Business Associations
| Publication year | 2020 |
Business Associations
Stuart E. Walker
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This Article surveys noteworthy decisions involving corporations and limited liability companies issued by the Georgia Court of Appeals between June 1, 2019, and May 31, 2020,1 summarizes an amendment to the Georgia Business Corporation Code and an amendment to the Georgia Nonprofit Corporation Code passed during the 2020 session of the General Assembly, and says a brief word about the status of the new State-wide Business Court.2
As far as appellate decisions are concerned, this was a somewhat thin survey period in the area of business associations. But the handful of cases treated here have some lessons to teach the interested practitioner.
A. The Georgia Court of Appeals Confirms that the Effective Date of a Change in the Location of the Registered Office of a Georgia LLC—and thus a Change in the Location of the LLC's County of Residence for Purposes of Venue—Cannot be Earlier than the Date that the Document Effecting the Change is Marked "Received" by the Secretary of State.
suppose an LLC wants to change the location of its registered office from DeKalb County to Dawson County—thereby changing its county of residence and the place where it is subject to venue in civil proceedings generally3 —and
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it does so by filing an annual registration with the Secretary of State.4 Suppose also that the LLC signs and submits the annual registration document on February 27, but it is not received and filed by the Secretary of State's office until March 15. Now imagine that, as fate would have it, on March 14 a lawsuit is filed against the LLC in DeKalb County. Question: Based on the location of its registered office, where does venue lie against the LLC—in DeKalb or Dawson County? Answer: DeKalb County.
The Georgia Court of Appeals answered this question in Andrews v. Blue Ridge NH Associates, LLC,5 a case in which the administrator of a decedent's estate brought tort and other claims6 against two corporations, two LLCs, a limited partnership, and other defendants arising out of the alleged negligent treatment of the decedent at two nursing home facilities.7 The suit was filed on March 14, 2018, in the State Court of DeKalb County, and venue was based on the allegation that one of the LLCs—Blue Ridge NH Associates, LLC (Blue Ridge Associates)—maintained its registered office in DeKalb County and that the remaining defendants, together with Blue Ridge Associates, were joint tortfeasors, making venue appropriate over all the defendants in DeKalb County.8
Blue Ridge Associates and other defendants moved to dismiss the suit for lack of venue in DeKalb County, arguing that Blue Ridge Associates had already changed the location of its registered office from DeKalb County to Dawson County as of February 27, 2018—15 days before the suit was filed.9 As support for its argument, Blue Ridge Associates tendered to the trial court at an evidentiary hearing a copy of the annual registration that it submitted to the Secretary of State's office to effect the change in location of its registered office. The annual registration was signed by the manager of Blue Ridge Associates on February 27, 2018, and it contained a notation near the top, stating information on record as of: 2/27/2018.10 But a stamp on the registration reflected that it was physically received by the Secretary of State's office at 1:07 p.m. on March 15, 2018.11
The trial court granted the motion to dismiss for lack of venue, concluding that the location of the registered office changed as of February 27 (the date the
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annual registration was signed and submitted) and that, as a result, Blue Ridge Associates resided and was subject to venue in Dawson County (not DeKalb County) at the time the suit was filed.12
on appeal, the court of appeals reversed that determination, holding that the effective date of the change in location of the registered office from DeKalb to Dawson County was March 15, 2018—one day after the suit was filed.13 The court cited what it identified as the "clear and unambiguous language" of O.C.G.A. § 14-11-206(e)(1),14 which provides, as a general rule, that "a document accepted for filing [by the Secretary of State] is effective: [a]t the time of filing on the date it is filed, as evidenced by the Secretary of State's date and time endorsement on the original document."15 The court noted that the statute contains two exceptions to that general rule,16 the first of which permits an LLC to state the specific time of day that a document is to become effective "on the date it is filed"17 and the second of which permits an LLC to designate a "delayed effective time and date."18 But the court underscored that "nothing in O.C.G.A. § 14-11-206 permits a party to specify an effective date for a filed document that predates the date of filing with the Secretary of State."19 Thus, under the Georgia Limited Liability Company Act (LLC Act),20 the earliest date that a document filed with the Secretary of State's office can become effective is the date on which it is marked filed (or received) by the Secretary of State's office.21
Consistent with a long line of precedent, the court of appeals reiterated that a post-filing change in a party's county of residence does not affect venue, which is fixed as of the date that a complaint is filed, so long as the complaint and summons are served on the party within a reasonable period of time.22 As a result of the reversal by the court of appeals, Blue Ridge Associates and the other defendants were subject to venue in DeKalb County, and the suit was remanded to the trial court with instructions.23
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B. The Georgia Court of Appeals Holds that Managers of an LLC (who are also Members) do not Breach Any Fiduciary Duties to LLC Members Simply by Voting Their Membership Interests on a Matter Coming Before the Members for a Vote of the Membership, and the Court Reiterates that Non-Manager Members of a Manager-Managed LLC Owe No Fiduciary Duties to the LLC or to its Members.
Suppose there is an LLC consisting of five members. In addition to owning membership interests in the LLC, all five members are employed by the LLC, and two of the members also serve as co-managers of the LLC. The LLC's operating agreement says that the fiduciary duties owed by the co-managers to the LLC and to its members extend only to their acts (or omissions) taken (or not taken) "in the management of" the Company, and no further. The operating agreement permits the employment of the five members to be terminated for cause or without cause, so long as at least a requisite percentage of the membership interests held by the five members vote in favor of the termination. Assume that four members vote to terminate the fifth member's employment, that the four members hold the votes necessary to take that action under the operating agreement, and that the four voting members include the two co-managers.
Now imagine that the member whose employment was terminated files suit against all four members of the LLC, alleging, among other things, that the members breached their fiduciary duties toward him by voting to terminate his employment. Question: how should the terminated member's fiduciary-duty claims be resolved? Answer: the claims against the co-managers fail on the merits, and the claims against the non-manager members fail to state a claim for relief.
The court of appeals answered this question in Colquitt v. Buckhead Surgical Associates, LLC.24 In January 2013, five medical doctors—Colquitt, Skandalakis, Smith, McGill, and Procter—formed a medical practice, Buckhead Surgical Associates, LLC (BSA), and an affiliated surgery center, Buckhead Surgery Center, LLC (BSC). Skandalakis and Smith were appointed to serve as co-managers of BSA and BSC. All five doctors, in addition to owning membership interests in BSA, were employed by BSA.25
About two and a half years later, Colquitt decided that he wanted to leave the medical practice and, through counsel, sent a letter to McGill, Skandalakis, Procter, and Smith, demanding a buyout of his membership interest in BSA.26
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Four days later, however, McGill, Skandalakis, Procter, and Smith—in accordance with the BSA operating agreement—voted their membership interests in favor of terminating Colquitt's employment with BSA. On the same day they informed Colquitt that his employment had been terminated for cause and that he no longer had access to the BSA premises or to its computer system.27
Colquitt thereafter sued BSA, BSC, Skandalakis, Smith, McGill, and Procter, alleging, among other things, claims against Skandalakis, Smith, McGill, and Procter for breach of fiduciary duty. McGill and Procter moved under O.C.G.A. § 9-11-12(b)(6)28 to dismiss the fiduciary-duty claims against them for failure to state a claim upon which relief could be granted.29 The trial court granted both motions and dismissed the claims against McGill and Procter. Skandalakis and Smith moved under O.C.G.A. § 9-11-5630 for summary judgment on the fiduciary-duty claims alleged against them.31 The trial court granted both motions and entered summary judgment for Skandalakis and Smith. Colquitt appealed all four rulings.32 The court of appeals affirmed.33
With respect to the fiduciary-duty claims alleged against McGill and Procter, the court of appeals noted that the LLC Act expressly provides that non-manager members (like McGill and Procter) of a manager-managed LLC (like BSA) do not owe any fiduciary duties to the LLC or to the LLC's members.34
With respect to the fiduciary-duty claims alleged against Skandalakis and Smith, the court of appeals first noted that the LLC Act authorizes members of an LLC (either in the LLC's articles of organization or in a written operating agreement) to modify or restrict the scope of any fiduciary duties generally owed by a manager to the LLC...
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