Business Associations

Publication year2012

Business Associations

W. Carter Bates III

Kort D.L. Peterson

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Business Associations

by W. Carter Bates III* and Kort D. L. Peterson**

I. Introduction

This Article surveys developments in Georgia law in the area of business associations, including corporations, partnerships, limited liability companies, and joint ventures.1 The first portion of this Article reviews noteworthy published cases addressing issues of first impression from the Georgia Court of Appeals, the Georgia Supreme Court, federal district courts of Georgia, and the United States Court of Appeals for the Eleventh Circuit, issued from June 1, 2011 through May 31, 2012. The second portion of this Article summarizes additional cases of note that do not involve issues of first impression. The third portion of this Article discusses relevant legislation passed by both the Georgia House of Representatives and the Georgia State Senate in the 2012 session of the Georgia General Assembly and signed by Governor Nathan Deal.

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II. Cases Addressing Issues of First Impression

A. The Georgia Supreme Court Overrules the Application of the Fiduciary Shield Doctrine

In a case arising from a dispute over a forum selection clause in an agreement, the Georgia Supreme Court addressed the "fiduciary shield" doctrine as a matter of first impression.2 Dr. Carol Walker sold nutritional supplements acquired from, LLC, d/b/a AmeriSciences (AmeriSciences). Walker and AmeriSciences formalized their economic arrangement in an agreement containing a forum selection clause limiting venue in the case of litigation to state or federal courts located in the City of Harris, Texas.3 For reasons undisclosed by the court, Walker terminated the agreement in February 2009 and demanded that AmeriSciences repurchase the unsold merchandise in her possession4 pursuant to the Official Code of Georgia Annotated (O.C.G.A.) section 10-1-415(d)(l).5 Eight days later, AmeriSciences filed a declaratory judgment action against Walker related to the forum selection clause in a Harris, Texas state court.6

In April of that year, Walker filed a damage suit against AmeriSciences and three of its corporate officers in the State Court of Gwinnett County for failure to comply with the repurchase requirements of O.C.G.A. § 10-1-415(d)(1). The Texas court issued a final default judgment in June 2009 ruling that any damage suit for failure to repurchase was subject to the forum selection clause, that such clause was enforceable, and that filing of such a suit anywhere other than Harris, Texas was a breach of contract. The Gwinnett County court then granted AmeriSciences summary judgment in light of the forum selection clause and the Texas court's ruling, and the court also dismissed the three corporate officers as defendants for lack of personal jurisdiction based on the fiduciary shield doctrine.7 The Georgia Court of Appeals reversed the Gwinnett County court, holding that because Walker's suit was based on a statutory violation and not a claim under the contract with AmeriSciences, the forum selection clause contained in that

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contract did not apply and res judicata did not prevent her suit.8 The court of appeals also held that the Gwinnett County court "had personal jurisdiction over the individual defendants even though they were present in Georgia only" as officers of AmeriSciences.9

Although the court of appeals applied the fiduciary shield doctrine in two prior decisions, the Georgia Supreme Court pointed out that both decisions were decided prior to Innovative Clinical & Consulting Services v. First National Bank of Ames, Iowa,10 decided by the supreme court in October 2005.11 In that case, the court interpreted O.C.G.A. § 9-10-91(1),12 the jurisdictional statute on which Walker subsequently relied,13 to grant Georgia courts "unlimited authority to exercise personal jurisdiction over any nonresident who transacts any business in this State," limited only by the dictates of procedural due process.14 The court in observed that special treatment of fiduciaries—promoted by the fiduciary shield doctrine—conflicts with the jurisdictional statute's literal language, that the doctrine was not necessary as a matter of fairness, and overruled the two court of appeals cases to the extent that they applied the fiduciary shield doctrine, declining to follow several federal cases that also applied the doctrine.15

In support of this decision, the supreme court cited Colder v. Jones,16 a United States Supreme Court case that weakened the legal theory behind the fiduciary shield doctrine.17 The court stated that even though the individual defendants in this case were members of an LLC rather than officers of a corporation, the court's analysis was not changed.18 The court then proceeded to hold that the individual defendants had sufficient contacts with the State of Georgia-and, in fact, admitted to physical presence in the State-to support the trial court's jurisdiction over them.19

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B. The Georgia Court of Appeals Interprets a Statute Permitting Corporations to Limit Minority Shareholders' Access to Books and Records

In Mannato v. SunTrust Banks, Inc.,20 the Georgia Court of Appeals held that O.C.G.A. § 14-2-1602(e)21 abrogated any common law right of a shareholder owning two percent or less of a corporation's outstanding stock to inspect corporate books and records.22 Edward Mannato, a shareholder of SunTrust Banks, Inc. (SunTrust) stock, requested that SunTrust sue its officers and directors for breach of fiduciary duty related to the housing market crash. After an investigation, SunTrust's board of directors refused Mannato's request. Mannato then demanded access to SunTrust's books and records in his capacity as a SunTrust shareholder. SunTrust again denied Mannato's request, this time asserting he was not entitled to inspect SunTrust's books and records under O.C.G.A. § 14-2-1602(e) and SunTrust's bylaws as he held less than two percent of SunTrust's outstanding stock. Mannato subsequently sought an injunction to prevent SunTrust from blocking his access to its books and records, but the trial court granted SunTrust's motion to dismiss in light of O.C.G.A. § 14-2-1602(e). Mannato appealed, arguing that he had a common law right to inspect SunTrust's records.23

The court of appeals interpreted O.C.G.A. § 14-2-1602(e), which provides that a corporation's articles of incorporation or bylaws may limit inspection of certain corporate records for shareholders owning less than two percent of the corporation's outstanding stock.24 Relying on legislative history, the court concluded that the Georgia General Assembly intended to supersede any contrary common law right to inspection of corporate records by enacting O.C.G.A. § 14-2-1602(e).25 Consequently, the court held that O.C.G.A. § 14-2-1602(e) abrogated any common law right of inspection provided to shareholders owning two percent or less of a corporation's outstanding shares and affirmed the trial court's dismissal of the complaint.26

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C. The United States Court of Appeals for the Eleventh Circuit Holds a Dissolved Corporation Has No Principal Place of Business for Purposes of Diversity Jurisdiction

In a case of first impression for the United States Court of Appeals for the Eleventh Circuit,27 the court held that a dissolved corporation has no principal place of business for purposes of diversity jurisdiction and that such a corporation's citizenship is therefore determined with reference to the state in which it was incorporated.28 LanLogistics Corporation (LanLogistics) sold several companies it owned and, in so doing, breached a contract with Holston Investments, Inc. (Holston), in which it granted Holston a right of first refusal with respect to the stock of one of the companies it sold. LanLogistics never gave Holston an opportunity to exercise its right of first refusal. Holston, a Florida corporation, sued LanLogistics, a Delaware corporation with its headquarters in Miami, in federal court, alleging diversity jurisdiction. By the time Holston filed suit, LanLogistics had dissolved, forfeiting its authority to conduct business in Florida.29

After the federal district court entered a judgment in favor of Holston, LanLogistics moved to vacate the judgment for lack of subject matter jurisdiction, arguing that it was a citizen of Florida for purposes of diversity jurisdiction and therefore could not be sued by Holston, also a Florida citizen, in federal court under the auspices of diversity jurisdiction.30 In analyzing the jurisdictional claim, the Eleventh Circuit referred to 28 U.S.C. § 1332(c)(1),31 which provides...

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