TMX Fin., LLC v. Goldsmith, A19A0855

• Court: United States Court of Appeals (Georgia)
• Writing for the Court: Barnes, Presiding Judge.
• Citation: 833 S.E.2d 317
• Decision Date: 12 September 2019
• Docket Number: A19A0855,A19A0864
• Parties: TMX FINANCE, LLC et al. v. GOLDSMITH et al. Young et al. v. Goldsmith et al.

833 S.E.2d 317

TMX FINANCE, LLC et al.
v.
GOLDSMITH et al.

Young et al.
v.
Goldsmith et al.

A19A0855
A19A0864

Court of Appeals of Georgia.

September 12, 2019
Reconsideration Denied October 10, 2019

833 S.E.2d 321

Robert Jason D'Cruz, Anthony Christopher Decinque, for Appellant in A19A0855.

William J. Hunter, Savannah, Jeffrey R. Harris, Atlanta, Inman Gregory Hodges, Stephen Glenn Lowry, Atlanta, George Thomas Major Jr., Savannah, Yvonne S. Godfrey, Atlanta, for Appellee.

Allan Charles Galis, Kirby G. Mason, Savannah, Billy N. Jones, Hinesville, David M. Burkoff, Savannah, for Appellant in A19A0864.

Barnes, Presiding Judge.

Jason Jue and Dr. Manning M. "Chip" Goldsmith, III, filed this direct action against Tracy Young and TY ICOT Investments, LLC (collectively, the "Young Defendants") and against TMX Finance LLC, TitleMax of Texas, Inc., and TitleMax of Georgia, Inc. (collectively, the "TMX Defendants"), alleging breach of a limited liability company’s operating agreement, breach of fiduciary duty, breach of an option agreement, fraud, and other claims. The Young Defendants filed a motion to dismiss the plaintiffs’ amended complaint or, in the alternative, for judgment on the pleadings, and the TMX Defendants filed a motion to dismiss the amended complaint. The trial court entered orders denying the defendants’ respective motions. The defendants then filed applications for interlocutory appeal, which this Court granted, leading to the present companion appeals. For the reasons discussed more fully below, we conclude that the plaintiffs failed to state a claim for breach of the option agreement, and we reverse the trial court’s orders to the extent that the court declined to dismiss that claim. We affirm the trial court’s orders in all other respects.

We review de novo a trial court’s ruling on a motion to dismiss for failure to state a

833 S.E.2d 322

claim upon which relief may be granted and/or on a motion for judgment on the pleadings. Northway v. Allen , 291 Ga. 227, 229, 728 S.E.2d 624 (2012) ; City of Albany v. GA HY Imports , 348 Ga. App. 885, 887, 825 S.E.2d 385 (2019).

A motion to dismiss for failure to state a claim upon which relief may be granted should not be sustained unless (1) the allegations of the complaint disclose with certainty that the claimant would not be entitled to relief under any state of provable facts asserted in support thereof; and (2) the movant establishes that the claimant could not possibly introduce evidence within the framework of the complaint sufficient to warrant a grant of the relief sought. In deciding a motion to dismiss, all pleadings are to be construed most favorably to the party who filed them, and all doubts regarding such pleadings must be resolved in the filing party’s favor.

(Citation and punctuation omitted.) Austin v. Clark , 294 Ga. 773, 774-775, 755 S.E.2d 796 (2014). See OCGA § 9-11-12 (b) (6). The same standard applies to a motion for judgment on the pleadings, where, as here, "the parties moving for judgment on the pleadings do not introduce affidavits, depositions, or interrogatories in support of their motion." (Citation and punctuation omitted.) Southwest Health & Wellness v. Work , 282 Ga. App. 619, 623 (2), 639 S.E.2d 570 (2006). Additionally, the trial court in addressing the aforesaid motions may consider "any exhibits attached to and incorporated into the complaint and the answer." (Citation and punctuation omitted.) Islam v. Wells Fargo Bank, N. A. , 327 Ga. App. 197, 197, 757 S.E.2d 663 (2014). See Early v. MiMedx Group , 330 Ga. App. 652, 654, 768 S.E.2d 823 (2015). Mindful of these principles, we turn to the pleadings and exhibits attached thereto in the present appeals.

The Founding of ICOT. As alleged in the amended complaint, Goldsmith, a neurologist who specializes in complex ear procedures, started ICOT Hearing Systems, LLC ("ICOT Hearing") to provide low-cost hearing aides. Jue became involved in ICOT Hearing in its early stages and assisted in building the company into a multi-million dollar enterprise. Jue ran the day-to-day operations of ICOT Hearing as its sole manager.

ICOT Hearing is wholly owned by ICOT Holdings, LLC ("ICOT Holdings"). Until the incidents at issue in this case, Jue and Goldsmith together held a majority interest in ICOT Holdings and controlled ICOT Holdings and ICOT Hearing (collectively, "ICOT").

Young Becomes Involved in ICOT. Young is the founder of the TMX Defendants, which are a "family of companies" consisting of title pawn companies and other businesses, and he controls their operations. In August 2015, Young began personally lending money to ICOT. Jue, Goldsmith, and Young knew that ICOT’s "business model required additional cash beyond the accounts receivable for ICOT to sustain operations and continue to grow at a rapid pace," and that the goal of this "accelerated growth" model "was to sell ICOT to a third-party for tens of millions or hundreds of millions of dollars in the near term." Young "repeatedly told Jue to ‘put his foot on the gas’ with regard to the operations of ICOT" and assured Jue and Goldsmith that he would provide more funding.

The Restructuring of ICOT. On March 16, 2016, ICOT Hearing, ICOT Holdings, Jue, Goldsmith, Young, and Young’s limited liability company, TY ICOT Investments ("TY Investments"), entered into a restructuring agreement under which Young loaned additional funds to ICOT Hearing and guaranteed two bank loans (the "Restructuring Agreement"). As part of the restructuring, TY Investments purchased membership units from several minority members of ICOT Holdings and from Goldsmith. TY Investments also obtained exclusive one-year options to purchase additional membership units from several minority members and from Goldsmith. TY Investments’s purchase of some of Goldsmith’s membership units and its option to purchase additional units from him were memorialized in a Membership Interest and Purchase Option Agreement entered at the time of the restructuring of ICOT Holdings (the "Goldsmith Agreement"). Following the restructuring and prior to execution of the options, Jue and Goldsmith

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retained their controlling interest in ICOT Holdings.

Additionally, as part of the restructuring, ICOT Holdings, Jue, Goldsmith, TY Investments, and the other members of ICOT Holdings executed an Amended and Restated Operating Agreement for ICOT Holdings, which, among other things, placed certain duties on that company’s managers, including the duties to conduct the business in good faith, to not engage in wrongful conduct, and to act in a manner that would not result in improper personal benefit to them (the "Operating Agreement"). Under the terms of the Operating Agreement, TY Investments acquired the power to appoint one of three members of the board of managers of ICOT Holdings. Pursuant thereto, TY Investments appointed Young as a manager of ICOT Holdings, and Young agreed to comply with the terms of the Operating Agreement while serving in that position.

Young’s Alleged Takeover Scheme Targeting Jue and Goldsmith. If TY Investments had executed all of the options it had acquired from members of ICOT Holdings as part of the restructuring, Young, through TY Investments, would have acquired a majority interest in ICOT Holdings. However, according to the amended complaint, Young devised a scheme to obtain a controlling interest in ICOT Holdings through alternative means by causing an "existential funding crisis" at an opportune moment that could be used to divest Goldsmith and Jue of control without having to exercise the options.

Young Allegedly Implements His Takeover Scheme. In October 2016, two "reputable capital providers" discussed providing funds to ICOT beyond what Young had provided. The amended complaint alleged, however, that Young derailed these readily available sources of additional funding so that he could use ICOT’s ongoing "cash needs" as leverage over Jue and Goldsmith when the opportunity arose to implement his takeover scheme.

In November 2016, a prospective third-party buyer that previously offered $8,000,000 to purchase ICOT expressed renewed interest in reaching a purchase agreement. Because of ICOT’s growth, the parties entered into negotiations and discussed a purchase price of "approximately $100,000,000 for a sale at the end of 2016 or approximately $250,000,000 for a sale at the end of 2017." In preparation for a potential sale, ICOT Holdings negotiated and was approved for a line of credit from United Community Bank ("UCB") that would provide additional funds for the payment of ongoing and ordinary business expenses (the "UCB Line of Credit"). Young and Jue agreed to personally guarantee the UCB Line of Credit.

According to the amended complaint, after meeting with the prospective buyer, Young "seized the opportunity to begin his takeover" by means of a funding crisis. Because Jue and Goldsmith held a majority of the membership units in ICOT Holdings and "stood to profit significantly from the sale of ICOT," Young allegedly "did not want the sale to happen until he had wrested control and ownership from Jue and Goldsmith" and thereby could obtain a greater personal financial benefit from the sale. Consequently, the amended complaint alleged, Young began implementing his plan to create a funding...