Denim North America Holdings, LLC v. Swift Textiles, LLC

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-11863
________________________
D.C. Docket No. 4:10-cv-00045-CDL
DENIM NORTH AMERICA HOLDINGS, LLC,
Plaintiff - Appellee,
versus
SWIFT TEXTILES, LLC,
GALEY AND LORD, LLC,
PATRIARCH PARTNERS, LLC,
Defendants - Appellants.
________________________
Appeal from the United States District Court
for the Middle District of Georgia
________________________
(August 9, 2013)
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Before PRYOR, JORDAN, and KLEINFELD, ∗ Circuit Judges.
PRYOR, Circuit Judge:
This appeal requires that we determine, first, whether a denim manufacturer
waived its right to rescission of a joint venture based on fraudulent inducement
when it demanded and accepted a capital contribution from its partner after it had
already demanded rescission based on the alleged fraud, and, second, whether a
non-manager member of a member-managed limited liability company owed
fiduciary duties to its fellow member. Denim North America Holdings, LLC,
entered a joint venture with Swift Textiles, LLC, and its parent companies for the
manufacture and sale of denim. Holdings later discovered an alleged fraud
committed by the Swift defendants and demanded rescission of the joint venture.
But, a year after the discovery of the alleged fraud, Holdings made a capital
contribution to the joint venture and demanded that the Swift defendants do the
same. The Swift defendants satisfied that demand. Ten months later, Holdings
filed a complaint against Swift, its parent company, and the owner of the parent
company for breach of contract, fraudulent inducement, and breach of fiduciary
duty. The Swift defendants removed that action from a state court to the district
court. At trial, the jury returned a verdict in favor of Holdings on its claim of
rescission based on fraudulent inducement, but did not reach its alternative claim
∗
Honorable Andrew J. Kleinfeld, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
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for breach of fiduciary duty. Because Holdings waived its right to rescission and
Swift, as a matter of law, owed no fiduciary duties to Holdings through its
membership in the joint venture, we vacate the judgment in favor of Holdings and
render a judgment as a matter of law in favor of the Swift defendants.
I. BACKGROUND
Swift is the denim manufacturing division of Galey & Lord, LLC, a twill
manufacturer. Galey and all of its assets, including Swift, are owned by Patriarch
Partners, LLC, a private equity firm based in New York. Holdings operates a
denim manufacturing plant in Columbus, Georgia.
Swift and Holdings entered a joint venture in 2006. The joint venture was
governed by three agreements: a subscription agreement, a manufacturing and
supply agreement, and an operating agreement. Swift and Holdings became joint
members of the new Denim North America, LLC, and each owned a 50 percent
interest in the joint venture. Holdings agreed to manufacture and Swift agreed to
sell the denim manufactured by their venture. Under the terms of the joint venture,
Swift would close its manufacturing plant and transition the production of its
higher-priced denim to the Holdings plant. Holdings agreed to sell its existing
weaving machines, install the weaving machines used at the Swift plant, and hire
and train additional employees.
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During the negotiation of the joint venture, the Swift defendants provided
Holdings sales projections for the first five quarters following the creation of the
venture. Holdings had requested that the Swift defendants guarantee the sales
projections in writing, but the Swift defendants refused. Although the sales
projections were appended to the subscription agreement, it provided that the
projections were “based on a number of assumptions that are beyond the control of
[Swift]” and that “possible developments [] could cause actual results to differ
materially from those forecasted in such sales projections.” The subscription
agreement also provided that “[a]ny failure to attain the sales projections shall not
constitute a breach of the foregoing representation or otherwise give rise to a cause
of action by . . . Holdings.”
The operating agreement provided that the joint venture would be managed
by eight managers and that Holdings and Swift would each appoint four managers
to the joint venture. The operating agreement provided that, except when the
consent of the members of the joint venture was required, “the [m]anagers ha[d]
full and complete authority, power and discretion to manage and control the
business, affairs and properties of the [joint venture], to make all decisions
regarding those matters and to perform any and all other acts or activities
customary or incident to the management of the [] business [of the joint venture].”
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The operating agreement also provided that two-thirds of the members of the joint
venture could vote to increase the total number of managers.
The operating agreement also established a method for demanding capital
contributions to the joint venture. According to the operating agreement, if the
funds of the joint venture were “insufficient to timely meet its current or imminent
cash needs,” either Holdings or Swift could demand that both “contribute the funds
required” to fulfill the cash needs of the joint venture. Whichever member made
the demand determined the amount and timing of the capital contribution. If either
Holdings or Swift failed to meet the demand of the other for the capital
contribution, the contributing party could elect to increase its interest in the joint
venture at the expense of the non-contributing party.
The relationship between Holdings and the Swift defendants eventually
began to deteriorate. Holdings was dissatisfied with the amount of denim that
Swift was selling on behalf of the joint venture, and the principals of Holdings
became convinced that the Swift defendants had defrauded them. During the
negotiations for the joint venture, the Swift defendants had provided to Holdings a
series of sales projections that Swift represented that it had calculated in good
faith. But Holdings came to believe that the Swift defendants had provided it with
sales projections that “were deliberately false” in order to “induce [Holdings] to
agree to the [joint venture].” Holdings also believed that the Swift defendants
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were selling denim in competition with the joint venture. Holdings knew when it
entered the joint venture that Swift had an existing denim inventory and that Swift
planned to sell that inventory. But Holdings did not know how much denim Swift
had in its inventory, and Holdings came to believe that Swift had concealed
millions of yards of denim that it intended to sell in competition with the joint
venture. At trial, Holdings presented evidence that Swift had approximately $36
million worth of inventory, or ten-and-a-half million yards, when the agreements
were executed.
Holdings became aware of the alleged fraud in 2007 and 2008, and Holdings
demanded rescission of the joint venture in May 2008. Larry Galbraith, the chief
executive officer of Holdings, testified that he became aware that Holdings had a
claim against the Swift defendants in the second or third quarter of 2007. Tracy
Sayers, a manager of the parent company of Holdings, testified that he became
aware of the alleged fraud committed by the Swift defendants in the first quarter of
2008, but that Holdings first became suspicious of the actions of Swift “[s]ometime
in late 2007.” In its complaint, Holdings alleged that it made its “[d]emand for
rescission of the partnership” at a board meeting of the joint venture on May 9,
2008. At the board meeting of the joint venture on September 3, 2008, Holdings
outlined the fraud it alleged the Swift defendants had committed, including the
inflated sales projections and the stockpiled inventory.
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In 2009, about one year after Holdings demanded rescission of the
agreements, Holdings made a capital contribution of $750,000 to the joint venture
and demanded that Swift make a contribution in the same amount. Swift fulfilled
that demand and contributed $750,000 to the joint venture. Galbraith testified that
the capital contribution “was made by Swift because there’s a provision in the
operating agreement that requires Holdings or Swift to give capital to contribute
cash if one or the other parties say it needs to be contributed.”
Holdings filed a complaint against Swift, Galey, and Patriarch in a Georgia
court. Holdings asserted claims for fraud in the inducement, breach of fiduciary
duty, rescission, breach of contract, and breach of a duty owed by a member of a
Georgia limited liability corporation, O.C.G.A. § 14-11-307. The claim of breach
of fiduciary duty alleged that the Swift defendants made fraudulent
misrepresentations and committed acts of fraudulent concealment, usurped
partnership opportunities and engaged in conflict of interest transactions, and
terminated its sales staff to the detriment of the joint venture. The claim of
rescission alleged that Holdings was entitled to rescind the agreements because of
“the fraudulent and illegal conduct engaged in by [the Swift] [d]efendants.”
Holdings requested compensatory and punitive damages, litigation expenses, and
attorney’s fees.
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The Swift defendants removed the action to the district court and moved to
dismiss the complaint. The district court dismissed the claim for breach of
fiduciary duty against Patriarch and Galey, the claim for breach of contract, and the
claim for breach of membership duties under Georgia Code section 14-11-307.
The district court denied the motion to dismiss the claim for breach of fiduciary
duty against Swift and the claim for rescission based on fraud in the inducement
against all of the Swift defendants.
The Swift defendants then moved for a summary judgment, which the
district court granted in part and denied in part. The district court described the
claim for rescission based on fraudulent inducement as resting on two
misrepresentations: that the Swift defendants fraudulently represented that they
would produce a larger volume of “higher margin denim orders” than they were
capable of producing and that the Swift defendants would provide financial records
to Holdings that were never provided. The district court granted a partial summary
judgment in favor of the Swift defendants insofar as the claim rested on the
financial records, but denied a summary judgment against the claim that rested on
the increased sales. The district court granted a summary judgment against the
claim for breach of fiduciary duty insofar as the claim rested on the closure of two
foreign manufacturing plants of Swift, but denied a summary judgment against the
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remainder of that claim. Holdings and the Swift defendants proceeded to trial on
the remaining claims.
Holdings argued at trial that, when the Swift defendants were negotiating the
joint venture, they were stockpiling denim to sell in direct competition with the
joint venture. Holdings argued that Swift also solicited new customers and sold
denim to those customers in direct competition with the joint venture. The Swift
defendants argued that Holdings understood that Swift would independently sell its
existing denim inventory and that Holdings complained about the joint venture
only after a downturn in the national economy and the denim industry. The Swift
defendants also argued that Holdings waived its right to rescission when it
demanded and accepted the capital contribution from Swift in 2009.
At the close of the evidence, the Swift defendants moved for a judgment as a
matter of law. See Fed. R. Civ. P. 50(a). The Swift defendants described the claim
for breach of fiduciary duty as resting on two separate breaches: that Swift sold
denim in competition with the joint venture and that Swift terminated the sales
staff of the joint venture. And the Swift defendants argued that there was
insufficient evidence for a reasonable jury to find that Swift was liable for either
breach. The Swift defendants also argued that Holdings waived its claim for
rescission based on fraudulent inducement when it “repeatedly affirmed and
acknowledged the contracts after discovering the alleged fraud.” The district court
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dismissed the claim of breach of fiduciary duty insofar as it rested on the
termination of the sales staff. But the district court deferred judgment as to the
claim for rescission based on fraudulent inducement and the claim for breach of
fiduciary duty that rested on the sales of Swift inventory.
The district court instructed the jury about the claims for both rescission
based on fraudulent inducement and for breach of fiduciary duty. The district
court instructed the jury that Holdings had alleged that the Swift defendants
“misrepresented the volume and price of denim sales that would be achieved
during the joint venture, that when they made the misrepresentations, they knew
they were untrue, and that [Holdings] entered into the joint venture in reliance
upon the misrepresentations which [Holdings] believed to be true at the time.” The
district court instructed the jury about the affirmative defense of waiver raised by
the Swift defendants and explained that, “if [the Swift] [d]efendants prove that
[Holdings] took an action inconsistent with the repudiation of the agreements, you
may find that [Holdings] has waived its right to rescind the contracts.” The district
court instructed the jury that it should address the claim for breach of fiduciary
duty against only Swift if it found against Holdings on the claim for rescission.
The jury returned a verdict in favor of Holdings on the claim for rescission
and did not reach the liability of Swift on the claim for breach of fiduciary duty. In
a special verdict form, the jury found that the Swift defendants had “fraudulently
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induced [Holdings] to enter the subscription agreement and operating agreement
that created the joint venture that is the subject of this lawsuit.” The jury found
that Holdings had not waived its right to rescind the subscription and operating
agreements. The jury found that the subscription and operating agreements should
be rescinded and the joint venture terminated. The jury also found that the Swift
defendants should pay the attorney’s fees of Holdings but that Holdings should not
be awarded punitive damages.
After the verdict, the Swift defendants renewed their motion for a judgment
as a matter of law, but the district court denied the motion. The district court ruled
that there was sufficient evidence to support the finding that the Swift defendants
“had no intention of using commercially reasonable sales efforts to sell the denim.”
The district court ruled, without elaboration, that the jury had found “that Holdings
had not waived its right to rescind the Agreements” and that this finding was
“supported by the evidence and [is] not against the great weight of the evidence.”
The district court also ruled that, although the jury did not reach this question,
there was sufficient evidence for a reasonable jury to find that Swift was a manager
of the joint venture and breached a fiduciary duty to Holdings when it sold its
denim inventory in competition with the joint venture. The district court then
ordered the Swift defendants to transfer their ownership interest in the joint venture
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to Holdings, and the district court ordered Holdings to pay the Swift defendants
$2,242,500.
II. STANDARD OF REVIEW
“We review the denial of a motion for a judgment as a matter of law de
novo.” Russell v. N. Broward Hosp., 346 F.3d 1335, 1343 (11th Cir. 2003)
(quoting McCormick v. Aderholt, 293 F.3d 1254, 1258 (11th Cir. 2002)). We
must uphold a jury verdict unless “a reasonable jury would not have a legally
sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P.
50(a)(1). “In deciding a motion for judgment as a matter of law, we review all the
evidence, drawing all reasonable inferences in favor of the nonmoving party.”
Hubbard v. BankAtlantic Bancorp, Inc., 688 F.3d 713, 724 (11th Cir. 2012). “The
interpretation of a contract is a question of law that [we] [also] review[] de novo.”
Daewoo Motor Am., Inc. v. Gen. Motors Corp., 459 F.3d 1249, 1256 (11th Cir.
2006).
III. DISCUSSION
We divide our discussion in two parts. First, we explain why the Swift
defendants are entitled to a judgment as a matter of law against the claim for
rescission because Holdings waived its right to that remedy. Second, we explain
why Swift is entitled to a judgment as a matter of law against the claim for breach
of fiduciary duty because Swift was not a manager of the joint venture. Because
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we reverse the denial of the renewed motion for a judgment as a matter of law of
the Swift defendants, we need not address the challenges of the Swift defendants to
either the evidentiary rulings of the district court or its rulings on motions in
limine.
A. Holdings Waived Its Right to Rescission.
The Swift defendants argue that the district court should have granted a
judgment as a matter of law in their favor on the claim for rescission for two
reasons. First, the Swift defendants rely on the decision of the Supreme Court of
Georgia in Novare Group, Inc. v. Sarif, 718 S.E.2d 304, 308 (Ga. 2011), to argue
that Holdings cannot sue for the failure of Swift to fulfill a future promise and that
Holdings agreed in the subscription agreement that it would not sue Swift for a
failure to attain the sales projections. Second, the Swift defendants argue that
Holdings waived its right to rescission when it affirmed its agreements with the
Swift defendants after it became aware of the alleged fraud. Because we conclude
that Holdings waived its right to rescission when it demanded and received a
capital contribution from Swift after Holdings became aware of the alleged fraud,
we need not reach the argument of the Swift defendants that the decision of the
Supreme Court of Georgia in Sarif bars the claim for rescission based on
fraudulent inducement.
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A party who has knowledge of fraud that gives rise to a claim for rescission
cannot, after he becomes aware of that fraud, act as if the contract is not rescinded:
Where a party who is entitled to rescind a contract on ground of fraud
or false representations, and who has full knowledge of the material
circumstances of the case, freely and advisedly does anything which
amounts to a recognition of the transaction, or acts in a manner
inconsistent with a repudiation of the contract, such conduct amounts
to acquiescence, and, though originally impeachable, the contract
becomes unimpeachable in equity. If a party to a contract seeks to
avoid it on the ground of fraud or mistake, he must, upon discovery of
the facts, at once announce his purpose and adhere to it. Otherwise he
cannot avoid or rescind such contract.
Brooks v. Hooks, 144 S.E.2d 96, 100 (Ga. 1965) (quoting Gibson v. Alford, 132
S.E. 442, 445 (Ga. 1926)). Under Georgia law, whether a party has waived its
right to rescind an agreement is ordinarily a question of fact for the jury to decide,
Akins v. Couch, 518 S.E.2d 674, 675 (Ga. 1999), but where “the facts and
circumstances essential to the waiver issue are clearly established[,] waiver
becomes a question of law,” Forsyth Cnty. v. Waterscape Servs., LLC, 694 S.E.2d
102, 110 (Ga. Ct. App. 2010) (quoting Mauldin v. Weinstock, 411 S.E.2d 370, 374
(Ga. 1991)).
We agree with the Swift defendants that, as a matter of law, Holdings
waived its right to rescission. Holdings acknowledges that Tracy Sayers testified
that he learned of the fraud of the Swift defendants in early 2008. And Larry
Galbraith testified that he believed Holdings had been defrauded in May 2008.
Holdings alleged in its complaint that it demanded rescission from the Swift
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defendants at the board meeting of the joint venture on May 9, 2008. And
Holdings describes the board meeting on May 9, 2008, as the meeting in which it
“informed [the Swift] [d]efendants in no uncertain terms that it needed a ‘divorce’
from Swift Galey . . . .” Holdings acknowledges that it “specifically outlined the
various fraudulent acts that [the Swift] [d]efendants committed in the inducement
of the joint venture” during the board meeting on September 3, 2008. But
Holdings also freely admits that it invoked a provision of the operating agreement
in 2009 when it demanded that both it and Swift make separate capital
contributions of $750,000 to the joint venture. There is no dispute then that
Holdings discovered the alleged fraud, demanded rescission of the agreement in
2008, and then demanded and accepted a capital contribution from Swift in 2009
under the terms of that same agreement. See Hill v. Fed. Trade Comm’n., 124
F.2d 104, 106 (5th Cir. 1941).
When Holdings relied on the agreement to demand and accept the capital
contribution in 2009, it waived its right to rescission. “[A]n attempt to continue to
operate [a venture] and to do so in a profitable manner” when a party seeks to
rescind the sale of that venture is “totally incompatible with contract rescission”
and constitutes a waiver of the right to rescission. Orion Capital Partners, L.P. v.
Westinghouse Elec. Corp., 478 S.E.2d 382, 385 (Ga. Ct. App. 1996); see also
Brooks, 144 S.E.2d at 100 (explaining that when a party entitled to rescind a
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contract “freely and advisedly does anything which amounts to a recognition of the
transaction, or acts in a manner inconsistent with a repudiation of the contract, such
conduct amounts to acquiescence,” and the party cannot rescind the contract on
grounds of fraud). Because invoking an agreement to obtain a contractual benefit
is “incompatible with contract rescission,” Holdings waived the right to sue the
Swift defendants for rescission. See Orion Capital, 478 S.E.2d at 385.
Holdings argues that we cannot disturb the finding by the jury that it did not
waive its right to rescission, but “facts judicially admitted are facts established not
only beyond the need of evidence to prove them, but beyond the power of evidence
to controvert them.” Hill, 124 F.2d at 106. Holdings concedes that it was aware of
the fraud that gave rise to its claim for fraudulent inducement by 2008 and that it
demanded and accepted the capital contributions from Swift in 2009. The finding
by the jury that Holdings did not waive its right to rescission is foreclosed by the
legal effect of the unequivocal concessions of Holdings (in its complaint and brief)
that it demanded the capital contribution after becoming aware of the alleged fraud
by the Swift defendants. These concessions, which are consistent with the
undisputed evidence at trial, are “no longer [] fact[s] in issue.” Id. Given these
facts, Holdings waived its right to rescission as a matter of law.
Holdings also argues that, under the tender rule of Georgia law, its demand
that Swift make the capital contribution was not an action inconsistent with its
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earlier discovery of fraud and demand for rescission, but we disagree. Under
ordinary circumstances, “[o]ne who seeks rescission of a contract for fraud must
restore or offer to restore the consideration received thereunder, as a condition
precedent to bringing the action.” Crews v. Cisco Bros. Ford-Mercury, Inc., 411
S.E.2d 518, 519 (Ga. Ct. App. 1991). But “restoration by the purchaser is not an
absolute rule,” id., and a party need not “restore or tender back the benefits
received under the contract” if he can “show a sufficient reason for not doing so,”
id. For example, the party claiming rescission “need not tender back what he is
entitled to keep, and need not offer to restore where the defrauding party has made
restoration impossible, or when to do so would be unreasonable.” Id. But this
rule, as the Swift defendants argue, has nothing to do with the application of the
doctrine of waiver in this case.
Holdings relies on our decision in Vivid Investments, Inc. v. Best Western
Inn-Forsyth, Ltd., 991 F.2d 690 (11th Cir. 1993), to support its argument, but that
decision is inapposite. In Vivid, the purchaser in a real estate contract sought
rescission of the contract, but did not tender the property back to the seller. Id. at
692. We held that a factual dispute existed about whether the purchaser was
required to tender the property. Id. at 693. The purchaser had argued that it was
not required to tender the property because the tender “would be an abandonment
of its investment and because the [property] is the security for debt owed by [the
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purchaser] to third parties.” Id. Holdings argues that the capital contribution of
Swift was necessary because the joint venture was in dire financial straits and
Holdings otherwise would have been forced to “abandon[ ] its investment,” see id.,
but Holdings misreads Vivid and the tender rule, which concern only whether a
purchaser must return property it has already received from the seller, not whether
a party may demand new investments under the terms of a contract after it has
demanded rescission. Although the tender rule does not require a party to return
all of the property it has received when doing so would be impossible, the tender
rule did not permit Holdings to make a new investment in the joint venture and
demand that Swift comply with future obligations under the operating agreement.
B. Swift Was Not a Manager of the Joint Venture and Did Not Owe Holdings Any
Fiduciary Duties.
Swift also argues that it was not a manager of the joint venture and, as a
matter of law, did not owe Holdings any fiduciary duties. “To support a claim of
breach of fiduciary duty, a plaintiff must prove the existence of such duty. . . .”
Wright v. Apartment Inv. & Mgmt. Co., 726 S.E.2d 779, 787 (Ga. Ct. App. 2012).
The Georgia Limited Liability Company Act, O.C.G.A §§ 14-11-100–1109,
establishes as follows that, where a limited liability company vests its management
in a manager, a member of the limited liability company who is not a manager
owes no duties to the company or other members:
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Except as otherwise provided in the articles of organization or a
written operating agreement, a person who is a member of a limited
liability company in which management is vested in one or more
managers, and who is not a manager, shall have no duties to the
limited liability company or to the other members solely by reason of
acting in his or her capacity as a member.
Id. § 14-11-305(1). Unless there is an operating agreement to the contrary,
“management of the business and affairs of the limited liability company shall be
vested in the members. . . .” Id. § 14-11-304(a); see also id. § 14-11-304(b) (“If
the articles of organization or a written operating agreement vests management of
the limited liability company in one or more managers, then such persons shall
have such right and authority to manage the business and affairs of the limited
liability company.”). And, under Georgia law, courts read written operating
agreements that form limited liability companies “to give maximum effect to the
principle of freedom of contract and to the enforceability of operating agreements.”
Id. § 14-11-1107(b). “Although the parties may impose such duties in the
operating agreement or articles of organization,” the plain language of the Georgia
statute establishes “that non-managing members in manager-managed [limited
liability companies] owe no duties to the [company] or other members.” ULQ,
LLC v. Meder, 666 S.E.2d 713, 721 (Ga. Ct. App. 2008).
Holdings argues that Swift owes it fiduciary duties because it was a manager
of the joint venture, but the terms of the operating agreement of the joint venture
provide that Swift is only a member, not a manager, of the joint venture. See id.19
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The operating agreement explains as follows that the management power of the
joint venture will be vested in the managers:
Except for situations in which the approval of the Members is
expressly required by the Articles of Organization or by this
Operating Agreement or by nonwaivable provisions of applicable law,
the Managers shall have full and complete authority, power and
discretion to manage and control the business, affairs and properties
of the Company, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to
the management of the Company’s business. At any time when there
is more than one Manager, no one Manager may take any action
permitted to be taken by the Managers, unless the action has been
approved by a majority of the Managers.
Along with vesting the management power in the managers, the operating
agreement states that there were to be eight managers of the joint venture and that
Swift and Holdings were to appoint four managers each. Based on the terms of the
operating agreement, Swift is not a manager of the joint venture. Although Swift
had the authority to appoint four managers for the joint venture and at least
theoretically could have appointed itself, see O.C.G.A. § 14-11-304(b)(2) (stating
that managers of a limited liability company need not be “natural persons”), there
is no allegation in the pleadings or evidence in this record that Swift appointed
itself as a manager of the joint venture.
Although the district court ruled that the authority of Swift to appoint four
managers gave it “de facto control” over the board of managers, Georgia law
forecloses that reasoning. Unless otherwise provided by an operating agreement, a
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“manager” of a Georgia limited liability company “[s]hall be designated,
appointed, elected, removed, or replaced by the approval of more than one half by
number of the members.” Id. § 14-11-304(b)(1). In other words, Georgia law
presumes that managers will be appointed by the members of a limited liability
company. Georgia law also states that “a person who is a member of a limited
liability company in which management is vested in one or more managers, and
who is not a manager, shall have no duties to the limited liability company or to the
other members solely by reason of acting in his or her capacity as a member.” Id.
§ 14-11-305(1) (emphasis added). Because Georgia law presumes that members
will appoint the managers of a limited liability company, the act of a member
appointing a manager cannot give rise to a fiduciary duty.
Holdings cites Internal Medicine Alliance, LLC v. Budell, 659 S.E.2d 668(Ga. Ct. App. 2008), for the proposition that the status of “manager” is not limited
to the designation in an operating agreement, but that decision does not control this
appeal. Unlike this appeal, Budell did not involve a written operating agreement.
See id. at 670 (“Notably, [the parties] never entered into a written operating
agreement for [the limited liability company].”). In this appeal, the operating
agreement controls the terms of management and provides that only the eight
members of the board of managers manage the joint venture. Where management
power of a limited liability company “is vested in one or more managers,” a
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member who is not a manager has “no duties to the limited liability company or to
the other members solely by reason of acting in his or her capacity as a member,”
O.C.G.A. § 14-11-305(1), and the operating agreement of the joint venture
establishes that Swift is not a manager of the joint venture.
IV. CONCLUSION
We VACATE the judgment in favor of Holdings and RENDER a judgment
as a matter of law in favor of the Swift defendants.
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