97V131 (issuedby the National Highway Traffic Safety Administration) listing various BMW cars, including 1995 BMW M3 cars; and (3) (on September 3, 2009) written summaries of oral reports given to the defense by two expert witnesses. Defense counsel informed the court that the summaries were given because the experts did not provide written reports. The summaries provided by the defense consisted of only a general statement that the BMW recall 97V131 applied to the BMW M3 car driven by the defendant and that the problem referenced in the recall affected the car and made it difficult to control as it relates to accelerating and stopping. The state asked for an opportunity to inspect the car, and the following colloquy ensued between the court and defense counsel:

COURT: So . . . the experts ... all they’re going to testify about is this recall?
COUNSEL: That is correct . . .
COURT: [D]id the experts inspect the vehicle?
COUNSEL: That is correct.
COURT: Where is the vehicle?
COUNSEL: I do not know . . .
COURT: Well, you need to find that out. . . . [I]f [the state] needs to go and inspect it — this is not going to be a trial by ambush. . . . [W]hen did these [experts] inspect the vehicle?

Defense counsel responded that one expert inspected the car “a long time ago” and that the other expert had been “involved in this case for about six months.” When the court asked defense counsel why the defendant had not complied with the court’s order to disclose the expert information before July 31, defense counsel responded, “[W]e were still making decisions as related to strategy on the case is the reason.” The court temporarily recessed the status conference and told defense counsel to find out where the car was located and report back. When defense counsel reported back, he provided an address in Oxford, Georgia as the location of the car. According to defense counsel, he was “just provided that on the phone by the owner of the vehicle,” who counsel identified as the defendant’s father, a Michigan resident. The state asked the court for a continuance to give it an opportunity to obtain an expert to examine the car for the purpose of responding to the defense experts. Defense counsel argued that the state was not entitled to a continuance or any other relief because the state had possession of the car after the November 2007 accident, conducted a Georgia State Patrol accident investigation, and should have inspected the car when it had possession to determine if the recall had a bearing on the crash before releasing the car to the owner in April 2008. Pursuant to the state’s request, the court: (1) continued the case from the September 28, 2009, trial date; (2) ordered the defense no later than September 9, 2009, to provide the state with expanded written statements of the experts’ oral reports which provide all the relevant and material portions of the reports in compliance with OCGA § 17-16-4 (b) (2); and (3) ordered the defendant pursuant to OCGA § 17-16-4 (b) (1) to preserve the car in its current condition — that it “shall not be changed, altered, or modified in any way and shall not be destroyed” — and to make the car available to the state for inspection. The court specifically asked defense counsel if there was any objection to the court’s order that the defendant preserve the car for inspection. Defense counsel responded, “[N]o, Your Honor, it has been preserved for this reason. I mean, that’s the whole reason it has been saved for this time.” At the next status conference on October 9, 2009, defense counsel informed the court that the defense anticipated contacting additional experts to inspect the car and that the car was available for inspection. On December 1, 2009, the state contacted the defense to arrange for its expert to inspect the car, and the state’s inspection was set for December 17, 2009. But on December 14, 2009, defense counsel informed the state that the car was missing and was not available for inspection. Based on the failure of the defendant to preserve the car in compliance with the court order, and the state’s inability to inspect the car to respond to the defense experts, the state moved pursuant to OCGA § 17-16-6 for the trial court to prohibit the defendant from introducing evidence that the car had a possible mechanical malfunction caused by problems referenced in the BMW recall 97V131. At the January 22, 2010 calendar call, the trial court addressed the missing car and the state’s exclusion motion, and noted that defense counsel informed the court at the hearing on September 4 that the defendant’s father owned the car. Defense counsel told the court that, after the court’s September 4, 2009 oral order to preserve the car was reduced to writing on September 9, 2009, he spoke to the defendant’s father to explain the court’s order, and the father told him the car had been transferred to someone else. Defense counsel told the court that on September 9, he drove to the location where the new owner kept the car, and that he had previously revealed the transfer of ownership in a motion filed on September 28, 2009. The record shows that on September 28, defense counsel filed a document captioned “Motion to Accept Discovery as Timely Filed” asking the court to accept the untimely filing of the expanded written statement of an expert’s oral report. The second to last paragraph in the motion, totally unrelated to the motion, contained the following statements:

After court appearances on September 9, 2009, Counsel for Defendant drove to the location of the automobile that is the subject of the investigation of this case. Counsel drove to Oxford, Georgia, to personally notify the owner of the storage facility that the automobile cannot be altered in any way pursuant to Honorable David Sweat. Prior to this, Counsel had learned that the owner of the facility where the automobile is being stored is now the owner of the automobile, and Counsel wanted to make sure that the new owner understood the Court’s Order.

The trial court scheduled an evidentiary hearing to consider the state’s motion to exclude evidence.

The record contains a defense proffer of the excluded evidence describing the possible mechanical malfunction at issue as set forth in the BMW recall 97V131. As described in the recall, if the plastic bushing on the car’s cruise control or throttle cable breaks (due to environmental influences coupled with vibration), then during application of the gas pedal (without cruise control engaged) this could cause the throttle valve to remain partially open, “and the car might not decelerate as expected when you release the gas pedal.” The recall states that the repair necessary to prevent this potential mechanical malfunction is the installation of a “spring steel clip” on each cable. The defendant’s proffer showed that his experts were expected to testify that, as a result of the problems described in the BMW recall, cars subject to the recall could also experience another potential mechanical malfunction not described anywhere in the recall — the car could suddenly accelerate without any application of the gas pedal by the driver. The defendant’s experts and other witnesses were also expected to testify that the recall applied to his BMW M3; that, when they inspected the car after the accident, the car did not have the “spring steel clips” installed to repair the potential malfunction; and that the absence of the clips could have caused or contributed to the crash.

The evidence produced at the hearing on the state’s motion to exclude the mechanical malfunction evidence showed the following: At some point before the end of March 2009, Raphael Sicheron, a mechanic who owns an automobile repair shop in Oxford, Georgia, inspected the car on two different, occasions at the request of the defendant’s father (the car’s owner) at the location where the car was stored by the father in Athens, Georgia. Sicheron was the defendant’s former co-worker at a Hyundai dealership in Athens. Sicheron said that he was aware the car had been in an accident, and that in the first inspection he identified a broken part on the car’s throttle cable and showed it to the defendant’s father. At the second inspection, the defendant’s father asked Sicheron to show an investigator what he had seen in the first inspection. Sicheron showed the investigator the car’s gas and cruise control cables and the broken part, and the investigator took pictures of what he showed her. Later in the hearing, defense counsel informed the trial court that the investigator who took the photographs was employed by his office. Sicheron said the defendant’s father spoke to him about giving an expert opinion to support the malfunction claim. In June 2009, the defendant’s father sold the car to Sicheron for $300, but the car remained in the father’s possession where it was stored in Athens. Sicheron bought the car for a customer and friend, Ronald James, with the intention to remove the engine from the car and install it in a vehicle owned by James. Sicheron had earlier discussions about buying the car for the engine, but he was told by the defendant or the defendant’s father that the car was not available because it was the subject of an investigation. But sometime after March 2009, they told Sicheron the car was available. James paid $500 to Sicheron to purchase the car for the engine. According to James, the engine in the car was worth $3,000 to $4,000, and he did not know why the car was sold for less, but “[i]t was a good deal.” Sicheron eventually took possession of the car from the defendant’s father, and he and J ames transported it from Athens to Sicheron’s repair shop in Oxford in July or August 2009. To remove the car from the secure storage facility where the defendant’s father had stored it required the father’s signature. Sicheron continued to speak with the defendant’s father on the phone every week because he hoped to do business with the father, who produces turbochargers. After Sicheron and James transported the car to Oxford, Sicheron put the car adjacent to his shop in a location with no security He said the defendant’s father told him to hold off for a while on doing anything to the car because the lawyer needed to have investigators look at the car. Defense investigators later came to Sicheron’s repair shop in Oxford to look at the car. Although he could not remember the date, possibly on September 9, 2009, Sicheron said defense counsel either came to his repair shop or called him and told him the judge in the case said not to touch the car. Sicheron was never given the court order directing that the defendant preserve the car, and he was never told to secure the car to prevent someone else from tampering with it. Sicheron never told defense counsel that he bought the car for James, and he never told James that defense counsel told him the car was not to be touched. Sicheron noticed the car was missing from his repair shop on December 14, 2009, and the first person he called was the defendant’s father. The defendant’s father notified defense counsel about his contact with Sicheron, and on December 14, defense counsel called Sicheron and told him to report to police that the car was stolen and was the subject of an open court investigation. The same day, Sicheron reported to police that he was the owner of the car and that the car was stolen and under investigation. Sicheron testified at the hearing that James was the owner of the car, but he did not mention James to police when he reported the car was stolen. James testified that, on December 6, 2009, he took the car from the unsecured location where it was sitting next to Sich-eron’s repair shop, removed the engine from the car and loaded it on his truck, and that, on December 7, he took the remaining body of the car to a recycle business where it was crushed. About a week later, James brought the engine back to Sicheron’s repair shop. Sicheron knew that James had removed the engine from the car and knew that the throttle and cruise control cable assembly were still on the engine and available for inspection. Sicheron did not mention to defense counsel that the engine, with the critical parts, was still available. Rather, he installed the engine in James’s car, and, while doing so, removed the throttle and cruise control cable assembly from the engine and discarded those parts, which were lost and are no longer available for inspection by the state. Sicheron’s explanation for discarding the critical engine parts was that he did not know anyone wanted to see the engine, and that, “after the car got crushed and everything, I thought that was it.” Other evidence showed that, when the state initially had possession of the car to investigate the November 2007 accident, there was no indication or claim during the state’s investigation that mechanical malfunction caused or contributed to the accident, and the state released the car to the owner without conducting any inspection of the car’s throttle and cruise control cable assembly.

After the evidentiary hearing, the trial court granted the state’s motion to exclude the proffered evidence by concluding: (1) that actions by defense counsel and others, taken on defendant’s behalf, showed the defendant’s bad faith failure to comply with the court’s September 9, 2009 order that the car be preserved for inspection by the state; and (2) that the state was prejudiced. As set forth in the above procedural history and evidentiary hearing, we find facts, and reasonable inferences from the facts, sufficient to support the trial court’s conclusions with respect to bad faith and prejudice, as follows.

After the defendant’s experts inspected the car in support of the mechanical malfunction claim, defense witnesses (the defendant’s father and Sicheron) took actions calculated to prevent the car from being available for inspection by the state. In March 2009, the defendant’s father (who owned the car at the time) and Sicheron (a mechanic who had worked with the defendant) inspected the throttle and cruise control assembly on the car and collaborated with a defense investigator to help establish the defendant’s mechanical malfunction claim. Both the defendant’s father and Sicheron were listed as potential witnesses for the defense. In June 2009, the defendant’s father sold the car to Sicheron for $300, a fraction of the car’s fair market value, and Sicheron remained in weekly contact with the father hoping to profit from a business relationship. After the car was sold, the defendant’s father retained possession of the car while the defense was developing its mechanical malfunction claim. But in July or August 2009, Sicheron took possession of the car from the defendant’s father and moved the car from a secure storage facility to a location with no security outside Sicheron’s repair shop. Sicheron left the car outside the shop with the understanding that the car belonged to a customer, J ames, who gave Sicheron $500 to buy the car for the engine.

While the car was being kept by Sicheron at this unprotected location, actions taken by the defendant’s defense counsel contributed to the eventual destruction of the critical engine parts and violation of the court’s order that the defendant preserve the car for the state’s inspection. The defendant (acting through defense counsel) delayed providing court-ordered discovery to the state about the mechanical malfunction claim. When the defendant eventually revealed the malfunction claim, and the court ordered the defendant to preserve the car for inspection by the state, defense counsel misinformed the court that the car was owned by the defendant’s father and was being preserved for the purpose of inspection. Defense counsel also failed to comply with the court’s discovery order to provide the state, no later than July 31, 2009, with the opinions of defendant’s experts who had already inspected the car. When defense counsel finally provided the state with general (but insufficient) summaries of expert opinions revealing the malfunction claim, the state requested time to locate an expert and an opportunity to have its expert inspect the car to respond to the claim. But at the September 4, 2009 hearing, defense counsel denied knowing where the car was located. After the court directed defense counsel to find the car, counsel spoke by phone with the defendant’s father, then informed the court at the same hearing that the car was owned by the defendant’s father and was located in Oxford. Nevertheless, defense counsel argued that the state should be denied any opportunity to inspect the car. The court rejected that argument and immediately ordered pursuant to OCGA § 17-16-4 (b) (1) that the defendant preserve the car for the state to inspect, and asked if the defendant had any objection to the order. Defense counsel said there was no objection to the preservation order and assured the court that the car “has been saved for this reason.” Accordingly, defense counsel not only acquiesced in the court’s order that the defendant preserve the car for inspection, counsel induced the order by assuring the court that the defendant’s father owned the car and that the car was being preserved for the purpose of inspection. These assurances were not true. According to defense counsel, a few days later on September 9, he learned in a conversation with the defendant’s father that the father had sold the car to Sicheron. Defense counsel traveled that day to Oxford, saw the car sitting outside Sicheron’s repair shop, and spoke to Sicheron about the car. Sicheron said defense counsel told him that the judge in the case said not to touch the car, but that he was never given the court order directing preservation of the car, nor was he told to keep the car in a secure location to preserve it for inspection. At that point, defense counsel knew: (a) that he had misinformed the court that the defendant’s father owned the car; (b) that the car was no longer being preserved for inspection in the manner he had assured the court; and (c) that this information was critical to the court’s order that the defendant preserve the car for inspection. To correct these misrepresentations, defense counsel waited until September 28 when he unobtrusively inserted (near the end of an unrelated motion) statements that he had learned the car was in a “storage facility” in Oxford; that the owner of the facility was the new owner of the car; and that he told the new owner the car cannot be altered pursuant to the court’s order. (Of course counsel knew the unnamed new owner was Sicheron, and that the car was certainly not in a storage facility.) In any event, placing this information (or burying it) in the body of an unrelated motion was not a good faith effort to correct the false information defense counsel previously gave the court. At the next status conference on October 9, 2009, defense counsel had an opportunity to tell the court about the true status of the car, but counsel made no mention of the change in ownership or location of the car, but simply told the court that the car was available for inspection pursuant to the court order. The record of the subsequent January 2010 hearing (after the car and critical engine parts were destroyed or lost) shows that the trial court still remained under the false impression that the car was owned by the defendant’s father. Even assuming defense counsel was unaware at the September 4 hearing that the defendant’s father no longer owned the car and that the car was sitting outside Sicheron’s repair shop in Oxford, counsel admittedly discovered these facts on September 9 and failed to take reasonable steps to inform the court. This was evidence that defense counsel’s deliberate action (or inaction) was designed to keep the court unaware of the true facts regarding the ownership and location of the car, ensure that the court had no opportunity to take additional steps to preserve the car for inspection by the state, and obtain a tactical advantage for the defendant.

As a result of defense counsel’s action, along with actions taken by the defendant’s father and Sicheron, the car remained outside Sicheron’s shop with no security until December 6, 2009. On that date, James, who was never told by Sicheron that a judge said the car was not to be touched, took the car, removed the engine, and had the remaining car body crushed. This occurred shortly before the state’s scheduled inspection, and Sicheron’s first call about the missing car was to the defendant’s father. When James brought the car’s engine back to Sicheron’s shop, Sicheron knew the engine still had the critical parts attached (the throttle and cruise control cable assembly) that he had previously inspected with the defendant’s father to support the malfunction claim, but Sicheron did nothing to call attention to the fact that these parts were still available. Instead, Sicheron removed and discarded those parts when he installed the engine in James’s vehicle. As a result, the critical engine parts, which had been inspected by the defendant’s experts to support the malfunction claim, were deliberately thrown away and are no longer available for inspection by the state. The trial court found that Sicheron’s explanation for discarding the critical parts — that he did not know anyone wanted to see the engine — was not credible. But the court found that other facts — Sicheron’s acquisition of the car from the defendant’s father for below market value, his frequent contact with the father, and his hope to profit from doing business with the father — showed that Sicheron had a financial motivation to cooperate with the defendant’s father to dispose of the critical engine parts.

Although there was evidence to support the trial court’s conclusion that the actions by the defendant’s father and Sicheron were taken in bad faith, we find no evidence sufficient to support the court’s conclusion that these two witnesses acted as the defendant’s agents. But even if the defendant’s father and Sicheron acted without the defendant’s knowledge, there was evidence to support the trial court’s conclusion that defense counsel took actions in bad faith calculated to conceal or enable the actions taken in bad faith by the defendant’s father and Sicheron; therefore counsel’s bad faith contributed to the destruction of the critical engine parts in violation of the court’s order. The defendant was responsible for actions taken in bad faith by his defense counsel. Taylor v. Illinois, 484 U. S. 400, 416-418 (IV) (108 SCt 646, 98 LE2d 798) (1988). Accordingly, we find no clear error in the trial court’s determination that the evidence was sufficient to show the defendant acted in bad faith in violation of the court’s order, and that the destruction of the evidence was not simply the result of mistake. Theophile v. State, 295 Ga. App. 517, 520 (1) (672 SE2d 479) (2009) (determination that evidence showed bad faith and prejudice accepted unless clearly erroneous). We also find no clear error in the trial court’s finding that the evidence was sufficient to show the state was prejudiced because, in the absence of the lost engine parts (already inspected by the defendant’s experts), the state lost all opportunity to inspect those parts to refute the defendant’s mechanical malfunction defense arising from expert witnesses, fact witnesses, or evidence of the recall. Id. Under these circumstances, we find the trial court did not abuse its discretion by excluding evidence and testimony about the possible mechanical malfunction, including evidence of the BMW recall 97V131. OCGA § 17-16-6; Jones, 290 Ga. at 578 (2).

Contrary to the defendant’s contentions, his constitutional right to present a defense (grounded in the Sixth Amendment’s Compulsory Process Clause and the Fifth Amendment’s due process clause) was not violated by the trial court’s exclusion of evidence pursuant to OCGA § 17-16-6 of the Discovery Act. The reciprocal discovery provisions in the Act further legitimate state interests by establishing

a closely symmetrical scheme of discovery in criminal cases that maximizes the presentation of reliable evidence, minimizes the risk that a judgment will be predicated on incomplete or misleading evidence, and fosters fairness and efficiency in criminal proceedings.

State v. Lucious, 271 Ga. 361, 363 (2) (a) (518 SE2d 677) (1999). Exclusion of evidence under OCGA § 17-16-6 for failure to comply with the Act’s discovery requirements applies only on a showing of bad faith and prejudice, and is imposed mutually on the state and the defendant to ensure compliance with the Act. A defendant has no unqualified constitutional right to present evidence that violates a state’s rules of evidence and procedure, and “probative evidence may, in certain circumstances, be precluded when a criminal defendant fails to comply with a valid discovery rule.” Michigan v. Lucas, 500 U. S. 145, 151 (II) (111 SCt 1743, 114 LE2d 205) (1991); Taylor, 484 U. S. at 410-416 (III); United States v. Scheffer, 523 U. S. 303, 308 (II) (118 SCt 1261, 140 LE2d 413) (1998) (A defendant’s right to present a defense “is subject to reasonable restrictions . . . [and] state and federal rulemakers have broad latitude under the Constitution to establish rules excluding evidence from criminal trials ... so long as they are not arbitrary or disproportionate to the purposes they are designed to serve.” (citation and punctuation omitted)). Where the defendant (through actions of the defendant’s attorney) violates discovery provisions by wilful misconduct designed to obtain a tactical advantage, there is no constitutional bar to exclusion of the evidence. Taylor, 484 U. S. at 413-418; United States v. Nobles, 422 U. S. 225, 241 (V) (95 SCt 2160, 45 LE2d 141) (1975) (no constitutional right to present testimony free from the legitimate demands of the adversarial system). As set forth above, the trial court’s finding that the defendant’s attorney took actions in bad faith was based on evidence that the attorney engaged in wilful misconduct designed to obtain a tactical advantage for the defense by enabling destruction of evidence, in violation of the Discovery Act, to prevent the state from inspecting the evidence to rebut the mechanical malfunction defense. In those circumstances, the Supreme Court has made clear that “regardless of whether prejudice to the prosecution could have been avoided by a lesser penalty, the severest sanction was appropriate.” Michigan, 500 U. S. at 152 (II) (citation and punctuation omitted); Taylor, 484 U. S. at 417 (IV). Accordingly, there was no constitutional bar to the trial court’s order entered under OCGA § 17-16-6 excluding the defense evidence.

Decided July 7, 2016

Reconsideration denied July 27, 2016

Lynn M. Kleinrock, for appellant.

Ken n eth W. Mauldin, District Attorney, Brian V. Patterson, Assistant District Attorney, for appellee.

3. Moceri claims the trial court erred by excluding testimony from an expert witness offered during the trial to explain evidence presented by the state showing the car’s tire marks at the scene of the crash. Defense counsel argued that, by presenting evidence of tire marks made by the car to explain how the crash occurred, the state opened the door to evidence of a possible mechanical malfunction of the car as the cause of the crash. Defense counsel proffered testimony from an expert mechanical engineer that the only logical explanation for the length of the car’s tire marks was that, even though the car was braking, “some additional force prevented the car from stopping.” According to the proffer, the expert would have testified that the “additional force can be generated by a car still pulling forward . . . caused by a throttle still open, working against the braking force.” We find no error in the trial court’s exclusion of this expert testimony on the basis that it was an attempt to introduce evidence of mechanical malfunction previously excluded by the court. See Division 2, supra.

Judgment affirmed.

Doyle, C. J., and Ray, J., concur.