Davis v. Vcp South, LLC

In the Supreme Court of Georgia
Decided: June 29, 2015
S15A0142. DAVIS v. VCP SOUTH, LLC et al.
S15X0143. VCP SOUTH, LLC et al. v. DAVIS et al.
THOMPSON, Chief Justice.
Appellant Lori Davis, individually and as personal representative of the
Estate of Keith L. Davis, M.D., appeals three orders entered by the Columbia
County Superior Court on March 7, 2014, April 1, 2014, and April 21, 2014,
granting mandatory interlocutory injunctions against her and holding her in civil
and criminal contempt in an action brought against her husband’s estate by
Steven M. Roth, M.D. (“Roth”) and two Georgia limited liability companies
Roth co-owned with Keith Davis (“Davis”). The plaintiffs filed suit against
appellant and the Davis Estate seeking to enforce certain provisions of the
companies’ operating agreements giving Roth, as the surviving member of the
LLCs, an option to purchase Davis’ interests, and to otherwise establish the
rights of the parties, including the ownership of certain trademarks. Appellant
also appeals from an order entered April 21, 2014 in which the trial court
adopted the Third Report of the Special Master and limited discovery in the
pending case. Appellees, VCP South, LLC, VCP Raleigh, LLC and Mary Anne
Roth, individually and as Executrix of the Estate of Steven M. Roth, M.D. cross-
appeal alleging the trial court erred in allowing the Davis Estate to maintain an
ownership interest in the LLCs past the time provided for in the operating
agreements, and in allowing the distribution of LLC profits accruing after
Davis’ death to the Davis Estate. For the reasons set forth below, we affirm the
decisions of the trial court.
The facts of this case are as follows: In 2004, plastic surgeons Davis and
Roth formed VCP South, LLC, a joint vein care practice located outside
Augusta, Georgia, with each doctor owning fifty percent of the membership
units of the LLC pursuant to the terms of an operating agreement signed by the
parties. Drs. Davis and Roth thereafter formed other related limited liability
companies and opened additional vein care practices in neighboring states. The
doctors heavily advertised their services and developed a lucrative business,
becoming known as “The Vein Guys.” VCP South contracted with a marketing
company to apply for federal trademark protection for a number of trademarks
utilized by the medical practices, including “Vein Care Pavilion,” “Vein Care
2
Pavilion of the South,” “The Vein Guys,” “We’re So Vein,” “Real Talk,” and
“Total Vein Care.” Unbeknownst to Roth, and despite the fact that the
marketing company was paid by VCP South, these trademarks were placed
solely in the name of Davis.
Davis died suddenly on January 2, 2010. Under the terms of VCP South’s
operating agreement, Roth, as the surviving member of the LLC, had a first
option to purchase all or part of the membership units owned by Davis. Absent
an agreement as to value, the operating agreement provided that the value of the
membership units would be determined in a commercially reasonable manner
by the certified public accountant regularly representing the practice. The
option existed for a period of ninety days following the date of qualification of
the personal representative of the estate of the deceased doctor and, following
the appointment of Davis’ wife as personal representative of his estate on
October 1, 2010, Roth sought to exercise his options to purchase Davis’
membership units in VCP South, as well as in the other LLCs,1 on or about
November 11, 2010. When negotiations between appellant and Roth broke
1
Although the primary operating agreement at issue in this case is the one associated with
VCP South, LLC, there were separate, but similar, operating agreements executed by the doctors in
various other entities.
3
down, Roth, VCP South and VCP Raleigh, LLC filed suit against the Davis
Estate on December 3, 2010, seeking, inter alia, to enforce the provisions of the
operating agreements and to obtain a ruling that various trademarks obtained
and utilized by the medical practice since 2004 belonged to VCP South.
Appellant answered the complaint, responding in part that the LLCs’ accountant,
Steven Staley, should not be allowed to do the valuation because he continued
to provide services to the LLCs and to Roth and thus had a conflict of interest.
The trial court disagreed, granting partial summary judgment to the plaintiffs on
this issue and authorizing Staley to decide the fair market value of Davis’
interest.
After Staley’s valuation2 was completed in September, 2011, the trial
court appointed a special master to consider, inter alia, the Davis Estate’s
objections to the valuation as well as other issues regarding the extent of the
estate’s interests in the LLCs during the pendency of the litigation. The Special
Master issued a report on December 12, 2011, finding that pursuant to the terms
of the operating agreement, Davis ceased to be a member of the LLCs on the day
2
Staley set the value of Davis’ membership units in VCP South at $2,578,693. This
valuation did not list any trademarks among the assets of VCP South.
4
he died and his estate thereafter maintained only financial rights, including (1)
the right to share in the profits and losses of the company, (2) the right to
interim and terminating distributions, and (3) the right to capital interest, “until
such time as a closing occurs to purchase his Membership Units.” Noting that
the agreement set no time limit within which the closing had to occur, but
recognizing that a party could unreasonably protract the purchase of the ceased
member’s interest, as well as that the company had complete control over when
and how quickly a valuation could be done, the Special Master determined that
a reasonable cutoff date for the allocation of profits and losses and entitlement
to distributions “should be the last day of the month when a commercially
reasonable value is determined,” because, pursuant to the operating agreement,
once the purchase price was established, the Davis Estate had no choice but to
accept the price. The Special Master thus determined that if Staley’s valuation
was found to have been done in a commercially reasonable manner, then
September 30, 2011, the last day of the month when the Davis Estate was
presented with this valuation, would be the appropriate cutoff date for the Davis
Estate’s financial rights.
Thereafter, by order entered May 3, 2012, the trial court adopted the
5
Special Master’s report and granted partial summary judgment to the plaintiffs
with respect to the valuation of Davis’ membership units for purchase by Roth.
Appellant appealed, and the trial court’s grant of summary judgment to the
plaintiffs on this issue was affirmed by the Court of Appeals. See Davis v. VCP
South, LLC, 321 Ga. App. 503 (740 SE2d 410) (2013).3 Finally, on December
18, 2013, the closing sale of Davis’ membership units to Roth was
accomplished.4
Despite the fact that the issue regarding ownership of the trademarks
remained pending in the case, on March 6, 2014, appellant, through a
representative, contacted Facebook and, claiming ownership and asserting
3
While awaiting the Court of Appeals’ ruling, Roth and several employees of VCP South
were killed in a February 20, 2013 plane crash. As a result, Roth’s widow, Mary Anne Roth, was
appointed representative of his estate on February 25, 2013 and, as executrix, was added as a
plaintiff to the litigation. Shortly thereafter, Mrs. Roth, as representative of the Roth estate, executed
two resolutions amending the LLC operating agreements to provide that she could become a member
of the LLCs and thereby avoid their dissolution.
4
After the Court of Appeals issued its decision on March 26, 2013, sale of Davis’
membership units to Roth (now the Roth Estate) was further delayed when it was discovered that
the Davis Estate no longer had any ownership interest in the membership units of VCP South
because appellant had obtained a Probate Order of Year’s Support transferring all of the assets of the
Davis Estate to herself and her children. Various motions were filed by the parties and, following
entry of a trial court order requiring appellant and the Davis children to be named individually as
parties, appellant obtained an order from the probate court setting aside the year’s support order and
re-vesting ownership of the membership units in the Davis Estate.
6
trademark infringement, had the The Vein Guys Facebook page disabled and
taken down. Facebook sent an email notification to VCP South’s website
manager stating that Facebook would only be able to restore content to The Vein
Guys page if it received “explicit notice of consent from the complaining party.”
A Motion for Emergency Injunctive Relief was filed by the plaintiffs and heard
by the trial court on March 7, 2014. Finding the plaintiffs would suffer
irreparable harm and damages, the trial court entered an order that day requiring
appellant to immediately notify Facebook to “reinstate and put back up ‘The
Vein Guys’ page instanter” and to immediately advise the court when such
reinstatement was accomplished.5
The Facebook page remained disabled, however, and plaintiffs filed a
motion for contempt on March 13, 2014.6 Following a hearing on March 26,
2014, the trial court entered an order on April 1, 2014 declining to hold
5
The trial court deemed this March 7, 2014 order to be in the nature of a temporary
restraining order and characterized the March 26, 2014 hearing as the hearing on the interlocutory
injunction.
6
When the Facebook page had not been reinstated by mid-morning on March 11, 2014,
plaintiffs’ counsel faxed a letter to appellant’s counsel in the pending case, as well as to the Estate’s
attorney responsible for initiating the complaint with Facebook, inquiring about reinstatement of the
page. Later that day, plaintiffs’ counsel received a copy of an email which had been sent to
Facebook less than an hour earlier attaching the trial court’s March 7th order and requesting that The
Vein Guys Facebook page be put up immediately.
7
appellant in contempt, but granting an interlocutory injunction requiring her to
take affirmative action to “comply explicitly” with Facebook’s original
instructions for obtaining restoration of the Facebook page.7 The trial court’s
order further provided that the Facebook page was to be reactivated no later than
April 4, 2014, or beginning April 5, 2014, the court would assess a penalty of
$1,000 per day against appellant until the page was restored.
When the Facebook page was not timely activated, the plaintiffs filed a
motion for reconsideration which was heard by the trial court on April 14, 2014.
At this hearing, appellant’s attorney announced that the Facebook page had been
reactivated that day. Thereafter, on April 21, 2014 the trial court entered its
Second Order on Interlocutory Injunction and Contempt finding appellant in
both civil and criminal contempt of its previous order and enjoining her,
personally or through her attorneys or intermediaries, from (1) contacting
Facebook without court approval regarding The Vein Guys Facebook page; and
7
The pertinent Facebook instructions provided:
If an agreement is reached to restore the reported content, please have the
complaining party email us with their consent and include the original reference
number. We will not be able to restore this content to Facebook unless we receive
explicit notice of consent from the complaining party.
8
(2) permitting any other entity (with one limited exception not relevant to this
appeal) to use the disputed trademarks. The order further required appellant to
produce all licenses, contracts and other documentation between appellant and
others related to use of any of the disputed trademarks, and provided that the
trial court would entertain a motion for attorneys fees by the plaintiffs in
connection with the Facebook page dispute.
Also on April 21, 2014, the trial court issued its Order on Special Master’s
Third Report and Other Matters in which it adopted, in major part, the Third
Report of the Special Master as the judgment of the court. Among other things,
the trial court held that VCP South had been purchased as of September 30,
2011 from the Davis Estate based on the company’s operating agreement and
previous rulings of the court, thus the Davis Estate was not entitled to any
distributions from the company accruing after that date. Further, the court
concluded that any actions taken by VCP South or its members after September
30, 2011 were irrelevant to the matters before the court. Based on this
determination, the trial court disallowed discovery for activities, transactions
and events occurring after September 30, 2011 and denied appellant’s motion
to add Mary Anne Roth, individually, as a party to the action, finding Mrs. Roth
9
had no interest or control of the entities until after this cut-off date. Finally, the
trial court ordered that the issues regarding ownership and use of the disputed
trademarks be submitted to the Special Master for determination.
Case No. 15A0142.
1. Appellant contends the trial court erred when it granted the
plaintiffs/appellees’ request for emergency relief following Facebook’s
deactivation of The Vein Guys Facebook page at appellant’s request.
(a) Appellant first asserts the trial court erred in entering its March 7,
2014 temporary restraining order and, thereafter, its April 1, 2014 order granting
injunctive relief because the plaintiffs’ request for injunctive relief was neither
verified nor accompanied by sufficient affidavits. The record reveals, however,
that the trial court found satisfactory proofs supported the granting of these
orders and, in any event, the trial court allowed the plaintiffs’ to perfect the
record by filing a verification as an amendment to their motion. Accordingly,
this claim lacks merit. See OCGA § 9-10-110.8 See also DRST Holdings, Ltd.
8
OCGA § 9-10-110 provides:
Petitions for a restraining order, injunction, receiver, or other extraordinary equitable
relief shall be verified positively by the petitioner or supported by other satisfactory
proofs.
10
v. Brown, 290 Ga. 317 (1) (720 SE2d 626) (2012) (“It is well settled that the
failure to verify a pleading is an amendable defect. [Cits.]”).
(b) Appellant next claims the evidence was insufficient to show that she
and/or her representatives had the power to make Facebook re-post The Vein
Guys’ Facebook page as ordered by the trial court, thus the court abused its
discretion in issuing its April 1, 2014 order granting injunctive relief. “The
purpose for granting interlocutory injunctions is to preserve the status quo, as
well as balance the conveniences of the parties, pending a final adjudication of
the case.” Grossi Consulting, LLC v. Sterling Currency Group, LLC, 290 Ga.
386, 388 (722 SE2d 44) (2012) (quoting Benton v. Patel, 257 Ga. 669, 672 (362
SE2d 217) (1987)). The power of a trial court to grant a request for
interlocutory injunctive relief is discretionary and based on the circumstances
of each case. See OCGA § 9-5-8. Although this power must be prudently and
cautiously exercised, this Court will not disturb an injunction fashioned by the
trial court absent a manifest abuse of discretion. See Grossi Consulting, supra
at 387-388 (1). In deciding whether to issue an interlocutory injunction, a trial
court should consider four factors:
(1) whether there exists a substantial threat that a moving party will
11
suffer irreparable injury if the injunction is not granted; (2) whether
the threatened injury to the moving party outweighs the threat and
harm that the injunction may do to the party being enjoined; (3)
whether there is a substantial likelihood that the moving party will
prevail on the merits at trial; and (4) whether granting the
interlocutory injunction will not disserve the public interest.
See SRB Inv. Svcs. v. Branch Banking and Trust Co., 289 Ga. 1, 5 (3) (722
SE2d 44) (2011).
Here, the trial court found that appellant’s actions caused Facebook to de-
activate The Vein Guys Facebook page and that absent entry of an injunction,
plaintiffs would suffer irreparable harm. Evidence in the record showed a
significant drop in the number of new patients contacting the practice following
the deactivation of the Facebook page when compared to the number of new
patient contacts received by the practice in the preceding two months.
According to the affidavit of Kelly Vann, CEO of VCP South, LLC, even a 5%
decrease in the number of new patients costs the practice over $60,000 per
month. In comparison, there was no evidence that restoration of the Facebook
page would harm appellant. Rather, the trial court specifically noted that the
harm to the plaintiffs outweighed any action required of appellant to comply
with the injunction. The trial court further determined there was a substantial
12
likelihood the plaintiffs would prevail on the merits regarding ownership or
right of use to the trade name “The Vein Guys,” and expressed concern that
appellant’s representative deliberately chose to obfuscate the status of a disputed
issue pending before the court in order to convince Facebook to take action
altering the status quo. Finally, the trial court observed that the interlocutory
injunctions requested by the plaintiffs would not disserve the public interest.
As evidence in the record supports the trial court’s findings, as well as its
determination that appellant failed to follow the court’s previous order requiring
her to strictly comply with Facebook’s instructions to have the Facebook page
restored, the interlocutory injunction granted by the trial court requiring
appellant to take the specific steps necessary to have The Vein Guys’ Facebook
page restored within a time limit established by the court did not constitute a
manifest abuse of the trial court’s discretion
(c) Finally, appellant argues that because The Vein Guys Facebook page
was re-posted by April 14, 2014, there was no further need for the injunctive
relief sought, thus the trial court’s April 21, 2014, entitled “Second Order on
Interlocutory Injunction and Contempt,” constituted an even greater abuse of
discretion. See Bruce v. Wallis, 274 Ga. 529, 531 (556 SE2d 124) (2001)
13
(finding it an abuse of discretion for the trial court to enter an injunction when
the object of the injunction had been alleviated). Appellant additionally claims
that the relief granted in this order was far broader than that requested by the
plaintiffs, and she asserts no evidence was tendered by the plaintiffs to
substantiate their entitlement to such relief.
Given evidence in the record showing that appellant repeatedly failed to
fully comply with trial court’s orders until right before the contempt hearing
held April 14, 2014,9 that the issue concerning ownership of the trademarks
remained pending before the trial court and had been pending since the
beginning of the lawsuit, and that appellant and her agents did, in fact, have the
power to obtain restoration of the Facebook page by simply following
Facebook’s directions, we do not find that the trial court abused its discretion
in granting the interlocutory injunctive relief set forth in this order. Nor, under
the circumstances, can we say that the trial court’s action enjoining appellant
from contacting Facebook in the future regarding The Vein Guys Facebook page
without prior court approval or from permitting other entities to use the disputed
9
It was not until April 13, 2014 at 10:26 p.m., that appellant’s attorney, Timothy E. Moses,
who was “the complaining party,” notified Facebook of his explicit consent to restoration of The
Vein Guys Facebook page. The Vein Guys Facebook page was reactivated by Facebook the next day.
14
trademarks was not needed. Rather, it appears that the relief granted by the trial
court affects appellant’s rights no more than necessary to preserve the status quo
and to protect plaintiffs from the threatened harm associated with continued
attempts by appellant to enforce her trademark claims outside the confines of the
pending litigation. See Grossi Consulting, supra, 290 Ga. at 389.
2. Appellant contends the trial court erred in finding her to be in both civil
and criminal contempt for failing to strictly comply with the trial court’s orders.
We disagree.
In order to be held in contempt, one must wilfully disobey the court’s
decree or judgment. See Simpkins v. Simpkins, 278 Ga. 523, 523 (603 SE2d
275) (2004). “Criminal contempt imposes unconditional punishment for prior
acts of contumacy, whereas civil contempt imposes conditional punishment as
a means of coercing future compliance with a prior court order. [Cits.].”
American Medical Security Group, Inc. v. Parker, 284 Ga. 102, 105 (663 SE2d
697) (2008). It is for the trial court to determine whether a contempt has been
committed, and that court’s adjudication will not be interfered with unless there
has been an abuse of discretion. See Berman v. Berman, 232 Ga. 342, 342 (206
SE2d 447) (1974).
15
Here, the record shows that appellant failed to follow the trial court’s
instructions in its March 7, 2014 order to immediately take action to have The
Vein Guys’ Facebook page reactivated. Subsequently, appellant failed to
comply with the court’s more detailed instructions in its April 1, 2014 order
until the evening before the hearing on the plaintiffs’ motion for contempt.
Finally, the record reveals that once appellant fully complied with the
instructions set forth in the trial court’s order, the Facebook page was
reactivated. As there is evidence to support the trial court’s findings of
contempt, these findings will not be disturbed. See Pate v. Pate, 280 Ga. 796,
798 (631 SE2d 103) (2006) (“If there is any evidence in the record to support
the trial judge’s determination that a party has wilfully disobeyed a trial court’s
order, the decision of the trial court will be affirmed on appeal. [Cit.].”); City of
Cumming v. Realty Development Corp., 268 Ga. 461, 462 (491 SE2d 60)
(1997) .
3. Appellant asserts the trial court erred in adopting the construction of
the operating agreement set forth in the Third Report of the Special Master,
arguing the special master improperly considered provisions of the tax code and
IRS regulations in construing the agreement’s terms. Appellant further contends
16
that the construction adopted by the trial court works a forfeiture of financial
interests to which the Davis Estate was entitled, asserting that the estate should
have continued to receive distributions equal to those made to Roth through and
until December 18, 2013, the date on which the sale of Davis’ membership units
to Roth was completed. These claims lack merit.
Section 7.01 (a) of VCP South’s operating agreement specifically states:
The Members acknowledge that the Company will be treated as a
“partnership” for federal and Georgia state tax purposes. All
provisions of this Agreement and the Company’s articles of
organization are to be construed so as to preserve that tax status.
As it is clear that the operating agreement, itself, not only authorizes, but
requires consideration of applicable tax codes and regulations in construing its
terms, appellant’s first claim of error fails.
Appellant’s second argument, which primarily challenges the trial court’s
establishment of September 30, 2011 as a reasonable cutoff date for determining
the financial rights of the Davis Estate, is equally unpersuasive.10 While the
operating agreement devised by the parties in this case set no specific time
10
We note that the establishment of a cut-off date was part of the special master’s first
report to which neither party objected and which, thereafter, was adopted by the trial court in
accordance with Rule 46 (G) (2) of the Uniform Rules of the Superior Court.
17
within which the purchase of a deceased member’s membership units by the
surviving member was to be effectuated, it did set forth a simple and expeditious
procedure for accomplishing the sale. Georgia law requires that the
performance of contractual obligations by a contracting party “be substantially
in compliance with the spirit and the letter of the contract and completed within
a reasonable time.” OCGA § 13-4-20. By establishing a cutoff date of
September 30, 2011, some 20 months after Davis’ death, as the date beyond
which the Davis Estate could no longer continue to receive an equal share of the
profits and losses of the LLC, as well as any distributions, the trial court
correctly refused to allow appellant to thwart the intent of the parties by
unreasonably impeding the sale. “Every contract imposes upon each party a
duty of good faith and fair dealing in its performance and enforcement. [Cit].”
Brack v. Brownlee, 246 Ga. 818, 820 (273 SE2d 390) (1980). Given the delays
caused by appellant’s challenges to the operating agreement’s provisions, as
well as the additional delay caused by appellant’s transfer of the membership
units from the Davis Estate to herself and her sons pursuant to her right to a
years’ support, we find no error in the trial court’s determination that the Davis
Estate was only entitled to distributions from the LLCs accruing through and
18
including September 30, 2011, but not thereafter.11 Although appellant now
asserts that the special master’s findings with respect to this holding were
unclear and in conflict with other findings made in his report, we disagree. Nor
do we find that by adopting the special master’s cutoff date, the trial court’s
order improperly works a forfeiture of financial rights to which the Davis Estate
was entitled.
4. Given our determination that the trial court did not err in establishing
September 30, 2011 as the date upon which the Davis’ Estate’s financial rights
in VCP South terminated, see Div. 3, supra, we find that portion of the trial
court’s order limiting future discovery in this case to events occurring before the
cutoff date based on relevancy to be appropriate and not an abuse of discretion.
See Bowden v. Medical Center, Inc., ___ Ga. ___ (___ SE2d ___) (2015
WL3658819) (discussing the issue of “relevancy” as it pertains to the scope of
discovery under OCGA § 9-11-26 (b) (1)).
11
We also find no merit to appellant’s contention that Roth’s exercise of the option was
nonconforming, and thus merely a counteroffer, simply because the trial court determined some of
the plaintiffs’ proposed closing documents were unnecessary. See Redmond v. Sinclair Refining
Co., 204 Ga. 699, 705 (3) (51 SE2d 409) (1949). Nor do we agree that Roth’s death subsequent to
the cutoff date established by the trial court, but prior to the actual closing, somehow voided Roth’s
valid exercise of the option. See Martin v. Schindley, 264 Ga. 142, 143 (442 SE2d 239) (1994) (“An
option becomes a contract between the parties binding from the date of its execution when the option
is exercised according to its terms.”).
19
Case No. S15X0143.
In this cross-appeal, the plaintiffs/cross-appellants first assert the trial
court erred in allowing the Davis Estate to receive distributions of profits
through September 30, 2011, arguing that such distributions should have
stopped as of January 31, 2010, the end of the month in which Davis died. This
argument, however, directly conflicts with the unambiguous terms of the
operating agreement which specifically provide that a ceased member’s financial
rights continue so long as the cessation did not result in dissolution of the
company, and it lacks merit.
Cross-appellants alternatively contend the Davis Estate’s financial rights
should have ended when Roth exercised his option to purchase Davis’
membership units on or around November 11, 2010, arguing that once the
option was exercised, the sale was essentially a fait accompli at a price set by the
company’s accountant. At the time Roth exercised his option, however, no
valuation of Davis’ membership units by Staley had been completed. Although
acknowledging that the Davis Estate’s efforts to have Staley replaced hampered
his valuation, the special master also observed that the company had complete
control over how quickly the valuation was completed. We find no error in the
20
trial court’s determination that a reasonable cutoff date for the Davis Estate’s
financial rights was the last day of the month in which Staley’s valuation in
compliance with the terms of the operating agreement was completed and
presented to the Davis Estate. See Div. 3, supra.
Finally, cross-appellants claim the trial court erred in allowing the Davis
Estate to maintain an ownership interest in VCP South through September 30,
2011 in light of Georgia’s law governing professional corporations. See OCGA
§ 14-7-5 (a) (“Shares in a professional corporation may only be issued to, held
by, or transferred to a person who is licensed to practice the profession for
which the corporation is organized. . . except as otherwise permitted under this
Code section.”). This issue was not raised or ruled on below, however, and it
presents nothing for our review. See Messaadi v. Messaadi, 282 Ga. 126, 129
(3) (646 SE2d 230) (2007) (“This Court is empaneled to review rulings by lower
courts and will not address issues not ruled upon below.”).
For the foregoing reasons, the issues raised in the cross-appeal lack merit.
Judgment in Case Nos. S15A0142 and S15X0143 are affirmed. All the
Justices concur.
21