Facts
Plaintiff Elkin King was seven years old when his father died in a plane crash. Plaintiff’s mother (Peggy) filed a wrongful death suit against the airline on her and Elkin’s behalf. A settlement was reached setting aside $200,000 for Elkin’s benefit. The settlement check listed both Peggy and Forrest King, Jr. (Elkin’s stepfather) as payees. King, Jr. placed the settlement funds in a bank account entitled Elkin’s Account and named himself custodian. Approximately $150,000 of the settlement funds were spent for Elkin’s benefit before he turned 18.
Elkin turned 18 in 1996. He was living with King Jr, and his mother Peggy. At that time, King Jr. did not turn over the settlement funds to Elkin. Instead, the funds remained in the account with King Jr. as custodian until 1999 when King Jr. and Peggy divorced. After the divorce, King Jr. removed his name from the account. In 2005, Elkin’s mother used the remaining $50,000 of the settlement funds to purchase a condominium in Louisiana.
In 2018, Elkin sued King Jr. in the federal district court alleging King Jr. converted the settlement funds and breached fiduciary duties to Elkin under Georgia law. Elkin testified that he would have taken control of the settlement funds when he turned 18 but did not learn about them until his grandfather mentioned them in 2017.
The district court granted summary judgment for King Jr. on both the conversion and breach of fiduciary duty claims as there was no evidence that King Jr. used the settlement funds for any purpose other than for Elkin’s benefit. The district court concluded that a reasonable jury could find that naming King Jr. as the custodian of the settlement funds account created a confidential and fiduciary relationship between King Jr and Elkin. However, King Jr.’s duty would only be to use the fund for Elkin’s benefit, which he did. On motion for reconsideration, the district court ruled that Elkin failed to sufficiently plead a breach of fiduciary duty claim based on a duty to disclose but, even if he had, King Jr. did not breach his fiduciary duties.
Elkin appealed the district court’s ruling to the Eleventh Circuit Court of Appeals. The Eleventh Circuit held that Elkin forfeited his conversion claim but had potentially raised a claim for breach of fiduciary duty based on the duty to disclose. The Eleventh Circuit certified questions for the Georgia Supreme Court seeking clarification on Georgia’s duty to disclose in a confidential relationship.
Issues & Holdings
- Does a breach of the duty to disclose in a confidential relationship also support a breach-of-fiduciary-duty tort claim under Georgia law?
- Does a breach of the duty to disclose toll the statute of limitations for a breach-of-fiduciary-duty tort claim?
The court ruled that:
- Yes. If the parties in a confidential relationship are also in a fiduciary relationship, a fraudulent breach of the duty to disclose would support a breach-of-fiduciary-duty tort claim under Georgia law.
- Yes, if the breach of the duty to disclose is fraudulent (i.e. where a party conceals or suppresses a material fact while under a duty to disclose). OCGA § 9-3-96.
Reasoning
Confidential Relationships and the Duty to Disclose
Under Georgia law (OCGA § 23-3-58) a confidential relationship may be created in two ways:
where one party is so situated as to exercise a controlling influence over the will, conduct, and interest of another; or
where from a similar relationship of mutual confidence, the law requires the utmost good faith.
Here, the Eleventh Circuit determined that King Jr. had entered into a confidential relationship with Elkin when he placed the settlement funds in an account in his name, which also created fiduciary duties. Fiduciary duties are established by Georgia law. The guiding principle is that the fiduciary has a duty to act with the utmost good faith. The failure to act with the utmost good faith constitutes a breach of fiduciary duty. A fiduciary also has a duty to disclose. Where a fiduciary conceals or suppresses a material fact while under a duty to disclose is a breach of the duty of utmost good faith.
Good faith here would have required King Jr. to inform Elkin Jr. of the facts relating to the settlement fund account and spending of the money. Not only was the concealment of such facts a breach of the duty to disclose, but it also amounted to fraud, which tolled the time for Elkin Jr. to bring a claim.
Fraudulent Breach of Duty to Disclose Tolls Statute of Limitations
Georgia law sets out a time in which a claim must be brought, or it is forever dismissed. This timing is known as the statute of limitations. However, there are ways in which this timing is lengthened or tolled. To benefit from tolling the Plaintiff must establish actual fraud. For example, facts showing that a party conceals or suppresses a material fact while under a duty to disclose is enough to establish the fraud needed to toll the statute of limitations.
Conclusion
King v. King Jr. is a good case explaining the responsibilities of a fiduciary who is holding funds for another. Regardless of what is written in a contract, the fiduciary must always act in the utmost good faith in handling the beneficiaries’ funds. This includes the duty to disclose the contents of the account, the spending of monies within the account, and the purpose. Before getting involved in serving as custodian or trustee of a bank account, trust account, or similar, you should contact an attorney to understand your role and responsibilities.
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Citation: King v. King, Jr., 316 Ga. 354, No. S23Q0105 (S. Ct. Ga. May 16, 2023)
