Antitrust Law Daily Wrap Up, RICO—M.D. Ga.: Settlement between trustees and beneficiaries approved in RICO case over trust asset management, (Apr 17, 2014)

By Linda O’Brien, J.D., LL.M.

The federal district court in Columbus, Georgia, has approved a settlement between the trustees of a charitable trust and the trust’s beneficiaries in an action in which the trustees allegedly received improper distributions from the trust and made improper distributions to other individuals and entities. A motion to dismiss the beneficiaries’ RICO claims against other defendants was denied ( Gill v. Hartshorn , April 14, 2014, Land, C.).

John Gill established the Gill Family Cornerstone Trust and designated his children and a religious organization as beneficiaries. Gill placed his substantial real estate holdings into approximately three hundred single asset property trusts in which the Family Trust was the sole beneficiary. The Family Trust received distributions from the single asset property trusts, and in turn made distributions to the beneficiaries. Gill’s former business associates, Kevin Hartshorn and Daniel Van Gasken, were trustees of the trusts. The Trust declaration provided that distributions would be at the sole discretion of the trustees. Pursuant to the declaration, the trustees established two affiliated religious organizations and designated them as beneficiaries of the Family Trust.

The Family Trust beneficiaries filed suit against Hartshorn, Van Gasken, and Gill’s brother Loren Gill, alleging that the trustees mismanaged the trusts and diverted trust assets to themselves and other entities which they were affiliated. The beneficiaries also alleged that Loren Gill conspired with John Gill to defraud the Family Trust by diverting trust assets to a company owned by Loren Gill, in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO). John Gill’s other brother, Michael Gill, was permitted to intervene in order to allege that he was the trustee and/or beneficiary of the trust. The Family Trust beneficiaries, Hartshorn, and Van Gasken reached a settlement and moved for court approval. Loren Gill objected to the settlement and moved to dismiss the RICO claims asserted by the Family Trust beneficiaries.

Settlement. The court determined that the settlement was reasonable and permissible. The settlement was clearly in the best interests of the beneficiaries since they were provided with substantial trust assets to be used for their benefit and they would no longer be subject to the trust discretionary provision that allows distributions to be made to some beneficiaries and none to others. The settlement also made adequate provision for the interests of the remaining beneficiaries and was consistent with the trust settlor’s intent. Moreover, the trusts confer broad discretion on the trustees which includes authority to enter into the settlement and does not amount to impermissible self-dealing, the court noted.

RICO claims. The Family Trust beneficiaries had standing to pursue RICO claims, according to the court. In the settlement, the beneficiaries reserved their claims against Loren Gill and his company for fraudulently diverting trust assets for his benefit and he should be required to return those assets to the Family Trust. Under the settlement, they are entitled to receive a portion of any recovered assets and don’t waive their beneficiary status until the claims are resolved. Since they have a contractual agreement to receive a portion of any recovered trust assets, the beneficiaries have retained a sufficient beneficial interest in the return of trust assets and have every incentive to pursue those claims vigorously, the court noted.

The beneficiaries sufficiently stated a claim under RICO. They alleged that Loren Gill conspired with John Gill to defraud the trustees into diverting trust assets to Loren Gill’s company through the mail and wires. In denying the motion to dismiss, the court concluded that the allegations were sufficient to show the conduct of an enterprise through a pattern of racketeering activity and injury to business or property by reason of the racketeering activity.

The case is No. 4:12-CV-77 (CDL).

Attorneys: Richard Allen Childs for Karen Gill. Bridget A. Zerner (Markham & Read) for Kevin Hartshorn.

Companies: Gill Family Cornerstone Trust

Cases: RICO GeorgiaNews