Stephen Barnett, a minority shareholder in a closely held corporation, attempted to proceed with a direct shareholder action against some, but not all, of the other shareholders, alleging malfeasance in the performance of their corporate duties. In his complaint, Barnett claimed that the defendant shareholders had refused his demand to review the corporate records in violation of the Georgia Business Corporation Code; had misappropriated corporate funds and assets; had falsified the corporate books and records; and had failed to account for corporate income attributed to him in corporate tax filings or to pay the income over to him. The trial court dismissed Barnett’s complaint for failure to state a claim upon which relief could be granted, concluding that none of his claims could be pursued against the defendants in a direct shareholder action. Because Barnett was entitled to pursue a direct action against the defendant shareholders for their alleged failure to account for his share of the corporate income or to pay the income over to him, we reverse the trial court’s dismissal of that claim. We affirm the trial court’s dismissal of the remaining claims.
A trial court’s ruling on a motion to dismiss is reviewed de novo.
See Hendry v. Wells,
Our role is to determine whether the allegations of the complaint, when construed in the light most favorable to the plaintiff, and with all doubts resolved in the plaintiffs favor, disclose with certainty that the plaintiff would not be entitled to relief under any state of provable facts.
(Citations and punctuation omitted.) Id. at 781 (2). Nonetheless, “it
is still possible for a litigant to plead himself out of court by revealing a state of facts which affirmatively shows that there is no liability on the defendant.”
Hodge v. Dixon,
Plaintiff Barnett is a minority shareholder in Earthwise Industries, Inc., a closely held Georgia corporation. His complaint asserted multiple causes of action against the three corporate directors who comprised the majority shareholders of the corporation, Andrew Fullard, Adena Fullard, and Jane Hix (the “Shareholder Defendants”). As originally filed, Barnett’s complaint also named Earth-wise as a defendant and asserted both direct and derivative claims. Subsequently, however, Earthwise was voluntarily dismissed as a party defendant, and Barnett chose to proceed only with his purported direct claims against the Shareholder Defendants.
Barnett’s complaint alleged that the Shareholder Defendants had violated OCGA § 14-2-1602 by refusing his demand to inspect corporate records; had misappropriated corporate assets for their personal use and for a rival business solely controlled by one of the defendants; had inappropriately altered the corporate books and records to disguise the misappropriations; and had failed to account for corporate income attributed to him in corporate tax filings or to distribute the income to him. The Shareholder Defendants moved to dismiss Barnett’s complaint for failure to state a claim upon which relief could be granted on the ground that none of his claims could be pursued against them individually in a direct action. The trial court
1. Initially, we point out that Barnett’s appellate brief is not in compliance with Court of Appeals Rule 25 (c) (1), which requires that “[t]he sequence of arguments in the briefs shall follow the order of the enumeration of errors, and shall be numbered accordingly.” Although Barnett’s brief enumerates several separate errors, his brief does not contain separate argument sections for each enumeration and follows no particular order in its presentation.
As we have held, Rule 25 (c) (1) is more than a mere formality. It is a requirement which this Court imposes to ensure that all enumerations of error are addressed and to facilitate review of each enumeration. By failing to comply with the rule, [Barnett] has hindered the Court’s review of his assertions and has risked the possibility that certain enumerations will not be addressed. Accordingly, to the extent that we are able to discern which of the enumerations are supported in the brief by citation of authority or argument, we will address those enumerations.
(Citation and punctuation omitted.)
Marchant v. Travelers Indem. Co. &c.,
2. Barnett contends that the trial court erred in dismissing his claim under OCGA § 14-2-1602 pursued against the Shareholder Defendants. Because this statutory cause of action contemplates that the suit be brought against the corporation, we discern no error by the trial court.
OCGA § 14-2-1602 affords a shareholder the right to inspect and copy certain corporate records by giving written notice of his demand to the corporation. See OCGA § 14-2-1602 (b), (c). 1 If the corporation improperly denies the shareholder’s demand, the shareholder may apply for a court order authorizing the inspection and copying of the records demanded. See OCGA § 14-2-1604 (a), (b). 2 If the trial court enters an order authoring inspection and copying of the records, the shareholder is entitled to recover from the corporation his attorney fees and costs incurred in obtaining the order, “unless the corporation proves that it refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded.” OCGA § 14-2-1604 (c).
Barnett’s claim was properly dismissed in light of this statutory framework. Interpretation of statutes presents a matter of law for the courts.
City of Buchanan v. Pope,
By its plain terms and when read in conjunction with OCGA § 14-2-1602, OCGA § 14-2-1604 clearly contemplates an action by the shareholder against the corporation where there is a refusal of a demand to inspect and copy the corporate records. But Barnett voluntarily dismissed the corporation, Earthwise, as a party defendant prior to the trial court’s ruling on the Shareholder Defendants’ motion to dismiss for failure to state a claim. Because Barnett could not pursue his statutory claim for inspection and copying of the corporate records against the remaining individual defendants, the claim was properly dismissed.
3. Barnett further contends that the trial court erred in dismissing his claims against the Shareholder Defendants for their alleged misappropriation of corporate assets and alteration of the corporate books and records to disguise the misappropriations. Because these claims could only be pursued in a shareholder derivative action, we conclude that the trial court committed no error.
In a shareholder derivative action, the shareholder sues on behalf of the corporation for the harm done to it, and any damages recovered by the shareholder are paid to the corporation. See
Phoenix Airline Svcs. v. Metro Airlines,
“The determination of whether a claim is derivative or direct is made by looking to what the pleader alleged. It is the nature of the wrong alleged and not the pleader’s designation or stated intention that controls the court’s decision.” (Citations and punctuation omitted.)
Southwest Health &c. v. Work,
First, a shareholder has standing to bring a direct action, seeking recovery on behalf of the shareholder individually, if the suit alleges a special injury separate and distinct from that suffered by other shareholders, or alleges a wrong involving a shareholder contractual right existing ap^rt from any right of the corporation. Second, a direct action may be proper in the context of a closely held corporation where the circumstances show that the reasons for the general rule requiring a derivative suit do not apply.
(Citations, punctuation and emphasis omitted.)
Rosenfeld v. Rosenfeld,
(a)
Special Injury.
The trial court correctly concluded that Barnett failed to allege a special injury separate and distinct from that suffered by Earthwise and the other shareholders.
3
As noted, Barnett alleged in his complaint that the Shareholder
(b)
Closely Held Corporation.
The trial court also correctly concluded that Barnett failed to show that the exception for closely held corporations applied in this case. Even if a shareholder fails to allege a. special injury, he may bring a direct action if the corporation is closely held and “the circumstances show that the reasons for the general rule requiring a derivative suit do not apply.” (Citation and emphasis omitted.)
Southwest Health &c.,
[T]he reasons for requiring derivative suits in the ordinary corporate context are (1) to prevent multiple suits by shareholders; (2) to protect corporate creditors by ensuring that the recovery goes to the corporation; (3) to protect the interest of all the shareholders by ensuring that the recovery goes to the corporation, rather than allowing recovery by one or a few shareholders to the prejudice of others; and (4) to adequately compensate injured shareholders by increasing their share values.
(Citations omitted.)
Southwest Health &c.,
Significantly, not all of Earthwise’s shareholders are parties to this suit.
4
As such, there is a risk of multiple suits and of possible prejudice to the rights of the other shareholders. The exception permitting a direct action in the context of a closely held corporation, therefore, cannot be applied in this case. See
Levy v. Reiner,
4. We reach a different result with respect to Barnett’s claim against the Shareholder Defendants for failing to account for corporate income attributed to him in corporate tax filings or to pay the income over to him. “The alleged injury was related to a right to a portion of the financial items produced by the [corporation],” and thus was direct rather than derivative in nature. (Citation and punctuation omitted.)
Hendry,
Judgment affirmed in part and reversed in part.
Notes
OCGA § 14-2-1602 provides in part:
(b) A shareholder of a corporation is entitled to inspect and copy, during regular business hours at the corporation’s principal office, any of the records of the corporation described in subsection (a) of this Code section if he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy.
(c) A shareholder of a corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation if the shareholder meets the requirements of subsection (d) of this Code section and gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy[.]
OCGA § 14-2-1604 provides in part:
(a) If a corporation does not allow a shareholder who complies with subsection (b) of Code Section 14-2-1602 to inspect and copy any records required by that subsection to be available for inspection, the superior court of the county where the corporation’s registered office is located may summarily order inspection and copying of the records demanded at the corporation’s expense upon application of the shareholder. ,
(b) If a corporation does not within a reasonable time allow a shareholder to inspect and copy any other record, the shareholder who complies with subsections (c) and (d) of Code Section 14-2-1602 may apply to the superior court in the county where the corporation’s registered office is located for an order to permit inspection and copying of the records demanded. The court shall dispose of an application under this subsection on an expedited basis.
It is undisputed that Barnett did not allege a wrong involving a shareholder contractual right that existed separate from any right of Earthwise.
Barnett’s complaint did not address or acknowledge that there were other shareholders who were not named as parties. But the Shareholder Defendants pointed out to the trial court that there were other shareholders not named as parties in this action; the trial court recognized this fact in its order dismissing the complaint; and Barnett acknowledged this fact in his brief on appeal. Barnett’s acknowledgment constitutes a binding admission in judicio that supports the dismissal of his complaint. See
Ray v. Scottish Rite Children’s Med. Center,