Georgia Bar Journal
GSB Vol. 14, NO. 6, Pg. 28.
2008 Annual Review of Case Law Developments Georgia Corporate and Business Organization Law
GSB JournalVol. 14, NO. 6April 20092008 Annual Review of Case Law Developments Georgia Corporate and Business Organization Lawby Thomas S. RicheyThis article surveys case law developments dealing with corporate and business organization law issues that were handed down by the Georgia state and federal courts during 2008. Only a few of the decisions concern important matters of first impression. Some illustrate and confirm settled points of law. Others are instructive for the types of claims and defenses that are asserted in business organization transactions, internal disputes and governance and how the courts are addressing them.
In general, the article is organized first by entity type-corporations, limited liability companies, partnerships and joint ventures. The article then covers areas in which the decisions concern transactional issues that apply to all forms of business organizations, decide litigation issues characteristic of business organization litigation or involve professional liability claims in the business context, and in this part of the article, the cases are catalogued by subject matter. Following is a brief summary of these developments.
Two decisions in 2008 dealt with shareholder agreements. Neither decision, however, addressed the Georgia Business Corporation Code provisions concerning shareholders agreements, O.C.G.A. 14-2-732. The Court of Appeals of Georgia in Levy v. Reiner, 290 Ga. App. 471, 659 S.E.2d 848 (2008), held it axiomatic that a corporation must be a party to a shareholders contract in order to be bound by it, a statement that would not be true for a shareholders agreement meeting the requirements of 14-2-732. In other rulings, Levy held that the plaintiff could not pursue direct claims for breach of fiduciary duty based on the close corporation exception to derivative actions under Thomas v. Dickson, 250 Ga. 772, 301 S.E.2d 49 (1983), because not all shareholders were parties or adequately represented. The plaintiff could not sue derivatively, either, because his breach of fiduciary duty claims related to the value of his stock, he had dissented from a sale of the corporation's assets and was pursuing an appraisal remedy, and that remedy was exclusive. The court in Simpson v. Pendergast, 290 Ga. App. 293, 659 S.E.2d 716 (2008), addressed a mirror image buy-sell agreement under which one shareholder specifies the terms and the others must elect whether to buy or sell. The court held a shareholder liable who refused to respond to such an offer because he considered that certain of the specified terms violated the agreement, but the court reversed summary judgment for specific performance because the proposed terms would affect the corporation and might not be fair.
Planning Technologies, Inc. v. Korman, 290 Ga. App. 715, 660 S.E.2d 39 (2008), dealt with judicial review of corporate decisions entrusted to the discretion of the board of directors in the context of a determination of stock option vesting. The court held that where the language does not clearly grant the board unbridled discretion, its decision is subject to review for whether it was made in good faith and in the exercise of honest judgment.
In Hilb, Rogal & Hamilton Co. of Atlanta, Inc. v. Holley, 295 Ga. App. 54, 670 S.E.2d 874 (2008), in a restrictive covenant context, the court held that a corporate employee who has authority to bind the corporation owes fiduciary duties to the corporation and can thus be held liable for diverting business from it while still employed.
The Court of Appeals of Georgia decided three nonprofit corporation cases in 2008: (1) Madonna v. Satilla Health Services, Inc., 290 Ga. App. 148, 658 S.E.2d 858 (2008), in which a hospital's bylaws concerning physicians' practice privileges took precedence over a conflicting contract granting exclusive practice rights to a single physician group; (2) The Phoenix of Peachtree Condominium Association Inc. v. Phoenix on Peachtree LLC, 294 Ga. App. 447, 669 S.E.2d 229 (2008), in which the court held a condominium association that filed suit in violation of a provision of its declaration barring suits on behalf of members, lacked standing to sue despite a later curative amendment to its bylaws and declaration; and (3) Parkridge Condominium Association, Inc. v. Callais, 290 Ga. App. 875, 660 S.E.2d 736 (2008), in which the court ruled that the trial court's findings of a member's proper purpose and the association's absence of good faith must be upheld unless clearly erroneous, but reversed on the amount of attorney's fees awarded, holding that O.C.G.A. 14-3-1604(c) requires a corporation to pay only the fees "incurred to obtain the order" for inspection and copying of records.
Limited Liability Companies
The Court of Appeals of Georgia handed down...