2012 Georgia Corporation and Business Organization Case Law Developments
| Publication year | 2013 |
| Pages | 0022 |
by Thomas S. Richey and Michael P. Carey
This article presents an overview from a survey of Georgia corporate and business organization case law developments in 2012. The full version of the survey, which can be downloaded or printed at http://www.bryancave.com/2012-ga-survey, contains a more in-depth discussion and analysis of each case. 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 in this article are those of the authors only and not Bryan Cave LLP. The authors 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 decisions dealing with Georgia corporate and business organization law issues handed down by the Georgia state and federal courts during 2012. The past year saw only a few cases with significant precedential value, but, as always, there were decisions addressing questions of law for which there is little settled authority. Even those cases in which the courts applied well-settled law are instructive for the types of claims and issues that are currently being litigated in corporate and business organization disputes.
Highlights include two important decisions in 2012 concerning common law claims for nondisclosure in different contexts—to stock purchasers in a private placement and in communications with existing shareholders. The federal courts handed down multiple rulings in 2012 regarding the effect of the business judgment rule on claims for ordinary negligence in FDIC litigation against former bank directors and officers. Several cases addressed unusual claims of alter ego liability between legal entities. Other cases of special interest involved shareholder buy-sell agreements, the effect of a noaction clause in a trust indenture on bondholder claims, a question whether an attorney-client relationship was formed between corporate counsel and an officer/ shareholder, and decisions addressing partnership dissolution issues, LLC derivative action procedure and the admissibility of expert witness testimony on matters of corporate governance.
The first sections of the survey address decisions specific to entity type—business corporations, nonprofit corporations, limited liability companies and partnerships. The rest of the survey deals with issues generally applicable to all forms of business organizations: (1) transactional issues and (2) litigation issues, including secondary liability, jurisdiction and venue, evidence questions and insurance issues. Finally, we cover some of the significant decisions handed down by the Fulton County Business Court during the year 2012.
Duties and Liabilities of Corporate Directors, Officers and Employees
Two of the most significant decisions of 2012 addressed novel issues relating to corporate disclosure duties under Georgia law. In Greenwald v. Odom, 314 Ga. App. 46, 723 S.E.2d 305 (2012), the Court of Appeals of Georgia held that alleged oral misrepresentations regarding an earnings forecast and a transaction in
progress could give rise to fraud and negligent misrepresentation claims, despite the general rule that false representations must relate to existing facts or past events. The court in Greenwald also held that the investor's claims were not barred by a merger clause in his subscription documents because a separate "reliance" clause that documented the plaintiff's free access to information was construed to authorize reliance on the oral representations forming the basis of his claim. In Anderson v. Daniel, 314 Ga. App. 394, 724 S.E.2d 401 (2012), the Court of Appeals held that communications sent to all shareholders, such as annual reports and audited financial statements, did not satisfy the "direct communication" requirement for plaintiffs seeking to assert a "holder claim" under the principles laid out in the Supreme Court of Georgia's decision in Holmes v. Grubman, 286 Ga. 636 (2010) which permits shareholders to assert claims alleging that they were misled into retaining their stock.
2012 yielded several corporate governance decisions dealing with the aftermath of the recent crisis in the Georgia banking industry. The U.S. District Court for the Northern District of Georgia issued five significant decisions in cases brought by the Federal Deposit Insurance Corporation (FDIC) as receiver for failed banks against their former directors and officers. In FDIC v. Skow, No. 11-cv-00111-SCJ (N.D. Ga. Feb. 27, 2012) the Northern District held that former directors of Integrity Bank were not exculpated from liability to the FDIC by the bank's articles of incorporation. In the same order, the court held that the business judgment rule insulated the bank's former directors from claims based on alleged ordinary negligence. In FDIC v. Blackwell, 2012 WL 3230490 (N.D. Ga. Aug. 3, 2012), FDIC v. Briscoe, No. 11-cv-02303-SCJ (N.D. Ga. Aug. 14, 2012), FDIC v. Whitley, No. 12-cv-00170-WCO (N.D. Ga. Dec. 10, 2012) (O'Kelley, J.), and FDIC v. Miller, No. 12-cv-00042-WCO (N.D. Ga. Dec. 26, 2012) (O'Kelley, J.), the district court followed the holding in Skow with respect to the effect of the business judgment rule on ordinary negligence claims. The Skow decision is currently on appeal to the 11th Circuit. In the Briscoe and Miller cases, the courts also denied motions to dismiss the FDIC's gross negligence claims. Miller is particularly noteworthy in that the district court suggested that the FDIC's allegations may support a failure of oversight claim against an executive officer under the principles stated in In re Caremark Int'l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996), perhaps the first Georgia court decision that has applied Caremark in a Georgia corporate governance case.
In Macke v. Cadillac Jack, Inc., 316 Ga. App. 744, 730 S.E.2d 462 (2012), the Court of Appeals held that summary judgment in favor of the defendants was proper in a case involving an alleged interested party transaction under the Georgia Business Corporation Code, because the plaintiff failed to produce evidence showing that the transaction was unfair, raising questions about allocating the burden of proof in such cases. In VanRan Communications Services, Inc. v. Vanderford, 313 Ga. App. 497, 722 S.E.2d 110 (2012) a petition for removal of directors under O.C.G.A. §§ 14-2-940 and 14-2-941 was denied where plaintiff failed to show evidence of alleged fraud in the preparation of a company's tax returns; a mere discrepancy between the returns and preliminary internal reports was held insufficient evidence of fraud. The...
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