Patrick McCabe v. Rhett Rainey
343 Ga. App. 480
| Ga. Ct. App. | 2017Background
- Patrick and Dara McCabe and Rhett Rainey were co-owners/managers of a group of LLCs operating a car wash; Car Wash Partners (60% McCabes, 40% Rainey) was sole member of Carnett’s LLC.
- After a bank suit over a $1.9M loan, the parties entered a July 2013 settlement: McCabe resigned as manager, Rainey became manager and was authorized to seek/guarantee new financing and to sell assets in his discretion; McCabes transferred 10% membership interest to Rainey to equalize ownership.
- The settlement supplemented the operating agreements and stated its terms would control where in conflict; it constrained certain acts (e.g., Rainey not to hire his wife) and required McCabes’ cooperation on financing documents.
- In Sept. 2013 Rainey obtained two family loans and paid off the bank; the LLC later defaulted and Rainey, acting alone, sold the Carnett’s LLC assets in early 2016, representing himself as the sole owner/sole member and signing sale documents without McCabes’ signatures.
- The McCabes sued (Nov. 2015; amended July 2016) for breach of the settlement agreement, breach of fiduciary duty (derivatively and directly), fraud, injunctive and declaratory relief, and other remedies; the trial court granted summary judgment to Rainey on all claims except judicial dissolution and the McCabes appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the summary judgment motion properly considered as to the amended complaint though filed before amendment? | McCabes argued SJ shouldn't apply to amended complaint and hearing was <30 days after amendment. | Rainey argued original SJ timely and his supplemental brief applied SJ grounds to amended complaint; parties agreed continuance. | Court: SJ hearing proper; no error in considering motion as to amended complaint. |
| Did Rainey breach the settlement / fiduciary duties by hiring his wife and diverting income? | McCabes: hiring violated settlement; diversion suggests intentional misconduct and personal benefit. | Rainey: relied on settlement powers and operating agreement; acts within discretion. | Court: Genuine issues of material fact remain; reversed SJ on this issue. |
| Did Rainey misrepresent himself as sole member and sell assets without required McCabes’ signatures? | McCabes: Rainey falsely claimed to be sole owner; sale without their signatures breached agreement and fiduciary duty. | Rainey: settlement authorized sale discretionarily; asserted authority to act for LLC. | Court: Material fact questions exist; SJ improperly granted as to misrepresentation and failure to obtain signatures. |
| Were the family loans and resulting management decisions a breach (self-dealing/above-market rate)? | McCabes: loans from family may have been above market and created personal benefit and foreclosure power favoring family. | Rainey: had authorization to obtain financing and discretion to set terms; relied on settlement. | Court: Evidence raises genuine fact issues whether loans violated settlement or fiduciary duties; reverse SJ on these claims. |
| Are the McCabes’ claims barred by res judicata from earlier bank litigation dismissals? | Rainey: prior dismissal of cross-claims in bank action precludes relitigation. | McCabes: settlement and alleged breaches postdate bank action and could not have been raised earlier. | Court: Res judicata does not bar these claims because the matters arose after and under different agreements; trial court erred to the extent it relied on claim preclusion. |
Key Cases Cited
- Lau’s Corp. v. Haskins, 261 Ga. 491 (1991) (summary judgment standard; burden on movant)
- Ledford v. Smith, 274 Ga. App. 714 (2005) (operating agreement may modify or eliminate fiduciary duties under OCGA § 14-11-305)
- Internal Med. Alliance v. Budell, 290 Ga. App. 231 (2008) (managerial actions taken in bad faith may support finding of breach of duty)
- Baxter v. Fairfield Fin. Svcs., 307 Ga. App. 286 (2010) (elements for res judicata: identical parties and subject matter; full and fair opportunity to litigate)
- King v. Brock, 282 Ga. 56 (2007) (nominal damages and remedies for contract breach)
- Benedek v. Bd. of Regents, 332 Ga. App. 573 (2015) (procedural considerations for adding parties; courts should not decide merits when analyzing joinder)