Acree v. McMahan, A02A0903.

• Citation: 574 S.E.2d 567,258 Ga. App. 433
• Decision Date: 19 November 2002
• Docket Number: No. A02A0903.,A02A0903.
• Court: United States Court of Appeals (Georgia)
• Parties: ACREE et al. v. McMAHAN.

574 S.E.2d 567

258 Ga. App. 433

ACREE et al. v. McMAHAN.

No. A02A0903.

Court of Appeals of Georgia.

November 19, 2002.

Certiorari Granted February 25, 2003.

Bouhan, Williams & Levy, Walter C. Hartridge, David M. Conner, John G. Odom, Savannah, for appellants.

O. Wayne Ellerbee, Valdosta, Tom W. Thomas, for appellee.

SMITH, Presiding Judge.

Dr. Howard McMahan brought suit against Dr. Russell Acree and Memorial Health Services, Inc. to recover damages for breach of contract. A jury trial resulted in a verdict for McMahan, and the two defendants appeal. They raise issues regarding the propriety of applying the doctrine of piercing the corporate veil and allege several errors regarding proof of and interpretation of the contract in issue. We find no error and affirm.

The evidence presented at trial showed that Acree formed Memorial Health Services, Inc. (MHS), a corporation in which he was the principal shareholder, to manage and sometimes purchase various small hospitals in South Georgia. In 1984, McMahan began practicing medicine in a group in Adel with Acree. When MHS acquired management rights to a hospital in Hahira, Acree and McMahan recruited Dr. Gene Jackson, an old friend of McMahan, to relocate his practice to Hahira. In the fall of 1990, Acree approached McMahan with a proposal to relocate to Ocilla, in Irwin County, where Acree was in the process of finalizing an agreement for MHS to manage the hospital. Although McMahan was not at first receptive, he eventually agreed. He, Acree, and Jackson formed a corporation, AJM, Inc., to formalize the structure of their practice, management, and potential ownership agreement with regard to the Ocilla relocation. Under the agreement, he and Jackson were to relocate to Ocilla and practice there. They agreed to be on the hospital staff and assist in turning around the hospital's finances by admitting patients and using the hospital facilities. Eventually they were to become part of the management team. The management agreement MHS had with the hospital included a purchase option, and under the AJM agreement, if the hospital were sold, McMahan and Jackson would be offered an equity position in the hospital.

In November 1990, after the AJM agreement was executed, McMahan and Jackson relocated their medical practices to Ocilla. McMahan's family followed in early 1991. In essence, MHS assigned its management contract with the hospital in Ocilla to AJM, with Acree providing the expertise acquired through previous experience, and McMahan and Jackson providing the manpower for daily operations. As time went on, however, it became apparent that differences of opinion, both philosophical and practical, existed between McMahan and Jackson, on the one hand, and Acree on the other hand. Because of these differences, in May 1992 the principals in AJM reached a buyout agreement, whereby Acree would purchase the shares in AJM of both McMahan and Jackson.

Under this agreement, Acree agreed to pay the other two doctors $ 750,000 each for their shares, in certain prescribed payments. Acree also agreed to maintain the hospital as an acute care facility, improve its physical plant and equipment as the budget permitted, maintain the hospital staff, assist in recruitment efforts, and promote the hospital. For their parts, McMahan and Jackson agreed to maintain their practice in Ocilla, continue to use the hospital as their primary inpatient facility, keep up their committee work, and cover the emergency room and the nursing home 24 hours a day. They also agreed to try to recruit two additional doctors, maintain their relationship with the community, and promote the hospital.

The first payment required under the agreement was for $150,000 each to McMahan and Jackson. This was made on time, by MHS. In June 1992, monthly payments of $5,000 began to McMahan and Jackson. These checks were drawn on the account of Irwin County Hospital. In August 1993, after disagreements with Acree over another doctor recruited by Acree, updating hospital equipment, and Acree's announcement that he would open a practice in Ocilla, Jackson decided to leave and announced his departure.

After Jackson left, McMahan continued active participation in emergency room call and admitted patients to the hospital. His monthly checks were sometimes delayed. In January 1994, when McMahan had not received his check by mid-month he telephoned Acree, who informed him that he was unhappy with McMahan's performance regarding the number of patients he was admitting to the hospital and would no longer pay him under the buyout agreement. McMahan then told Acree that he could not accept an agreement that made compensation contingent upon the number of patients he admitted, and he would no longer actively cover the emergency room until their impasse regarding the terms of the agreement was settled. No further payments were made under the agreement. McMahan then wrote to the acting hospital administrator requesting a change in his staff privileges from active staff to courtesy staff, which would allow him to admit his patients to the hospital and take care of his patients in the nursing home, but relieved him from emergency room duties. This change in privileges was accepted. MHS's management contract and option to purchase were later sold, and McMahan resumed his active staff privileges thereafter.

1. In one enumeration, Acree and MHS contend the trial court erred in giving McMahan's requested charges 1, 3, and 6, dealing with part performance and piercing the corporate veil. They maintain that these charges should not have been given because they misstated the law and were not adjusted to the evidence presented, and because under Georgia law, the doctrines of "alter ego" and "piercing the corporate veil" may not be applied in reverse. We do not agree.

The trial court charged as follows:

Now, the law is founded on the legal principle that a corporation is a separate entity, distinct and apart from its stockholders. Performance by one party to a contract and acceptance by the other would establish an enforceable contract, even though not in writing. Although a corporation possesses a legal existence separate and apart from that of his [sic] officers and stockholders, this separate entity can be disregarded when the corporation has overextended its privileges. The plaintiff contends that the separate personalities of the defendant, Memorial Health Services and Russell Acree, no longer exist. To establish this the plaintiff must prove by a preponderance of the evidence that the defendant, Russell Acree, disregard[ed] the corporate entity, made it a mere ... instrumentality for the transaction of his own affairs that there was such a unity of interest in ownership that the separate personalities of Memorial Health Services and Russell Acree no longer exist and to adhere to the doctrine of corporate entity would promote injustice or protect fraud.

(a) Acree and MHS argue that the charges should not have been given because no evidence was presented that Acree abused the corporate form.

The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has overextended his privilege in the use of a corporate entity in order to defeat justice, perpetrate fraud or to evade contractual or tort responsibility. Because the cardinal rule of corporate law is that a corporation possesses a legal existence separate and apart from that of its officers and shareholders, the mere operation of corporate business does not render one personally liable for corporate acts. Sole ownership of a corporation by one person or another corporation is not a factor, and neither is the fact that the sole owner uses and controls it to promote his ends. There must be evidence of abuse of the corporate form. Plaintiff must show that the defendant disregarded the separateness of legal entities by commingling on an interchangeable or joint basis or confusing the otherwise separate properties, records or control. In deciding this enumeration of error, we are confronted with two maxims that sometimes conflict. On the one hand, we are mindful that great caution should be exercised by the court in disregarding the corporate entity. On the other, it is axiomatic that when litigated, the issue of piercing the corporate veil is for the jury, unless there is no evidence sufficient to justify disregarding the corporate form.

(Citations and punctuation omitted.) Soerries v. Dancause, 248 Ga.App. 374, 375, 546 S.E.2d 356 (2001).

Evidence was presented that Acree signed the agreement to buy out McMahan's (and Jackson's) shares in AJM, Inc. personally. But the initial installment of the agreed-upon purchase price for these shares, in the amount of $150,000, was paid not by Acree, but by MHS, and subsequent monthly payments were paid by Irwin County Hospital. Even though Acree was the sole signatory to the agreement other than McMahan and Jackson, the duties required of McMahan (and Jackson) under the agreement could not have been owed to Acree personally, because Acree personally did not manage the hospital; the duties were owed to MHS. Similarly, Acree could not perform duties he promised to perform under the contract because he, individually, did not have the hospital management contract. Acree agreed to perform services that only MHS could perform; he agreed to accept services from McMahan...