Business Associations
Stuart E. Walker
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This Article surveys some noteworthy cases involving corporations and limited liability companies decided by the Georgia Court of Appeals between June 1, 2020, and May 31, 2021.1
A. A&M Hospitalities, LLC v. Alimchandani
A trial court abuses its discretion by permitting a "special master/auditor" to serve simultaneously as an investigator, a fact witness, and an adjudicator of factual and legal disputes—roles that are "fundamentally incompatible" with one another.2
In A&M Hospitalities, LLC v. Alimchandani, the Georgia Court of Appeals held that the Lowndes Superior Court abused its discretion when it appointed someone to serve as an auditor/special master and then permitted him to serve simultaneously as a fact witness in the case; an investigator of the facts underlying the parties' claims; and an adjudicator of all questions of law and fact.3
A different iteration of this case was previously before the court of appeals and was discussed in the Author's 2019 Business Associations article for the Mercer Law Review.4 The trial court originally appointed
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a lawyer named Christopher A. Cohilas to serve as a "limited receiver" in a dispute among business partners.5 When the order appointing Cohilas was challenged on appeal, as having been entered without the requisite showing of need, the court of appeals affirmed Cohilas's appointment on the ground that the trial court's order did not vest Cohilas with the kind of powers traditionally associated with receivers; so the appointment was not required to be supported by the showing of necessity that applies to the appointment of receivers generally.6
After that appeal was decided and the case returned to the trial court, the superior court entered a second order appointing Cohilas to serve as a special master/auditor.7 The second appointment order had the effect of significantly expanding Cohilas's authority. For example, under the second appointment order—which was drafted by Cohilas—Cohilas, among other things, was empowered to: conduct an accounting of the defendant limited liability company; hear motions, allow amendments, and pass upon all questions of law and fact; address all pretrial and discovery matters; monitor implementation of and compliance with all orders of the court; impose upon a party any non-contempt sanction provided by Title 9, Chapter 11, Sections 37 and 45 of the Official Code of Georgia Annotated; conduct all trial proceedings and make and recommend findings of fact on all issues to be decided by the court without a jury; and engage in ex parte communications with the parties, counsel, and the trial court for certain purposes.8
In discharging his duties as an auditor/special master, Cohilas engaged in numerous ex parte communications with the plaintiff's counsel concerning litigation strategy. He provided fact testimony used by the plaintiff to support allegations in the plaintiff's amended complaint and was identified as a fact witness in the plaintiff's written discovery responses. The defendants challenged Cohilas's renewed appointment on appeal.9
The court of appeals reversed the trial court's appointment order, concluding that the trial court abused its discretion in entering it.10 Based on the capacious powers conferred on him by the appointment order, and on the manner in which Cohilas discharged his duties during the course of the litigation, the court of appeals determined that Cohilas was serving simultaneously in three fundamentally incompatible roles:
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as an investigator, a witness, and the adjudicator of factual and legal disputes. The court of appeals concluded that these facts disqualified Cohilas from serving as a special master in this case.11
B. Ironwood Capital Partners, LLC v. Jones
In Ironwood Capital Partners, LLC v. Jones,12 the Georgia Court of Appeals held that a limited liability company that withheld a distribution to one of its members for an unreasonably long period of time without legal justification—while making pro rata distributions to its other members—was liable for breach of contract to the member whose distribution was unpaid.13
Timbervest, LLC (Timbervest), together with its officers and managers (Joel Shapiro, Walter Boden III, Donald Zell Jr., and Gordon Jones II), was sued by AT&T for alleged Employee Retirement Income Security Act of 1974 (ERISA) violations.14 The alleged violations concerned the mismanagement by Timbervest of pension plan property that AT&T had entrusted to Timbervest as an investment fiduciary. Timbervest was owned by a single member: a limited liability company called Ironwood Capital Partners, LLC (IPC).15 IPC, in turn, was owned by three members—Shapiro (50%), Boden (25%), and Zell (25%).16 Jones formerly owned 25% of IPC but later sold his interest to Shapiro.17 Eventually, the AT&T suit settled for $6 million, but the settlement agreement failed to specify how much of the total settlement each party would pay.18
Jones was also a member of TEP Investors, LLC (TEPI), an affiliate of Timbervest.19 In the suit that gave rise to this appeal, Jones sued TEPI for breach of contract, on the basis that TEPI breached its operating agreement when it failed to pay Jones a distribution in April 2016—but paid pro rata distributions to TEPI's other members. TEPI had purposefully refused to pay the distribution to Jones on the ground that Jones owed money to Timbervest from the AT&T settlement. Ironwood, Shapiro, Boden, and Zell—all of whom were defendants in Jones's suit against TEPI—counterclaimed against Jones for breach of contract. They
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argued that Jones breached an agreement under which he (Jones) had agreed to be responsible for paying $1.5 million of the $6 million settlement amount from the AT&T suit. The trial court granted summary judgment in favor of Jones (1) on his breach of contract claim to recover the unpaid distribution; and (2) on the defendants' breach of contract claim to recover Jones's unpaid settlement contribution. The defendants appealed these adverse rulings, and the court of appeals affirmed them.20
The court of appeals first concluded that Jones was entitled to summary judgment on his contract claim for the distribution payable to him by TEPI, because TEPI withheld that distribution for an unreasonably long period of time without any legal justification.21 It separately concluded that Jones was not liable for breach of contract to Ironwood, Shapiro, Boden, or Zell.22 There was no evidence that Jones accepted the defendants' demand that he (Jones) undertake responsibility to pay $1.5 million of the total settlement. As a result, Jones was also entitled to summary judgment on their contract counterclaim against him.23
The court of appeals further determined that the remainder of the claims were subject to the Bankruptcy Code's automatic stay provisions, because those claims prayed for relief against Shapiro, who filed a Chapter 7 bankruptcy petition during the pendency of the appeal.24
C. Optum Construction Group, LLC v. City Electric Supply Company
In Optum Construction Group, LLC v. City Electric Supply Company,25 the Georgia Court of Appeals held that a fact dispute concerning the identity of two business entities precluded summary judgment in favor of a lien claimant—under Georgia's materialman's lien statute—because it remained unclear whether the lien claimant's debtor was in privity of contract with the general contractor on the construction project at issue.26
Optum Construction Group, LLC (Optum), a general contractor, entered into a subcontract with Palmetto Power Services Palmetto Power Unlimited, Inc. (Palmetto Unlimited), to perform electrical work on a hotel property.27 Thereafter, Palmetto Power Services, LLC (Palmetto
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Services), purchased materials necessary to perform the electrical work on the hotel property from a vendor, City Electric Supply Company (City Electric). City Electric notified optum that it had furnished materials for use on the property at the request of Palmetto Power.28
After Palmetto Unlimited abandoned work on the project and failed to pay City Electric charges exceeding $100,000, City Electric filed a materialman's lien against the hotel property, where the work was being performed, in the amount of $123,716.29 optum discharged the lien by engaging its insurer to issue a lien-release bond in the amount of $247,432. City Electric sued Palmetto Services and eventually settled its claims and secured a confession of judgment from Palmetto Services for the unpaid charges. City Electric then sued optum and its insurer to recover $109,379 under the lien-release bond issued by Optum's insurer.30 City Electric and Optum filed competing motions for summary judgment on the bond claim. The Gwinnett County State Court granted summary judgment in favor of City Electric, thus denying summary judgment to optum. Both parties appealed.31
on appeal, optum argued that there was a genuine issue of material fact concerning whether City Electric was a proper lien claimant because there was no "chain of contracts" linking Palmetto Services, City Electrics debtor, to Optum.32 Under Georgia law, in order for a lien claimant to have a validly attached materialman's lien, the claimant must prove "a contractual relationship, either directly or through a chain of contracts, between the owner of the property and the person to whom the materials are furnished."33 Optum's contract was with Palmetto Unlimited, which represented itself to be a corporation; however, Optum acknowledged that Palmetto Unlimited was organized as a limited liability company—which, in the view of the court of appeals, could support an inference "that the named subcontractor never existed."34
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Considering the discrepancy between the name of the company that entered into the subcontract with Optum and...
