Tracy Young v. Manning M. "Chip" Goldsmith, III ( 2019 )

FIRST DIVISION
BARNES, P. J.,
MCMILLIAN, P. J., AND REESE, 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
September 12, 2019
In the Court of Appeals of Georgia
A19A0855. TMX FINANCE, LLC et al. v. GOLDSMITH et al.
A19A0864. YOUNG et al. v. GOLDSMITH et al.
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 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 SE2d 624) (2012); City of
Albany v. GA HY Imports, 348 Ga. App. 885, 887 (825 SE2d 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 SE2d
796) (2014). See OCGA § 9-11-12 (b) (6). The same standard applies to a motion for
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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 SE2d 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 SE2d 663) (2014). See
Early v. MiMedx Group, 330 Ga. App. 652, 654 (768 SE2d 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
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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
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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 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.
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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
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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 crisis at ICOT that he could use as leverage over Jue and
Goldsmith and as a means of delaying a sale to the third-party buyer.
Although the UCB Line of Credit had already been negotiated and approved
for the purpose of paying ICOT’s ongoing business operations and Young and Jue
had agreed to personally guarantee the loan, Young allegedly refused to sign the
guarantee necessary for releasing the funds unless Jue and Goldsmith would agree to
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provide him with warrants entitling him to purchase additional membership units
from them at a set price. Without the UCB Line of Credit, the amended complaint
alleged, Young knew that ICOT would be “unable to make its scheduled employee
payroll, unable to meet payment deadlines with vital component suppliers for ICOT’s
products, and unable to pay its marketing vendors which would result in all ICOT
advertisements and marketing being pulled.”
According to the amended complaint, the funding crisis caused by Young’s
refusal to sign the guarantee necessary to open the UCB Line of Credit ultimately
caused the third-party buyer to cease its negotiations for purchasing ICOT. At a
dinner with Jue, Goldsmith, and the buyer’s representative, Young allegedly
“represented the company’s financial health in a poor and false light to the buyer’s
representative,” stated that he wanted Jue terminated as manager of ICOT Hearing as
a condition for providing needed funding for ICOT, maintained that he did not “want”
ICOT if he could not control it, and threatened to dilute the membership interests of
Jue and Goldsmith. Allegedly based on Young’s statements and behavior at the
dinner, the third-party buyer backed out of the negotiations. And because Young
would not sign off on any further funding for ICOT when Jue and Goldsmith refused
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to provide the requested warrants, ICOT remained in a state of financial crisis
induced by Young.
Inspection of ICOT’s Books and Records by the TMX Defendants. The
amended complaint further alleged that as part of his takeover scheme, Young began
questioning ICOT’s books and financial records, even though a third-party accountant
had found that ICOT’s finances were within “expected and acceptable parameters”
and ICOT had undergone three outside audits by three separate groups. Young
allegedly “brought in personnel from his [TMX] web of companies to inspect ICOT’s
books and operations,” falsely claiming that “he needed to look at the company
through a ‘static pool’ analysis” to properly gauge the company’s health. According
to the amended complaint, the TMX personnel were able to enter and inspect ICOT’s
books and operations “under the false representation that they were present at
Young’s request to inspect ICOT’s books and perform a financial analysis for
purpose of the proposed sale of ICOT” to a third-party buyer. But the amended
complaint alleged that the representations of Young and the TMX personnel were
false because “the personnel brought in by Young had the real purpose of learning
ICOT’s operations so that when Young seized control of ICOT, the operations of
ICOT could be run by Young’s people who were under Young’s control through their
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employment in the TMX web of companies.” The TMX personnel also allegedly
represented ICOT’s financial numbers in a false light to support Young’s own
representations about ICOT’s books and finances.
Young Takes Control of ICOT Holdings’ Board of Managers. Under the terms
of ICOT Holding’s Operating Agreement, the company’s board of managers was
composed of three individuals, and Young and Jue were two of the appointed
managers. Pursuant to the Operating Agreement, the third manager was to be
proposed by Jue and approved by TY Investments. According to the amended
complaint, after creating the funding crisis at ICOT, Young took steps to take control
of ICOT Holdings’ board of managers through the wrongful appointment of the third
manager. In particular, the amended complaint alleged that after a vacancy opened on
the board of managers, Young extended an offer to his friend, Robert Pirkle, to serve
as the third manager, and Pirkle accepted. Jue initially agreed to the appointment of
Pirkle based on an alleged misrepresentation by Young, communicated through his
agent and attorney, “that Pirkle’s appointment was a requirement imposed by UCB”
before it would allow the UCB Line of Credit to be drawn upon by ICOT Holdings.
Despite the representation that the appointment of Pirkle to the board was necessary
so that ICOT Holdings could begin drawing on the UCB Line of Credit, Young
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refused to authorize the draw after Jue gave his approval to Pirkle’s appointment. Jue
later sought to rescind his approval of Pirkle’s appointment, but by that point Pirkle
had already accepted the offer to serve as the third board member.
Termination of Jue. On February 24, 2017, a meeting of ICOT Holdings’ board
of managers was held in which Pirkle attended and cast votes as one of the three
managers on the board over the objections of Jue and Goldsmith. At the meeting,
Young and Pirkle voted in favor of terminating Jue as manager of ICOT Hearing over
the objection of Jue. The vote passed as a result of Pirkle’s participation. After Jue
was terminated as manager of ICOT Hearing, he resigned from his position on the
board of managers of ICOT Holdings in March 2017.
Dilution of Jue and Goldsmith. During the February 24, 2017 board meeting,
Young and Pirkle, over Jue’s objection, also voted in favor of issuing a capital call
in the amount of $6,000,000 to the members of ICOT Holdings. The capital call
would result in increased membership interest percentages for those members who
contributed their pro rata contributions to the capital call, and a corresponding
dilution of the interests of those members who were unable to contribute. According
to the amended complaint, at the time of the proposed capital call, the UCB Line of
Credit was available to provide funding to ICOT without need of the capital call.
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However, rather than permit ICOT Holdings to draw upon the UCB Line of Credit,
Young allegedly sought the capital call for the specific purpose of diluting the
membership interests of Jue and Goldsmith, whom he knew could not contribute to
the capital call, and of increasing his own membership interest, after Jue and
Goldsmith had refused to provide him with the warrants he requested. Young also
allegedly contacted several minority members of ICOT Holdings and encouraged
them to make their pro rata contributions to the capital call so as to “build an alliance”
against Jue and Goldsmith.
The capital call was issued to the members of ICOT Holdings and required that
their pro rate contributions be made in March 2017. According to the amended
complaint, “Young singled out Goldsmith and Jue with respect to the capital call and
for the purpose of ensuring that neither would meet the capital call,” and to that end,
“[w]hen a second notice of the capital call was sent out to the members of ICOT
Holdings, it was not sent to Goldsmith and Jue.” After the capital call was issued,
some of the members of ICOT Holdings were able to contribute their pro rata shares
and thus not suffer dilution. However, as allegedly foreseen by Young, neither Jue
nor Goldsmith was able to make his pro rata contribution in response to the call,
leading to the dilution of both their membership interests in ICOT Holdings. Because
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of the capital call and resulting dilution, as of March 2017, Jue and Goldsmith had
their membership interests reduced to “little or nothing,” and Young obtained a
majority, controlling interest in ICOT Holdings. After Young obtained control from
Jue and Goldsmith, he allegedly brought in the same TMX personnel who had
previously inspected ICOT Holdings’ books and operations to run ICOT for him.
Young’s Proposed Sale of ICOT. The amended complaint alleged that after Jue
and Goldsmith had their membership interests diluted and Young had taken control
of ICOT Holdings from them, Young contacted the same third-party buyer on March
15, 2017 and proposed the sale of ICOT at the “significant discount[ed]” price of
$40,000,000. According to the amended complaint, in light of the dilution that
occurred and the discounted sale price, Jue and Goldsmith would receive no money
from the sale to the third-party buyer, in contrast to Young, who would profit from
the sale.
The Direct Action. In March 2017, Jue and Goldsmith filed this direct action
against the Young Defendants and the TMX Defendants.1 In their complaint, as
1
In February 2017, ICOT Holdings, at the direction of Jue and Goldsmith, filed
a derivative action against the Young Defendants. The derivative action was later
dismissed without prejudice. The Young Defendants sought to reinstate the derivative
action, but the trial court denied their motion, and this Court affirmed the trial court
in an unpublished opinion. See ICOT Holdings, LLC v. Young, __ Ga. App. __ (Case
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subsequently amended, the plaintiffs alleged that they had suffered injuries separate
and distinct from other ICOT members and asserted claims for breach of ICOT
Holdings’ Operating Agreement, breach of fiduciary duties, breach of the Goldsmith
Agreement, and fraud. The plaintiffs also sought to recover under the theories of civil
conspiracy and aiding and abetting liability, to pierce the corporate veils of the TMX
Defendants, and to obtain compensatory damages, attorney fees and expenses, and
punitive damages. Attached to the amended complaint as exhibits were, among other
documents, ICOT Holdings’ Restructuring Agreement, the Goldsmith Agreement,
and the Operating Agreement.
The defendants answered, denying liability, and the Young Defendants
attached multiple documents as exhibits to their answer, including the capital call
documents. In later moving to dismiss the plaintiffs’ amended complaint or, in the
alternative, for judgment on the pleadings, the Young Defendants contended that the
plaintiffs had failed to plead special injuries entitling them to pursue a direct rather
than a derivative action on behalf of ICOT Holdings and had failed to state any claims
upon which relief could be granted. In their motion to dismiss the amended
complaint, the TMX Defendants maintained that the plaintiffs were not entitled to
No. A18A1427, November 29, 2018) (unpublished), cert. denied (Aug. 5, 2019).
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bring a direct action and had failed to state any viable claims against them. The trial
court denied the defendants’ respective motions.
Case No. A19A0864
1. The Young Defendants contend that the trial court erred by holding that the
plaintiffs, Jue and Goldsmith, pled special injuries permitting them to pursue their
claims in a direct action rather than a derivative action on behalf of ICOT Holdings.
According to the Young Defendants, the plaintiffs failed to allege any injuries they
sustained that were different from other members of ICOT Holdings, and thus they
were required to adhere to the procedural requirements for filing a derivative action
under the Georgia Limited Liability Company Act, OCGA § 14-11-100 et seq., which
the plaintiffs failed to allege that they had done. See Pinnacle Benning v. Clark Realty
Capital, 314 Ga. App. 609, 615 (2) (a) (724 SE2d 894) (2012) (discussing the
conditions that must be met for filing a corporate derivative action). We disagree.
A derivative suit is brought on behalf of a corporation for harm
done to it, and any damages recovered are paid to the corporation. And
although plaintiffs may bring direct actions for injuries done to them in
their individual capacities by corporate fiduciaries, our Supreme Court
has held that to have standing to sue individually, rather than
derivatively on behalf of the corporation, the plaintiff must allege more
than an injury resulting from a wrong to the corporation. In fact, to set
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out an individual action, the plaintiff must allege either an injury which
is separate and distinct from that suffered by other members, or a wrong
involving a contractual right of a member which exists independently of
any right of the corporation. Thus, for a plaintiff to have standing to
bring an individual action, he must be injured directly or independently
of the corporation. Furthermore, the determination of whether a claim
is derivative or direct is made by looking to what the pleader alleged,
and it is the nature of the wrong alleged and not the pleader’s
designation or stated intention that controls the court’s decision.
(Punctuation and footnotes omitted.) Crittenton v. Southland Owners Assn., 312 Ga.
App. 521, 524 (2) (718 SE2d 839) (2011). See Grace Bros. v. Farley Indus., 264 Ga.
817, 819 (2) (450 SE2d 814) (1994); Phoenix Airline Svcs. v. Metro Airlines, 260 Ga.
584, 586 (1) (397 SE2d 699) (1990).
Among other things, the plaintiffs alleged in their amended complaint that they
held a controlling interest in ICOT Holdings, but that Young then ousted them from
control by orchestrating an unnecessary funding crisis in breach of his fiduciary
duties as a manager of ICOT Holdings and through false representations and
omissions about funding and other matters. The general rule is that the dilution of
shares and voting power does not constitute a separate and distinct injury different
from that suffered by the corporation and other shareholders, but that rule applies in
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the circumstance “where the interests of all the shareholders were diminished in
proportion to their ownership.” (Emphasis supplied.) Southwest Health & Wellness
v. Work, 282 Ga. App. 619, 626 (2) (b) (639 SE2d 570) (2006). In contrast, as another
court has explained:
Stockholders may maintain an action on an individual basis, as
distinguished from a derivative action, against directors, officers, or
others for the redress of wrongs constituting a direct fraud upon them,
as in the case where wrongdoers by fraud have seized control of the
corporation from the complaining stockholders.
(Emphasis supplied.) Gieselmann v. Stegeman, 443 S.W.2d 127, 131 (Mo. 1969). See
19 Am. Jur. 2d Corporations § 1943 (database updated May 2019) (“A stockholder
may maintain an individual, as distinguished from a derivative, action against
directors, officers, or others for wrongs constituting a direct fraud on him or her, such
as losing control of the corporation as a result of fraud.”) (footnotes omitted). That
is the situation alleged here. Accordingly, because of the plaintiffs’ loss of control
resulting from the alleged breach of fiduciary duties and fraud specifically targeted
at them by Young, the alleged harm to the plaintiffs was different from that
experienced by ICOT Holdings and its minority members, and the plaintiffs thus
sufficiently pled a special injury. See Argentum Intl. v. Woods, 280 Ga. App. 440, 447
17
(2) (e) (634 SE2d 195) (2006) (special injury shown because plaintiff-shareholders’
“claims for fraud and conspiracy [were] personal to them”).2
Additionally, the amended complaint alleged that the Young Defendants
breached the Goldsmith Agreement, and Goldsmith was entitled to bring a direct
action for the alleged breach of a contractual right owed specifically to him. See
Bobick v. Community & Southern Bank, 321 Ga. App. 855, 869 (4) (b) (743 SE2d
518) (2013) (claim of breach of fiduciary duty predicated on allegation that company
breached agreement to renew loan “clearly was not a shareholder derivative claim”);
Crittenton, 312 Ga. App. at 524 (2) (plaintiff can bring direct claim for breach of
2
See also Horwitz v. Balaban, 112 F. Supp. 99, 101-102 (S. D. N. Y. 1949) (“A
stockholder has a personal right of action to attack and avoid a fraudulent increase of
stock made and issued to another which results in depriving him of his relative
position as a stockholder. A suit to protect this personal, primary right is not
derivative because it is not maintained in the right of the corporation or brought on
its behalf.”); Gatz v. Ponsoldt, 925 A2d 1265, 1281 (III) (B) (2) (Del. 2007) (noting
allowance of direct actions in cases where “the fiduciary exercises its control over the
corporate machinery to cause an expropriation of economic value and voting power
from [certain] shareholders”); Kollman v. Cell Tech Intl., 279 P3d 324, 336 (Or.
2012) (direct action authorized where “the series of events culminating in the breach
of fiduciary duty were not intended to – and did not – equally harm all shareholders.
Rather, that breach advanced [the defendant’s] goal of eliminating [the plaintiff’s]
participation in every aspect of corporate management and affairs.”); 12B Fletcher
Cyc. Corp. § 5915 (database updated Sept. 2018) (noting that direct action can be
pursued based on “acts depriving one of the advantage of majority control” or “where
an unlawful increase of stock ousts the complaining shareholders from their position
as controlling shareholders”).
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contractual right owed to plaintiff rather than to corporation). Furthermore, Jue was
authorized to proceed with a direct action for his alleged wrongful termination from
his position as manager of ICOT Hearing. See Robinson v. Langenbach, __ SW3d __
(2019 WL 1768989, at *4) (Mo. Ct. App., decided Apr. 23, 2019) (concluding that
“because [the plaintiff] was uniquely harmed by her termination, her individual suit
could proceed”).
For these reasons, the “allegations in the amended complaint, construed in the
light most favorable to [the plaintiffs], and with all doubts resolved in [their] favor,
do not disclose with certainty that [the plaintiffs] would not be entitled to relief under
the ‘special injury’ exception.” Practice Benefits v. Entera Holdings, 340 Ga. App.
378, 381 (2) (797 SE2d 250) (2017).3 Accordingly, the trial court committed no error
3
The Young Defendants also contend that the plaintiffs made an admission in
judicio in the trial court that ICOT Holdings and all of its members were harmed by
the Young Defendants’ alleged misconduct, and, therefore, have admitted that they
did not sustain a special injury. However, “alleged admissions in judicio may be read
in context to determine [their] meaning.” (Citation omitted.) Meinhardt v.
Christianson, 314 Ga. App. 705, 709 (2) (b) (725 SE2d 828) (2012), citing Morgan
v. Howard, 285 Ga. 512, 513 (3) (678 SE2d 882) (2009). The plaintiffs’ purported
admission was made in the context of their response to a motion filed by ICOT
Holding to disqualify plaintiffs’ counsel in this case because the same counsel had
represented ICOT Holdings in the prior derivative action that was voluntarily
dismissed. See supra footnote 1. When read in context, the plaintiffs response to that
motion clearly aimed to show that the interests of ICOT Holdings in the prior
derivative action and of the plaintiffs in the present direct action were not materially
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in concluding that the plaintiffs could pursue their causes of action against the Young
Defendants in a direct rather than derivative action.
2. The Young Defendants next argue that the trial court erred by holding that
the plaintiffs stated a claim for breach of ICOT Holdings’ Operating Agreement
and/or breach of fiduciary duty. Again, we disagree.
“Under OCGA § 14-11-305 (1), the managing members of a limited liability
company owe fiduciary duties to the company and its member investors.” Practice
Benefits, 340 Ga. App. at 380 (2). But “any fiduciary duties that a member of an LLC
has may be modified or eliminated (with a few exceptions) by the operating
agreement” pursuant to OCGA § 14-11-305 (4). Ledford v. Smith, 274 Ga. App. 714,
724 (2) (a) (618 SE2d 627) (2005). Here, Section 4.3 of ICOT Holdings’ Operating
Agreement set out the following duties of managers:
(d) Duties. Each Manager shall conduct the business and affairs of the
Company: (i) in good faith; (ii) in accordance with this Agreement; and
(iii) in a manner that does not (x) constitute gross negligence or any
intentional misconduct, (y) involve unlawful acts or omissions that the
Manager knows or has reasonable cause to know are clearly unlawful,
adverse and that the disqualification of plaintiffs’ counsel thus was not warranted.
Nowhere in their response to the motion did the plaintiffs state that they suffered no
special injuries compared to ICOT Holdings and its other members.
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or (z) result in any improper personal benefit to the Manager (which,
consequently, excludes any benefit derived by the Manager from any
activity or investment permitted under this Agreement or otherwise
approved by a Majority in Interest). . . .
According to the Young Defendants, the plaintiffs’ amended complaint
essentially alleged that Young, while serving as a manager of ICOT Holdings,
violated his fiduciary duties as set out in Section 4.3 of the Operating Agreement by
declining to provide additional funding for ICOT Holdings beyond the amounts he
loaned and guaranteed under the Restructuring Agreement. The Young Defendants
maintain that Young’s failure to provide such increased funding did not violate any
duties imposed upon ICOT Holdings’ managers by the Operating Agreement and thus
could not support a claim for breach of that agreement and/or for breach of fiduciary
duty. The Young Defendants also argue that Young did not breach any fiduciary
duties by voting for a capital call that led to the dilution of the plaintiffs’ membership
interests because the Operating Agreement allowed the board of managers of ICOT
Holdings to approve calls for additional capital contributions.
We are unpersuaded. Contrary to the Young Defendants’ contention, the
plaintiffs’ amended complaint did not simply allege that Young violated his fiduciary
duties under Section 4.3 of the Operating Agreement by failing to provide additional
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funding to ICOT Holdings beyond the loan and guarantees set out in the
Restructuring Agreement and by voting for a capital call that led to dilution. Rather,
as previously noted, the amended complaint alleged that to carry out his scheme to
oust the plaintiffs from their position of control over ICOT Holdings, Young refused
to sign the necessary documents for opening the UCB Line of Credit, which had
already been negotiated and approved for the purpose of paying the company’s
ongoing business operations and which Jue and Young had already agreed to
personally guarantee, solely because he wanted to create a funding crisis for ICOT
Holdings that would provide him with leverage over the plaintiffs. The amended
complaint further alleged that solely for the purpose of implementing his takeover
scheme, Young derailed additional funding from two other “reputable capital
providers” that was needed to meet ICOT Holdings ongoing cash needs, and he made
false representations about ICOT Holdings’ financial condition to the prospective
third-party buyer so as to delay any sale and further increase his leverage over the
plaintiffs. Additionally, the amended complaint alleged that Young, through his agent
and attorney, made false representations to Jue about UCB requiring that Pirkle be
appointed to ICOT Holdings’ board of managers so that Pirkle would be appointed
to the board and Jue would be terminated, and then orchestrated a capital call for the
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sole purpose of ousting the plaintiffs from control even though the UCB Line of
Credit had been approved and was available to provide funding to ICOT without need
for such a call. Based on these allegations, the amended complaint asserted, among
other things, that Young had acted in bad faith, had engaged in intentional wrongful
conduct, and had acted for the purpose of obtaining an improper personal benefit.
Viewed in the light most favorable to the plaintiffs and with all doubts
construed in their favor, the amended complaint does not disclose with certainty that
the plaintiffs would not be entitled to relief under any state of provable facts. See,
e.g., McCabe v. Rainey, 343 Ga. App. 480, 488 (2) (c) (806 SE2d 867) (2017) (trial
court erred in granting summary judgment to defendant manager, where there was
evidence that he “intentionally mismanaged the business” in violation of settlement
agreement and/or in breach of his fiduciary duties); ULQ, LLC v. Meder, 293 Ga.
App. 176, 178-180 (1) (666 SE2d 713) (2008) (summary judgment properly denied
where there was evidence that manager acted unreasonably and in bad faith in
violation of operating agreement by terminating officer “for the purpose of indirect
personal pecuniary gain”). Consequently, the trial court committed no error in
denying the Young Defendants’ motion to dismiss the plaintiffs’ claim for breach of
the Operating Agreement / breach of fiduciary duty.
23
3. The Young Defendants further contend that the trial court erred by holding
that the plaintiffs’ amended complaint stated a claim for breach of the Goldsmith
Agreement. We agree.
The plaintiffs’ amended complaint did not allege that Young, through TY
Investments, violated the Goldsmith Agreement by failing to pay for Goldsmith’s
membership units that he promised to purchase or failing to pay for the option to
purchase additional units from Goldsmith. Rather, the amended complaint alleged
that Goldsmith agreed to give TY Investments an exclusive one-year option to
purchase additional membership units from him “in exchange for Young comporting
with the terms of the Operating Agreement.” The amended complaint further alleged
that as a result, when Young violated his fiduciary duties as manager of ICOT
Holdings that were set out in Section 4.3 of the Operating Agreement (as discussed
supra in Division 2), he failed to carry out what he had promised to do in return for
the grant of the one-year exclusive option.
However, the Goldsmith Agreement, which was attached to the amended
complaint, provided the following with respect to the grant of the option:
A. Grant of Option. For and in consideration of the Young Line of
Credit as set forth in the Restructuring Agreement, together with one
24
hundred and 00/100 dollars ($100.00), the receipt and sufficiency of
which are hereby acknowledged (the “Consideration”), upon and subject
to the terms and conditions set forth below, Seller hereby grants to
Buyer the option to purchase 291,928 Units of the Company . . . .
(Emphasis supplied.) As made clear by this specific contractual provision,
Goldsmith’s grant of the option to Young was in exchange for the receipt of $100 and
Young’s agreement to the “Young Line of Credit as set forth in the Restructuring
Agreement,” not in exchange for Young’s promise to comply with all of his duties as
a manager as set forth in Section 4.3 of the Operating Agreement.While the amended
complaint alleged otherwise, “[t]o the extent that there is any discrepancy between
the allegations in the complaint and the exhibits attached to it, the exhibits control.”
Racette v. Bank of America, N. A., 318 Ga. App. 171, 172 (733 SE2d 457) (2012).
It is true that an introductory paragraph of the Goldsmith Agreement provided:
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, including, but not limited to those transactions set forth
in that certain Restructuring Agreement . . . , the parties hereto agree as
follows . . . .
25
The Goldsmith Agreement then went on to include more specific provisions,
including provisions about Goldsmith’s agreement to sell some of his membership
units to Young at a set price, about his agreement to grant an option to Young to
purchase additional units at a certain price, and about the various representations and
warranties being made by the parties.
Even if the introductory paragraph could be construed as including the parties’
compliance with the Operating Agreement as part of the consideration for the
Goldsmith Agreement, “under general rules of contract construction, a limited or
specific provision will prevail over one that is more broadly inclusive.” (Punctuation
and footnote omitted.) Swisshelm v. Dept. of Human Resources, 253 Ga. App. 816,
817 (560 SE2d 722) (2002). Hence, the specific provision of the Goldsmith
Agreement addressing the particular consideration for Goldsmith’s grant of the
exclusive, one-year option prevails over the introductory paragraph.
For these reasons, the trial court erred in failing to grant the Young Defendants’
motion to dismiss the plaintiffs’ claim for breach of the Goldsmith Option Agreement
for failure to state a claim upon which relief could be granted.
4. The Young Defendants maintain that the trial court erred by holding that the
plaintiffs stated a claim for fraud. We do not agree.
26
“The tort of fraud has five elements: a false representation by a defendant,
scienter, intention to induce the plaintiff to act or refrain from acting, justifiable
reliance by plaintiff, and damage to plaintiff.” (Citation and punctuation omitted.)
Insight Technology v. FreightCheck, 280 Ga. App. 19, 28 (5) (633 SE2d 373) (2006).
“Although fraud must be pled with particularity under OCGA § 9-11-9 (b), a
complaint alleging fraud should not be dismissed for failure to state a claim unless
it appears beyond a doubt that the pleader can prove no set of facts in support of his
claim which would entitle him to relief.” (Citation and punctuation omitted). Roberts
v. Nessim, 297 Ga. App 278, 284-285 (2) (676 SE2d 734) (2009).
Here, the amended complaint alleged that as part of his scheme to oust the
plaintiffs from their position of control over ICOT Holdings, Young “made several
misrepresentations of material fact.” More specifically, the amended complaint
alleged that Young, individually and through TY Investments, failed to disclose his
scheme to “to use the funding of ICOT as a means to extract more equity in ICOT
Holdings from [the plaintiffs],” and instead assured the plaintiffs that ICOT Holdings’
funding “was secure,” even though he knew that his representation was false and
made the representation only to induce the plaintiffs to forego any effort to obtain
alternative sources of financing so that he could orchestrate a funding crisis. The
27
amended complaint further alleged that the plaintiffs relied on Young’s assurances
about the availability of funding and that if they had “known Young was making false
representations and would ultimately seek to use his financial leverage to remove
them from ICOT, [they] could have lined up other sources of financing. However,
given the timing of Young’s actions, [the plaintiffs] were left with no options.”
Additionally, the amended complaint alleged that Young, individually and
through TY Investments, “falsely represented that discrepancies in ICOT’s books
required analysis by persons from [the TMX Defendants],” and falsely claimed that
he needed to have ICOT evaluated through a “static pool” analysis to properly
evaluate its financial health. The amended complaint further alleged that Young’s
representations about the financial condition of ICOT and the need for an inspection
of the company’s books and records were pretextual because his “real purpose” was
to have the TMX personnel learn ICOT’s operations so that Young and TY
Investments “could immediately take operational control of ICOT from [p]laintiffs
and replace . . . Jue once he was terminated by the vote of Young and Pirkle,” and so
that Young could have the same TMX personnel immediately begin running the
company once the takeover occurred. According to the amended complaint, the TMX
personnel were able to enter ICOT and inspect its records based on “the false
28
representation that they were present at Young’s request to inspect ICOT’s books and
perform a financial analysis for [the] purpose of the proposed sale of ICOT” to a
third-party buyer.
Furthermore, the amended complaint alleged that Young’s agent and attorney,
acting at his behest, conveyed to Jue the false representation that Pirkle’s appointment
to the board of managers of ICOT Holdings “was a condition imposed by [UCB]
before ICOT could draw on the line of credit for funds it needed to continue its
operations.” According to the amended complaint, in reliance upon the
representation, “Jue initially consented to Pirkle’s appointment under the belief that
it was necessary for ICOT to draw upon the line of credit needed for operating
expenses,” which resulted in Pirkle’s appointment to the board and the termination
of Jue from his position as manager of ICOT Hearing.
The amended complaint alleged that when Young made these representations,
“he knew they were false,” that the plaintiffs justifiably relied on the false
representations and omissions made by the Young and TY Investments, and that the
plaintiffs suffered “substantial economic harm” as a result of the misrepresentations
and omissions.
29
Given these allegations, we cannot say that it appears beyond a doubt that the
plaintiffs can prove no set of facts in support of their claim for fraud that would
entitled them to relief. See Siavage v. Gandy, __ Ga. App. at __ (2) (829 SE2d 787)
(2019); Hedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 284 Ga. App. 387,
394 (2) (b) (643 SE2d 864) (2007). To the extent that the Young Defendants maintain
that the amended complaint failed to allege each of the elements of fraud with
sufficient particularity under OCGA § 9-11-9 (b), “the proper remedy for seeking
more particularity is by motion for a more definite statement at the pleading stage or
by the rules of discovery thereafter,” not by filing a motion to dismiss. (Citation and
punctuation omitted.) Odom v. Hughes, 293 Ga. 447, 455 (3), n. 6 (748 SE2d 839)
(2013). See Pampattiwar v. Hinson, 326 Ga. App. 163, 170 (1), n. 3 (756 SE2d 246)
(2014).
The Young Defendants, however, contend that each of the plaintiffs’
allegations of fraud had fatal flaws. First, according to the Young Defendants, the
plaintiffs’ allegation that Young failed to disclose his scheme “to use the funding of
ICOT as a means to extract more equity in ICOT Holdings from [the plaintiffs]” was
“proven incorrect by the agreements attached to the Amended Complaint and [thus
could not] serve as the basis for any fraud claim.” Specifically, the Young Defendants
30
contend that the failure-to-disclose claim was contradicted by the plain terms of the
Restructuring Agreement, which provided “on its face” that TY Investments was
acquiring options to purchase additional equity in ICOT Holdings. The Young
Defendants also argue that Operating Agreement made clear that the board of
managers of ICOT Holdings could call for additional capital contributions with the
result that members’ shares could be diluted. However, it is plain from the amended
complaint that the plaintiffs were alleging that what Young failed to disclose was his
scheme to obtain a controlling interest in ICOT Holdings by causing an unnecessary
“existential funding crisis” at an opportune moment that could be used as leverage to
divest Goldsmith and Jue of control. Such a scheme clearly was not disclosed by the
terms of the Restructuring Agreement or the Operating Agreement, and thus the
Young Defendants’ arguments based on those agreements is misplaced.
The Young Defendants also contend that the plaintiffs’ allegations that Young
made false representations about additional funding were barred by the merger clause
contained in the Restructuring Agreement, which provided:
This Agreement, the Loan Documents, the Option Agreement and the
Membership Sale Documents constitute the entire agreement between
the parties hereto and supercedes all prior agreements, if any,
31
understandings and arrangements, oral or written, between the parties
hereto with respect to the subject matter hereof.
We agree that the merger clause would bar claims based on Young’s alleged
misrepresentations about funding that were made prior to or contemporaneous with
the execution of the March 2016 Restructuring Agreement that contradicted the terms
of that contract. See First Data POS v. Willis, 273 Ga. 792, 794-795 (2) (546 SE2d
781) (2001) (“In written contracts containing a merger clause, prior or
contemporaneous representations that contradict the written contract cannot be used
to vary the terms of a valid written agreement purporting to contain the entire
agreement of the parties, nor would the violation of any such alleged oral agreement
amount to actionable fraud.”) (punctuation and footnote omitted). But the merger
clause would not apply to new misrepresentations about additional funding sources
made by Young after execution of the Restructuring Agreement, such as a
representation by Young that additional funding “was secure” when in fact he
allegedly had no intention of signing off on funding from other sources, such as the
UCB Line of Credit, without first obtaining additional equity from the plaintiffs. See
Northwest Plaza v. Northeast Enterprises, 305 Ga. App. 182, 192 (3) (b), n. 4 (699
SE2d 410) (2010) (merger clause did not bar fraud claim, where “[t]he
32
representations at issue in this case occurred after the Agreement was signed”).4
Accordingly, we cannot say that within the framework of the amended complaint, the
plaintiffs would be unable to come forward with evidence of fraudulent
representations about additional funding that fell outside the scope of the merger
clause in the Restructuring Agreement.5
Additionally, the Young Defendants argue that the plaintiffs could not have
reasonably relied on Young’s alleged misrepresentations about additional funding
having been secured, about Pirkle’s appointment to the board of managers being
required by UCB for the UCB Line of Credit, and about the need for an inspection of
ICOT Holdings’ books by the TMX Defendants. We are unpersuaded. Because
Young was a manager of ICOT Holdings and thus owed fiduciary duties to its
members, including the plaintiffs, as set out in the Operating Agreement,6 “we cannot
4
A merger clause also “does not prevent a claim of fraud arising from
representations in the contract itself.” Conway v. Romarion, 252 Ga. App. 528, 532
(2) (557 SE2d 54) (2001).
5
The Young Defendants further maintain that the plaintiffs’ allegations that
Young made false representations and omissions are barred by the economic loss rule,
but “[t]he economic loss rule is inapplicable in the presence of passive concealment
or fraud.” Holloman v. D.R. Horton, Inc., 241 Ga. App. 141, 148 (4) (524 SE2d 790)
(1999).
6
See supra Division 2.
33
say beyond a doubt that [the plaintiffs] could present no evidence showing that [they]
justifiably relied on any representations by [Young].” Stafford v. Gareleck, 330 Ga.
App. 757, 762-763 (2) (769 SE2d 169) (2015). See Northwest Plaza v. Northeast
Enterprises, 305 Ga. App. 182, 191 (3) (a) (699 SE2d 410) (2010) (“Issues of
justifiable reliance and proper due diligence are generally for the jury.”); Paul v.
Destito, 250 Ga. App. 631, 635-636 (1) (550 SE2d 739) (2001) (plaintiff shareholder
was entitled to reasonably rely on defendants’ assurances about compensation, given
that defendants were directors who had fiduciary relationship with the company and
its shareholders and were required to act in good faith).
The Young Defendants also maintain that the plaintiffs’ fraud claim predicated
on the inspection of ICOT’s books by the TMX personnel fails as a matter of law
because Young had a contractual right to conduct such an inspection, and thus the
plaintiffs could not have prevented the inspection from going forward even if they
had known of Young’s true motivations.7 It is true that the Goldsmith Agreement
7
The Young Defendants further assert that the transcript of a dinner meeting
between the parties and the potential third-party buyer, which was attached as an
exhibit to the amended complaint, reflects that the plaintiffs did not actually rely on
any misrepresentations by Young about the need for an inspection of ICOT’s books
by the TMX personnel. However, the transcribed conversation occurred after the
inspection was already underway and reflects that the plaintiffs disagreed with
Young’s statements about discrepancies in the financial figures allegedly revealed
34
gave Young the right to conduct a “due diligence investigation” of ICOT prior to the
exercise of the option to purchase additional membership units from Goldsmith.
However, the amended complaint alleges that the inspection of ICOT’s records was
not done for the purpose of due diligence, but rather for the purpose of allowing the
TMX personnel to learn the company’s internal operations to facilitate a smooth
takeover once Young ousted the plaintiffs from control by orchestrating the
unnecessary funding crisis. Hence, the contractual provision allowing for a due
diligence inspection did not preclude the plaintiffs from pursuing a fraud claim based
on the inspection that allegedly occurred here.
Based on the aforementioned allegations of false representations and omissions
contained in the plaintiffs’ amended complaint, the trial court committed no error in
denying the Young Defendants’ motion to dismiss the fraud count.
Case No. A19A0855
5. The TMX Defendants contend that the trial court erred in denying their
motion to dismiss the amended complaint because the plaintiffs failed to sufficiently
through the inspection. As the plaintiffs argued in the trial court, the cited portion of
the transcribed conversation does not contradict their assertion that if they had
“known the real reason behind the audit was to learn the operations to facilitate a
quick and seamless takeover” using TMX personnel, they “would never have allowed
the audit to go forward.”
35
plead that the TMX Defendants could be held vicariously liable for the actions of
their personnel whom Young brought to Georgia to inspect ICOT’s books and
operations.8 According to the TMX Defendants, the amended complaint fails to
sufficiently allege that their personnel were acting within the scope of and in
furtherance of the TMX Defendants’ businesses and instead reflects that they were
acting at the personal behest of Young. We are unpersuaded.
“When an employee causes an injury to another, the test to determine if the
employer is liable is whether the employee was acting within the scope of the
employee’s employment and on the business of the employer at the time of the
injury.” (Punctuation and footnote omitted.) Thompson v. Club Group, 251 Ga. App.
356, 358 (2) (553 SE2d 842) (2001). See Chorey, Taylor & Feil v. Clark, 273 Ga.
143, 144 (539 SE2d 139) (2000). “The employer is not liable for the employee’s tort
if the tort was committed, not by reason of the employment, but because of matters
disconnected therewith.” (Citation and punctuation omitted.) Id. However, “an
employer may be held responsible for the tortious act of an employee where the act
8
The TMX Defendants also contend that the trial court should have granted
their motion to dismiss the amended complaint because the plaintiffs were not entitled
to bring their claims in a direct action. This contention fails for the reasons discussed
supra in Division 1.
36
was authorized by the employer prior to its commission.” (Citation and punctuation
omitted.) Modern Woodmen of America v. Crumpton, 226 Ga. App. 567, 568 (487
SE2d 47) (1997). See OCGA § 51-2-2 (“Every person shall be liable for torts
committed by . . . his servant by his command or in the prosecution and within the
scope of his business, whether the same are committed by negligence or
voluntarily.”); Chorey, Taylor & Feil, 273 Ga. at 144 (employer may be held liable
“if the employee was authorized to accomplish the purpose in pursuance of which the
tort was committed”).
Here, the amended complaint alleged that “Young is the sole member of TMX
and controls the operations and activities of both TMX and its subsidiaries, including
TitleMax Texas and TitleMax Georgia”; that “[t]hrough his control of TMX,
TitleMax Texas and TitleMax Georgia, Young flew individuals employed by
TitleMax Texas and working out of Dallas, Texas to Savannah,” including the “Chief
Accounting Officer of the ‘TMX Finance Family of Companies,’” to inspect ICOT’s
books and learn its operations; and that “Young’s people . . . were under Young’s
control through their employment in the TMX web of companies, namely TitleMax
Texas.” And the amended complaint clearly sought to hold the TMX Defendants
liable for the alleged tortious conduct of their personnel sent to Savannah.
37
In light of these allegations, the TMX Defendants have failed to demonstrate
that the plaintiffs could not possibly introduce evidence within the framework of the
amended complaint sufficient to hold the TMX Defendants vicariously liable for the
allegedly tortious actions of their employees associated with the inspection of ICOT’s
books and records. See Sumter Milling & Peanut Co. v. Singletary, 79 Ga. App. 111,
114-115 (1) (53 SE2d 181) (1949) (corporation could be held vicariously liable for
negligent driving of truck by its employee, even though truck was transporting Boy
Scout group at the time of the accident, where managing officer of corporation
specifically “instructed and commanded” the employee to transport the group in the
truck, and the managing officer essentially functioned as the corporation’s “alter
ego,” had been granted authority to “control and command the servants and
employees of said corporation,” and had unrestricted authority over use of the truck).
See also Alta Anesthesia Assoc. of Ga. v. Gibbons, 245 Ga. App. 79, 86 (3) (537 SE2d
388) (2000) (“[E]very . . . business entity is responsible for torts committed by its
servants by its command or in the prosecution and within the scope of its business.”)
(emphasis supplied). The trial court therefore committed no error in concluding that
the amended complaint sufficiently pled allegations of vicarious liability.
38
6. The TMX Defendants further contend that the trial court erred in concluding
that the amended complaint stated a claim for piercing the corporate veil. According
to the TMX Defendants, the plaintiffs seek to hold the TMX Defendants liable for the
misconduct of Young under an outsider reverse veil-piercing theory of liability that
is not recognized in Georgia. We agree with the TMX Defendants that Georgia does
not recognize outsider reverse veil-piercing, but we conclude that the amended
complaint nevertheless stated a claim for piercing the corporate veils of the TMX
Defendants.
Under the alter ego doctrine, equitable principles are used to
disregard the separate and distinct legal existence possessed by a
corporation where it is established that the corporation served as a mere
alter ego or business conduit of another. The concept of piercing the
corporate veil is applied in Georgia to remedy injustices which arise
where a party has over extended his privilege in the use of a corporate
entity in order to defeat justice, perpetuate fraud or to evade contractual
or tort responsibility. Plaintiff must show that the defendant disregarded
the separateness of legal entities by commingling on an interchangeable
or joint basis or confusing the otherwise separate properties, records or
control.
(Citations and punctuation omitted.) Renee Unlimited v. City of Atlanta, 301 Ga. App.
254, 259-260 (2) (b) (687 SE2d 233) (2009).
39
The doctrine of piercing the corporate veil “is generally used for the purpose
of piercing the corporate veil to hold an individual stockholder liable for debts
incurred by the corporation.” Gwinnett Property, N.V. v. G+H Montage GmbH, 215
Ga. App. 889, 893 (2) (453 SE2d 52) (1994). However, when the elements of the
doctrine are satisfied, the doctrine of piercing the corporate veil also can be used to
hold a parent company liable for debts incurred by its wholly owned subsidiary, see
Kissum v. Humana, 267 Ga. 419, 419-421 (479 SE2d 751) (1997); Mark Six Realty
Assoc. v. Drake, 219 Ga. App. 57, 61-62 (2) (b) (463 SE2d 917) (1995), or to hold a
“family of corporations” liable for the debts of each other. See Derbyshire v. United
Builders Supplies, 194 Ga. App. 840, 845 (2) (a) (392 SE2d 37) (1990).
In contrast, a reverse veil-piercing claim seeks to hold a corporation liable for
the debts incurred by an individual shareholder. See Gwinnett Property, N.V., 215 Ga.
App. at 893 (2).
There are two types of reverse piercing claims–“insider” and “outsider”
claims. See Acree v. McMahan, 276 Ga. 880, 881 (585 SE2d 873)
(2003). . . . Outsider reverse veil-piercing extends the traditional
veil-piercing doctrine to permit a third-party creditor to pierce the veil
to satisfy the debts of an individual out of the corporation’s assets. . . .
[The] Supreme Court of Georgia in Acree refused to recognize outsider
reverse veil-piercing as a viable claim. Id. at 881-883[.]
40
Corrugated Replacements v. Johnson, 340 Ga. App. 364, 369 (3) (797 SE2d 238)
(2017). See Holiday Hospitality Franchising v. Noons, 324 Ga. App. 70, 70-71 (749
SE2d 380) (2013).
Here, the amended complaint alleged that “[t]he different TitleMax entities,
including TitleMax Texas and TitleMax Georgia, operate under the umbrella of
TMX, all described by TMX as the TMX ‘family of companies,’” and that Young
controls all of the activities and operations of TMX Finance and its subsidiaries,
TitleMax Texas and TitleMax Georgia. The amended complaint further alleged that
“Young is [the] sole shareholder and/or manager and/or employee and/or officer or
director of TMX [Finance], TitleMax Texas and TitleMax Georgia”; that Young has
“disregarded the corporate forms so as to authorize piercing of the corporate veils of
these entities”; and that “Young has used, directed, and controlled TMX [Finance],
TitleMax Texas and/or TitleMax Georgia for his personal aims of causing harm to
Plaintiffs through the acts specified herein.” The amended complaint alleged that
“[t]he corporate veils of TMX [Finance], TitleMax Texas and TitleMax Georgia
should be pierced because Young has overextended his privileges in the use of these
corporate entities to defeat justice, perpetuate fraud, and evade contractual and tort
responsibilities.”
41
We cannot say that the plaintiffs could not possibly introduce evidence within
the framework of the amended complaint to support a claim for piercing the corporate
veils of the TMX Defendants. The TMX Defendants are correct that to the extent the
plaintiffs seek to reach the assets of the TMX Defendants for any judgment debt
personally incurred by Young under the theory of outsider reverse veil-piercing, such
a claim is foreclosed by Georgia law. See Acree, 276 Ga. at 881-883; Holiday
Hospitality Franchising, 324 Ga. App. at 70-71; Corrugated Replacements, 340 Ga.
App. at 369 (3). However, construed in the light most favorable to the plaintiffs with
all doubts resolved in their favor, the amended complaint stated a claim for holding
TMX Finance liable for any judgment debt incurred by its subsidiaries, TitleMax
Texas and TitleMax Georgia, under a veil-piercing theory, and for holding the TMX
“family of companies” liable for any judgment debt incurred by each other under such
a theory. See Kissum, 267 Ga. at 419-421; Mark Six Realty Assoc., 219 Ga. App. at
61-62 (2) (b); Derbyshire, 194 Ga. App. at 845 (2) (a). Consequently, the trial court
did not err in finding that the plaintiffs stated a claim for piercing the corporate veil.
7. The TMX Defendants further contend that the trial court erred in concluding
that the plaintiffs stated a claim against them for fraud because the amended
complaint failed to plead fraud with particularity. For the reasons discussed supra in
42
Division 4, the TMX Defendants have failed to show that the plaintiffs could not
possibly introduce evidence within the framework of the amended complaint
sufficient to support a claim of fraud. See Siavage, __ Ga. App. at __ (2); Hedquist,
284 Ga. App. at 394 (2) (b). The proper remedy for seeking more particularity, as
previously noted, is to file a motion for a more definite statement or seek greater
details through the rules of discovery. See Odom, 293 Ga. at 455 (3), n. 6;
Pampattiwar, 326 Ga. App. at 170 (1), n. 3.
8. The TMX Defendants contend that the trial court erred in concluding that
the plaintiffs sufficiently pled a claim for civil conspiracy. We disagree.
To recover damages based on a civil conspiracy, a plaintiff must
show that two or more persons combined either to do some act which is
a tort, or else to do some lawful act by methods which constitute a tort.
The conspiracy of itself furnishes no cause of action. The gist of the
action is not the conspiracy alleged, but the tort committed against the
plaintiff and the resulting damage. The essential element of the alleged
conspiracy is proof of a common design establishing that two or more
persons in any manner, either positively or tacitly, arrive at a mutual
understanding as to how they will accomplish an unlawful design. After
the conspiracy is formed, members of the conspiracy are jointly and
severally liable for acts of co-conspirators done in furtherance of the
conspiracy.
43
(Punctuation and footnotes omitted.) McIntee v. Deramus, 313 Ga. App. 653, 656
(722 SE2d 377) (2012).
As explained supra in Divisions 2 and 4, the plaintiffs stated claims against the
Young Defendants for breach of ICOT Holdings’ Operating Agreement, breach of
fiduciary duty, and fraud arising out of Young’s alleged scheme to oust the plaintiffs
from control of ICOT Holdings by orchestrating an unnecessary funding crisis. And
the amended complaint alleged that the TMX Defendants, positively or tacitly,
arrived at a mutual understanding with the Young Defendants as to how to
accomplish those wrongful acts and acted in concert with the Young Defendants to
carry out that common design. The amended complaint also contained allegations
setting forth how the personnel of the TMX Defendants acted to assist in carrying out
the conspiracy, namely, by learning ICOT’s operations under the false pretense of
conducting an inspection of the books so as to facilitate a smooth takeover of the
company, and then by actually running the company once Young wrongfully ousted
the plaintiffs from control.
Given these allegations, we cannot say that it appears beyond a doubt that the
plaintiffs would be unable to introduce evidence within the framework of the
amended complaint sufficient to support a civil conspiracy claim. See Perry Golf
44
Course Dev. v. Housing Auth. of City of Atlanta, 294 Ga. App. 387, 398 (8) (d) (670
SE2d 171) (2008) (plaintiff stated claim for conspiracy to breach fiduciary duty based
on allegations that defendant and entities he controlled conspired to have the
defendant breach his fiduciary duty by “siphoning off” company resources for his
own benefit) (punctuation omitted); Argentum Intl., 280 Ga. App. at 444-445 (2) (a)
(discussing claim for conspiracy to defraud); Gaines v. Crompton & Knowles Corp.,
190 Ga. App. 863, 867 (5) (380 SE2d 498) (1989) (recognizing claim for conspiracy
to breach contract).
9. The TMX Defendants also contend that the plaintiffs failed to sufficiently
plead an aiding and abetting claim against them. We do not agree.
To establish a claim for aiding and abetting a breach of fiduciary duty,9 a
plaintiff must establish four elements:
(1) through improper action or wrongful conduct and without privilege,
the defendant acted to procure a breach of the primary wrongdoer’s
fiduciary duty to the plaintiff; (2) with knowledge that the primary
wrongdoer owed the plaintiff a fiduciary duty, the defendant acted
9
“[T]he tort of aiding and abetting fraud does not exist as a basis for liability
under Georgia law. Instead, one who knowingly participates in a fraud may be held
liable for the fraud.” (Punctuation and footnotes omitted.) Siavage, __ Ga. App. at __
(1). As discussed supra in Division 7, the plaintiffs stated a fraud claim against the
TMX Defendants.
45
purposely and with malice and the intent to injure; (3) the defendant’s
wrongful conduct procured a breach of the primary wrongdoer’s
fiduciary duty; and (4) the defendant’s tortious conduct proximately
caused damage to the plaintiff.
(Citation and punctuation omitted.) Cottrell v. Smith, 299 Ga. 517, 532 (II) (B) (788
SE2d 772) (2016). See City of Hawkinsville v. Wilson & Wilson, Inc., 231 Ga. 110,
111 (3) (200 SE2d 262) (1973) (noting that “one who procures or assists in the
commission of an actionable wrong is equally liable with the actual perpetrator for
the damages”); White v. Shamrock Bldg. Systems, 294 Ga. App. 340, 347-349 (5)
(669 SE2d 168) (2008) (holding that defendant corporation, which did not itself owe
a fiduciary duty to the plaintiff, could be held liable for assisting its employee in
violating a fiduciary duty that the employee owed to the plaintiff, where the
corporation knew that the employee owed the duty and acted with the requisite
intent). Even where the defendant does not “lend [ ] . . . assistance in the actual
perpetration of the wrong done by another,” he “procures” a breach of fiduciary duty
where he succeeds in causing another person to breach his fiduciary duty “through
advice, counsel, persuasion, or command.” (Citation and punctuation omitted.) White,
294 Ga. App. at 348 (5), n. 23.
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Here, the amended complaint alleged that the TMX Defendants “aided and
abetted” the Young Defendants in their wrongful takeover scheme, and based on the
allegations in the amended complaint previously discussed and the fact that the
“Georgia Civil Practice Act requires only notice pleading,”10 we cannot say that it
would be impossible for the plaintiffs to come forward with evidence within the
framework of the amended complaint that would support a claim for aiding and
abetting Young in the breach of his fiduciary duties owed to the plaintiffs. See White,
294 Ga. App. at 347-349 (5). Consequently, the trial court committed no error in
denying the TMX Defendants’ motion to dismiss the aiding and abetting claim.
10. Lastly, the TMX Defendants argue that the trial court erred in concluding
that the plaintiffs stated claims against them for breach of fiduciary duty as set out in
ICOT Holdings’ Operating Agreement and for breach of the Goldsmith Agreement.
For the reasons discussed supra in Division 3, the plaintiffs failed to state a claim for
breach of the Goldsmith Agreement, and thus the trial court erred by not dismissing
this claim against the TMX Defendants. However, the plaintiffs stated a claim against
the TMX Defendants for breach of fiduciary duty as set out in ICOT Holdings’
10
(Citation and punctuation omitted.) Racette, 318 Ga. App. at 180 (4).
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Operating Agreement based on theories of civil conspiracy and aider-and-abetter
liability, as discussed supra in Divisions 8-9.
Judgments affirmed in part and reversed in part. McMillian, P. J., and Reese,
J., concur.
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