SCHINAZI Et Al. v. EDEN; And Vice Versa, 338 Ga. App. 793

Background

Raymond Schinazi created an irrevocable 2005 Schinazi GST Grantor Trust naming Carol Lynn Eden as trustee and his daughter as primary beneficiary; he reserved a nonfiduciary right to reacquire trust property by substituting assets of equivalent value.
Schinazi and his entity RFS & Associates formed RFS Partners, L.P.; Schinazi assigned a 99% economic interest to the Trust in 2005 in exchange for a promissory note, and the Trust was treated as a limited partner after a consent agreement in September 2005.
In January 2012 Schinazi attempted to exercise his substitution right by delivering a $58,290,000 promissory note and declaring the Trust’s partnership interest transferred to him; Eden refused to acknowledge the transfer.
RFS Partners’ partnership agreement required compliance with Section 5 transfer procedures and execution of a prescribed Assignment form for transfers of limited partnership interests; no such Assignment form was executed in 2012.
Eden sued for declaratory relief (ownership of the partnership interest), failure to tender equivalent assets, breach of fiduciary duty, litigation expenses (OCGA §13-6-11), and punitive damages; the trial court granted declaratory relief to Eden but granted summary judgment to defendants on damages claims.
On appeal the Court of Appeals affirmed the declaratory judgment that the Trust still owned the partnership interest, reversed summary judgment on breach, punitive damages, and attorney-fee claims (leaving those issues for the jury), and affirmed summary judgment as to failure-to-tender where appropriate.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether beneficiary’s prior release barred trustee’s declaratory claim	Eden: release by beneficiary did not cover trustee’s independent claim; the trust sues through its trustee	Defs: daughter’s release barred any claims related to the trusts, precluding Eden’s suit	Held: Release did not bar Eden; trust’s claims belong to trustee and were not shown to be within the beneficiary’s release
Whether Schinazi validly reacquired the Trust’s RFS Partners interest under the Trust and partnership agreements	Eden: Schinazi failed to follow partnership Section 5 transfer formalities and did not substitute assets of equivalent value	Defs: Schinazi exercised his express substitution right and reacquired the interest in 2012	Held: Schinazi had the right to reacquire but failed to comply with partnership transfer requirements and appropriate assignment form; Trust remains owner
Breach of fiduciary duty claim viability	Eden: partners and managing general partner owed fiduciary duties; unilateral transfer and book entries show breach and possible undervaluation	Defs: Claim is derivative of declaratory relief or otherwise insufficient as a matter of law	Held: Issue of fiduciary duty, breach, and damages are factual questions precluding summary judgment; claim stands
Recovery of punitive damages and litigation expenses (attorney fees)	Eden: defendants acted willfully/bad faith by improperly transferring Trust property; these remedies should survive summary judgment	Defs: Genuine dispute over ownership (declaratory controversy) precludes punitive damages or fees as a matter of law	Held: Material issues of fact exist on willfulness/bad faith; summary judgment on punitive damages and litigation expenses was erroneous and those claims go to the jury

Key Cases Cited

Wells Fargo Bank v. Cook, 332 Ga. App. 834 (Ga. Ct. App.) (principles of contract/trust construction)
Leone Hall Price Foundation v. Baker, 276 Ga. 318 (Ga.) (a trust acts only through its trustees)
Conner v. Hart, 252 Ga. App. 92 (Ga. Ct. App.) (partners owe fiduciary duties to one another)
Tyler v. Lincoln, 272 Ga. 118 (Ga.) (attorney fees and bad faith issues generally for jury; punitive damages standard)
Moses v. Pennebaker, 312 Ga. App. 623 (Ga. Ct. App.) (nominal damages appropriate where property right invasion occurred)