Rosenfeld v. Rosenfeld

• Decision Date: 24 May 2007
• Docket Number: No. A07A1133.,No. A07A0959.,A07A0959.,A07A1133.
• Citation: 648 S.E.2d 399,286 Ga. App. 61
• Parties: ROSENFELD v. ROSENFELD. Rosenfeld v. Rosenfeld.
• Court: Georgia Court of Appeals

286 Ga. App. 61

648 S.E.2d 399

ROSENFELD v. ROSENFELD.

Rosenfeld v. Rosenfeld.

No. A07A0959.

No. A07A1133.

Court of Appeals of Georgia.

May 24, 2007.

Reconsideration Denied June 22, 2007.

Taylor, Busch, Slipakoff & Duma, William G. Leonard, David J. Hungeling, Atlanta, for appellant.

Weinstock & Scavo, Michael Weinstock, John P. Wilson III, Fine & Block, John B. Levy, Schiff Hardin, Walter H. Bush, Jr., Atlanta, for appellee.

BLACKBURN, Presiding Judge.

In this minority shareholder action brought by a wife against her husband as the majority shareholder and presiding officer of their family business corporation, the wife (Mary Katherine Rosenfeld) also sought to recover for damages she suffered as an alleged partner to her husband (William Spencer Rosenfeld) in a family business partnership. Finding there was no partnership, the jury awarded the wife damages only for her husband's actions respecting the family corporation. In Case No. A07A0959, the wife appeals the trial court's denial of her motion for new trial on the partnership issue, claiming that the undisputed evidence demanded a finding that there was a partnership. As some evidence showed there was no partnership, we affirm this judgment. In Case No. A07A1133, the husband seeks a new trial on the corporation claim, asserting various errors. Discerning no error, we affirm this judgment also.

Construed in favor of the verdict, the evidence shows that the husband owned 75 percent of the stock in and served as chief executive officer of Arborguard, Inc., while the wife who served as chief financial officer owned the remaining 25 percent. They also served as directors in the corporation. They later individually and jointly purchased various pieces of equipment that were leased to the corporation, with all lease proceeds going into a business account in both of their names and with any funds remaining (after paying expenses and loans on the equipment) being transferred to a family checking account, which net funds amounted to over $30,000 a month and which they used to pay family and personal expenses.

After 30 years of marriage, the husband filed for a divorce and terminated the wife's access to the corporation and to the lease proceeds. Although both had been using corporate funds to fund personal and family expenses, now only the husband continued to do such, over the wife's objection. The husband agreed to pay the wife $11,000 a month ($4,000 through corporate salaries to her and a son and $7,000 from lease proceeds) as temporary support pending the divorce trial.

In her capacity as minority shareholder, the wife brought the present action against the husband, claiming that he as majority shareholder and as the presiding officer in the corporation had breached fiduciary duties owed her when he cut her off from the corporation and alone used corporate funds to pay his personal expenses. See Harris v. Harris¹ (spouses seeking divorce may bring separate action asserting commercial claims against each other). Asserting the leasing operation was an equal partnership between them (allegedly known as "K & S Leasing"), she further asserted that he had breached fiduciary duties owed her as a partner by not distributing 50 percent of the net leasing proceeds to her after the divorce petition was filed.

Following a trial, the jury found no partnership existed and accordingly awarded the wife nothing on her partnership claims. On the corporate claims, the jury found that the husband had breached fiduciary duties owed to the wife and awarded her $125,000 in compensatory damages. Both parties have appealed.

Case No. A07A0959

1. In her appeal, the wife's two enumerations concern only the jury's finding of no partnership. Citing OCGA §§ 5-5-20 and 5-5-21, she argues that the undisputed evidence demanded a finding of a partnership and that the trial court accordingly erred in denying her motion for new trial on her partnership claim. Because we hold that some evidence supported a finding of no partnership, we affirm.

The applicable standard of review is clear.

A trial court may grant a motion for new trial if, in the exercise of its discretion, it finds that a jury's verdict was against the weight of the evidence. However, when a trial court denies such a motion, the appellate court does not have the discretion to grant a new trial on that ground. We can only review the evidence to determine if there is any evidence to support the verdict. The standard of appellate review of the denial of a motion for new trial on the general grounds is essentially the same as that applicable to the denial of a motion for directed verdict or judgment n.o.v. The appellate courts can only set a verdict aside, on evidentiary grounds, as being contrary to law in that it lacks any evidence by which it could be supported.

( Citations and punctuation omitted; emphasis supplied.) Cook v. Huff.² See Rafferzeder v. Zellner.³

In determining whether the leasing operation was a partnership between the wife and the husband, the jury was instructed at length on the factors in this area. OCGA § 14-8-6 defines partnership as "an association of two or more persons to carry on as co-owners a business for profit." OCGA § 14-8-7(3) provides that "[t]he sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. . . ."

Factors that indicate the existence of a partnership include a common enterprise, the sharing of risk, the sharing of expenses, the sharing of profits and losses, a joint right of control over the business, and a joint ownership of capital. But the intention of the parties is the true test of whether there is a partnership, which may be created by a contract. (Citation omitted.) Aaron Rents, Inc. v. Fourteenth Street Venture.⁴

Some evidence showed that there was no commercial partnership between the spouses here. First and foremost, the husband unequivocally testified that there was no partnership and that he never intended to form a commercial partnership with his wife. Second, no documents reflected that a partnership existed: there was no written partnership agreement, there was no correspondence referencing a partnership, there were no partnership tax returns, there was no checking account in the name of a partnership, there was no tax identification number issued to a partnership, and there were no documents showing that any real or personal property was owned by a partnership entity. See Andrews v. Messina⁵ (no partnership found where no written documents referred to partnership). Rather, all equipment of the leasing operation was owned in the individual or joint names of the wife and husband; the checking account into which the leasing proceeds were deposited was in the names of the wife and husband; the lease checks were written to the individual name of the wife; the income of the operation was reported on the couple's personal joint tax return; and the only document describing the nature of the operation referred to it as a sole proprietorship. Third, the net proceeds from the leasing operation were simply transferred to the family's joint checking account, with no designation of any portion of the monies as going to him or her individually. Finally, neither the couple's accountant nor their banker had even heard of any alleged partnership.

Because some evidence showed that no partnership existed between the parties, the trial court did not abuse its discretion in denying the wife's motion for new trial.

Case No. A07A1133

2. The jury awarded $125,000 against the husband based on the evidence that, upon filing for divorce, he cut the wife off from the corporate assets, which they had both used for personal expenses before that time, and that he continued to use those assets for his personal use thereafter to her exclusion. "A fiduciary's duty of good faith prohibits him from appropriating for himself the assets and property of the corporation, to the exclusion of minority shareholders." Quinn v. Cardiovascular Physicians, P.C.⁶

The husband has appealed the award against him on numerous grounds. First, he contends that the trial court erred in allowing his wife as minority shareholder to bring a direct action against him for the alleged breaches of the fiduciary duties that he as majority shareholder and presiding officer owed her. This argument fails.

"The general rule is that a shareholder seeking to recover misappropriated corporate funds may only bring a derivative suit." Thomas v. Dickson.⁷ See Southwest Health & Wellness, LLC v. Work.⁸ However, there are two exceptions to this rule. 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 any right of the corporation." Stoker v. Bellemeade, LLC.⁹ See Grace Bros., Ltd. v. Farley Indus.¹⁰ Second, "a direct action may . . . be proper in the context of a closely held corporation where the circumstances show that the reasons for the general rule requiring a derivative suit do not apply." (Punctuation omitted; emphasis in original.) Southwest Health & Wellness, supra, 282 Ga.App. at 626(2)(c), 639 S.E.2d 570. See Thomas, supra, 250 Ga. at 774, 301 S.E.2d 49. The reasons for requiring derivative suits in an ordinary corporate context are:

(1) to prevent multiple suits by shareholders; (2) to protect corporate creditors by ensuring that the recovery goes to the corporation; (3) to protect the interest of all the shareholders by ensuring that the recovery goes to the corporation, rather than allowing recovery by one or a few shareholders to the prejudice of others; and (4) to adequately compensate injured shareholders by...