Beale v. O'Shea

• Decision Date: 29 November 2012
• Docket Number: No. A12A1265.,A12A1265.
• Citation: 319 Ga.App. 1,735 S.E.2d 29
• Parties: BEALE v. O'SHEA.
• Court: Georgia Court of Appeals

319 Ga.App. 1
735 S.E.2d 29

BEALE
v.
O'SHEA.

No. A12A1265.

Court of Appeals of Georgia.

Nov. 29, 2012.

[735 S.E.2d 30]

Jason Wayne Graham, Atlanta, for Appellant.

Eugenia Wooten Iredale, Christina Michelle Baugh, Atlanta, Stephen Thomas LaBriola, for Appellee.

BRANCH, Judge.

[319 Ga.App. 1]Between 2000 and 2010, Scott A. Beale and Roderick O'Shea were business partners, with each man owning 50% of FlightWorks, Inc. This dispute arises out of the ultimately successful efforts of O'Shea to purchase Beale's ownership interest in the company. As a result of that transaction and the events leading up to it, Beale asserted claims against O'Shea for fraud, breach of contract, and breach of fiduciary duty.¹ The parties filed-cross motions for summary judgment, with O'Shea seeking summary judgment on all claims asserted against him by Beale and Beale seeking summary judgment on his claims resulting from O'Shea's failure to honor a stock purchase agreement between the men. The trial court granted Beale's motion for partial summary judgment and awarded him $384,822 plus prejudgment interest of $36,088.92 on his claim that O'Shea had breached the parties' stock purchase agreement. However, the court granted O'Shea's motion for summary judgment on all other claims asserted against him by Beale. Beale now appeals, arguing that the trial court erred in granting O'Shea summary judgment on Beale's claims arising out of: (1) O'Shea's execution of what the parties refer to as the “Change in Control Protection [319 Ga.App. 2]Agreements;” and (2) O'Shea's alleged withholding of the distribution of FlightWorks profits, in violation

[735 S.E.2d 31]

of the parties' shareholder agreement. As is explained below, we find that the record contains sufficient evidence to create a jury question as to whether Beale suffered any damages as a result of O'Shea's execution of the Change in Control Protection Agreements. Accordingly, we reverse the trial court's order granting O'Shea summary judgment on Beale's claim for breach of fiduciary duty relating to the Change in Control Protection Agreements. We also find that the record shows the shareholder tax distributions allegedly withheld from Beale were in fact made and were credited against outstanding balances on loans FlightWorks had previously made to Beale. We therefore affirm the order of the court below granting O'Shea summary judgment on Beale's claims for breach of contract and breach of fiduciary duty relating to tax distributions required under the shareholder agreement.

Denial of summary judgment is warranted when any material fact is undisputed, as shown by the pleadings and record evidence, and this fact entitles the moving party to judgment as a matter of law. Cowart v. Widener, 287 Ga. 622, 623(1)(a), 697 S.E.2d 779 (2010). To prevail on a motion for summary judgment, therefore,

the moving party must show that there is no genuine dispute as to a specific material fact and that this specific fact is enough, regardless of any other facts in the case, to entitle the moving party to judgment as a matter of law. When a defendant moves for summary judgment as to an element of the case for which the plaintiff, and not the defendant, will bear the burden of proof at trial ... the defendant may show that he is entitled to summary judgment either by affirmatively disproving that element of the case or by pointing to an absence of evidence in the record by which the plaintiff might carry the burden to prove that element. And if the defendant does so, the plaintiff cannot rest on his pleadings, but rather must point to specific evidence giving rise to a triable issue.

(Citations and punctuation omitted.) Strength v. Lovett, 311 Ga.App. 35, 39(2), 714 S.E.2d 723 (2011). “We review the denial of a motion for summary judgment de novo, viewing the evidence in the record, as well as any inferences that might reasonably be drawn from that evidence, in the light most favorable to the nonmoving party.” (Citation omitted.) Vann v. Finley, 313 Ga.App. 153, 155, 721 S.E.2d 156 (2011).

[319 Ga.App. 3]Viewed in the light most favorable to Beale, as the non-movant, the record shows that the Flight Works Amended and Restated Shareholders Agreement (the “Shareholders Agreement”), which was signed by both Beale and O'Shea and became effective January 1, 2005, called for a five-person Board of Directors. It granted O'Shea the authority to elect three directors and Beale the authority to elect two. Until sometime in 2009, however, O' Shea and Beale, who was also employed by FlightWorks, served as the company's sole directors. In 2009, O'Shea discovered that Beale had unilaterally authorized FlightWorks to guarantee $8.25 million in loans from Huntington National Bank (“HNB”) to Beale, his wife, and/or entities they owned. After making that discovery, O'Shea fired Beale as a FlightWorks employee and exercised his right to elect two additional members to the FlightWorks Board of Directors. O'Shea elected Daniel T. Lucey, FlightWorks President, and William Lewis, FlightWorks CFO. Following the election of Lucey and Lewis in June 2009, Beale was removed from the board.

Feeling that Beale's conduct had left the company's future in question, Lucey and Lewis had their lawyer prepare for each of them a document entitled “Change in Control Protection Agreement.” Those agreements provided that if the control of FlightWorks changed such that O'Shea no longer owned at least 50% of the company, then at the closing of the sale of stock resulting in the change in control of FlightWorks, Lucey and Lewis would be entitled to severance pay. ²

[735 S.E.2d 32]

In August 2009, Beale entered into a forbearance agreement with HNB under which the bank agreed to forbear on the past due loans made to Beale and guaranteed by FlightWorks in exchange for Beale pledging his FlightWorks shares to HNB as collateral. This agreement required Beale to get prior approval from HNB before selling, transferring, or encumbering his FlightWorks stock.

The Shareholders Agreement contains a compulsory sale provision, pursuant to which each shareholder had the right to solicit and present bona fide third-party offers to purchase all the shares of FlightWorks. Under that provision, if one shareholder receives a bona fide third-party offer, the other shareholder is required either to match that offer and purchase the shares of the selling shareholder or he must join in the sale and sell his shares to the third party at the price agreed to by the selling partner.

[319 Ga.App. 4]In November 2009, FlightWorks Holdings, LLC (“Holdings”), an entity formed by Beale and Sean Boyd ³ for the express purpose of acquiring FlightWorks, submitted an offer to Beale for the purchase of his stock (the “ First Right Offer”) that would have netted Beale approximately $3.8 million. Beale accepted the offer and notified O'Shea of this fact.⁴ Thus, pursuant to the Shareholders Agreement, O'Shea had 60 days either to agree to sell his shares at the price offered by Holdings or to purchase Beale's shares at the same price.

Believing that the offer from Holdings was not a bona fide third-party offer, O'Shea initiated this litigation in January 2010 seeking a declaratory judgment as to whether the offer was a valid offer, obligating him either to purchase Beale's FlightWorks shares or to sell his own shares.⁵ O'Shea also sought and received an order requiring the parties to maintain the status quo until either the resolution of the lawsuit or Holdings's withdrawal of its offer.

On May 11, 2010, Beale and Holdings rescinded and withdrew the First Right Offer and simultaneously submitted an Amended First Right Offer. That offer set the purchase price of all FlightWorks' shares by Holdings at “$13,500,000 ... minus the balance due O'Shea for shareholder loans by him to [the] Company with the remainder divided by the number of shares of the Company then authorized, issued, and outstanding.” Also on May 11, the FlightWorks Board of Directors voted to approve a $1.5 million shareholder loan from O'Shea to the company. O'Shea accepted the Amended First Right Offer six days later, on May 17, and agreed to buy Beale's FlightWorks shares at the price set forth therein. Beale, however, refused to close the transaction after O'Shea tendered what Beale believed to be less than the agreed upon purchase price. ⁶

After receiving and accepting Beale's Amended First Right Offer, O'Shea contacted HNB to request confirmation that, upon tender of the purchase price, HNB would release Beale's shares and would also [319 Ga.App. 5]release FlightWorks from any and all obligations on Beale's outstanding loans. In June 2010, after Beale refused to close on the sale of his FlightWorks shares, O'Shea negotiated the purchase of those shares directly from HNB for $3.5 million.⁷ As part of that transaction,

[735 S.E.2d 33]

O'Shea also secured a full release of FlightWorks from its guaranties on Beale's loans. Once he purchased Beale's shares from HNB, O'Shea dismissed his claims against Beale as moot. Beale then filed his amended and restated counterclaims, in which he...