William R. Deal v. Tugalo Gas Company, Inc. ( 2021 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-14336
________________________
D.C. Docket No. 2:17-cv-00209-RWS
WILLIAM R. DEAL,
Plaintiff - Appellant,
versus
TUGALO GAS COMPANY, INC.,
THOMAS GILMER,
SARAH GILMER PAYNE,
ETHELDRA GILMER,
BRUCE STANCIL, JR.,
et al.,
Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(March 19, 2021)
Before MARTIN, NEWSOM and BRANCH, Circuit Judges.
NEWSOM, Circuit Judge:
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This kitchen-sink appeal stems from a district court’s rejection of a kitchen-
sink lawsuit. William Deal owns shares in a family-owned Georgia corporation,
Tugalo Gas Company. Deal sued Tugalo, his cousin and Tugalo President Thomas
Gilmer, and Tugalo’s directors in a 17-count complaint, alleging (in essence) that
Gilmer misappropriated corporate funds and that the company’s board let it
happen. In two separate orders issued about a year apart, the district court rejected
all of Deal’s substantive claims—some on a motion to dismiss and the remainder at
summary judgment. The district court separately declined to adjudicate three
equitable counts—for judicial dissolution, an accounting, and appointment of an
auditor—under the long-lost (or nearly lost) “Burford abstention” doctrine.
On appeal, Deal presents a litany of arguments spanning eight separate
issues arising out of the district court’s two orders. Because the district court
correctly disposed of all of Deal’s substantive claims, we will affirm in substantial
part. But because the district court shouldn’t have abstained under Burford from
deciding the three equitable counts, we will also reverse in part and remand for
further proceedings.
I
A
Tugalo Gas Company is a closely held, family-owned Georgia corporation.
Plaintiff William Deal alleges that his cousin and Tugalo President Thomas Gilmer
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misused company funds to pay for personal expenses. He also asserts that other
defendants in the case—Tugalo shareholders, directors, and employees, some of
whom are related to Deal and Gilmer—either abetted Gilmer’s misconduct or
engaged in wrongdoing of their own.
Through a holding company, Deal first made demand on Tugalo’s board in
2012, alleging corporate fraud based on Gilmer’s use of company money to pay
personal expenses. Without waiting for Tugalo’s board to investigate his claim,
Deal went ahead with a direct shareholder action against Gilmer. That suit was
dismissed when the court found that Deal’s direct suit was improper. Undeterred,
Deal made demand on Tugalo’s board again in 2017, once again alleging
misconduct by Gilmer and others. In response to Deal’s allegations, Tugalo
formed a Demand Review Committee (DRC), which determined that a shareholder
derivative action was not in Tugalo’s best interest.
Deal then filed the suit that underlies this appeal.
B
Deal’s complaint asserted a laundry list of claims, totaling 17 counts against
seven defendants, including Tugalo. The counts were a mix of direct and
derivative claims and requests for equitable relief. In response to Deal’s
complaint, Tugalo’s board appointed a Litigation Review Committee (LRC)
consisting of Carlton H. Jones, III, who had earlier served on the DRC, and Robert
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Aycock, an independent director. The LRC recommended that Tugalo move to
dismiss Deal’s action—at least to the extent it pleaded derivative claims—which
Tugalo then asked the district court to do.
The district court resolved Deal’s case in two orders. First, at the motion-to-
dismiss stage, the court held that about half of Deal’s counts could be pursued only
derivatively and then dismissed them because the LRC—after a reasonable, good
faith investigation—had concluded that a shareholder derivative action wasn’t in
Tugalo’s best interest. Second, at summary judgment, the district court ruled for
Tugalo on the remaining counts, abstained from adjudicating any equitable counts,
and entered judgment in Tugalo’s favor. In both orders, the district court denied
Deal’s requests to postpone decision while he sought additional discovery.
II
On appeal, Deal challenges pretty much every ruling that didn’t go his way.
We’ll first address the issues arising out of the motion-to-dismiss order and then
turn to the summary-judgment order.
A
We start with Deal’s derivative claims. Our review of the district court’s
dismissal of those claims presents the most involved issue in this appeal, as it
implicates the sometimes convoluted process by which a shareholder makes
“demand” on a corporation as a prerequisite to bringing a derivative action. We’ll
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briefly summarize that process and then assess the district court’s dismissal of
Deal’s derivative counts.
A corporation’s directors and officers owe fiduciary duties to the company;
if a shareholder believes that they have breached those duties, he can bring a
“derivative suit” on behalf of the corporation, for the harm done to it. See Stephen
M. Bainbridge, Corporate Law 207 (3d ed. 2002). In a derivative suit, the cause of
action belongs to the corporation, rather than to the individual shareholder-
plaintiff, and any recovery thus goes to it. Id. Because the cause of action is
ultimately the corporation’s own, a shareholder can bring suit only in the event that
a company’s board chooses not to pursue litigation. Id. at 225. Thus, to bring a
derivative suit, the shareholder usually must first make “demand” on the
corporation—that is, ask the board to bring a suit on the company’s behalf. Id. By
contrast, if a shareholder believes that he has been harmed in his individual
capacity and separately from any injury to the corporation, then he can bring a
“direct suit.” Id. at 205. Because in that instance the injury is personal to the
shareholder, there is no demand requirement, but there are other hurdles—among
them, the shareholder must show that his injury is distinct from any that the
corporation or other shareholders have suffered. Id. at 205–06.
State law governs the process for bringing derivative suits and, in particular,
for making demand. See Kamen v. Kemper Fin. Servs. Inc., 500 U.S. 90, 101
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(1991). Under Georgia law, which applies here, a shareholder can file a derivative
suit if, and only if, (1) he has made a written demand on the corporation “to take
suitable action” and (2) the corporation has refused to do so. O.C.G.A. § 14-2-742.
If, following rejection of his demand, the shareholder proceeds to file a derivative
suit, the corporation may then move to dismiss it if a special committee made up of
independent directors—which, consistent with Tugalo’s nomenclature, we’ll call a
“litigation review committee” (LRC)— “ma[kes] a determination in good faith
after conducting a reasonable investigation upon which its conclusions are based
that the maintenance of the derivative suit is not in the best interests of the
corporation.” O.C.G.A. § 14-2-744(a). In order to proceed, the shareholder-
plaintiff must then come forward with evidence showing that the LRC wasn’t
independent or didn’t make its determination to recommend dismissal in good faith
after a reasonable investigation. See Thompson v. Scientific Atlanta, Inc., 621
S.E.2d 796, 799 (Ga. Ct. App. 2005).
Now, to Deal’s complaint. Deal brought Counts I, II, VI, VII, IX, X, XI,
XIII, XIV, XV, XVI, and XVII—a mix of breach-of-fiduciary-duty, abuse-of-
control, unlawful-conveyance, conversion, unjust-enrichment, and similar
claims—both derivatively and directly. He first contends that the district court
erred in dismissing his derivative claims in those counts. The district court
dismissed Deal’s derivative claims because, in its view, Tugalo’s LRC had
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undertaken a reasonable, good-faith investigation and determined that a derivative
action wasn’t in the company’s best interest. The district court also denied Deal’s
motion to defer ruling on this issue while he gathered additional discovery.
Deal challenges both of those decisions. With respect to the former, Deal
argues that the LRC wasn’t independent because it relied too heavily on the
previously formed DRC’s report and because one of its members, Carlton Jones,
had also served on the DRC with Bruce Stancil, one of the defendants in this case.
Deal also argues that the LRC didn’t undertake a reasonable, good-faith
investigation for a multitude of reasons, most of which reduce to his disagreement
with the LRC’s recommendation to refuse his demand. With respect to the latter,
Deal contends that he should have gotten more discovery and that the district court
should have deferred ruling on Tugalo’s motion to dismiss while he did so. 1
We’ll start with the first issue—and, in particular, with independence. As a
general matter, Georgia courts require that a member of an LRC be both
1
We review the district court’s decision to refuse Deal’s request for further discovery only for
abuse of discretion. See Harbert Int’l, Inc. v. James, 157 F.3d 1271, 1277 (11th Cir. 1998). The
parties dispute the standard applicable to the district court’s dismissal of Deal’s derivative
claims. Citing decisions from Georgia’s intermediate appellate court construing O.C.G.A. § 14-
2-744, which prescribes the requirements for making demand on a Georgia corporation, Tugalo
insists that we should review only for abuse of discretion. See, e.g., Benfield v. Wells, 749
S.E.2d 384, 386 (Ga. Ct. App. 2013). Deal counters that, in applying an abuse-of-discretion
standard, Georgia’s appellate courts have relied on Delaware caselaw that the Delaware courts
have since rejected. Despite the parties’ shared assumption, it’s not apparent to us that state law
should govern the standard of review applicable to an appeal in federal court. Under Erie,
“federal courts sitting in diversity apply state substantive law and federal procedural law”—so
the relevant question is whether § 14-2-744’s standard of review constitutes substantive or
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disinterested—meaning that he has no personal interest in the challenged
transaction—and independent—meaning that he isn’t predisposed to favor the
defendants because of a personal or other relationship. Benfield v. Wells, 749
S.E.2d 384, 387 (Ga. Ct. App. 2013). Under Georgia law, a director serving on an
LRC can be independent even if (1) he was nominated or elected by non-
independent directors, (2) he is a defendant in the derivative proceeding, or (3) he
previously approved the action, challenged in the derivative action so long as he
didn’t receive a benefit from it. O.C.G.A. § 14-2-744(c).
Here, LRC members Jones and Aycock were independent. A majority of the
board’s independent directors selected them to serve on the LRC, and they were
only chosen after the alleged misconduct occurred. Neither has a financial stake in
the litigation or an interest in the outcome. Deal’s argument that Jones is
“interested” because he drafted the original DRC report is unavailing; it rests on
the conjecture that “perhaps Jones formed a personal relationship with Stancil” and
that he formed a “prejudgment” about Deal’s allegations. But if Georgia law
permits a director who is himself a defendant in the litigation or who previously
approved a challenged transaction to serve on an LRC, see O.C.G.A. § 14-2-
procedural law. Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 427 (1996) (citing Erie
R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). In any event, we needn’t settle on a particular
standard of review here because, for reasons explained in text, we hold that Deal’s derivative
claims fail even under a de novo standard.
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744(c), we fail to see how it could deem insufficiently independent a director who
“perhaps” has a personal relationship with one defendant and who drafted an
earlier DRC report. Likewise, Deal’s contention that Aycock might be interested
because his own company was a Tugalo customer and that he sometimes ran into
defendant Gilmer at the airport rests on mere speculation. Such speculation isn’t
evidence, and thus is insufficient to demonstrate the LRC’s lack of independence.
On, then, to reasonableness and good faith, both of which depend on the
thoroughness of the LRC’s investigation and the nature of the claims in Deal’s
demand. See Millsap v. Am. Family Corp., 430 S.E.2d 385, 388 (Ga. Ct. App.
1993) (holding that a litigation committee acted reasonably and in good faith after
a “detailed, documented investigation”). Here, Deal contends that the LRC didn’t
interview enough people (including him) or review enough documents and that it
recommended dismissal even after it uncovered some wrongdoing.
The LRC’s investigation here was both reasonable and conducted in good
faith. For starters, Tugalo is a small company embroiled in a family dispute. That
fact makes a focused, tailored investigation, like the LRC’s here, entirely
appropriate. The LRC went through every paragraph and allegation of misconduct
in the original complaint, interviewed those accused of wrongdoing and other
employees with knowledge of Tugalo’s finances, and concluded that a derivative
action wasn’t in the corporation’s best interest. While its report comprised only
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about five pages, the LRC made sure that all the expenses that the complaint
concretely alleged to be fraudulent were legitimate and that Gilmer and his sister
had reimbursed the company for any other personal expenses.
Moreover, the LRC and its predecessor DRC weren’t asleep at the wheel:
They found some red flags and took action to address them. The DRC
recommended that Gilmer reimburse Tugalo $25,000 for personal expenses that he
took from the company. The LRC also found that a previous stock transfer to
Bruce Stancil didn’t strictly comply with Tugalo’s bylaws. 2
Although Deal has pointed to some evidence that Gilmer and his sister Sarah
Gilmer Payne were playing fast and loose with company cash—both borrowed
from the company to finance personal automobiles—our job isn’t to evaluate
whether the LRC was correct to recommend against a derivative action, but simply
to determine whether the LRC had a valid process for deciding whether or not to
do so. See Maldonado v. Flynn, 485 F. Supp. 274, 285 (S.D.N.Y. 1980) (“Even if
the Committee were in error in its evaluation of the legal merits of this lawsuit …
such an error does not necessarily taint either the adequacy or appropriateness of
the investigation conducted or the good faith of the Committee.”); cf. Kamen, 500
U.S. at 101 (“The purpose of requiring a precomplaint demand is to protect the
2
The LRC ultimately concluded that the transfer wasn’t actionable because it benefitted all
shareholders by increasing their share ownership.
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directors’ prerogative to take over the litigation or to oppose it.”). Deal might not
like the outcome, but that doesn’t mean that Tugalo’s LRC failed to exercise its
business judgment in investigating his claim and concluding that a derivative
action wasn’t in the corporation’s best interest. See Fed. Deposit Ins. Corp. v.
Loudermilk, 761 S.E.2d 332, 335 (Ga. 2014) (“If an officer or director has honestly
exercised ‘judgment’ with respect to a business matter—that is, if her decision was
made in a deliberative way, was reasonably informed by due diligence, and was
made in good faith—the wisdom of the judgment cannot ordinarily be questioned
in court.”); see also, e.g., Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993)
(applying the business-judgment rule in the demand context).
Finally, and separately, the district court didn’t err in denying Deal’s motion
to defer ruling on the dismissal of the derivative claims to allow for further
discovery. Deal had no right to discovery at this stage of the litigation. See Zapata
Corp. v. Maldonado, 430 A.2d 779, 788 (Del. 1981) (noting that when evaluating a
board’s decision to recommend dismissal of a derivative suit, “[l]imited discovery
may be ordered” to inquire into an LRC’s independence and good faith (emphasis
added)); see also Kaplan v. Wyatt, 499 A.2d 1184, 1192 (Del. 1985) (“In the
Zapata context, … discovery is not by right, but by order of the Court, with the
type and extent of discovery left totally to the discretion of the Court.”);
Thompson, 621 S.E.2d at 799 (adopting the Zapata standard). And Deal has failed
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to provide any persuasive reasons for reversal. All he says is that he raised
“issues” regarding the LRC’s investigation, but the fact that a party raises issues
doesn’t automatically entitle him to additional discovery. As Deal concedes, we
review the district court’s decision only for an abuse of discretion, World
Holdings, LLC v. Fed. Republic of Germany, 701 F.3d 641, 649 (11th Cir. 2012),
and the court here was well within its discretion in declining to postpone its
decision.
So, in short—while Deal may disapprove of the LRC’s recommendation not
to pursue a derivative action, he has failed to show even a modicum of taint. And
the district court reasonably rejected Deal’s request to continue fishing for
evidence that he had already had adequate time and opportunity to find.
B
The district court also dismissed Deal’s direct claims brought under Counts
I, II, VI, VII, IX, X, XI, XIII, XIV, XV, XVI, and XVII on the ground that, by
their very nature, they could be pursued only derivatively. It so held on the ground
that Deal couldn’t show, as Georgia law requires, that he had suffered any injury
that was “separate and distinct” from the injury suffered by the corporation or its
other shareholders. See Patel v. 2602 Deerfield, LLC, 819 S.E.2d 527, 532 (Ga.
Ct. App. 2018) (“[T]o set out an individual action, the plaintiff must allege either
an injury which is separate and distinct from that suffered by other shareholders, or
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a wrong involving a contractual right of a shareholder which exists independently
of any right of the corporation.” (quotation marks omitted)). The court also found
that Deal’s direct action could harm the rights of a non-party shareholder—namely,
Deal’s brother Robert— potentially leading to disproportionate recovery for Deal.3
In a novel-but-misguided threshold argument, Deal contends that the
question whether a shareholder-plaintiff can maintain a direct claim runs not to the
claim’s merits but, instead, to the plaintiff’s standing to sue under Article III.
Accordingly, he insists, Tugalo had to move to dismiss under Rule 12(b)(1) for
lack of subject-matter jurisdiction rather than, as it did, under Rule 12(b)(6) for
failure to state a claim. That is incorrect. While courts may use the word
“standing” in explaining whether a shareholder-plaintiff can bring a direct claim
against a corporation, they do so not in the Article III sense, but rather in an
altogether different corporate-law sense. See Franchise Tax Bd. of Cal. v. Alcan
Aluminum Ltd., 493 U.S. 331, 336 (1990) (noting that what it called the “so-called
shareholder standing rule” is “a longstanding equitable restriction that generally
prohibits shareholders from initiating actions to enforce the rights of the
corporation unless the corporation's management has refused to pursue the same
action for reasons other than good-faith business judgment.”); cf. also United
3
We review a court’s dismissal of a complaint for failure to state a claim de novo. Almanza, 851
F.3d at 1066.
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States v. Ross, 963 F.3d 1056, 1062 (11th Cir. 2020) (en banc) (explaining the
distinction between Article III standing and Fourth Amendment “standing”). Deal
has not provided, and we are not aware of, any support for the proposition that a
shareholder’s “standing” to bring a direct claim must—on pain of waiver—be
challenged in a Rule 12(b)(1) motion rather than a Rule 12(b)(6) motion.
Deal’s other arguments are more conventional, but equally unavailing. First,
he contends that he suffered a “special injury” because the shareholder-defendants
took special payments in lieu of dividends that Deal didn’t get. But Deal’s claim
here is just a repackaged version of his “de facto distributions” claim, which, as
we’ll explain in more detail below, fails because Deal can’t show that there
actually were any such distributions. See infra at 15–16. Non-existent payments
can’t constitute a special injury.
Next, Deal claims that he falls into an exception that allows a shareholder to
maintain a direct action, even in the absence of “special injury,” when the
corporation is closely held and “the circumstances show that the reasons for the
general rule requiring a derivative suit do not apply.” Patel, 819 S.E.2d at 532–33
(quotation marks omitted). The “reasons for the general rule” 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 increasing their share values.
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Id.
Contrary to Deal’s contention, those reasons do apply here. Deal’s core
allegations revolve around the actions of two main culprits—siblings Thomas
Gilmer and Sarah Gilmer Payne. There are three other shareholders who would
have also been injured and whose interests must be protected—Etheldra Deal
(Thomas and Sarah’s mother), Bruce Stancil (a Gilmer family friend), and Robert
(Deal’s brother). As the district court explained, the only other non-Gilmer and
non-defendant shareholder, Deal’s brother Robert, has chosen not to be part of the
litigation, and his absence could lead to a disproportionate recovery for Deal.
Accordingly, Deal has shown neither that he suffered a special injury nor that he is
exempt from the prudential reasons for requiring his claims to proceed
derivatively.
C
Next up: Deal’s assertion in Count VII (to which we have already alluded)
that Tugalo and its directors engaged in conflicted-interest transactions for the
personal benefit of company insiders and that these transactions amounted to “de
facto distributions.” The district court dismissed this claim because Deal hadn’t
alleged that Tugalo’s board approved or otherwise assented to the supposed
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distributions. It did, however, allow a wrongful-distribution claim to go forward
related to a payment made to Bruce Stancil. 4
Georgia law makes a director who voted for an unlawful distribution liable
to the corporation for any amount exceeding that which should have been paid out.
O.C.G.A. § 14-2-832(a). The problem here is that Deal can’t point with specificity
to any adequately pleaded allegations in his complaint that Tugalo board members
assented to any so-called “de facto distributions.” The best he can do is a one-
sentence paragraph in the relevant count of his complaint reciting a conclusion that
“Defendants either voted for or assented to certain distributions described
herein”—without specifying (1) which distributions the defendants approved or (2)
for that matter, which distributions he’s complaining about. “Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements,”
like the ones contained in Deal’s complaint, are insufficient to defeat a motion to
dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
* * *
To recap our holdings stemming from the district court’s September 2018
order: We affirm the district court’s decisions (1) to dismiss Deal’s derivative
claims after the LRC found that a shareholder lawsuit wasn’t in the corporation’s
4
We review a dismissal for failure to state a claim de novo. Almanza v. United Airlines, Inc.,
851 F.3d 1060, 1066 (11th Cir. 2017).
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best interest (and, separately, to deny Deal’s motion to defer ruling on that issue);
(2) to hold that certain claims could not be pursued directly; and (3) to dismiss
Deal’s “de facto distributions” claim.
Now, onto the district court’s summary-judgment order.
III
The final blow to Deal’s case against Tugalo came at the summary-judgment
stage when the district court disposed of the remaining counts. We’ll again march
through each of Deal’s objections in turn.
A
The district court granted summary judgment for Tugalo on Deal’s fraud
claim on the ground that he couldn’t show that he justifiably relied on any of
Tugalo’s alleged misstatements.5 In doing so, the district court also denied Deal’s
motion to defer ruling because any evidence that he justifiably relied on Tugalo’s
misrepresentations would have been in his possession, obviating the need for
additional discovery. 6
5
Under Georgia law, a fraud claim comprises the following elements: (1) that the defendant
made the misrepresentation; (2) that he knew was false; (3) that he acted with the intent to
deceive the plaintiff; (4) that the plaintiff justifiably relied on the misrepresentation; and (5) that
the plaintiff sustained damages as the proximate result of the misrepresentations. Parrish v.
Jackson W. Jones, P.C., 629 S.E.2d 468, 471 (Ga. Ct. App. 2006). The district court focused on
the justifiable-reliance element because Deal’s evidence on the other elements was “hazy at
best.”
6
We review the grant of summary judgment de novo, Furcron v. Mail Ctrs. Plus, LLC, 843 F.3d
1295, 1303 (11th Cir. 2016), and the denial of a Rule 56(d) motion to defer ruling for abuse of
discretion, Harbert Int’l, Inc. v. James, 157 F.3d 1271, 1277 (11th Cir. 1998).
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Summary judgment is proper where the movant shows that “there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the initial burden of
identifying those portions of the record that demonstrate the absence of a genuine
issue—which it may “discharge[]” by pointing to “an absence of evidence to
support the nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 323,
325 (1986). Once the movant does so, the burden shifts to the nonmovant to show
evidence raising a genuine issue of material fact for trial. Boyle v. City of Pell
City, 866 F.3d 1280, 1288 (11th Cir. 2017). If the evidence is “merely colorable”
or “not significantly probative,” then summary judgment is appropriate. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 249–50 (1986).
Deal asserts that the district court “relieved” Tugalo of its Rule 56 burden to
demonstrate the absence of a genuine issue of material fact because the court
focused only on his own failure to produce evidence of justifiable reliance. We
disagree. Although the district court didn’t couch its holding expressly in these
terms, it undoubtedly found that Tugalo had discharged its burden by pointing to
“an absence of evidence to support [Deal’s] case”—specifically, to meet the
requirement that Deal “justifiably relied” on any alleged misrepresentations. See
Celotex, 477 U.S. at 325. The court explained that Tugalo had contested five
specific instances of fraud and argued that there was no evidence to support them.
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By contrast, the court found that Deal had not carried his burden of
production to show evidence raising a genuine issue of material fact. It explained
that Deal “never trusted, let alone relied upon,” anything the Tugalo defendants
said because, either individually or through his former holding company, he
“consistently sought action against Defendants after each alleged
misrepresentation.” Deal asserts that the district court ignored his testimony. But
the district court didn’t ignore Deal’s testimony; rather, it held that none of his
testimony supported a conclusion that he had justifiably relied on any alleged
misstatement because the record evidence showed that he had simultaneously
pursued litigation against the corporation for each such misstatement. For
example, Deal says that as the “basis for believing the financial records [and] the
P&L statements” that he saw, he relied on, among other misrepresentations, a 2011
letter that Gilmer sent to Deal’s brother Robert stating that he—Gilmer—would
stop making personal charges to Tugalo. At the same time, though, Deal and his
holding company were either actively suing or making demand on Tugalo with
respect to the same alleged misconduct. There can be no justifiable reliance “[i]f a
party has reason to doubt the truth of an oral representation or is informed of the
truth before he acts.” Intercorp, Inc. v. Penzoil Co., 877 F.2d 1524, 1530 (11th
Cir. 1989). In short, there can’t be a world in which Deal justifiably relied on
alleged misstatements while simultaneously pursuing Tugalo for fraud.
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Finally, the district court didn’t abuse its discretion in denying Deal’s
motion to defer ruling at summary judgment on the fraud claim because Deal
couldn’t (and still can’t) state with specificity which documents he hoped to find to
support his fraud claim after further discovery.
B
Next, an easy one: Five months after the district court’s deadline for
amending pleadings, Deal sought to add a new wrongful-distribution claim to his
complaint based on what he claimed was newly discovered evidence from the
DRC and LRC reports. But those reports were available to Deal approximately
three months before the amendment deadline. The district court didn’t abuse its
discretion in denying Deal’s motion where he failed to act diligently to amend his
complaint before the deadline. See In re Engle Cases, 767 F.3d 1082, 1109 (11th
Cir. 2014).
C
We come at last to the final issue in this appeal—and the only one that
requires us to remand to the district court. Deal’s complaint contained three
equitable counts—Count V for judicial dissolution, Count VIII for an accounting,
and Count XII seeking the appointment of an auditor. Citing Burford v. Sun Oil
Co., 319 U.S. 315 (1943), the district court abstained from adjudicating the
judicial-dissolution count. So far as we can tell, the district court never really
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addressed the accounting and auditor-appointment counts, except to state (in
passing) that it was abstaining from deciding them as well.7
Under the “Burford abstention” doctrine, a federal court can decline to
adjudicate—and can dismiss—a case that is otherwise within its jurisdiction, but
only in a very particular, and “narrow,” set of circumstances. See Siegel v. LePore,
234 F.3d 1163, 1173 (11th Cir. 2000) (en banc) (emphasizing that Burford
abstention is a “narrow doctrine”). In Burford itself, the Supreme Court held that a
district court should have abstained from adjudicating an action in which a plaintiff
sought to enjoin the execution of an order of the Texas Railroad Commission
granting a landowner the right to drill a new oil well. 319 U.S. at 333–34. It did
so on the ground that the grant or denial of an oil well “so clearly involve[d] basic
problems of Texas policy that equitable discretion should be exercised to give the
Texas courts the first opportunity to consider them.” Id. at 332.
Importantly here, both we and the Supreme Court have since explained that
Burford abstention is warranted only when, by exercising its jurisdiction, a federal
court would interfere with an ongoing state administrative proceeding or action.
See Siegel, 234 F.3d at 1173 (“Burford is implicated when federal interference
would disrupt a state’s effort, through its administrative agencies, to achieve
7
We review a district court’s decision to abstain for abuse of discretion. Boyes v. Shell Oil
Prods. Co., 199 F.3d 1260, 1265 (11th Cir. 2000).
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uniformity and consistency in addressing a problem.” (emphasis added)). The
Supreme Court has described the metes and bounds of the Burford abstention
doctrine specifically by reference to “the proceedings or orders of state
administrative agencies”:
Where timely and adequate state-court review is available, a federal
court sitting in equity must decline to interfere with the proceedings or
orders of state administrative agencies: (1) when there are difficult
questions of state law bearing on policy problems of substantial public
import whose importance transcends the result in the case then at bar;
or (2) where the exercise of federal review of the question in a case
and in similar cases would be disruptive of state efforts to establish a
coherent policy with respect to a matter of substantial public concern.
New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350,
360–61 (1989) (quotation marks omitted).
Here, there was (and is) no ongoing state administrative proceeding—or, for
that matter, even any preexisting action by a Georgia state court or executive
official to dissolve Tugalo. All we have is a potentially thorny legal question—
namely, whether a federal court has the authority to dissolve a state-chartered
corporation. Standing alone, that’s no basis for refusing to decide a properly filed
case.
Any way you slice it, Burford is “an extraordinary and narrow exception,”
Siegel, 234 F.3d at 1173, to a federal court’s “virtually unflagging obligation” to
exercise jurisdiction, Colorado River Water Conservation Dist. v. United States,
424 U.S. 800, 817 (1976). We see no compelling justification for extending it to
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judicial-dissolution claims. 8 Doing so would require us to elide the key ingredient
that we and the Supreme Court seem to have demanded—the existence of an
ongoing state administrative proceeding (or, at the very least, enforcement action).
Accordingly, because it “based its ruling on an erroneous view of law,” we hold
that the district court abused its discretion when it abstained from adjudicating
Deal’s equitable counts. McGregor v. Bd of Comm’rs of Palm Beach Cnty., 956
F.2d 1017, 1022 (11th Cir. 1992) (quoting Cooter & Gell v. Hartmarx Corp., 496
U.S. 384, 405 (1990)). Rather than abstaining, the district court here should
simply have decided, on the merits, whether the governing state law permits a
federal court to dissolve a state-chartered corporation. See O.C.G.A. § 14-2-1430
(“The superior court may dissolve a corporation . . .”).
To that end, we remand to the district court for a consideration of Deal’s
judicial-dissolution claim. On remand, the district court should also decide—one
way or the other—whether summary judgment is appropriate on Deal’s other two
equitable claims, seeking an accounting and the appointment of an auditor.
8
To the extent that other courts have extended Burford to state-law judicial dissolution claims,
we disagree. See, e.g., Caudill v. Eubanks Farms, Inc., 301 F.3d 658, 663 (6th Cir. 2002)
(extending Burford to state-law judicial-dissolution claims); Friedman v. Revenue Mgmt. of New
York, Inc., 38 F.3d 668, 671 (2d Cir. 1994) (similar).
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* * *
To recap our holdings stemming from the district court’s October 2019
summary-judgment order: We affirm the court’s decisions (1) to grant summary
judgment to Tugalo on Deal’s fraud claim for lack of evidence of justifiable
reliance (and, separately, to deny Deal’s motion to defer ruling on the fraud claim);
and (2) to deny Deal’s request to amend his complaint after the pleading-
amendment deadline. We reverse the district court’s decision to abstain under
Burford from adjudicating Deal’s judicial-dissolution count, and we remand for a
consideration of that count along with his other two equitable counts.
AFFIRMED IN PART, REVERSED AND REMANDED IN PART.
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