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.

Wrongful Eviction in Georgia

[We apologize, but our office no longer accepts tenant wrongful eviction claims. If you are a tenant, please contact Georgia Legal Aid at www.georgialegalaid.org or the Atlanta Volunteer Lawyers Foundation at https://avlf.org/get-help/evictions/.]

There is a lot of confusion regarding evicting a tenant and wrongful eviction. One question 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, 347 Ga. App. 582 (2018). In that case, the landlord wrongfully evicted the tenant by changing the locks when she and the tenant got into a dispute.

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

In the Hart case, 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 damages against the landlord. The appeals court agreed. At trial, the tenant’s expert testified to the fair market value of the items, but the tenant couldn’t convince the trial court that he owned the items in question. The appeals court explained that the trial court could consider the credibility of a witness and, if the witness isn’t credible, can reject the witness’ testimony. Here, 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 a takeaway from this blog, it is that changing the locks wrongfully evicting a tenant isn’t the way to go. The landlord, in this case, was fortunate that the tenant could not recover significant damages.

Tax Deed Titles in Georgia

If you’ve purchased a tax deed in Georgia, how do you obtain a clear tax deed title, i.e., marketable title? 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. We have covered this topic in other blogs on this website. But what about after you’ve barred the right to redeem? Are you able to put up a for sale sign and sell the property?

Generally, the answer is no if there’s a non-judicial tax sale on the property within the past 20 years. In other words, most title insurance companies won’t title insure such properties. So what do you 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. Adversely possessing 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 owner who didn’t pay taxes and any party with an interest in the property.

The third way is to file a quiet title action in the Superior Court where the property is located. In such a lawsuit, the owner who didn’t pay taxes and any party with an interest in the property are named and allowed to object. A special master is appointed and ultimately the cour will issue an order clearing title. The order is recorded on the public record and the process is complete.

Please call us with any questions regarding tax deeds or the above methods of obtaining marketable title.

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.

Service by Publication in a Quiet Title or Tax Deed Barment

In both a tax deed barment and the subsequent quiet title, a critical part of the procedure is serving all parties with an interest in the subject property. This includes lien holders, heirs, and anyone else with a claim against the property.

Often in these situations, especially when the property is distressed or abandoned, parties connected with the property may be hard to find. The best example is the delinquent taxpayer. That party has not paid taxes for one or more years, and, many times, has abandoned possession. If the delinquent taxpayer is gone and hasn’t left a forwarding address, that party may be anywhere.

What must be done in these situations? A reasonable and diligent search must be conducted to find and serve each party that has an interest. In a barment, this requires personal service for parties residing in the county of the tax sale or certified mail for parties residing outside the county. In a quiet title, personal service is required.

What if personal service or certified mail is unsuccessful? For example, you get back the certified letter stating it is undeliverable. In those situations, you’re entitled to serve by publication. This usually means advertising notice of the barment or lawsuit in the official county newspaper for four consecutive weeks.

Sound simple . . . usually it is  straightforward, but there are times when things don’t work out as expected. In a recent case, Dukes v. Munoz et al., A18A0572 (decided June 15, 2018), a tax deed holder, unable to serve the delinquent taxpayer, hired an investigator. The investigator came back saying the delinquent taxpayer could not be found after reasonable search. Relying on the investigator’s testimony, the tax deed holder barred the taxpayer’s right of redemption and filed a successful quiet title action.

Happy tax deed holder and end of story . . . not so much. Turns out that the delinquent taxpayer was a Georgia state legislator, who found out about the barment and quiet title. The Georgia Court of Appeals ruled that because a Google search would have provided the address for the delinquent taxpayer, the tax deed holder had not exercised proper diligence in locating the delinquent taxpayer. Therefore, service by publication was improper and the barment and quiet title were voided; the tax deed holder was forced to incur the expense of the barment and quiet title.

The takeaway is that it’s not sufficient to use the last known address of party if that address appears invalid. The best approach, in our opinion, is to spend a little extra money to make sure parties with an interest are served and given a proper opportunity to object.