Business Associations
| Publication year | 2020 |
Business Associations
Stuart E. Walker
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This Article surveys a handful of noteworthy cases involving corporations and limited liability companies decided by the Georgia Supreme Court and the Georgia Court of Appeals between June 1, 2018 and May 31, 2019.1
A. Georgia's apportionment statute applies to tort suits seeking economic damages for injury to intangible property interests, but the statute does not apply when two or more tortfeasors act negligently by engaging in "traditional concerted action."
The Georgia Supreme Court's decision in Federal Deposit Insurance Corporation v. Loudermilk2 brought answers to two previously unresolved questions of Georgia law. First, the court held that Georgia's
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apportionment statute, O.C.G.A. § 51-12-33,3 does apply to torts suits seeking damages to compensate for purely pecuniary losses because those kinds of losses constitute "injuries" to "property" under the statute.4 Second, the court held that O.C.G.A. § 51-12-33 does not apply when two or more tortfeasors act negligently by engaging in "traditional concerted action, as it was understood at common law,"5 because in those circumstances the acts of each tortfeasor are imputed to the other as a matter of law, each is jointly and severally liable for any resulting damages, and the "fault" of each is indivisible (which is why the resulting damages are not apportionable).6
The Federal Deposit Insurance Corporation (FDIC), as receiver of Buckhead Community Bank, alleged that nine former bank officers and directors acted negligently and grossly negligently when they approved ten commercial real estate loans causing losses totaling approximately $22 million and ultimately contributing to the bank's failure and takeover by the Georgia Department of Banking and Finance.7 The case against the officers and directors proceeded to trial based on the FDIC's theory that the defendants had breached their duties to the bank in ways not immunized by Georgia's business judgment rule, as elaborated by the supreme court when the case was first before it.8 The jury in the federal trial determined that some of the defendants negligently approved four of the ten loans at issue and, as a result, entered judgment in favor of the FDIC in the amount of nearly $5 million. It was from that judgment that the defendants appealed to the United States Court of Appeals for the Eleventh Circuit, setting the stage for this year's decision.9
The case came before the court on three certified questions of unresolved Georgia law:
1. Does Georgia's apportionment statute, OCGA § 51-12-33, apply to tort claims for purely pecuniary losses against bank directors and officers?
2. Did Georgia's apportionment statute, OCGA § 51-12-33, abrogate Georgia's common-law rule imposing joint and several liability on tortfeasors who act in concert?
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3. In a negligence action premised upon the negligence of individual board members in their decision-making process, is a decision of a bank's board of directors a "concerted action" such that the board members should be held jointly and severally liable for negligence?10
Both before and during trial, the defendants asked the trial court to instruct the jury to apportion the damages (if any) among the defendants according to each defendant's proportion of fault. The trial court denied the defendants' requests. Following the return of the jury's $5 million verdict, the trial court entered a joint and several judgment in that amount against the liable defendants.11
On appeal to the Eleventh Circuit, the defendants argued that the trial court erred by refusing to require the jury to apportion the damages among the defendants according to each defendant's proportion of fault. The defendants argued that apportionment was required because the FDIC's suit to recover for pecuniary harm was, in effect, a suit for "injury to . . . property" under O.C.G.A. § 51-12-33(b). The FDIC advanced two counterarguments. First, the FDIC argued that the apportionment statute applies (in the property context) only to suits seeking damages for injury to tangible property. Second, the FDIC argued that even if the statute could be applied to suits seeking damages for injury to intangible property, the statute could not be applied where two or more tortfeasors engage in concerted action—which, if proven, would render each tortfeasor legally responsible for the acts of the others and would result in joint and several liability for all tortfeasors—because the enactment of O.C.G.A. § 51-12-33 did not displace Georgia's common law rule of joint and several liability for concerted-action torts.12 Unable to answer these questions under existing Georgia law, the Eleventh Circuit certified them to the Georgia Supreme Court for resolution.13
1. The language in O.C.G.A. § 51-12-33(b) referring to "an action [] brought . . . for injury to . . . property" encompasses economic injuries to intangible property interests—e.g., pecuniary harm to a business.
In rejecting the FDIC's argument that (in the property context) the apportionment statute applies only when injuries are suffered to tangible property, the court resorted to the plain meaning canon, with
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the additional recognition that words used in a legal context should be interpreted in light of their "usual and customary meaning" in the law.14 The court first observed that the word "property" is not defined in Title 51 of Georgia's Official Code (which includes the apportionment statute) but is defined in Title 1 of the Code to "'include[] real and personal property.'"15 Next, citing Black's Law Dictionary, the court noted that the concept of personal property has been traditionally understood in the law to encompass both tangible items and intangible interests.16
The court made short work of the FDIC's cramped conception of personal property (as excluding intangible property rights), which was based principally on a selective reading of Blackstone's eighteenth-century commentaries and an out-of-context spin on a nearly sixty-year-old decision of the court of appeals.17 The court then emphasized that a broad understanding of personal property is consistent with supreme court's own precedents dating to 1910, 1915, 1917, and 1966 and that, as a policy matter, the expansive interpretation "makes good sense" in the context of a statute whose apportionment regime was meant to be "comprehensive" rather than partial.18
2. The enactment of O.C.G.A. § 51-12-33 did not displace the common law tort rule making those who commit torts by concerted action jointly and severally liable for the damages resulting from their "fault," which is indivisible as a matter of law.19
Because the court concluded that the apportionment statute can be applied to actions seeking to recover for injury to intangible property interests, the court had to address the FDIC's alternative argument that the apportionment statute displaced the common law rule imposing joint and several liability on tortfeasors who engage in concerted action.20
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The court began by tracing the principle of "concerted action" to its origins in the criminal law and its later migration into civil tort law.21 At common law, the acts of each person who engaged in conduct in a concerted manner (namely, as part of a common enterprise) were imputed by law to all other persons who engaged in conduct in furtherance of the common enterprise.22 This "theory of mutual agency," according to the court, was the legal foundation for regarding "the act of one [a]s the act of all."23 The court observed that "the invocation of concerted action at common law paved for plaintiffs a direct path to joint and several liability for an entire group of wrongdoers."24 The court noted, however, that starting with a court of appeals decision issued in 1974,25 the joint and several liability rule in Georgia began to be applied beyond the confines of mere concerted action.26 Courts began applying the rule whenever the actions of more than one tortfeasor combined to produce a "single, indivisible injury," even if the tortfeasors acted independently and not as part of a common enterprise.27
The FDIC argued that the apportionment statute should not be applied to the conduct of the defendants for either of two reasons: (1) because the defendants "engaged in concerted action," the joint and several liability for which "survived enactment of the apportionment statute," or (2) because the defendants' conduct combined to produce a "single, indivisible injury."28
The court rejected the FDIC's "indivisible injury" argument, holding that the apportionment statute itself makes "fault" (not injury) the touchstone for determining divisibility.29 Relying on its earlier precedent,30 the court explained that while an injury may be indivisible, the damages flowing from that injury may still be capable of being apportioned according to the degree of fault of each tortfeasor whose conduct contributed to the injury.31 The apportionment statute makes one inquiry decisive: whether the tortfeasors' "fault is capable of
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division."32 The divisibility of fault is paramount because "[i]f fault is indivisible, then the trier of fact cannot carry out the statute's directive of awarding damages 'according to the percentage of fault of each person' and the apportionment statute does not govern how damages are awarded."33
The court determined that the apportionment statute did not abrogate the common law rule of joint and several liability for torts committed by concerted action because "true concerted action" rests on the notion that each tortfeasor is "equally liable" for the full amount of the damages and that "the act of one is the act of all."34 The court therefore held:
[W]here the fault of one person is legally imputed to another person who is part of the same joint...
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