Ebon Foundation v. Oatman

• Court: Georgia Supreme Court
• Writing for the Court: THOMPSON, Justice.
• Citation: Ebon Foundation v. Oatman, 269 Ga. 340, 498 S.E.2d 728 (Ga. 1998)
• Decision Date: 23 February 1998
• Docket Number: No. S97A2028, No. S97A2027, No. S97A2030.
• Parties: EBON FOUNDATION v. OATMAN et al. ALEXANDER v. CHAPMAN et al. ALEXANDER v. CHAPMAN et al.

498 S.E.2d 728

269 Ga. 340

EBON FOUNDATION v. OATMAN et al.

ALEXANDER v. CHAPMAN et al.

ALEXANDER v. CHAPMAN et al.

Nos. S97A2027, S97A2028, S97A2030.

Supreme Court of Georgia.

February 23, 1998.

Reconsideration Dismissed April 16, 1998.

Howard Jerome Strickland, Jr., Jones, Cork & Miller, Macon, for Ebon Foundation, Inc.

C. Nelson Jarnagin, Brunswick, Kevin A. Wangerin, Ham, Jenkins, Wilson & Wangerin, Forsyth, for Florence Hicks Alexander.

Leo Jimmy Kight, Jr., Sullivan & Kight, Forsyth, Thurbert E. Baker, Atty. Gen., Daniel M. Formby, Deputy Atty. Gen., Debra Ann Golymbieski, Asst. Atty. Gen., John B. Ballard, Jr., Senior Asst. Atty. Gen., Department of Law, Patrise M. Perkins-Hooker, Atlanta, for Joyce A. Oatman and Chapman.

THOMPSON, Justice.

These consolidated cases are before the Court on direct appeal from the grant of an interlocutory injunction and appointment of a receiver.

In 1994, Florence Hicks Alexander purchased the former Tift College campus in Forsyth, Georgia, and, along with others, established the Ebon Foundation, a non-profit corporation, incorporated under the laws of the District of Columbia for educational purposes. Alexander served as president and chairperson of the board of directors of Ebon Foundation, which obtained tentative classification by the IRS as a private foundation, thus allowing donors tax deductible status. In 1995, Alexander leased the 44-acre campus to Ebon Foundation, and in September 1995, Ebon Foundation began operation of Ebon Academy, a kindergarten through twelfth grade school, on the campus.

In January 1997, students and parents were informed that the school had been closed due to financial difficulties and they were told to vacate the premises immediately. Shortly thereafter, a group of students and their parents (Chapman et al.) filed a lawsuit against Alexander and Ebon Foundation seeking damages for breach of contract, intentional infliction of emotional distress, fraud, and conversion.

Joyce Oatman, a director of Ebon Foundation, moved to intervene to bring a derivative action on behalf of Ebon Foundation based on Alexander's alleged mismanagement of the business. At the same time, Oatman sought a TRO to prevent Alexander from consummating a pending contract for the sale of the school property (scheduled for closing four days later), based on allegations that Alexander wrongfully appropriated the assets of Ebon Foundation to her personal use and would dissipate the proceeds of the sale to the detriment of Ebon Foundation. The Attorney General and Secretary of State of Georgia also moved to intervene—the former to ensure that Ebon Foundation's assets upon dissolution are committed to non-profit purposes, and the latter as the proper party where violations of the Georgia Charitable Solicitations Act of 1988, OCGA § 43-17-1 et seq., are alleged. The State joined Oatman's request for a TRO.

The trial court granted a TRO preventing Alexander from consummating the sale of two parcels of property (the 44-acre school tract and another 98-acre tract) for a period of 30 days. After hearing from both parties, the trial court modified the TRO, to permit the sale of the school property under the supervision of a receiver. In a subsequent order, the court allowed intervention by the State of Georgia and by Joyce Oatman; allowed Oatman's proposed derivative action to be filed; released the 98-acre parcel from the TRO; and, denied Alexander's motion to dismiss the underlying complaint for lack of jurisdiction. Finally, the court entered an order extending injunctive relief during the pendency of the litigation.¹

Intervention

1. Alexander and Ebon Foundation challenge the order allowing intervention by Oatman and by the State of Georgia, on several grounds.

(a) First, appellants assert that the trial court erred in granting the motions to intervene ex parte. See Gregory v. Tench, 138 Ga.App. 219, 225 S.E.2d 753 (1976). The record shows that the trial court granted the motions, subject to any properly supported objections by appellants. Shortly thereafter, hearings were conducted during which all parties were represented by counsel and were given a full opportunity to respond to the intervenors' requests and to show why the earlier ruling should be set aside. After hearing argument and evidence, and considering briefs of the parties, the court restated its previous ruling by written order. Any harm in initially allowing the intervention ex parte was cured by the subsequent proceedings.

(b) It is also asserted that the trial court erred in allowing Oatman to intervene to bring a derivative action on behalf of Ebon Foundation because the notice requirements of OCGA § 14-2-742 had not been satisfied. That Code section provides that a shareholder derivative proceeding may not be commenced until 90 days after written demand has been made upon the corporation to take suitable action. See also Dunn v. Ceccarelli, 227 Ga.App. 505, 489 S.E.2d 563 (1997). However, two exceptions to the 90-day waiting period are contained in the statute—if the shareholder has been "notified that the demand has been rejected by the corporation," or if "irreparable injury to the corporation would result" from the 90-day delay. OCGA § 14-2-742(2). Oatman asserted that immediate action was necessary because a sale of the property was imminent and Alexander was likely to have retained the profits. As such, the trial court acted within its discretion in waiving the 90-day waiting period and allowing the derivative action to proceed.

(c) Appellants further submit that the intervenors failed to meet their burden of establishing a right of intervention under OCGA § 9-11-24(a)(2). As required by that Code section, an intervenor must establish: "an interest relating to the property or transaction which is the subject matter of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant's interest is adequately represented by existing parties." See also Brown v. Truluck, 239 Ga. 105, 236 S.E.2d 60 (1977).

Oatman sought to intervene as a director of Ebon Foundation² for purposes of bringing a shareholder's derivative action predicated on allegations that Alexander had misappropriated and mismanaged corporate funds, commingled private and corporate funds, and generally treated the corporation as her alter ego. It was further asserted that if a sale of the real property were to take place, Alexander would convert the proceeds of the sale for her personal use, leaving the corporation without assets. When Oatman's motion to intervene was filed, both Alexander and Ebon Foundation were represented by the same counsel in the Chapman lawsuit. And although there appeared to be evidence of misappropriation of corporate funds, Ebon Foundation brought no cross-claim against Alexander. Oatman thus asserted that the interests of the corporation were not adequately represented, and it was established at the evidentiary hearing that Alexander had repeatedly directed the transfer of funds from Ebon Academy's student escrow account to other accounts under her control.

The Attorney General sought to intervene in the proceedings, asserting that, as a charitable, non-profit organization, Ebon Foundation has solicited and received donations in furtherance of its purported educations purposes; that upon dissolution, Ebon Foundation's assets must be committed to non-profit purposes; and that the Attorney General is the proper party to protect such interests.

Intervention was sought by the Secretary of State to seek civil sanctions for transactions which are prohibited by the Georgia Charitable Solicitations Act, OCGA § 43-17-13.

The trial court determined that the intervenors have asserted interests relating to the property which is the subject matter of the action, and are so situated that disposition of the action may impair or impede their ability to protect those interests. These findings are supported by the evidence. It is also apparent that the interests of Ebon...