Industrial Distribution Group, Inc. v. Waite

• Decision Date: 09 June 1997
• Docket Number: No. S96G1793,S96G1793
• Citation: 485 S.E.2d 792,268 Ga. 115
• Parties: , 97 FCDR 2021 INDUSTRIAL DISTRIBUTION GROUP, INC. v. WAITE.
• Court: Georgia Supreme Court

Page 792

485 S.E.2d 792

268 Ga. 115, 97 FCDR 2021

INDUSTRIAL DISTRIBUTION GROUP, INC. v. WAITE.

No. S96G1793.

Supreme Court of Georgia.

June 9, 1997.

Reconsideration Denied June 30, 1997.

Thomas C. Harney, Craig E. Bertschi, Kilpatrick & Stockton, LLP, Atlanta, for Industrial Distribution Group, Inc.

H. Lamar Mixson, Jill Anne Pryor, Bondurant, Mixson & Elmore, Atlanta, for Alvis J. Waite.

Wade Hampton Watson, III, Caldwell & Watson, Atlanta, Amicus Appellee.

Harmon E. Caldwell, Jr., Caldwell & Watson, Atlanta, Charles Neal Pope, Paul Kilpatrick, Jr., R. Timothy Morrison, Pope, McGlamry, Kilpatrick & Morrison, Atlanta.

William U. Norwood, III, Pope McGlamry, Kilpatrick & Morrison, Atlanta, Amicus Appellee.

FLETCHER, Presiding Justice.

Minority shareholder Alvis Waite sued Industrial Distribution Group, a Georgia corporation, and its majority shareholders seeking judicial dissolution due to a shareholder deadlock. The trial court refused to dissolve the corporation and appoint a receiver, but ordered other relief and awarded attorney's fees to Waite. The Court of Appeals affirmed the award, ¹ and we granted certiorari to determine if Waite was entitled to attorney's fees. Because no Georgia statute gives Waite authority to recover attorney's fees and the trial court did not act as the substantial equivalent of a receiver, we hold that Waite is not entitled to attorney's fees for bringing this dissolution action as an individual shareholder. Accordingly, we reverse.

Waite, a former division president and owner of 45 percent of IDG's stock, sued IDG and three of its shareholders seeking dissolution of the corporation under OCGA § 14-2-1430, appointment of a receiver, damages, and equitable relief. The trial court held a bench trial on the dissolution claim, but denied the relief sought, finding that dissolution would hurt suppliers, customers, employees, and lenders. It did find that the shareholders were deadlocked, as Waite alleged, and lowered the quorum requirement for shareholder meetings to a simple majority. In addition, the trial court required IDG to make distributions to Waite, instituted cumulative shareholder voting, mandated board approval of all major transactions and compensation decisions, gave a right of first refusal of all stock sold to existing stockholders, and ordered all future stock to be issued pro rata. No party appealed the judgment. Subsequently, the trial court found that Waite was entitled to $100,000 in attorney's fees under OCGA § 9-8-13 and Georgia Veneer & Package Co. v. Florida Nat'l Bank. ² The Court of Appeals affirmed on the theory that Waite's action preserved a common fund and thus authorized an equitable award of attorney's fees under OCGA § 9-8-13(c). ³

1. As a general rule, Georgia law does not provide for the award of attorney's fees to the prevailing party unless authorized by statute or contract. ⁴ OCGA § 9-8-13, cited by the trial court as the statutory authority for the fees award, provides in subsection (a):

In all cases where a receiver is appointed under the laws of this state to take charge of the assets of any person, firm, or corporation and a fund is brought into court for distribution, the court having jurisdiction thereof shall award to counsel filing the petition and representing the moving creditor or creditors, out of the fund, no greater sum as fees for services rendered in filing the petition and bringing the fund into court than the services are actually worth.

Thus, subsection (a) permits the award of attorney's fees when two requirements are met: (1) a court appoints a receiver to take charge of the corporation's assets, and (2) a fund is brought into court for distribution. In this case, neither statutory requirement was met. The trial court denied Waite's request for the appointment of a receiver and did not establish a common fund. Therefore, Waite is not entitled to a fees award under subsection (a) of the receivership statute.

2. OCGA § 9-8-13(c), which the Court of Appeals cited, provides: "In all cases, the presiding judge or other competent tribunal shall allow such compensation to the attorney or attorneys filing the original petition and to the receiver or receivers appointed thereunder as their services are reasonably worth." The Court of Appeals interpreted this subsection as permitting attorney's fees in this case despite the absence of a receivership.

Subsection (c), however, does not provide independent authority for an equitable award of attorney's fees. Its reference to "all cases" means all cases in which a receiver is appointed, as shown by its placement in the receivership statute. Enacted in 1898, the language in current subsection (c) was placed at the end of what is now subsection (b) to show how the fees of counsel and receivers were allowed. ⁵ It was unnecessary to repeat the clause "where a receiver is appointed" because that phrase was stated at the beginning of the section. We conclude that subsection (c), like subsection (a), does not permit the award of attorney's fees unless a receiver is appointed.

3. As an exception to the general rule, a court of equity may allow attorney's fees to a party who maintains a successful suit for the protection or increase of common property or a common fund. ⁶ Relying on our decision in Georgia Veneer, Waite argues that he is entitled to attorney's fees because the trial court exercised its equitable powers to resolve the shareholder deadlock and eliminate corporate waste to the common benefit of all IDG's shareholders.

In Georgia Veneer, this court concluded that the trial court's actions in supervising and controlling the corporation's assets were "in substance the equivalent of a receivership." Although the corporation retained physical possession of the assets, it held the property in trust for the shareholders. We concluded: "Where, as a result of the prosecution of an action by minority stockholders, the majority have been prevented from fraudulently sacrificing corporate assets and the court has obtained control of those assets, the petitioners are entitled to an order of the court allowing the payment from the common fund of the necessary expenses and counsel fees incurred by them." ⁷

Unlike the situation in Georgia Veneer, the trial court here did not supervise the corporation's daily operations or control its assets; nor was a common fund created by the sale of the corporation's assets or any other method. Although the trial court ordered a change in the corporation's bylaws to break the shareholder deadlock and retained jurisdiction to enforce its judgment, these actions are not the substantial equivalent of a receivership.

As a result, neither the receivership statute nor our decision in Georgia Veneer provides authority for an award of attorney's fees to Waite for bringing this dissolution action. Because the issue is not presented here, we decline to address whether this court should adopt the substantial benefit doctrine, which allows the award of attorney's fees to a plaintiff who sues as an individual shareholder. ⁸

Judgment reversed.

All the Justices concur, except CARLEY, J., who dissents.

CARLEY, Justice, dissenting.

In this case, the trial court cited both OCGA § 9-8-13 and Georgia Veneer & Package Co. v. Fla. Nat. Bank, 198 Ga. 591, 32 S.E.2d 465 (1944) as authority for its award of attorney's fees to Alvis Waite and, on appeal, the Court of Appeals affirmed that award. Industrial Distribution Group, Inc. v. Waite, 222 Ga.App. 233, 234(1), 474 S.E.2d 28 (1996). I concur in Divisions One and Two of the majority opinion, holding that OCGA § 9-8-13 is not authority for the award, since a receiver was not appointed. However, I cannot concur in Division Three of the majority opinion, holding that Georgia Veneer & Package Co. likewise constitutes no authority for the award. In my opinion, that decision is viable alternative authority for an award of attorneys' fees to Waite. Although I ultimately am unable to conclude that, under the circumstances, the award should be affirmed pursuant to Georgia Veneer & Package Co., I nevertheless do not agree with the majority that the judgment simply should be reversed. Instead, I believe that the case should be remanded to the trial court for reconsideration of the award of attorney's fees in accordance with the principles enunciated in Georgia Veneer & Package Co. Thus, I respectfully dissent to the majority's reversal of the award, without also ordering a remand for reconsideration by the trial court.

As the majority notes, Georgia Veneer & Package Co. is factually distinguishable because there, unlike here, the trial court granted equitable relief which was substantially equivalent to the appointment of a receiver. Georgia Veneer & Package Co. does not hold, however, that an award of attorney's fees is authorized only when the trial court grants equitable relief equivalent to appointing a receiver. Instead, it was expressly recognized that an award of attorney's fees is also authorized under a broader principle whereby

"[a] court of equity ... will in its discretion order an allowance of counsel fees to a complainant who at his own expense has maintained a successful suit for the preservation, protection, or increase of a common fund or common property, or who has created at his own expense, or brought into court, a fund in which others may share with him." [Cits.] (Emphasis in original.)

Georgia Veneer & Package Co., supra at 614(3), 32 S.E.2d 465. Compare Hope & Assoc., Inc. v. Marvin M. Black Co., 205 Ga.App. 561(1), 422 S.E.2d 918 (1992) (attorney's fees in non-equity proceedings). This principle enunciated in Georgia Veneer & Package Co. is equivalent to the "substantial benefit" doctrine which other jurisdictions have recognized.

This development has been most pronounced in shareholders' derivative actions, where the courts increasingly have recognized that the expenses incurred by one...