Dr. Russell Aeree formed Memorial Health Services, Inc. (MHS) to manage various small hospitals. MHS entered into a management agreement with Irwin County Hospital (Hospital). Aeree, Dr. Howard McMahan, and Dr. Gene Jackson formed AJM, Inc. in furtherance of their agreement for McMahan and Jackson to relocate and eventually become part of the management team at the Hospital. Due to subsequent disagreements, Aeree, acting in his individual capacity, agreed to purchase McMahan’s and Jackson’s interest in AJM for $750,000 each. For over a year, Aeree caused MHS and the Hospital to make the payments for which he was obligated under the buyout agreement. After further conflict, however, Jackson discontinued his practice in the area, and Aeree later terminated the payments to McMahan. Although the agreement was with Aeree, McMahan brought suit against both Aeree and MHS (Appellants) to recover damages for breach of contract. The jury returned a verdict against both Appellants, on which the trial court entered judgment in favor of McMahan. The Court of Appeals affirmed, concluding, as to the judgment against MHS, that the concept of reverse piercing of the
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corporate veil is applicable in Georgia and that the trial court did not err in its charge thereon.
Acree v. McMahan,
An increasing number of courts have recognized the distinction between “insider” and “outsider” reverse piercing claims, first articulated in Crespi, “The Reverse Pierce Doctrine: Applying Appropriate Standards,” 16 J. Corp. L. 33, 37 (II) (A) (1990). Outsider reverse veil-piercing extends the “traditional veil-piercing doctrine to permit a third-party creditor to ‘pierce( ) the veil’ to satisfy the debts of an
individual
out of the corporation’s assets. [Cit.]” (Emphasis in original.)
C.F. Trust v. First Flight,
The issue is one of first impression in this state. Certain opinions of our Court of Appeals have held that the evidence in the particular case would not support reverse piercing assuming that the doctrine were viable.
Plaza Properties v. Prime Business Investments,
“Reverse alter ego is an equitable doctrine; it stretches the imagination, not to mention the equities, to conceive of how someone wholly outside the corporation may be used to pierce the corporate veil from within.” Estate of Daily v. Title Guaranty Escrow Svc., 178 *882 B.R. 837, 845 (III) (D. Hawaii 1995).
The [outsider] reverse-pierce theory presents many problems. It bypasses normal judgment-collection procedures, whereby judgment creditors attach the judgment debtor’s shares in the corporation and not the corporation’s assets. Moreover, to the extent that the corporation has other non-culpable shareholders, they obviously will be prejudiced if the corporation’s assets can be attached directly. In contrast, in ordinary piercing cases, only the assets of the particular shareholder who is determined to be the corporation’s alter ego are subject to attachment. [Cit.]
Cascade Energy and Metals Corp. v. Banks, 896 F2d 1557, 1577 (I) (D) (2) (10th Cir. 1990).
Although in Cascade [the] particular concern was with non-culpable third-party shareholders of the corporation being unfairly prejudiced, no greater culpability should attach to . . . third-party corporate creditors harmed by reverse-piercing. . . . There are reasons beyond those identified in Cascade to deny an alter ego claim of this kind. For one thing, the prospect of losing out to an individual shareholder’s creditors will unsettle the expectations of corporate creditors who understand their loans to be secured - expressly or otherwise - by corporate assets. Corporate creditors are likely to insist on being compensated for the increased risk of default posed by outside reverse-piercing claims, which will reduce the effectiveness of the corporate form as a means of raising credit. Furthermore, as Judge Learned Hand suggested in what may be the earliest case to consider such a claim, outside reverse piercing is only appropriate in the rare case of a subsidiary dominating its parent. See Kingston Dry Dock Co. v. Lake Champlain Transp. Co., 31 F2d 265, 267 (2d Cir. 1929); see also Crespi[, supra] at 67 (“Kingston stands for the proposition that the highly unusual circumstance of a subsidiary dominating its parent is a virtual prerequisite for finding the kind of unity that would allow an outside() reverse pierce. . . .”); [cit.]
Floyd v. I.R.S.,
As a consequence, it is appropriately granted only in the absence of adequate remedies at law. [Cit.] In cases where a corporation has been dominated by a controlling stockholder, an agency . . . theory may suffice to hold the corporation liable for the actions of that stockholder. [Cit.] Standard judgment collection procedures may also suffice to cover shareholder liability without expanding equitable theories of corporate liability. [Cit.]
Floyd v. I.R.S., supra at 1300 (III). Accordingly,
we are inclined to conclude that more traditional theories of conversion, fraudulent conveyance of assets, respondeat superior, and agency law are adequate to deal with situations where one seeks to recover from a corporation for the wrongful conduct committed by a controlling stockholder without the necessity to invent a new theory of liability.
Cascade Energy and Metals Corp. v. Banks, supra at 1577 (I) (D) (2). Gwinnett Property, N.V. v. G+H Montage GmbH, supra at 893 (2). Allowing outsider reverse piercing claims would constitute a radical change to the concept of piercing the corporate veil in this state and, thus, should be created by the General Assembly and not by this Court. See Hogan v. Mayor & Aldermen of Savannah, supra at 674 (3).
Under the rulings in Divisions 2 through 4 of the Court of Appeals’ opinion, McMahan prevailed under the buyout agreement against Aeree individually.
Farmers Warehouse v. Collins,
Judgment affirmed in part and reversed in part.