2015 Georgia Corporation and Business Organization Case Law Developments
| Citation | Vol. 21 No. 6 Pg. 0030 |
| Pages | 0030 |
| Publication year | 2016 |
by Michael P. Carey
This article presents an overview from a survey of Georgia corporate and business organization case law developments in 2015. The full version of the survey, which can be downloaded or printed at https://rubybryancave.com/preview/images/content/8/2/ v2/82173/2015-Georgia-Corporation-and-Business-Organization-Case-Law-Deve.pdf, 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 author only and not Bryan Cave LLP.
This article catalogs decisions handed down during 2015 by Georgia state and federal courts addressing questions of Georgia corporate and business organization law. It includes both decisions with significant presidential value and others dealing with less momentous questions of law as to which there is little settled authority. Even those cases in which the courts applied well-settled principles serve as a useful indication of the types of claims and issues that are currently being litigated in corporate and business organization disputes and how the courts are dealing with them.
The year saw a number of noteworthy decisions spanning a wide variety of corporate and business law issues. There were two significant decisions involving directors of corporations who simultaneously serve as trustees for trusts who hold a minority interest in the corporation—one dealing with liability issues, the other an insurance coverage dispute. Elsewhere, the Supreme Court of Georgia issued an important opinion reaffirming the duty to read transactional documents and clarifying the circumstances under which that duty can be excused. The Supreme Court also addressed the availability of prejudgment interest in an action for specific performance of a stock purchase agreement, and the remedy of equitable partition in the context of a joint venture agreement. The Court of Appeals of Georgia addressed two issues of first impression: the first dealing with a judgment creditor's right to a charging order against an LLC member, the other dealing with an LLC's right to recover for discomfort and annoyance in a nuisance action. The courts also dealt with interesting questions of jurisdiction and venue over corporate entities, including whether a foreign corporation or LLC with its corporate headquarters outside of Georgia can remove a tort action from the county in which it is filed to the county where its largest Georgia office is located.
The decisions are organized first by entity type — those specific to business corporations, limited liability companies and partnerships. The remaining sections of the survey deal with (1) transactional issues potentially applicable to all forms of business organizations, and (2) litigation issues that are common to all business forms, including secondary liability, jurisdiction and venue, evidence questions and insurance issues.
Duties and Liabilities of Corporate Directors, Officers and Employees
One of the most significant and interesting Georgia corporate law cases in recent years, Rollins v. Rollins, returned to the Supreme Court of Georgia in 2015. In a previous appeal, the Supreme Court held that corporate directors who simultaneously serve as trustees of trusts holding minority interests in the corporation are subject to the corporate standard of care, and not a more stringent trust standard, when acting in a corporate capacity. The case returned to the Supreme Court after the Court of Appeals of Georgia ruled that it was unable to determine as a matter of law whether the defendants were acting in a corporate capacity or a trust capacity when they voted their trusts' interests in favor of amending a partnership agreement to make themselves managing partners, and also when they modified the partnership's distribution scheme. A unanimous Supreme Court held, without deciding any ultimate question of liability, that the capacity in which the defendants acted was ascertainable from the trial court's summary judgment record and could be determined as a matter of law. Rollins v. Rollins, 298 Ga. 161, 780 S.E.2d 328 (2015). In so holding, the Court explained that when a particular action can only have been performed in one capacity — such as voting a trust's shares of stock, which can only be done by a trustee—there can be no confusion as to what standard of care to apply, and therefore, no need for a jury to determine that issue.
There were two noteworthy decisions involving claims of misappropriation of corporate opportunities. In Sewell v. Cancel, 331 Ga. App. 687, 771 S.E.2d 388 (2015), the shareholders of an anesthesiology group structured as a professional corporation voted to dissolve the corporation and later, certain director/shareholders formed a new corporation, excluding other directors and shareholders of the previous corporation. The new corporation obtained a contract with the same hospital served by the previous corporation. Evaluating a motion for summary judgment by the defendants, the Court of Appeals held that no usurpation of a corporate opportunity or fraud occurred as a matter of law. Two facts weighed heavily in the court's decision. First, the dissolution of the initial corporation was brought about by factors beyond its control; namely, the hospital's unilateral decision to terminate its contract with the previous corporation and restructure its anesthesiology department. Second, the dissolution was unanimously approved, including by the plaintiffs, who showed no evidence that they were defrauded into voting in favor. In the second case, BST AG Solutions Inc. v. PWB AG Consulting LLC, No. 1:15-cv-88(LJA), 2015 WL 4067569 (M.D. Ga. July 2, 2015), the Middle District of Georgia held that the evidence was insufficient to show that an exclusive distribution right was a corporate opportunity belonging to the plaintiff. While the defendant, a former director of the corporation, had previously assigned the distribution right to the corporation, it was clear to the court that the assignment was for a limited time period which expired before the defendant left.
Two other cases addressed questions of individual liability of corporate directors, officers and shareholders. In Houston v. Elan Financial Services, __ F. Supp. 3d__ , 2015 WL 5634626 (S.D. Ga. Sept. 24, 2015), the Southern District of Georgia held that the owner of a corporation bound himself personally to the terms of the corporation's credit card agreement, and therefore was liable for charges made to the account. The court found that the agreement plainly bound the owner through terms such as "the business owner is individually liable and jointly liable with the business for all charges made to the account." In Caplan v. Weis, No. 1:14-cv-01321-RWS, 2015 WL 630441 (N.D. Ga. Feb. 11, 2015), the Northern District of Georgia held that a landlord's principal could be individually liable under the federal Lead-Based Paint Hazard Reduction Act of 1992 and for negligence under Georgia law, on the basis of allegations that the principal dealt personally with the plaintiff tenants but did not warn them about the dangers of leadbased paint on the premises.
Corporate Stock and Debt—Contracts and Valuation
In Estate of Callaway v. Garner, 297 Ga. 52, 772 S.E.2d 668 (2015), the Supreme Court of Georgia held that a seller obtaining specific performance of a stock purchase agreement was not entitled to prejudgment interest under O.C.G.A. § 13-6-13, holding that the award of prejudgment interest was inconsistent with the nature of specific performance as an equitable remedy. The Court nonetheless noted that an award of interest might be available under O.C.G.A. § 7-4-15, which provides for an award of interest on "[a]ll liquidated demands, where by agreement or otherwise the sum to be paid is fixed or certain." In Hall v. Prosero,...
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