2011 Georgia Corporation and Business Organization Case Law Developments

Publication year2012
2011 Georgia Corporation and Business Organization Case Law Developments
Vol. 17 No. 7 Pg. 30
Georgia Bar Journal
June, 2012

GBJ Feature

by Thomas S. Richey

This is an overview from a 2011 survey of Georgia corporate and business organization decisions. For the full survey, including an extended discussion of each of the decisions, you may download or print it at the following link: http://www.bryancave.com/2011-ga-survey/. This article is not intended as legal advice for any specific person or circumstance, but rather a general treatment of the topics discussed. The views and opinions expressed here are those of the author only and not Bryan Cave LLP. The author would like to acknowledge and thank Vjollca Prroni, Danielle Parrington, Ann Ferebee and Tiffany McKenzie for their valuable assistance with this article.

This article catalogs the case law developments concerning corporate and business organization law issues in decisions handed down by the Georgia state and federal courts during 2011. It catalogs decisions regarding points of corporate, partnership and limited liability company law, as well as addressing transactions and litigation involving those organizations, their management and investors. A few decisions address matters of first impression or appear to have significant precedential value. Many others illustrate and confirm settled points of law or are instructive for the legal issues that typically arise in a corporate law practice or in business organization disputes.

2011 yielded decisions concerning duties of disclosure, shareholder inspection rights, LLC operating agreements, the rights of partners who are creditors of the partnership and partnership dissolutions, the failure of a key condition in an acquisition agreement, derivative action issues, a "common enterprise" theory of joint liability, an insolvency requirement for piercing the corporate veil, common law preference claims, the nondischargeability of breach of fiduciary duty claims, a definitive Supreme Court of Georgia decision on the fiduciary shield doctrine and much more. Also included this year are selected 2011 decisions from the Georgia Business Court, several of which ruled on the exclusivity of dissenters rights in public company mergers.

To make the overview easier for the reader to navigate and locate decisions of interest, it is organized in sections listing decisions, first, by entity type decisions that focus specifically on corporate, limited liability company and partnership issues and, second, by business transaction and litigation issues that are generally common to all forms of business organizations. A final section covers selected decisions handed down in 2011 by the Georgia Business Court and other state trial courts.

Duties and Liabilities of Corporate Directors, Officers and Employees

In one of 2011's more significant decisions, Patel v. Patel, 761 F. Supp. 2d 1375 (N.D. Ga. 2011), the U.S. District Court for the Northern District of Georgia addressed an open issue in the development of Georgia law on negligent misrepresentation claims, holding that corporate officers and directors were not liable to investors for alleged negligent misrepresentations in the corporation's offering documents because they did not have any "direct communications" with the investors. The Court of Appeals of Georgia in Gordon Document Products, Inc. v. Service Technologies, Inc., 308 Ga. App. 445, 708 S.E.2d 48 (2011) affirmed summary judgment on breach of fiduciary duty claims against a former non-officer employee for alleged wrongful solicitation of employees because his employment agreement expressly provided that he did not have authority to bind the corporation and, in any event, a fiduciary duty with regard to customer relations would not support a claim for wrongful solicitation of employees. The Court in Dempsey v. Southeastern Industrial Contracting Co., 309 Ga. App. 140, 709 S.E.2d 320 (2011) found no personal liability on the part of a corporate CEO for an alleged failure to train employees in proper safety procedures. The U.S. District Court for the Southern District of Georgia in Life Alarms Systems, Inc. v. Valued Relationships, Inc., et al., 2011 WL 1167174 (S.D. Ga., Mar. 28, 2011) held that officers and employees acting within the scope of their duties are protected from liability for tortious interference with contract where the corporation's actions are privileged. The Court of Appeals of Georgia addressed claims of personal liability in two cases involving loans. In Elwell v. Keefe, 312 Ga. App. 393, 718 S.E.2d 587 (2011) the Court held that corporate officers signing a note in a representative capacity were not personally liable on the debt and in PlayNation Play Systems, Inc. v. Jackson, Inc., 312 Ga. App. 340, 718 S.E.2d 568 (2011) it held that, because guarantees must be strictly construed, a personal guarantee signed by an owner of a corporation was unenforceable because it failed to properly identify the corporate debtor.

Corporate Stock and Debt Ownership and Rights

In 2011 the Court of Appeals of Georgia decided three cases involving shareholders' rights to inspect corporate books and records. In a case of first impression, the Court in Mannato v. SunTrust Banks, Inc., 308 Ga. App. 691, 708 S.E.2d 611 (2011), addressed the authority of a corporation under O.C.G.A. § 14-2-1602(e) to adopt bylaws limiting shareholder inspection rights for shareholders owning 2 percent or less of the corporation's stock, holding that the statutory limitation preempts a 2 percent shareholder's common law right of access to books and records. In Advanced Automation, Inc. v. Fitzgerald, 312 Ga. App. 406, 718 S.E.2d 607 (2011), the Court ruled that O.C.G.A. § 14-2-940's provision for exclusive jurisdiction over an action involving shareholder oppression claims in a statutory close corporation does not affect the venue of an inspection rights proceeding filed by the same shareholder against the same corporation in a court where its registered office is located. In Grapefields, Inc. v. Kosby, 309 Ga. App. 588, 710 S.E.2d 816 (2011), the Court held that the award of attorney's fees in an inspection rights proceeding is subject to the "any evidence" standard of review.

A corporate director's claim for rescission of her purchase of stock in a bank holding company in Griffin v. State Bank of Cochran, 312 Ga. App. 87, 718 S.E.2d 35 (2011), was barred because her access to information regarding the bank's financial condition rendered reliance on the alleged misrepresentations unreasonable. In Capital Financial Services Group, Inc. v. Hummel, 313 Ga. App. 278, 721 S.E.2d 108 (2011) the Court held that claims for...

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