Barnett v. Fullard

• Decision Date: 17 September 2010
• Docket Number: No. A10A1299.,A10A1299.
• Citation: 306 Ga.App. 148,10 FCDR 3115,701 S.E.2d 608
• Parties: BARNETT v. FULLARD, et al.
• Court: Georgia Court of Appeals

701 S.E.2d 608

306 Ga.App. 148

10 FCDR 3115

BARNETT

v.FULLARD, et al.

No. A10A1299.

Court of Appeals of Georgia.

Sept. 17, 2010.

Douglas R. Daum, Snellville, Thomas S. Fisher, Norcross, for appellant.

Lowendick, Cuzdey, Ehrmann, Wagner, Stine, Sansalone & Bobe, Thomas A. Miller, Alpharetta, for appellees.

McMURRAY, Senior Appellate Judge.

Stephen Barnett, a minority shareholder in a closely held corporation, attempted to proceed with a direct shareholder action against some, but not all, of the other shareholders, alleging malfeasance in the performance of their corporate duties. In his complaint, Barnett claimed that the defendant shareholders had refused his demand to review the corporate records in violation of the Georgia Business Corporation Code; had misappropriated corporate funds and assets; had falsified the corporate books and records; and had failed to account for corporate income attributed to him in corporate tax filings or to pay the income over to him. The trial court dismissed Barnett's complaint for failure to state a claim upon which relief could be granted, concluding that none of his claims could be pursued against the defendants in a direct shareholder action. Because Barnett was entitled to pursue a direct action against the defendant shareholders for their alleged failure to account for his share of the corporate income or to pay the income over to him, we reverse the trial court's dismissal of that claim. We affirm the trial court's dismissal of the remaining claims.

A trial court's ruling on a motion to dismiss is reviewed de novo. See Hendry v. Wells, 286 Ga.App. 774, 781(2), 650 S.E.2d 338 (2007).

Our role is to determine whether the allegations of the complaint, when construed in the light most favorable to the plaintiff, and with all doubts resolved in the plaintiff's favor, disclose with certainty that the plaintiff would not be entitled to relief under any state of provable facts.

(Citations and punctuation omitted.) Id. at 781(2), 650 S.E.2d 338. Nonetheless, "itis still possible for a litigant to plead himself out of court by revealing a state of facts which affirmatively shows that there is no liability on the defendant." Hodge v. Dixon, 119 Ga.App. 397, 167 S.E.2d 377 (1969). See also Hendry, 286 Ga.App. at 781-782(2), 650 S.E.2d 338 (noting that "a party to an action is bound by material allegations made in his pleadings so long as they remain in his pleadings") (punctuation omitted). Guided by these principles, we turn to the record in the present case.

Plaintiff Barnett is a minority shareholder in Earthwise Industries, Inc., a closely held Georgia corporation. His complaint asserted multiple causes of action against the three corporate directors who comprised the majority shareholders of the corporation, Andrew Fullard, Adena Fullard, and Jane Hix (the "Shareholder Defendants"). As originally filed, Barnett's complaint also named Earthwise as a defendant and asserted both direct and derivative claims. Subsequently, however, Earthwise was voluntarily dismissed as a party defendant, and Barnett chose to proceed only with his purported direct claims against the Shareholder Defendants.

Barnett's complaint alleged that the Shareholder Defendants had violated OCGA § 14-2-1602 by refusing his demand to inspect corporate records; had misappropriated corporate assets for their personal use and for a rival business solely controlled by one of the defendants; had inappropriately altered the corporate books and records to disguise the misappropriations; and had failed to account for corporate income attributed to him in corporate tax filings or to distribute the income to him. The Shareholder Defendants moved to dismiss Barnett's complaint for failure to state a claim upon which relief could be granted on the ground that none of his claims could be pursued against them individually in a direct action. The trial courtagreed and dismissed Barnett's complaint in its entirety, resulting in this appeal.

1. Initially, we point out that Barnett's appellate brief is not in compliance with Court of Appeals Rule 25(c)(1), which requires that "[t]he sequence of arguments in the briefs shall follow the order of the enumeration of errors, and shall be numbered accordingly." Although Barnett's brief enumerates several separate errors, his brief does not contain separate argument sections for each enumeration and follows no particular order in its presentation.

As we have held, Rule 25(c)(1) is more than a mere formality. It is a requirement which this Court imposes to ensure that all enumerations of error are addressed and to facilitate review of each enumeration. By failing to comply with the rule, [Barnett] has hindered the Court's review of his assertions and has risked the possibility that certainenumerations will not be addressed. Accordingly, to the extent that we are able to discern which of the enumerations are supported in the brief by citation of authority or argument, we will address those enumerations.

(Citation and punctuation omitted.) Marchant v. Travelers Indem. Co., etc., 286 Ga.App. 370, 371(1), 650 S.E.2d 316 (2007).

2. Barnett contends that the trial court erred in dismissing his claim under OCGA § 14-2-1602 pursued against the Shareholder Defendants. Because this statutory cause of action contemplates that the suit be brought against the corporation, we discern no error by the trial court.

OCGA § 14-2-1602 affords a shareholder the right to inspect and copy certain corporate records by giving written notice of his demand to the corporation. See OCGA § 14-2-1602(b), (c).¹ If the corporation improperly denies the shareholder's demand, the shareholder may apply for a court order authorizing the inspection and copying of the records demanded. See OCGA § 14-2-1604(a), (b).² If the trial court enters an order authoring inspection and copying of the records, the shareholder is entitled to recover from the corporation his attorney fees and costs incurred in obtaining the order, "unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder toinspect the records demanded." OCGA § 14-2-1604(c).

Barnett's claim was properly dismissed in light of this statutory framework. Interpretation of statutes presents a matter of law for the courts. City of Buchanan v. Pope, 222 Ga.App. 716, 717, 476 S.E.2d 53 (1996). Under the applicable rules of construction, a statute should be construed in a manner that gives the words their plain and ordinary meaning unless it would lead to absurd results, and "a court should consider the entire scheme of the statute and attempt to gather the legislative intent from the statute as awhole." (Citation and punctuation omitted.) Beacon Med. Products v. Travelers Cas., etc., 292 Ga.App. 617, 619, 665 S.E.2d 710 (2008). Furthermore, "[a] statute must be construed in relation to other statutes of which it is a part, and all statutes relating to the same subject-matter ... are construed together, and harmonized wherever possible, so as to ascertain the legislative intendment and give effect thereto." (Citations and punctuation omitted.) City of Buchanan, 222 Ga.App. at 717(1), 476 S.E.2d 53.

By its plain terms and when read in conjunction with OCGA § 14-2-1602, OCGA § 14-2-1604 clearly contemplates an action by the shareholder against the corporation where there is a refusal of a demand to inspect and copy the corporate records. But Barnett voluntarily dismissed the corporation, Earthwise, as a party defendant prior to the trial court's ruling on the Shareholder Defendants' motion to dismiss for failure to state a claim. Because Barnett could not pursue his statutory claim for inspection and copying of the corporate records against the remaining individual defendants, the claim was properly dismissed.

3. Barnett further contends that the trial court erred in dismissing his claims against the Shareholder Defendants for their alleged misappropriation of corporate assets and alteration of the corporate books and records to disguise the misappropriations. Because these claims could only be pursued in a shareholder derivative action, we conclude that the trial court committed no error.

In a shareholder derivative action, the shareholder sues on behalf of the corporation for the harm done to it, and any damages recovered by the shareholder are paid to the corporation. See Phoenix Airline Svcs. v. Metro Airlines, 260 Ga. 584, 586(1), 397 S.E.2d 699 (1990). See also OCGA § 14-2-740 et seq. Because such an action seeks to redress a wrong sustained by the corporation rather than the individual plaintiff, "[i]t has long been recognized ... that the corporation is a proper and indispensable party." (Punctuation and footnote omitted.) Kilburn v. Young, 244 Ga.App. 743, 744(1), 536 S.E.2d 769 (2000). In contrast, in a direct shareholder action, the shareholder sues on his own behalf for injuries done to him in his individual capacity by corporate fiduciaries, and any damages recoveredgo to the shareholder rather than the corporation. See Phoenix Airline Svcs., 260 Ga. at 586(1), 397 S.E.2d 699.

"The determination of whether a claim is derivative or direct is made by looking to what the pleader alleged. It is the nature of the wrong alleged and not the pleader's designation or stated intention that controls the court's decision." (Citations and punctuation omitted.) Southwest Health, etc. v. Work, 282 Ga.App. 619, 624(2)(a), 639 S.E.2d 570 (2006). See Phoenix Airline Svcs., 260 Ga. at 585(1), 397 S.E.2d 699. A shareholder may bring a direct rather than a derivation action in either of two circumstances.

First, a shareholder has standing to bring a direct action, seeking recovery on behalf of the shareholder individually, if the suit alleges a special injury separate and distinct from that suffered by other shareholders, or alleges a wrong involving a shareholder contractual right existing apart from

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