2019 Georgia Corporation and Business Organization Case
| Publication year | 2020 |
| Pages | 0030 |
2019 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 2019. 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 the year 2019 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 decisions are organized first by entity type—those specific to business corporations, limited liability companies and partnerships. The remaining sections of the article 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, service of process and damages questions.
Summary
Duties and Liabilities of Corporate Directors, Officers and Employees
One of the most closely followed corporate governance cases in recent years, FDIC v. Loudermilk, returned to the appellate courts in 2019 after a jury found the former directors of the Buckhead Community Bank liable to the FDIC for $5 million in losses the bank suffered due to loans approved by the defendants. A key question on appeal was whether the trial court erred by not applying Georgia's apportionment statute, O.C.G.A. § 51-12-33, which would have divided the judgment among the defendants according to their relative fault. The U.S. Court of Appeals for the Eleventh Circuit sought guidance from the Supreme Court of Georgia, certifying three questions regarding the impact of the apportionment statute on cases involving corporate board decisions that lead to pecuniary losses. The Supreme Court of Georgia unanimously held that the statute applies to tort cases involving only pecuniary losses, but does not always abrogate the traditional common law rule imposing joint and several liability on joint tortfeasors. Instead, joint and several liability remains the rule where the defendants acted in concert, because fault is not divisible under such circumstances. FDIC v. Loudermilk , 305 Ga. 558, 826 S.E.2d 116 (2019). The Eleventh Circuit interpreted this to mean that where fault is indivisible for any reason, § 51-12-33 does not apply. It therefore affirmed the judgment, finding that there was no evidence from which the jury could have divided fault among the defendants. FDIC v. Loudermilk, 930 F.3d 1280 (11th Cir. 2019).
In Conroy v. Amos, 785 Fed. App. 751 (11th Cir. 2019), the Eleventh Circuit affirmed the dismissal of a shareholder derivative suit on the motion of the corporation under O.C.G.A. § 14-2-744, finding that the special litigation committee that recommended dismissal was independent and had conducted a reasonable, good faith investigation into the claims.
Corporate Stock and Debt—Contracts, Valuation and Standing
In McDuffie v. Sautner, 2019 WL 5865929 (M.D. Ga. Nov. 8, 2019), the Middle District of Georgia addressed a dispute between two groups of shareholders over which group owned a controlling stake in the company, a question that turned in part on whether the defendants' unrecorded purchases of stock from other shareholders could be counted. On a motion for preliminary injunction, the court sided with the defendants, holding that the sellers of the defendants' stock had fully complied with the company's bylaws by surrendering their stock certificates and that any delay in recording the sale in the company records did not serve to invalidate the sale. In another dispute that turned on incomplete corporate stock records, the Court of Appeals of Georgia held in Laymac v. Kushner, 349 Ga. App. 727, 824 S.E.2d 768 (2019), that the plaintiff was a shareholder in an S corporation notwithstanding his failure to pay for his shares or to receive share certificates. Reversing a ruling from the trial court, the Court of Appeals found that the parties had entered into a binding share subscription agreement, which established the plaintiff's ownership of shares even in the absence of payment. A petition for certiorari to the Supreme Court of Georgia has been denied.
Nonprofit Organization Decisions
In New Covenant Church, Inc. v. Armstrong, 2019 WL 1934880 (S.D. Ga. May 1, 2019), the Southern District of Georgia enjoined two individuals from exercising control over a church's property and bank accounts, holding that their exercise of authority was ultra vires under the church's bylaws and the Georgia Nonprofit Code. The two individuals had claimed that they were acting under the authority of the church's founder and pastor, but the court ruled that the...
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