Published Wednesday, July 14, 2010

Judge: Royal's actions 'fraud'

The Newnan Times-Herald

Following a settlement between the Coweta Community Foundation and the Newnan-Coweta Historical Society that sent $1.45 million back into the Edgar B. Hollis Estate's coffers, the long-running dispute between the city of Newnan, the historical society, a local accountant, and other interested parties over Hollis' estate -- originally valued at more than $7 million -- has reached its conclusion ... at least for now.

In a final order issued by Coweta County Superior Court Judge William Lee, local CPA Mayo Royal was scolded for "taking excessive and improper administration fees" from the Hollis estate while he served as executor following Hollis' death in 2006.

Royal's actions constitute "fraud ... while acting in a fiduciary capacity," Lee said in the order and summary judgment.

Michael Sumner, Royal's attorney, said that there are a number of "factual errors" in the order and therefore he and his client intend to appeal.

Lee said in the order that current Hollis estate executor Robert Hancock "is entitled to an award for the estate's attorney fees and expenses incurred by the estate in taking over the administration of the estate and seeking the return of all funds improperly distributed by Royal to the Foundation in an amount to be determined at a subsequent trial on damages."

"(Fred) Blackwell and Hancock are entitled to summary judgment against Royal because there are no genuine issues of material fact and the undisputed facts warrant judgment in their favor as a matter of law," Lee said. Blackwell, the original plaintiff, heads a trust set up by Hollis.

Lee also said the "undisputed facts" demonstrate that Royal "took excessive and improper administration fees," delayed and prolonged the administration of the estate unnecessarily, failed to file tax returns, made charitable donations and distributions not named in the Hollis will, failed to protect and preserve the assets of the estate and "personally benefited from estate property."

These actions "constitute breaches of Royal's fiduciary duties to the estate as a matter of law that would have warranted his removal as executor had he not resigned first," said Lee.

Hollis -- a Newnan native who spent most of his professional career in Washington, D.C., working for the National Security Agency's Inter-Library Loan Division -- intended for his Newnan home to be owned and operated by the city of Newnan as a "high-quality, well-staffed" furnishings museum, according to his will.

The Greek Revival-style home was built in 1850 for the William Storey family at Oaklawn plantation but was dismantled and carefully reconstructed at 32 Nimmons St. in 1866. When Hollis died in 2006, he named Royal the executor of his estate.

"An executor is charged with a fiduciary duty to carry out the intent of the Testator," said Lee. "He has no authority or discretion to depart from it."

An executor has a "sacred duty" of standing in the place of the deceased and administering his estate as directed, Lee said.

"There was clearly no intent on the part of Mr. Hollis to give his Executor free rein to decide to whom his largess should be distributed," said Lee.

"Therefore, under the terms of the will, once the City of Newnan declined the bequests, Royal was obligated to offer the bequest to the Newnan-Coweta Historical Society, since it was in existence at the time."

The Coweta Community Foundation was therefore "not a proper recipient" of the bequests in the Hollis will, Lee said.

"Royal's distribution of Estate funds to the Foundation without regard to the specific terms of the will was yet another breach of his fiduciary duties," he said.

Royal never offered the bequests in the will to the Newnan-Coweta Historical Society after the city initially refused them, Lee said.

Lee found that when Hollis died on June 17, 2006, he said in his will that he specifically intended for the city of Newnan to receive his home and furnishings for the purpose of establishing a museum. The will also stated that "in the event the City of Newnan is unable or unwilling to accept this bequest ... it shall pass to the Newnan-Coweta Historical Society, its successor, or a comparable charitable entity."

The will permitted Royal to pay his accounting firm "reasonable compensation" for its services.

"After becoming Executor, Royal began paying himself the sum of $2,500 per month (and in some months, more than that) for 'accounting services,'" Lee said.

Prior to Hollis' death, Royal had charged only $225 per month for these same services, Lee noted.

"Royal admits that he charged the estate $2,275 more per month for these same services in order to recoup what he felt was ... underpayment of these accounting fees prior to his death," Lee said.

Royal further admitted the most he charged other clients for similar services was about $1,000 per month.

But the court "specifically reserves this ruling and does not grant summary judgment on the issue of whether or not the accounting fees charged by Royal to the estate were 'reasonable,'" said Lee, and this issue "will be tried at a subsequent trial on damages."

However, Royal's breach of fiduciary duties "warrants a forfeiture of any compensation paid to Royal as executor," said Lee.

"In December of 2006, Royal made a 'donation' or $10,000 to the Coweta Community Foundation from estate funds," Lee said. "In December of 2007, Royal made another 'donation' of $15,000 to the Foundation from estate funds. In 2008, Royal made yet another 'donation' of $30,000 to the Foundation from estate funds. These facts are not disputed by Royal..."

Lee noted the estate has recently settled its claim to recover the money distributed by Royal to the foundation. Under this settlement, the Foundation returned $1.45 million to the estate of the money distributed to it by Royal.

"It also appears that Blackwell, the Estate and the Intervenor Parties each preserved their existing claims against Royal and reserved their right to recover their attorney's fees, expenses, commissions and costs from Royal."

In addition to the "donations" given to the foundation, a separate "gift" of $150,000 was also made by Royal to the city of Newnan, but the city later returned it.

"Within five weeks of becoming executor, Royal had already paid himself $207,625 in fiduciary and accounting fees," said Lee. By Dec. 31, 2006, that total had risen to $252,725 in fiduciary fees and accounting expenses.

In 2007, Royal paid himself another $150,023 in fiduciary fees and $30,000 for accounting services, and in 2008 he paid himself another $233,000 in fiduciary fees and another $30,000 for accounting services.

"These facts are not disputed by Royal," said Lee.

"In total, it appears from the evidence that Royal paid himself $613,023 in fiduciary fees and his firm an additional $82,725 for accounting services during his term as executor, for a total of $695,748," said Lee. He noted that Royal disputes the totals, however.

"Based upon the size and nature of the estate, Royal paid himself more in fiduciary fees than the statutory rate would permit, and the record does not show that he ever sought or obtained Court approval for additional fees or compensation," said Lee.

In addition to all of these fees, Lee points out that on Aug. 15, 2007, Royal "caused the estate to purchase a condominium in Seagrove Beach, Florida" at a cost of $520,000. "Royal and his family used this condominium on numerous occasions prior to his resignation as executor," said Lee.

Also during his term as executor, "Royal made no attempt to sell the co-op apartment owned by the Estate in Washington, D.C.," Lee said.

"Instead, Royal spent $43,873 of estate funds in remodeling the apartment and another $13,147 in association dues and utility bills. After the remodeling was complete, Royal improperly made personal use of the apartment. These facts are not disputed by Royal."

When demands were made to close out the estate in December 2008, Royal deposited $1.5 million directly into the Coweta Community Foundation's bank account, Lee said.

"Royal was a member of the Board of Directors and the paid bookkeeper / accountant of the Coweta Community Foundation at the time," said Lee. "These facts are not disputed by Royal."

Prior to March 2, 2009, Royal had not filed any income tax returns for the estate, despite charging the estate over $80,000 for "accounting services," Lee said. Apparently the state and federal taxes were never filed, despite initial claims that he had done so, Lee said.

Royal did deposit $231,151 into a Fidelity account to "repay the funds that he owes to the estate," Lee said.

But prior to learning that a civil lawsuit was being filed against him, "Royal made little or no attempt to organize, collect and protect the assets of the estate," Lee said.

One account was even declared "dormant and abandoned" by the Bank of America, he said.

"Similarly, a bond fund with Oppenheimer valued at $17,095" at the time of Hollis' death "was never negotiated or closed," and the value eventually fell to $12,084.