2007 Corporate And Business Organization Case Law Developments, Part 2

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10. Administrative Dissolution: Foster v. Clayton County Judicial Circuit of the State of Georgia, et al., 2007 WL 569851 (N.D. Ga., February 20, 2007); Williams v. Martin Lakes Condominium Association, Inc., 284 Ga. App. 569, 644 S.E.2d 424 (2007)

In Foster v. Clayton County Judicial Circuit of the State of Georgia, et al., 2007 WL 569851 (N.D. Ga., February 20, 2007), the United States District Court for the Northern District of Georgia denied relief against an administratively dissolved corporation because under Georgia law it could only conduct business activities that are necessary to wind up and liquidate its business and affairs. O.C.G.A. ß 14-2- 1421(c).12

The plaintiff, a convicted prisoner, sued Center for Prisoners' Legal Assistance, P.C. (?CPLA?), an administratively dissolved Georgia corporation, to obtain assistance in overturning his conviction. CPLA failed to answer the complaint and default was entered against it. The plaintiff asked the Court to enter a default judgment ordering CPLA 1) to hire counsel on his behalf to defend him in a yet-to-be-filed state habeas corpus action, and 2) to pay all costs associated with that action and his criminal appeal pending in the 11th Circuit. The Court rejected the plaintiff's request because, as an administratively dissolved corporation, CPLA was barred by O.C.G.A. ß 14-2-1421 from performing the services that the Plaintiff asked the Court to order.

Although not expressly stated in the opinion, the necessary implication of the ruling is that the relief requested was not in furtherance of winding up and liquidating the corporation and thus fell outside the limited scope of the business which an administratively dissolved corporation is permitted to conduct.

In Williams v. Martin Lakes Condominium Association, Inc., 284 Ga. App. 569, 644 S.E.2d 424 (2007), the Georgia Court of Appeals, in what it denoted a matter of first impression, addressed the issue of whether a nonprofit corporation that has been administratively dissolved, but later reinstated, has the capacity to bring legal action during the period of its dissolution.

In Georgia, a nonprofit corporation can be administratively dissolved by the Secretary of State pursuant to O.C.G.A. ß 14-3-1421. The most common reason for administrative dissolution is the corporation's failure to file its annual report with the Secretary of State. The corporation can file for reinstatement by following the procedures set out in O.C.G.A. ß 14-3-1422. There is no time limit on the period during which a dissolved corporation can apply for reinstatement. O.C.G.A. ß 14-3-1422(d) provides:

"When the reinstatement is effective, it relates back to and takes effect as of the effective date of the administrative dissolution and the corporation resumes carrying on its business as if the administrative dissolution had never occurred."

In Williams, Martin Lakes Condominium Association, Inc. ("Martin Lakes") was administratively dissolved in 1993, but its corporate charter was reinstated in 2000. In 1999, Martin Lakes filed suit against Williams, a condominium owner, to recover past-due fees and assessments. Williams argued that Martin Lakes did not have the legal capacity to bring legal action in 1999 because the corporation was dissolved at that time.

The Court of Appeals disagreed, stating that reinstatement of an administratively dissolved corporation validates the corporation's existence and privileges back to the date of the dissolution. Thus, under Georgia law, a reinstated corporation effectively does have the capacity to bring legal action during the period of time between its dissolution and reinstatement, no matter how long that period lasts.

The Georgia Business Corporation Code provisions for reinstatement of administratively dissolved corporations in O.C.G.A. ß 14-2-1422 are identical with those of the Georgia Nonprofit Corporation Code, so it is likely that this decision will be considered as authority in interpreting ß 14-2-1422.

11. Service of Process under O.C.G.A. ß 14-2-504: B&B Quick Lube, Inc. v. G&K Services Company, 283 Ga. App. 299, 641 S.E.2d 198 (2007)

    In B&B Quick Lube, Inc. v. G&K Services Company, 283 Ga. App. 299, 641 S.E.2d 198 (2007), the Georgia Court of Appeals upheld service of process under O.C.G.A. ß 14-2-504, the special statutory provision in the Georgia Business Corporation Code for service of process on corporations, as an alternative to O.C.G.A. ß 9-11-4, the Georgia Civil Practice Act's rule on service of process.

    G&K Services Company sued B&B Quick Lube, Incorporated for breach of contract. G&K employed the Fulton County Sheriff to serve process on B&B's registered agent at the address listed with the Secretary of State. The Sheriff unsuccessfully attempted service on B&B three times at that address. G&K proceeded to mail copies of the complaint via certified mail to B&B at the same address and thereafter obtained confirmation that the package had been received.

    B&B failed to respond to the complaint, and G&K obtained default judgment. B&B appealed the default judgment arguing that service of process was ineffective in two ways: (1) G&K did not act with reasonable diligence in attempting to serve B&B's registered agent, and (2) an employee, rather than a corporate officer, received the complaint when it was mailed to B&B.

    The Court of Appeals disagreed with B&B, holding that process was sufficient pursuant to O.C.G.A. ß 14- 2-504. Section 14-2-504, the Georgia Business Corporation Code's service of process statute, is an alternative to O.C.G.A. ß 9-11-4, the Civil Practice Act's service of process statute. Typically, plaintiffs serve process on a Georgia corporation pursuant to O.C.G.A. ß 9-11-4(e)(1), under which a plaintiff must serve process on the president or an officer, secretary, managing agent, cashier or other agent of the corporation. If such service cannot be effected, O.C.G.A. ß 9-11-4(e)(1) provides that the Secretary of State is the corporation's agent for service of process. By contrast, O.C.G.A. ß 14-2-504(b) authorizes service of process via registered, certified, or statutory overnight mail where a Georgia corporation does not have a registered agent or where the plaintiff, after exercising reasonable diligence, cannot serve the corporation at its listed address. O.C.G.A. ß 14-2-504 provides an alternative, permissible way to serve process on a Georgia corporation.

    The Court of Appeals in B&B held that G&K's three service attempts at B&B's listed address constituted "reasonable diligence" under O.C.G.A. ß 14-2-504(b). The Court further held that under O.C.G.A. ß 14- 2-504(b), statutorily mailed service is effective even when received by an employee because this statute does not require receipt by a registered agent or a corporate officer.

12. Disputes over Stock Ownership or Investments. Wright v. AFLAC, Inc., 283 Ga. App. 890, 643 S.E.2d 233 (2007)

    In Wright v. AFLAC, Inc., 283 Ga. App. 890, 643 S.E.2d 233 (2007), the Georgia Court of Appeals addressed the evidentiary requirements of proving stock ownership where the stock has been transformed over time due to changes in entity control.

    The plaintiffs brought action against AFLAC, Inc., claiming that stock they purchased from a salesman in 1957 had transformed, over the years, into AFLAC stock. The Wrights testified that they "believed" their stock was now AFLAC stock because a friend, who had purchased stock from the same salesman in the 1950s, informed them that her stock had been converted into AFLAC stock. The Georgia Court of Appeals upheld the trial court's grant of summary judgment for AFLAC, because the Wrights' mere "speculation" was not sufficient to create a triable issue on whether the stock they purchased in 1957 had been transformed into AFLAC stock.

    The significance of the Wright decision is that, if the Wrights had presented evidence sufficient to create an issue of fact, AFLAC would then have had the burden to prove that the Wrights' stock had not transformed into AFLAC stock. Georgia statutory law places an affirmative duty on corporations to maintain stock ownership records in an appropriate manner; the records must be maintained in "a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each." O.C.G.A. ß 14-2-1601(c).

    2. PARTNERSHIPS

13. Limited Partner Remedies for General Partner's Misappropriation of Partnership Property: Bloomfield v. Bloomfield, 282 Ga. 108, 646 S.E.2d 207 (2007)

    Bloomfield v. Bloomfield, 282 Ga. 108, 646 S.E.2d 207 (2007). In this divorce action, the Supreme Court of Georgia found that trusts established for the benefit of the parties' three children were inappropriately awarded direct ownership interests in real property transferred out of a family limited partnership in which the trusts were limited partners. The children's trusts were entitled to cash compensation for the value of the property, instead.

    The wife's father originally purchased a Ponte Vedra home and placed it into a family limited partnership as the partnership's sole asset. The wife's father then gave limited partnership interests to the wife, her siblings and trusts for the benefit of her children. The wife's father also gave his 1% controlling interest as general partner of the partnership to the husband. Husband and wife bought out the limited partnership interests of the wife's siblings, but not the interests of their children's trusts. The husband later transferred the property into the couple's names jointly, without paying the partnership for the property. The husband admitted in his testimony that his children's trust should be compensated for their partnership interest. The trial court awarded the trusts a pro rata interest in the transferred property.

    The Court began by noting that under...