The Dan J. Sheehan Company v. Fairlawn on Jones Condominium Association, Inc. ( 2015 )

FIRST DIVISION
DOYLE, C. J.,
PHIPPS, P. J, and BOGGS, J.
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.
http://www.gaappeals.us/rules
November 17, 2015
In the Court of Appeals of Georgia
A15A1222. THE DAN J. SHEEHAN COMPANY v. FAIRLAWN DO-061
ON JONES CONDOMINIUM ASSOCIATION, INC., et al.
DOYLE, Chief Judge.
The Dan J. Sheehan Company (“Sheehan”), a renovation and construction
company, sued The Fairlawn on Jones Condominium Association, Inc. (“COA”) and
The Fairlawn on Jones Homeowners’ Association (“HOA”), seeking payment of a
judgment Sheehan had obtained against the HOA for its failure to pay for work
Sheehan had performed. Sheehan’s complaint alleged three counts: successor liability
of the COA based on corporate continuation theory (Count 1), successor liability
based on fraudulent attempt to avoid liability (Count 2), and fraudulent transfer under
the Uniform Fraudulent Transfers Act1 (“UFTA”) (Count 3). Sheehan also sought
1
OCGA § 18-2-70 et seq. Effective July 1, 2015, this Act became known as the
Uniform Voidable Transfers Act. See Ga. L. 2015, p. 996 § 4A-1/SB 65.
prejudgment interest, attorney fees, and punitive damages. All parties moved for
summary judgment, and the trial court granted summary judgment in favor of the
defendants on each count. Sheehan now appeals, contending that the trial court erred
because the undisputed facts show that (1) the newly formed COA was a mere
continuation of the HOA, (2) the COA’s formation was a fraudulent attempt to avoid
the HOA’s liability, and (3) Sheehan is entitled to summary judgment. Because the
trial court incorrectly applied the successor liability doctrine, we reverse in part and
affirm in part.
Summary judgment is proper when there is no genuine issue of
material fact and the movant is entitled to judgment as a matter of law.
A de novo standard of review applies to an appeal from a grant of
summary judgment, and we view the evidence, and all reasonable
conclusions and inferences drawn from it, in the light most favorable to
the nonmovant.2
The material facts are essentially undisputed, and the record shows that the
HOA was the original entity organized as the association for the Fairlawn on Jones
condominium, a four-building, fifteen-unit residential complex. . The HOA was
2
(Citation omitted.) Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459 (1)
(486 SE2d 684) (1997).
2
created by articles of incorporation, governed by a board of directors, and comprised
of the owners of the condominium units. The common areas of the condominium
were jointly owned by the unit owners; the HOA did not own the real property. Each
unit owner had voting rights and was required to pay dues and a proportionate share
of the common expenses of the HOA.3
To address certain needs for repair, the HOA hired Sheehan to perform the
work, which it did. After a dispute arose over payment for the work, Sheehan sued
the HOA in 2009, seeking payment.4
With the litigation pending, in June 2012, the unit owners held an annual
meeting of the HOA and voted to begin the process of amending and restating the
condominium declaration and bylaws to form a new association (the COA) and make
some minor changes to better conform with the Georgia Condominium Act,5 such as
adopting a plat and identifying parking spaces as common elements.
3
The proportion of common expenses owed by an owner was determined
according to the size of the owner’s unit.
4
The 2009 suit was a precursor to the present case, which arose in 2013.
5
OCGA § 44-3-70 et seq.
3
In September 2012, the HOA moved to continue the pending October 2012 trial
date, and the trial date was re-set to December 2012. On November 2, 2012, the
Certificate of Incorporation for the new COA was filed with the Secretary of State,
and on November 13, 2012, the HOA board members voted to amend the HOA
budget so that it would cease operations on November 27, 2012. On November 27,
2012, less than a week before trial, the unit owners voted to adopt the Amended and
Restated Declaration of Condominium Fairlawn on Jones (“Restated Declaration”).
According to an affidavit by Robert Conway, who served as president of both the
HOA and COA, the Restated Declaration “transferred responsibility for governing the
condominium . . . to the [COA].” Sheehan apparently was not made aware of the
transfer, and nothing about the COA was filed in the trial court.
On December 3, 2012, the trial began, the HOA participated, and the jury
returned a verdict in favor of Sheehan in the amount of $122,159.95 plus $47,097.11
in attorney fees. On January, 30, 2013, a judgment was entered in favor of Sheehan
and against the HOA in the amount of $169,257.06.
In October 2013, after the HOA and the COA refused to satisfy the judgment,
Sheehan filed the present case against the HOA and COA. All parties conducted
discovery and ultimately moved for summary judgment. Following a hearing, the trial
4
court denied Sheehan’s motion and granted the motion filed by the HOA and COA.
Sheehan now appeals.
1. Sheehan contends that the trial court erred by ruling that the COA was not
a mere continuation of the HOA, and was therefore not subject to successor liability
for the HOA’s judgment. We conclude that, based on the undisputed facts, the COA
was a mere continuation of the HOA.
Ordinarily, a successor entity does not assume the liabilities of its predecessor
unless “(1) there is an agreement to assume liabilities; (2) the transaction is, in fact,
a merger; (3) the transaction is a fraudulent attempt to avoid liabilities; or (4) the
[successor] is a mere continuation of the predecessor corporation.”6 The latter of these
circumstances refers to “the common law doctrine of corporate continuity[, which]
applies where . . . there is a substantial identity of ownership and a complete identity
of the objects, assets, shareholders, and directors.”7 The corporate continuity
doctrine is one of equity.8
6
Bullington v. Union Tool Corp., 254 Ga. 283, 284 (328 SE2d 726) (1985).
7
(Emphasis supplied.) Davis v. Concord Commercial Corp., 209 Ga. App. 595,
597 (1) (434 SE2d 571) (1993).
8
See In Re: Acme Security, Inc., 484 B.R. 475, 487 (III) (B) (Bankr. N.D. Ga.
2012).
5
Here, after the COA was formed, it had the same purpose, same subject
property, same board of directors, same officers, same voting members, same unit
owners, same physical location, same registered office, and same authority to assess
dues on the same people to pay for the same expenses. For practical purposes, nothing
changed except the name of the association9 – the subject property did not change, the
corporate composition did not change, the voting membership did not change, and the
dues assessment capacity did not change.
Despite this, the trial court ruled that Sheehan had failed to show that the HOA
and COA have the same assets on the ground that “there was no transfer of assets
between the entities because the [HOA] never owned any assets since all of the
common elements and limited common elements are owned by the unit owners as
tenants in common.” But the doctrine of corporate continuity merely requires an
“identity” of assets, and in the present factual context, the identity of assets is the
same. As a formal matter, the COA and the HOA do not own real property, so this
demonstrates no distinction between their “assets.” Further, their ability to raise
9
The defendants argue that the COA was formed to more fully conform to the
requirements in the Georgia Condominium Act. Nevertheless, those changes did not
alter in any material way the voting members, unit owners, property governed,
officers, board members, or assessment structure.
6
capital through their fee and assessment authority is identical – it comes from the
same people who own the same condominium units and who are obligated to pay the
same common expenses. In the face of this structure, the defendants point to no
distinction between the COA and the HOA that reveals any material difference
between the two entities’ “assets” for purposes of corporate continuity.10
Further, we note that the COA operated on the same Georgia Power billing
account held by the HOA, which remained in the HOA’s name after the creation of
the COA.11 And the COA continued to pay premiums on a hazard and liability
insurance policy held by the HOA, in the name of the HOA. Sheehan argues that
these facts demonstrate corporate continuity, but the trial court dismissed their
relevance, concluding that the utility account and insurance policy were not assets
transferred to the COA, and instead liabilities. But even assuming this
characterization is correct, it does not account for why the COA could informally and
unilaterally choose to assume some HOA liabilities but not others.
10
See generally Oliver v. Oliver, 118 Ga. 362, 369 (45 SE2d 232) (1903)
(“Equity abhors mere names, and looks to the substance.”).
11
This was apparently done so the COA could avoid the requirement to pay a
deposit or demonstrate creditworthiness when establishing a new account.
7
Based on the undisputed facts before us, we conclude that the doctrine of
corporate continuity should apply here because the HOA and the COA have identical
ownership structure, objects, assets, voting members, and directors.12 Thus, the trial
court erred by granting the defendants’ motion for summary judgment as to the
corporate continuation count and by denying Sheehan’s motion for summary
judgment as to this count.
2. Sheehan also argues that the trial court erred by granting summary judgment
against it as to Count 2 based on an alleged fraudulent attempt to avoid liability,13 and
Count 3 alleging a fraudulent transfer under the UFTA.
12
See Pet Care Professional Center v. Bellsouth Advertising & Publishing
Corp., 219 Ga. App. 117, 118-119 (1) (464 SE2d 249) (1995) (summary judgment
appropriate where undisputed record establishes corporate continuity); Davis v.
Concord Commercial Corp., 209 Ga. App. 595, 597 (1) (434 SE2d 571) (1993);
Johnson-Battle Lumber Co. v. The Emanuel Lumber Co., 33 Ga. App. 517 (126 S.E.
861) (1925). See also Sarl v. Kapla USA, LP, Case No. 12-0230 *25 (III) (E) (S.D.
Ga. 2013) (“An entity is but a continuance of the old entity by reason of such identity
of name, objects, assets, and stockholders.”), quoting Ney-Copeland & Assoc., Inc.
v. Tag Poly Bags, Inc., 154 Ga. App. 256, 257 (267 SE2d 862) (1980) (“Based on the
identical nature of the prior partnership and the newly formed corporation, which
constitute a single continuous business entity,” the acts of the prior partnership could
be attributed to the later formed corporation for Long Arm jurisdiction purposes); Ed
Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 268 (II) (B) (2) (d) (1st Cir.
R.I. 1997) (“[E]quity is loath to elevate the form of the transfer over its substance, and
deigns to inquire into its true nature.”).
13
See generally Bullington, 254 Ga. at 284.
8
With respect to Count 2, in light of our holding in Division 1, the trial court
erred by concluding as a matter of law that the creation of the COA did not amount
to a continuation of the HOA. As to the element of fraud, the record is mixed. For
example, the timing of the creation of the COA, essentially on the eve of trial, could
support an inference that it was done for the purpose of improperly avoiding liability,
especially since Sheehan was not notified of the existence of the COA in time to
address the issue at the initial trial, and in light of the HOA’s option to conform with
the Georgia Condominium Act without creating a new entity altogether. On the other
hand, there is evidence in the record that the HOA had intended to address the switch
sooner and that the COA formation was a good faith legal exercise. On this record,
and in light of Sheehan’s burden to prove fraudulent intent,14 summary judgment is
not appropriate in favor of either party on Count 2.
With respect to Count 3, the UFTA explicitly requires a “transfer” of an
“asset,” which is defined as certain forms of “property.”15 Because neither entity
14
See generally Mills v. Parker, 253 Ga. App. 620, 624 (1) (a) (560 SE2d 42)
(2002) (summary judgment inappropriate where factual question remains as to
fraudulent intent); In Re: Acme Security, Inc., 484 B.R. at 485-486 (III) (A)
(discussing fraud element of attempt to avoid liabilities).
15
OCGA §§ 18-2-71 (2); 18-2-73; 18-2-75.
9
owned property in this classic sense, the UFTA is not the appropriate vehicle for
Sheehan’s recovery, and the trial court correctly granted summary judgment in favor
of the defendants as to Count 3.
3. Sheehan argues that the trial court erred by denying him summary judgment.
In light of our rulings in Divisions 1 and 2, we agree as to Count 1 based on corporate
continuation doctrine. Factual issues preclude summary judgment as to Count 2
(fraudulent attempt to avoid liability), and Count 3 (UFTA) was appropriately
resolved as a matter of law in favor of the defendants.
Judgment affirmed in part and reversed in part. Phipps, P. J., and Boggs, J.,
concur.
10