Category: Business Litigation

Business Divorce Law

A recent Georgia Appeals case shows the perils of not following the the language contained in an operating agreement. In Colquitt v. Buckhead Surgical Associations, LLC et al., A19A0466 (June 28, 2019), a dispute arose between doctors who had founded two LLCs: a medical practice and related surgery center. The LLCs included three managing members and two non-managing members. After a disagreement, one of the managers was removed for cause, in accordance with the operating agreement, by the two other managing members. The terminated member sued the LLCs and the other members, claiming breach of fiduciary duty, breach of contract, punitive damages, and attorney’s fees.

After several motions, the trial court dismissed all claims filed by the terminated member. The Court of Appeals reviewed the case and approved the trial court’s rulings. The takeaways are:

(1) The fiduciary duties of a managing member of an LLC can be reduced or eliminated by language in the operating agreement. In this case, the operating agreement limited breach of fiduciary duties to conduct that amounted to gross negligence and willful misconduct. The terminated manager’s claims against the other managers fell short of being gross negligence or willful misconduct.

(2) There can be no breach of fiduciary duty when the operating agreement allows the complained of activity. Here, the operating agreement stated that a majority of members could vote to terminate a member. Thus, there was no breach of fiduciary duty for following the terms of the operating agreement.  

(3) Only managing members owe fiduciary duties to the LLC or other members. Here two of the members were non-managing members and couldn’t, under any circumstances, be held liable for breach of fiduciary duty.

If you have questions surrounding a business divorce, please give us a call.

Landlord Wins Wrongful Eviction Case

There is a lot of confusion when it comes to evicting a tenant. One of the questions is the amount of damages a tenant is entitled to if wrongly evicted. The issue was addressed recently by the Georgia Court of Appeals in Hart v. Walker, A18A1320. In that case, the landlord clearly wrongfully evicted the tenant by changing the locks when she and the tenant got into a dispute.

Please don’t do this—in almost all instances, a landlord in Georgia must file an eviction in court in order to deprive a tenant of possession. Georgia is not a self-help state.

The tenant sued the landlord claiming wrongful eviction and damage to personal property. He also claimed out-of-pocket expenses.

The trial court ruled that although the tenant was wrongfully evicted, the tenant wasn’t entitled to recover any damages against the landlord. The appeals court agreed. At trial, the tenant had an expert testify to the fair market value of the items, but he was unable to convince the trial court that he in fact owned the items in question. The appeals court explained that the trial court is entitled to evaluate the credibility of a witness, and, if the witness isn’t credible, it can reject the witness’ testimony. Here, obviously, the trial court didn’t believe the tenant that he owned the items in question. Regarding the tenant’s out-of-pocket expenses for food and a motel, the appeal court noted that the tenant would have to incur such expenses regardless of the wrongful eviction. Therefore, these damages were too remote.

While this case addressed damages, as a landlord, if there’s anything you take away from this blog, it should be that changing the locks isn’t the way to go. The landlord in this case was fortunate that the tenant was unable to make a case for damages.

The Insurability of Tax Deed Titles

If you’ve purchased a tax deed in Georgia, what do you need to do to obtain ownership of the property? That’s a question we get frequently. First and foremost, following a tax sale, you need to bar the right of redemption of the owner who didn’t pay taxes and any party who holds an interest in the property. This has been covered in other blogs on this website. But what about after you’ve barred the right to redeem, are you able to put up for sale sign and sell the property?

Generally, if there’s a non-judicial tax sale on the property within the past 20 years, the answer is no. In other words, most title insurance companies won’t title insure such properties. So what to do. There are generally three ways to obtain full title or what is known as “marketable title.”

The first way is to adversely possess the property for more than four years. This means taking full possession of the property in a manner that is (i) hostile (against the right of the true owner and without permission); (ii) actual (exercising control over the property); (iii) exclusive; (iv) open and notorious (using the property as the real owner would, without hiding occupancy); and (v) continuous.

The second way is to get a quitclaim deed from the of the owner who didn’t pay taxes and any party who holds an interest in the property.

The third way is to file a quiet title action in the Superior Court in which the property is located. In such a lawsuit the owner who didn’t pay taxes and any party who holds an interest in the property are named and given an opportunity to object.

Please call with any questions regarding tax deeds or any of the above methods of obtaining marketable title once a barment notices have been completed.

Discovery From Third-Parties

Once a lawsuit is filed, there is a period of discovery in which the parties exchange evidence and take depositions. In almost every case, there is tension in regard to what must be disclosed to the other side. Georgia law says that parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery. It is not grounds for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.

What does this mean? Well, it means that most anything that is or may become an issue in the litigation must be disclosed. The same rationale applies to discovery to a third-party (i.e., a party that is not named in the lawsuit). The way this is applied, as a practical matter, is that the court will look at issue in dispute and decide whether the information or documents sought are relevant or likely to lead to the discovery of admissible evidence. This is a liberal standard but there must be some connection between the evidence sought and a dispute in the lawsuit.

Who Gets Excess Tax Sale Funds in Georgia?

Revisiting a previous post, under Georgia law, a tax commissioner holds excess funds generated by a tax sale in a fiduciary capacity, and the disbursement of those funds is governed by OCGA § 48-4-5. But, after a tax sale, if there are any excess funds after paying taxes, costs, and all expenses of a sale, who gets these funds? The answer, generally, is that distribution of excess tax funds is based on the right to the funds at the time of the tax sale.

If there are excess tax funds, the officer selling the property shall give written notice of the excess funds to the record owner of the property at the time of the tax sale and to the record owner of each security deed affecting the property and to all other parties having any recorded equity interest or claim in such property at the time of the tax sale. Such notice shall be sent by first-class mail within 30 days after the tax sale. The notice shall contain a description of the land sold, the date sold, the name and address of the tax sale purchaser, the total sale price, and the amount of excess funds collected and held by the tax commissioner, tax collector, sheriff, or other officer. The notice shall state that the excess funds are available for distribution to the owner or owners as their interests appear in the order of priority in which their interests exist.

If there is a dispute regarding who is entitled to the excess tax funds, an interpleader is filed and the excess funds are distributed by the superior court to the intended parties, including the owner, as their interests appear and in the order of priority in which their interests exist.

Some issues that come up in regard to distribution of excess tax funds is whether a “super-lien” obtained via a redemption gives the redeeming party first priority on the excess funds. The answer is no because a super-lien places a lien on the property but not on the excess tax sale funds.

Another issue is when additional taxes come due after the tax sale—is the tax commissioner allowed to use the excess funds for taxes due after the tax sale? The answer is no because the tax deed purchaser is the party responsible for paying property taxes after the tax sale. The remedy for the tax purchaser is to add taxes paid to the redemption price.