KAMAL NAYANI v. AMINA HASSANALI ( 2022 )

FIFTH DIVISION
RICKMAN, C. J.,
MCFADDEN, P. J., and SENIOR APPELLATE JUDGE PHIPPS
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
https://www.gaappeals.us/rules
January 20, 2022
In the Court of Appeals of Georgia
A21A1509. NAYANI v. HASSANALI et al.
MCFADDEN, Presiding Judge.
Kamal Nayani appeals from the order granting partial summary judgment to the
defendants in his lawsuit alleging, among other things, that Amina Hassanali
committed fraud to induce him to purchase shares in her professional corporation,
Amina Medical Consultant, P.C. We hold that Nayani may not pursue his claims
because his contract to purchase shares in the professional corporation is void. So we
affirm.
1. Factual and procedural background.
“Summary judgment is proper ‘if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.’ OCGA § 9-11-56 (c).” Cowart v. Widener, 287 Ga.
622, 623 (1) (a) (697 SE2d 779) (2010). “On appeal from the denial or grant of
summary judgment, the appellate court must conduct a de novo review of the
evidence to determine whether there exists a genuine issue of material fact, and
whether the undisputed facts, viewed in the light most favorable to the nonmoving
party, warrant judgment as a matter of law.” Newstrom v. Auto-Owners Ins. Co., 343
Ga. App. 576, 577 (1) (807 SE2d 501) (2017) (citation and punctuation omitted).
So viewed, the record shows that Hassanali is a primary care physician. In 1999
or 2000, she organized a professional corporation, Amina Medical Consultant, P.C.,
to practice medicine. In April 2018 Nayani and his wife approached Hassanali about
entering a partnership. The three agreed that Hassanali would sell Nayani a 40 percent
ownership interest in her professional corporation and that she would retain a 60
percent ownership interest.
On May 4, 2018, Nayani, Hassanali, Amina Medical Consultant, and
Hassanali’s company Amina Property, LLC, the medical practice’s landlord, entered
an agreement for the sale of shares in and the management of Amina Medical
Consultant. Nayani had given the terms to an attorney, who drafted the agreement.
Hassanali did not have her own attorney.
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Under the agreement, Hassanali sold Nayani 40 percent of the professional
corporation for $20,000. The agreement provided that Hassanali would become the
medical director of the practice with a salary of $8,000 per month, pro rated should
she work more or fewer than 13 shifts per month, and that Nayani would become the
managing director of the practice, with a salary of $6,000 per month. The agreement
further provided that Hassanali would receive 60 percent of the profits and Nayani
would receive 40 percent of the profits.
The parties amended the agreement in November 2018 and again in January
2019.
It was not long before Hassanali regretted entering the agreement and decided
that she was not going to follow it. In January 2019, Hassanali told Nayani and his
wife that if the practice did not show a profit within the next two months, she would
take back the management of the practice.
Hassanali took over in April 2019, instructing her staff no longer to give
patient bills to Nayani for processing. She changed the locks on the business because
Nayani and his wife had removed from the premises the keys to the cash box and the
mailbox. She also removed Nayani’s access to the business’s checking account.
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On April 30, 2019, Nayani filed the complaint against Hassanali, Amina
Medical Consultant, and Amina Property. He asserted claims of fraud and breach of
contract against Hassanali and Amina Property; a claim of breach of fiduciary duty
against Hassanali; a demand for an accounting against all three defendants; and a
claim for the judicial dissolution of Amina Medical Consultant.
Hassanali and Amina Property moved for partial summary judgment. The trial
court granted summary judgment to the defendants on Nayani’s claims for fraud
against Hassanali and Amina Property; breach of contract against Amina Property;
breach of fiduciary duty against Hassanali; an accounting as to all defendants; and
judicial dissolution of Amina Medical Consultant. Nayani filed this appeal; he does
not challenge the grant of summary judgment on his fraud claim against Amina
Property.
We hold that the agreement for the purchase of shares in the professional
corporation is void because it violates Georgia law. And because the agreement is
void, Nayani cannot pursue his claims. So we affirm.
2. Law of professional corporations.
Under the Georgia Professional Corporation Act, OCGA §§ 14-7-1 through 14-
7-7, “[s]hares in a professional corporation may only be issued to, held by, or
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transferred to a person who is licensed to practice the profession for which the
corporation is organized and who, unless disabled, is actively engaged in such
practice as an active practicing member of the issuing corporation. . . .” OCGA § 14-
7-5 (a). So the agreement at issue — which was founded on a promise to transfer
shares in Amina Medical Consultant, a professional corporation for the practice of
medicine, to Nayani, who is not licensed to practice medicine — violates OCGA §
14-7-5 (a).
[W]here a statute provides that persons proposing to engage in a
certain business shall procure a license before being authorized to do so,
and where it appears from the terms of the statute that it was enacted not
merely as a revenue measure but was intended as a regulation of such
business in the interest of the public, contracts made in violation of such
statute are void and unenforceable. Where a statute enacts, for the
purpose of securing a more effectual compliance with its requirements
in respect to the licensing of certain occupations, that no one shall
engage in or carry on any such occupation until he shall have obtained
the license as provided by law, it is an express prohibition without more
particular words.
Moore v. Dixon, 264 Ga. 797, 799-800 (2) (452 SE2d 484) (1994) (citations and
punctuation omitted). Accord Ga. Cent. Credit Union v. Weems, 157 Ga. App. 439,
440 (1) (278 SE2d 88) (1981). See also OCGA § 13-8-1 (“A contract to do an . . .
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illegal thing is void.”). In other words, a contract that is only permitted to be entered
into by a person holding a license issued as a regulatory measure is void if the person
did not hold such a license at the time the contract was entered into. JR
Constr./Electric, LLC v. Ordner Constr. Co., 294 Ga. App. 453, 454 (669 SE2d 224)
(2008).
“Contracts that obviously and directly tend in a marked degree to bring about
results that the law seeks to prevent can not be made the ground of a successful suit
[and] are against public policy.” Orkin Exterminating Co. v. Dewberry, 204 Ga. 794,
809 (2) (51 SE2d 669) (1949) (citation and punctuation omitted), overruled in part
on other grounds in Barry v. Stanco Communications Products, 243 Ga. 68, 71 (3)
(252 SE2d 491) (1979). And such contracts “will not be enforced even if the
defendant fails to raise this issue as an affirmative defense.” Ga. Receivables v. Kirk,
242 Ga. App. 801, 802 (2) (531 SE2d 393) (2000).
Nayani argues that even if the law prohibits him from being an owner of the
professional corporation, that does not mean that the parties’ agreement is void, given
that the parties acted as partners for a year. But he does not explain how the parties’
business relationship saved the agreement from being illegal.
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Nayani argues that the agreement required the parties to cooperate, so they
could have converted the professional corporation into a corporation for profit. But,
again, he does not explain how Hassanali’s promise (in the void agreement) to
cooperate saved the agreement from being illegal.
Nayani argues that under OCGA § 14-7-5 (e), the professional corporation
would automatically become a for-profit corporation by operation of law. That
subsection of the Act provides:
If a professional corporation at any time ceases to have a shareholder
licensed or otherwise authorized to practice and actually practicing, the
profession for which the corporation is organized, or if a professional
corporation does not redeem, cancel, or transfer the shares of a
disqualified, retired, or deceased person in accordance with this Code
section, the corporation shall cease to be a professional corporation and
shall operate as a corporation for profit organized under Chapter 2 of
this title for the sole purpose of liquidation. The corporation may at any
time after it ceases to be a professional corporation change its purpose
by amending its articles.
OCGA § 14-7-5 (e) (emphasis added). By its terms, however, that subsection simply
allows a professional corporation that does not redeem, cancel, or transfer the shares
of a disqualified person to operate as a corporation for profit “for the sole purpose of
liquidation.” Contrary to Nayani’s argument, the subsection does not automatically
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convert a professional corporation into a for-profit corporation that can continue in
business.
Finally, Nayani argues that under Georgia Supreme Court authority, the parties’
agreement is not void. He relies on Sherrer v. Hale, 248 Ga. 793 (285 SE2d 714)
(1982), but Sherrer is distinguishable. In that case, our Supreme Court affirmed an
interlocutory injunction that ordered the reversion of a professional corporation into
a traditional business corporation and the reinstatement of a non-professional’s
shareholder interest in that traditional business corporation. Id. at 793. The defendant,
a licensed physician, had converted his business from a professional corporation into
a traditional business corporation in order to permit the non-professional plaintiff to
become a shareholder. Id. Some years later, the defendant-physician received legal
advice that the conversion of the business from a professional corporation to a
business corporation was void because only a medical professional corporation can
be involved in the practice of medicine. Id. at 794. So the defendant-physician
declared the plaintiff’s shares void and converted the company back into a
professional corporation. Id. at 795. In affirming the plaintiff’s interlocutory
injunction, the Court held:
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It is not against the public policy of this state for a professional
corporation to convert to a business corporation; it is against the public
policy for a business corporation to perform acts which constitute the
practice of medicine. Thus, although the acts of a corporation may be
declared void as illegal and against public policy, and in some instances
such acts may be enjoined, the corporation itself does not cease to be a
corporation.
Id. at 797 (1) (citation omitted). Here, of course, Amina Medical Consultant has
always been a professional corporation. And we hold, not that the professional
corporation is void, but only that the contract for the sale of shares in the professional
corporation to a non-professional is void. So Sherrer does not support Nayani’s
argument.
We observe that the Act contemplates a procedure for a professional
corporation to follow when a shareholder is disqualified. It provides that:
[t]he shares held by a shareholder . . . who is disqualified as a
shareholder under [OCGA § 14-7-5 (a)] shall be . . . redeemed, canceled,
or transferred [to a person authorized to hold them] within 90 days after
the disqualification becomes final. In the absence of an article or bylaw
provision or an agreement providing for the redemption or transfer of
such shares or, if the shares are not redeemed or transferred pursuant to
such a provision or agreement within the required period of time, the
corporation is authorized to and shall cancel the shares on its books at
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the termination of the required period. If valuation and payment terms
are not fixed under such an existing provision or agreement and are not
agreed upon either prior to or at any time after the termination of the
required period, the fair value of the redeemed or canceled shares shall
be determined and paid in the same manner as if the . . . disqualified
shareholder, were a shareholder entitled to valuation and payment for his
shares under Code Section 14-2-1327.
OCGA § 14-7-5 (c). But Nayani has not asserted a claim for relief under this
subsection.
So keeping in mind that the parties’ agreement is void and unenforceable, we
address Nayani’s arguments.
3. Claims against Hassanali.
(a) Fraud.
Nayani argues that the trial court erred in granting summary judgment on his
fraud claim against Hassanali because he has pointed to evidence that Hassanali
intentionally made false representations, one to induce him to enter the agreement and
three in the agreement itself.
The illegality of the contract bars this claim. “(T)he test for determining
whether a demand connected with an illegal transaction is capable of enforcement at
law is whether plaintiff requires any aid from the illegal transaction to establish his
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case.” Five Star Athlete Mgmt. v. Davis, 355 Ga. App. 774, 778 (1) (845 SE2d 754)
(2020) (citation and punctuation omitted). Nayani’s entire fraud claim depends upon
the illegal contract. So Hassanali was entitled to summary judgment on the fraud
claim.
(b) Breach of fiduciary duty.
Nayani argues that even if the parties’ contract is void, Hassanali owed him a
fiduciary duty, so the trial court erred by granting summary judgment on the breach
of fiduciary duty claim. We disagree.
“A claim for beach of fiduciary duty requires proof of three elements: (1) the
existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately
caused by the breach. The party asserting the existence of a fiduciary or confidential
relationship bears the burden of establishing its existence.” AgSouth Farm Credit,
ACA v. West, 352 Ga. App. 751, 755 (1) (835 SE2d 730) (2019) (citations and
punctuation omitted).
Nayani claims as the source of the fiduciary duty the parties’ business
relationship. Specifically, he argues that Hassanali, as a majority shareholder in the
professional corporation, owed a fiduciary duty to Nayani, as a minority shareholder
in the professional corporation. This claim depends upon the establishment of a
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shareholder relationship arising from the illegal contract. Alternatively, he argues that
Hassanali owed him a fiduciary duty that arose from them acting as partners. But he
cites no authority to support his contention that the parties’ relationship premised on
the void contract became a partnership. Nayani has not shown that the trial court erred
in granting summary judgment on Nayani’s breach of fiduciary duty claim.
4. Breach of contract claim against Amina Property.
Nayani appeals the grant of summary judgment to Amina Property on his
breach of contract claim. He argues that Amina Property breached a provision of the
sale agreement that required it to amend its lease with Amina Medical Consultant to
reduce the amount of rent. He also argues that Amina Property unlawfully locked him
out of the premises.
Nayani’s claim arising from Amina Property’s failure to amend the lease with
Amina Medical Consultant “requires . . . aid from the illegal transaction to establish
his case[,]” Five Star Athlete Mgmt., 355 Ga. App. at 778 (1) (citation and
punctuation omitted), because any interest Nayani might have in the lease would stem
from his position as a shareholder in Amina Medical Consultant. So he may not
pursue this claim.
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As for the alleged breach for locking Nayani out of the premises, the lease was
between Amina Property as landlord and Amina Medical Consultant as tenant.
Nayani was not the tenant and has pointed to nothing in the record that shows that he
had the right to possess the property or that the tenant was ever locked out. So he fails
to point to evidence creating a question of fact on this issue. See Steed v. Fed. Nat.
Mtg. Corp., 301 Ga. App. 801, 804-805 (689 SE2d 843) (2009) (defendant could lock
out plaintiff from premises, as plaintiff was not a tenant).
We affirm the grant of summary judgment on this claim.
5. Claim against all three defendants for an accounting and claim for
dissolution of Amina Medical Consultant.
Nayani challenges the grant of summary judgment on his claims for an
accounting and for the dissolution of Amina Medical Consultant. His only argument
is that, because the trial court granted summary judgment on these claims “for the
same reason as the breach of fiduciary duty,” and because the grant of summary
judgment on the breach of fiduciary duty claim was erroneous, we should also reverse
the grant of summary judgment on these claims. As we affirm the grant of summary
judgment on the breach of fiduciary duty claim, Nayani’s argument presents nothing
for review.
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Judgment affirmed. Rickman, C. J., and Senior Appellate Judge Herbert E.
Phipps concur.
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