Southland Propane, Inc. v. McWhorter
312 Ga. App. 812
| Ga. Ct. App. | 2011Background
- Arrington and McWhorter formed LaGrange Propane Services, Inc. (LPS) as a closely held corporation in 1994 with Arrington holding 51% and CEO role, and McWhorter 49% and treasurer role.
- Over years, both used company funds for personal expenses and Arrington lent funds to LPS while arranging notes from their own loans to finance related ventures.
- In 2004, Arrington terminated McWhorter, foreclosed LPS assets, and formed Southland Propane, Inc. through the proceeds.
- McWhorter sued for defamation, conversion, breach of fiduciary duty, fraud, and intentional infliction of emotional distress, among other claims.
- The jury awarded damages on several claims; the trial court entered judgment consistent with the verdict; defendants appealed on multiple grounds.
- The court held that McWhorter could not pursue direct claims for corporate-interest injuries in a closely held context and that certain damages issues required reversal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether direct actions are proper for corporate-interest claims | McWhorter, as a close shareholder, can sue directly for corporate injuries. | Such claims must be pursued derivatively for the corporation's benefit. | Direct-action claims improper; derivative action required |
| Whether the trial court erred in denying j.n.o.v. on conversion, fraud, and breach of fiduciary duty | Evidence supported McWhorter’s direct claims against the defendants. | Evidence insufficient for jury verdict on these claims. | Reversed for these claims; judgment on these is vacated |
| Whether the intentional infliction of emotional distress claim merits j.n.o.v. | Defendants’ conduct was extreme and outrageous, causing severe distress. | Conduct was not extreme or outrageous; distress not proven. | Reversed; claim fails as a matter of law |
| Whether punitive damages could stand given the reverse on underlying claims | Punitive damages may be warranted based on the defamation claim. | Cannot base punitive damages on reversed underlying claims. | Punitive damages reversed; remand for new trial on punitive damages based on defamation verdict |
Key Cases Cited
- Park v. Nichols, 307 Ga. App. 841 (Ga. App. 2011) (punctuation omitted)
- Timmons v. Cook, 287 Ga. App. 712 (Ga. App. 2007) (summary of appellate treatment)
- Southwest Health & Wellness, LLC v. Work, 282 Ga. App. 619 (Ga. App. 2006) (several evidentiary standards in appeals)
- Barnett v. Fullard, 306 Ga. App. 148 (Ga. App. 2010) (derivative suit considerations in closely held corporations)
- Abdul-Malik v. AirTran Airways, Inc., 297 Ga. App. 852 (Ga. App. 2009) (emotional distress standards and evidence requirements)
- Biven Software, Inc. v. Newman, 222 Ga. App. 112 (Ga. App. 1996) (derivative injury rule in corporate context)
- Yarbray v. Southern Bell Tel. & Tel. Co., 261 Ga. 703 (Ga. 1991) (equitable considerations in corporate veil opinions)