2018 Georgia Corporation and Business Organization Case Law Developments
| Publication year | 2019 |
| Pages | 0036 |
2018 Georgia Corporation and Business Organization Case Law Developments
This article presents an overview from a survey of Georgia corporate and business organization case law developments in 2018. It 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 Leighton Paisner LLP.
BY MICHAEL P. CAREY
This article catalogs decisions handed down in 2018 by Georgia state and federal courts addressing questions of Georgia corporate and business organization law. It includes both decisions with significant precedential value and others dealing with more mundane questions of law as to which there is little settled authority in Georgia. Even those cases in which the courts applied well-settled principles serve as a useful indication of trends in corporate and business organization disputes.
The year 2018 saw a number of interesting disputes among shareholders and between shareholders and management, in which the courts addressed the distinctions between direct and derivative claims and the corporation's right to dismiss a derivative action. Several cases addressed the impact of corporate dissolution on the dissolved entity and parties dealing with it. The courts also addressed vicarious liability in the specific contexts of Georgia RICO and defamation. Finally, as in past years, there were decisions applying the relatively new Georgia Evidence Code and recent changes to the Civil Practice Act's provisions for service of process on a corporation.
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.
Executive SummaryDuties and Liabilities of Corporate Directors, Officers and Employees
There were several interesting decisions in lawsuits brought by shareholders alleging that corporate directors and officers breached their fiduciary duties. In Rollins v. LOR, Inc., 345 Ga. App. 832 (2018), the latest installment of the Rollins estate litigation, the Court of Appeals held that a minority shareholder of a corporation managed by the defendants was precluded from bringing a direct action against the defendants, because the claims (for mismanagement and corporate waste) were derivative in nature. Notably, the court rejected an argument that a derivative suit was unnecessary because the non-party shareholders had allegedly acquiesced in the alleged misconduct in exchange for benefits not received by the plaintiff. Reviewing the record, the court found that a monetary judgment in favor of the plaintiff could prejudice other shareholders, and concluded that it could not rule out the possibility of additional suits by other shareholders. In the same order, the Court of Appeals affirmed the trial court's decision that the statute of limitations precluded numerous other claims, holding that the plaintiff was placed on notice of potential claims in various documents they signed over a course of 15 years, and yet failed to exercise any diligence to discover their claims during that time. A petition for certiorari to the Supreme Court of Georgia was denied.
The same panel of the Court of Appeals addressed the direct vs. derivative distinction later in the year in Patel v. 2602 Deerfiel, LLC, 347 Ga. App. 880 (2018), reaching the same result it did in Rollins. The plaintiff in Patel alleged that the defendants, a group of fellow shareholders, misled them about the value of a property held by the corporation which the corporation later sold. The court reasoned that any injury suffered by the plaintiff as a result of selling the property at a distressed price was the same as the injury suffered by the other shareholders and the corporation itself. As was the case in Rollins, the record showed that at least one non-party shareholder could be affected by the action and could not rule out bringing a separate lawsuit, a factor weighing heavily in favor of requiring a derivative suit.
The Northern District of Georgia also addressed the direct vs. derivative question in Deal v. Tugalo Gas Company, 2018 WL 4255857 (N.D. Ga. Sept. 6, 2018), finding that a shareholder's breach of fiduciary duty and misappropriation of corporate assets claims were derivative. The plaintiff alleged that the company's president abused his position by causing the company to pay his personal expenses and other benefits to him and his family. The court found that the plaintiff's claimed injury was not separate and distinct from that suffered by other shareholders and the corporation itself. In the same case, the corporation formed a special litigation committee, which investigated the claims and determined that pursuing litigation would not be in the best interests of the corporation. The court granted the corporation's motion to dismiss on the basis of the SLC's recommendation, finding that the corporation demonstrated that the SLC members were independent and conducted their investigation in good faith. In a separate case, the Middle District of Georgia also granted a corporation's motion to dismiss based on a similar recommendation by a special committee, undertaking the same analysis as that taken in Tugalo Gas. See Conroy v. Amos, 338 F. Supp. 3d 1309 (M.D. Ga. 2018). The Conroy decision has been appealed to the Eleventh Circuit.
In Myers v. United States, 307 F. Supp. 3d 1349 (N.D. Ga. 2018), the Northern District of Georgia held that a chief...
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