Business Associations

• Jurisdiction: Georgia,United States,Federal
• Publication year: 2015
• Citation: Vol. 67 No. 1

Business Associations

Crystal J. Clark

[Page 15]

Business Associations

by Crystal J. Clark^* I. Introduction

This Article surveys notable cases in the areas of corporate, limited liability company, partnership, agency, and joint venture law decided between June 1, 2014 and May 31, 2015 by the Georgia Supreme Court, the Georgia Court of Appeals, the United States Court of Appeals for the Eleventh Circuit, and the United States district courts located in Georgia.¹

II. Issues of First Impression

A. Confirmed Application of the Business Judgment Rule

During the previous survey period, the United States District Court for the Northern District of Georgia and the United States Court of Appeals for the Eleventh Circuit submitted certified questions to the Georgia Supreme Court regarding whether the business judgment rule precludes ordinary negligence claims against bank officers and directors.² The Georgia Supreme Court affirmed and clarified the protections of the business judgment rule in Georgia.

In Federal Deposit Insurance Corp. v. Loudermilk,³ the Georgia Supreme Court held that the law protects decisions by officers and

[Page 16]

directors against ordinary negligence claims by the business judgment rule, provided they make decisions with due care and deliberation.⁴ In making its determination, the court first acknowledged the application of the business judgment rule in Georgia common law.⁵ Next, the court compared the common law doctrine of the business judgment rule with the statutory duties of officers and directors under section 7-1-490 of the Official Code of Georgia Annotated (O.C.G.A.)⁶ and determined that the former "is consistent with, and has not been superseded by, O.C.G.A. § 7-l-490(a)."⁷

The court overruled two cases that provided an absolute bar against claims of ordinary negligence by the business judgment rule because they were inconsistent with the rule at common law.⁸ It clarified that "officers and directors may be liable for a failure to exercise ordinary care with respect to the way in which business decisions are made."⁹

The court explained that the standard of care for officers and directors of banks is less demanding than the "ordinary diligence" standard.¹⁰ "[B]ank officers and directors are only expected to exercise the same diligence and care as would be exercised by 'ordinarily prudent' officers and directors of a similarly situated bank,"¹¹ not the "care which every prudent man takes of his own property of a similar nature."¹² Bank officers and directors may rely on certain information, when doing so in good faith.¹³ This holding increases Georgia's bank officers' and directors' potential liability and provides insight into the liability implications for other officers and directors as well.

[Page 17]

B. Jurisdiction for Charging Orders Against Limited Liability Company Interests

In Mahalo Investments III, LLC v. First Citizens Bank & Trust Co.,¹⁴ the Georgia Court of Appeals held, as a matter of first impression, that under Georgia's Limited Liability Company Act (LLC Act),¹⁵ a court only needs jurisdiction over the judgment debtor to enter a charging order against that judgment debtor's membership interest.¹⁶ In Mahalo Investments III, LLC, First Citizens Bank & Trust Company (FCB) obtained a judgment against Mahalo Investments III, LLC (Mahalo), Mark Epstein, and Andrew Kelly. FCB then sought an order, by the same court and under the same case file, to change Epstein's and Kelly's interests in the limited liability company (LLC) with payment of the unsatisfied judgment.¹⁷ The trial court issued the charging order pursuant to O.C.G.A. § 14-11-504(a),¹⁸ and Epstein and Kelly appealed the order.¹⁹

The appellants argued that proper venue and jurisdiction over the interests in the LLC had to be established before a charging order could be entered against their interests in the LLC.²⁰ The court looked to statutory interpretation and determined that the plain language of O.C.G.A. § 14-11-504(a) allows any court of competent jurisdiction to issue a charging order.²¹ While the statute is silent on whether the LLC needs to be a party to the proceeding for the charging order, the court determined that the LLC need not be added because the charging order affects no right or direct interest of the LLC.²² As a result, courts may, under the LLC Act, enter a charging order against a judgment debtor's interest if the court has jurisdiction over the judgment debtor.²³

[Page 18]

III. Noteworthy Cases

A. Charging Orders and Accounting of LLC Assets

In Gaslowitz v. Stabilis Fund I, LP,²⁴ the Georgia Court of Appeals held that granting a charging order does not entitle one to an accounting of company assets.²⁵ In Gaslowitz, Stabilis Fund I, LP (Stabilis) obtained a judgment against Adam Gaslowitz. Stabilis also obtained a charging order against Gaslowitz's interest in G&A, LLC, an entity wholly owned by Gaslowitz. The trial court held that Stabilis was entitled, as a judgment creditor of Gaslowitz, to a charging order against Gaslowitz's membership interest and to an accounting of its assets.²⁶

The court of appeals affirmed the order issuing the charging order.²⁷ The court determined that O.C.G.A. § 14-11-504(a) does not require the judgment creditor to establish a specific amount of the unpaid remaining judgment on the date that the charging order is issued.²⁸ Additionally, the charge can only be against the amount of judgment that remains unsatisfied; thus, the charging order need not give further direction regarding the specific amount.²⁹

The court of appeals reversed the order for the accounting of the assets of G&A, LLC.³⁰ The court determined that an accounting of a company's assets does not indicate the likelihood that a judgment creditor will recover its claim.³¹ Therefore, unlike the Uniform Partnership Act,³² the LLC Act does not specifically provide a judgment creditor with a right to an accounting of a company's assets but, instead, provides other remedies.³³

Lastly, the court of appeals held that the trial court did not abuse its discretion when it ordered Gaslowitz to post a supersedeas bond to secure the charging order.³⁴ On the other hand, the court determined that it was an abuse of the trial court's discretion to order G&A, LLC to jointly and severally post a supersedeas bond with Gaslowitz because the

[Page 19]

charging order did not affect a disposition of its property and it was not a necessary party to the charging order proceeding.³⁵

B. Acronym as a...