Krieger v. Bonds

• Court: Georgia Court of Appeals
• Writing for the Court: McMILLIAN, Judge.
• Citation: Krieger v. Bonds, 333 Ga.App. 19, 775 S.E.2d 264 (Ga. App. 2015)
• Decision Date: 09 July 2015
• Docket Number: No. A15A0767.,A15A0767.
• Parties: KRIEGER v. BONDS.

333 Ga.App. 19

775 S.E.2d 264

KRIEGER

v.BONDS.

No. A15A0767.

Court of Appeals of Georgia.

July 9, 2015.

David John Hungeling, George August Koenig, Atlanta, for Appellant.

Hipes & Belle Isle, John David Hipes, Alpharetta, Layne M. Kamsler, Joel E. Dodson, Douglasville, for Appellee.

Opinion

McMILLIAN, Judge.

This appeal arises out of a “Buy–Sell Agreement for Southeast Cooler Corp.” (the “Agreement”) executed between Steven Krieger and Craig Bonds governing their respective shares of stock in Southeast Cooler Corp (“SCC”). Steven Krieger¹ appeals the trial court's grant of summary judgment to Bonds, and the denial of his own motion for summary judgment, on Bonds' claim for specific performance of the Agreement. Steven Krieger also appeals the denial of his motion for summary judgment on his counterclaim for specific performance.

“We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant. Because this opinion addresses cross-motions for summary judgment, we will construe the facts in favor of the nonmoving party as appropriate.” (Citation omitted.) Maree v. ROMAR Joint Venture, 329 Ga.App. 282, 283, 763 S.E.2d 899 (2014).

SCC is a closely held corporation that manufactures walk-in coolers and freezers, ice merchandisers, and some bakery-related products. Steven Krieger was one of the two original owners of SCC, and at the time pertinent to this lawsuit, Steven Krieger served as president and chief executive officer of SCC. Bonds was hired in 2002 as controller and remained in that position until 2008 when he became chief financial officer (“CFO”).² SCC corporate documents indicate that as of January 2009, Steven Krieger held 27,500 shares of SCC and Bonds held 5,500 shares.

On January 26, 2010, SCC adopted new bylaws (the “Bylaws”) which placed certain restrictions on corporate borrowing and the use of the corporation's credit. Pertinent to this appeal, the Bylaws provided that no loan could be entered into by SCC unless authorized by a resolution of the Board of Directors, and the Board was only authorized to lend money “in furtherance of any of the purposes of the Corporation” and to assist any employee or director, if approved by the holders of a majority of the voting shares.

Buy–Sell Agreement

Steven Krieger and Bonds entered into the Agreement on June 11, 2010 to address the future disposition of the company's stock. Section Four of the Agreement, entitled “Mandatory Put and Call Buy–Sell,” provides that at any time, one shareholder may offer both to sell all of his shares³ in the corporation or to buy all of another shareholder's shares. The Agreement requires that the offer be in writing and that it contain certain representations, including “[a] statement that the purchase price of the [shares] subject to the offer shall be payable in cash at closing.”

The Agreement further provides that such offers remain open for 60 days, and an offeree can accept either the offer to sell or the offer to buy, but not both. But if the offeree fails to accept the offer within 60 days, the offeror has the right, within the next 15 days, to either buy all of the offeree's shares or to sell all his shares to the offeree. If the offeror exercises this right, the offeree is required to sell or to buy at the offeror's request. And the closing on such a transaction must take place “on or before the 10th day after such right to purchase or sell has been exercised.”

The Agreement also prescribes that

[a]cceptance by the offeree of an offer to buy or to sell and the exercise by an offeror of the right to buy or sell shall consist of a tender of all documents, duly executed, necessary to convey the [shares] being sold, with full warranties of title thereto and appropriate arrangements made for the payment of the purchase price of the [shares], as the case may be.

Moreover, under Section Two of the Agreement, neither Steven Krieger nor Bonds was permitted to transfer, assign, or pledge their shares without the prior written consent of the Corporation and the other shareholders, except that a shareholder would be allowed to pledge his shares “as security for a loan with any lending institution regularly engaged in the business of making loans” so long as the other terms of the Agreement were met.

Steven Krieger's Representatives

In 2010, after Steven Krieger began to experience a decline in his health and was diagnosed with probable Alzheimer's, he signed a power of attorney in favor of his sister, Suzanne Krieger. Steven Krieger also hired attorney Albert Caproni in 2010 to assist him with his estate planning. And in September 2012, Steven Krieger executed an “Irrevocable Proxy” in favor of Suzanne Krieger as to his SCC shares.

Exercise of Put/Call Provision

On December 6, 2012, Krieger⁴ sent Bonds a letter invoking the provisions of Section Four of the Agreement and offering either to purchase Bonds' 5,500 shares of SCC or to sell Bonds his 27,500 shares at a price of $63.64 per share. The letter contained the statements required by the Agreement, including stating that the total purchase price of $350,020 for Bonds' shares, if Krieger purchased them, or the total sale price of $1,750,100 for Krieger's shares, if Bonds purchased them, “shall be payable in cash at the Closing.” Bonds replied by letter dated January 28, 2013 that he was accepting Krieger's offer to sell the 27,500 shares for $1,750,100 and scheduling the closing for February 1, 2013.

Bank Financing

In an effort to fund his purchase of Steven Krieger's shares, and without consulting Krieger, Bonds obtained a loan commitment letter from SCC's bank, Community & Southern Bank (the “Bank”), to SCC for an additional $737,880 for the stated purpose of purchasing Steven Krieger's shares and converting them to treasury stock. The Bank required the use of the company's assets to obtain the loan, and the loan commitment letter required that Bonds have 100% ownership of SCC and “full and single authority to obligate [SCC] for [the] debt and pledge [the] company['s] assets.” Bonds signed the loan commitment letter as CFO of SCC on January 23, 2013, eight days before the scheduled closing.

Bonds also attempted to avail himself of SCC's $2,000,000 line of credit with the Bank (the “LOC”) for financing the purchase. Steven Krieger was the guarantor on the LOC, but Bonds stated that as part of the transaction, he intended to release Steven Krieger and substitute himself as guarantor. And on January 30, 2013, in anticipation of the closing, $1,750,100 was transferred from the LOC to the trust account of Victor Harrison, SCC's corporate counsel.

However, upon discovering this arrangement, Krieger objected to Bonds' unilateral attempt to take out a corporate loan and to use the LOC or other company assets in funding the stock purchase without Steven Krieger's approval as majority shareholder as required under the Bylaws. On January 31, 2013, Steven Krieger signed a letter to the Bank directing that the LOC be closed. And on February 1, 2013, at Krieger's direction, Harrison returned the $1,750,100 to the Bank from his trust account.

CLV Financing

According to Harrison, Bonds then received approval for a loan from CLV Asset Recovery, LLC (“CLV”) in the amount of $1,750,100 (the “CLV Loan”).⁵ CLV, a company organized and represented by Harrison, is primarily in the business of buying and selling notes. According to Harrison, the loan to Bonds was the only loan the company had ever agreed to make. Harrison said CLV consisted of three investors, including himself.

During discovery, Harrison identified four deposits into his firm's trust account that were intended to cover the CLV Loan, in the amounts of $73,465.95; $117,407.20; $200,000; and $1,400,080, respectively. Harrison said he exercised his authority with CLV to move the $1,400,080 from a CLV account into his trust account, and he was responsible for one of the other three deposits. The four deposits totaled $1,790,953.15, which amounted to $40,853.15 more than the loan amount. But in his deposition, Harrison stated that one of the deposits should not have been included in his calculations, although he could not remember which deposit. But if even the smallest of the four deposits, $73,465.95, were removed from the calculation, the total amount falls to $1,717,487.20, which is $32,612.80 below the purchase price for Steven Krieger's stock. Nevertheless, Harrison testified that he was prepared to fund the sale if the appropriate documents were signed at the closing. He stated that his trust account had sufficient funds to cover the check, and the documents and calculations he provided in discovery reflect that the account did contain funds in excess of the purchase price, although that balance necessarily would have included funds from sources other than the deposits identified as coming from CLV.

Bonds stated that he had no idea what CLV was and did not know why they decided to lend him the money. He never made a loan application to CLV or provided the company with any financial information. Nevertheless, Bonds signed a “Secured Promissory Note” (the “CLV Note”) and “Security Agreement” (“CLV Agreement”) with CLV on February 1, 2013, the day of the scheduled closing. These documents indicate that the loan was to be repaid in three days, by February 4, 2013. Under the CLV Agreement, Bonds granted CLV a security interest in and security title to his SCC shares, which attached as of February 1, 2013.

First Scheduled Closing

The first scheduled closing was attended by Harrison; Bonds; Scott Mercer, an attorney Bonds hired to represent him at the closing; Caproni; Suzanne Krieger, representing Steven Krieger with power of attorney; George Koenig, another attorney representing Steven Krieger; Susan Whittle, a vice president and commercial lender for the Bank; Adam Slipakoff, counsel for the Bank; and Scott Newland, another attorney for the Bank. Steven Krieger did not attend.

Although the parties...