MOSSY DELL INC v. AB&T NATIONAL BANK

Filing 9

ORDER affirming in part and reversing in part the Bankruptcy Court's Memorandum Opinion and remanding for further proceedings consistent with this Opinion. Ordered by Judge W. Louis Sands on 9/25/2013. (bcl)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
ALBANY DIVISION
IN RE:
ROBERT MASON BEAUCHAMP,
Debtor,

:
:
:
:
:

MOSSY DELL, INC.,

:
:
Appellant,
:
:
v.
:
:
:
AB&T NATIONAL BANK,
:
:
Appellee.
:
___________________________ :

BANKRUPTCY APPEAL
1:13-CV-14 (WLS)

ORDER
Presently pending before the Court is Appellant Mossy Dell Inc.’s (“Mossy Dell”)
appeal of the United States Bankruptcy Court for the Middle District of Georgia’s
November 28, 2012 Memorandum Opinion holding that a transfer restriction on Mossy
Dell’s stock was invalid and unenforceable under Georgia law. (See Doc. 1.) For the
reasons discussed below, the Court concludes that the Bankruptcy Court’s
Memorandum Opinion is AFFIRMED-IN-PART AND REVERSED-IN-PART.
BACKGROUND
On December 28, 1972, Robert B. Lee and Flora S. Lee incorporated Flo-Rob, Inc.
(“Flo-Rob”) under the laws of Georgia. (Doc. 1 at 50.) Robert and Flora Lee had two
children, Barbara and Adelaide. (Id. at 107.) Barbara and Adelaide have since married
and are now members of the Beauchamp and Leach families, respectively. (Id.) Flo1

Rob was engaged in real estate, farming, and buying and selling securities. (Id. at 50.)
For a period of time, the Beauchamps and Leaches shared in the operation of Flo-Rob.
(Id. at 107.) No restrictions were placed on the ownership or transfer of Flo-Rob stock
until 1996. (Id.) At that time, the board of directors amended the bylaws to require
shareholders to give the corporation the right of first refusal before selling stock. (Id. at
108.)
In 2009, after tensions developed between the Beauchamps and Leaches in
relation to the operation of Flo-Rob, the families decided to split the assets into two
corporations. (Id. at 97.) The Leaches kept their stock in Flo-Rob, and Mossy Dell was
formed to receive the Beauchamps’ share of assets. (Id. at 108.) When Mossy Dell was
incorporated on July 14, 2009, its articles of incorporation provided that its shares
could only be transferred to lineal descendants of Robert and Flora Lee, and the shares
could not be transferred at all for ten years.1 (Id. at 73.) Contemporaneously with the
incorporation of Mossy Dell, Flo-Rob amended its bylaws to provide for the same
restriction. (Id. at 108.)
As a result of the asset transfer, Robert Beauchamp (“Debtor”), the debtor in the
above-captioned matter, received 4,000 shares of Mossy Dell. (Id. at 95-96.) On June
12, 2009, shortly before Mossy Dell’s incorporation and the placement of the transfer
restriction on the shares, AB&T National Bank (“AB&T National”) obtained a judgment
against Debtor in the Tenth Judicial Circuit Court in and for Jefferson County, Alabama,
in the amount of $1,293,671.49. (Id. at 71.) On September 21, 2009, the judgment was
domesticated by Order of the Superior Court of Dougherty County, Georgia. (Doc. 1-3 at
The restriction reads, in pertinent part, as follows: “The shares of the corporation may only be
transferred to lineal descendants of Flora S. Lee and her husband, Robert Lee … The distributees (electing
shareholders of Flo-Rob, Inc.) receiving Mossy Dell, Inc. shares may not transfer those shares for a period
of ten years from August 1, 2009.” (Doc. at 73.)

1

2

7.) Debtor’s 4,000 shares of Mossy Dell stock were seized and sold at a public sale to
AB&T National on October 13, 2009. (Doc. 1 at 109.) AB&T National demanded that
Mossy Dell issue a new stock certificate showing it as the owner. (Doc. 1-3 at 5.) Mossy
Dell refused and the dispute giving rise to the instant matter followed. (Id.)
On November 3, 2010, AB&T National filed suit in Superior Court in Lee County,
Georgia, seeking to compel Mossy Dell to surrender the stock certificate owned by
Debtor and issue a new stock certificate reflecting AB&T National as the owner. (Doc. 12 at 3.)

In its complaint, AB&T National alleged that the purpose of the transfer

restriction was “to defraud creditors in general and [AB&T National] in particular.”
(Doc. 1-3 at 4.) Mossy Dell denied that allegation, and the other shareholders of Mossy
Dell denied knowledge of Debtor’s financial condition or the judgment against him at
the time of Mossy Dell’s incorporation. (See Doc. 1 at 132-33.) Instead, Mossy Dell
claimed that the purpose of the transfer restriction was to ensure that the ownership of
the company remained with the families of Robert and Flora Lee, and was consistent
with a “long standing family tradition.” (Doc. 1-3 at 27.)
On May 19, 2011, AB&T National filed its Motion for Summary Judgment and
brief in support thereof in Lee County Superior Court. (Doc. 1 at 105.) In its Motion for
Summary Judgment, AB&T National argued that the circumstances surrounding the
placement of the restriction on the stock indicated fraud. (Id. at 112.) Mossy Dell
responded and argued that no fraud was involved since the family had no knowledge of
Debtor’s financial situation. (Id. at 128 ¶ 26.) Following Mossy Dell’s response to its
Motion for Summary Judgment, AB&T National filed Supplemental Brief in Support of
its Motion for Summary Judgment. (Id. at 115.) Therein, AB&T National argued that
the restriction was manifestly unreasonable and therefore unenforceable under Ga.
3

Code § 14-2-627(d)(4). (Id. at 117.) In support of this theory, AB&T National urged that
“[i]t cannot seriously be argued that a situation such as the one in the case at bar, which
converts freely alienable shares of stock that are subject to seizure by a creditor into
shares of stock that are not subject to seizure by a creditor which is accomplished after a
judgment is entered against the stockholder is not manifestly unreasonable and
arguably a violation of the Uniform Fraudulent Transfers Act.” (Id. at 117.)
On January 20, 2012, Debtor filed a voluntary petition for bankruptcy under
Chapter 7 of the United States Bankruptcy Code. (Id. at 1.) On February 28, 2012,
Debtor filed a Notice of Removal in the United States Bankruptcy Court for the Middle
District of Georgia. (Id.) The Chapter 7 Trustee filed a Motion to Intervene on June 6,
2012, which was granted by the Bankruptcy Court on July 9, 2012. (Id. at 6, 13.) On
September 24, 2012, AB&T National filed a Motion for Summary Judgment in the
Bankruptcy Court, but requested the Court to review all documents and motions
submitted in Lee County Superior Court. (Id. at 36.) Appellant responded on October
19, 2012, and requested the Court to do the same. (Id. at 120.)
On November 28, 2012, United States Bankruptcy Judge James D. Walker, Jr.
issued a Memorandum Opinion granting summary judgment in favor of AB&T National.
(Id. at 154.) The Bankruptcy Court held that the restriction prohibiting any transfer of
stock for ten years (“ten-year restriction”) and the restriction prohibiting transfer to
non-family members (“non-family restriction”) were unenforceable. (Id. at 165.) The
Bankruptcy Court noted that transfer restrictions are valid under Georgia law if (1)
adopted for a reasonable purpose, and (2) it fits within one of the four categories set
forth in Ga. Code § 14-2-627(d). (Id. at 162.) The Court held the restrictions invalid
because they did not fit within a Ga. Code § 14-2-627(d) category. (Id. at 165.)
4

As to the non-family restriction, the Court found that the only category that was
potentially applicable was Ga. Code § 14-2-627(d)(4). (See id.) That section permits a
restriction that prohibits transfer of shares to “designated persons or classes of persons,
if the prohibition is not manifestly unreasonable.”

(Id.)

The Court held that the

restriction was invalid because it did not “exclude ‘designated persons or a class of
persons’ … it does the inverse. It excludes the world, while allowing transfers to a very
limited class.”

The Court also held that the non-family restriction was manifestly

unreasonable and further explained that the
“restriction might be reasonable if it provided some
alternative means for a shareholder to realize the value of his
stock … [I]f debtor’s family were unwilling or unable to
purchase his shares, the restriction would serve as an
absolute prohibition on transfer. Absolute restrictions on
transfer are ‘unreasonable and contravene public policy.’
Because Debtor’s ability to realize the value of his shares is
solely dependent on the whims of his family, the Court
concludes that the Mossy Dell restriction on transfers to
nonfamily members is manifestly unreasonable.”
(Id. at 166-67.)
As a result of its findings, the Bankruptcy Court ordered Mossy Dell to issue the
disputed shares of stock to AB&T National. (Id. at 169.) This appeal followed.
DISCUSSION
I. Standard of Review
A district court has jurisdiction to hear appeals from final judgments, orders, and
decrees. 28 U.S.C. § 158(a)(1). In a bankruptcy appeal, the district court reviews the
bankruptcy court’s determinations of law de novo. Goerg v. Parungao, 930 F.2d 1563,
1566 (11th Cir. 1991). The district court applies the “clearly erroneous” standard of
review to the bankruptcy court’s factual findings. Id. A factual finding is not clearly
erroneous unless “this court, after reviewing all of the evidence, [is] left with the definite
5

and firm conviction that a mistake has been committed.” In re Farris, 365 F. App’x 198,
199 (11th Cir. 2010) (citation omitted).
II. Analysis
Georgia and 28 other states2 have adopted Model Business Corporation Act
(“MBCA”) § 6.27 without substantive change. Compare MODEL BUSINESS CORP. ACT §
6.27 with GA. CODE ANN. § 14-2-627. Georgia’s statute provides that transfer restrictions
on stock that are included in the corporation’s articles of incorporation are “valid and
enforceable against the holder or a transferee of the holder if the restriction is
authorized by this Code section and its existence is noted conspicuously on the front or
back of the certificate [or the holder or transferee has] knowledge of the restriction.”
GA. CODE ANN. § 14-2-627(b). The parties do not dispute that Mossy Dell’s articles of
incorporation included the transfer restrictions, and that the stock conspicuously
displayed notice of the transfer restrictions.
To be authorized, a transfer restriction must further a reasonable purpose and
achieve that purpose by use of a proper mechanism. See GA. CODE ANN. § 14-2-627(c) &
(d); see also Salt Lake Tribune Pub. Co., LLC v. AT&T Corp., 320 F.3d 1081, 1092 (10th
Cir. 2003) (interpreting similar statute enacted by Utah Legislature).

The Official

Comment to MBCA § 6.27 makes clear that subsection (c) is intended to comprise a list
of examples of reasonable purposes, such as “to maintain the corporation’s status when
it is dependent on the number or identity of its shareholders,” but that list is nonexhaustive. See GA. CODE ANN. § 14-2-627(c)(3). The Bankruptcy Court explained that,
if proven to be genuine, the purpose for the transfer restriction would be reasonable.
2 Alabama, Arizona, Arkansas, Colorado, Connecticut, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky,
Maine, Massachusetts, Mississippi, Montana, Nebraska, New Hampshire, North Carolina, Oregon, Rhode
Island, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

6

(Doc. 1 at 165.) However, the Court found that it was unnecessary to make such a
factual finding because the restrictions failed under subsection (d). (Id. at 165-66.)
Appellant raises four issues in its brief.

First, Appellant argues that the

provisions of Ga. Code § 14-2-627(d) are permissive, and therefore do not constitute an
exclusive list of permissible transfer restrictions. (Doc. 3 at 2-3.) Second, Appellant
contends that the non-family restriction is not manifestly unreasonable. (Id. at 5.)
Third, Appellant maintains that the transfer restrictions otherwise meet the statutory
criteria of Ga. Code § 14-2-627(a) & (b). (Id. at 2.) Fourth, Appellant argues that the
restrictions serve a “reasonable purpose.”

(Id.)

Due to the narrow nature of the

Bankruptcy Court’s holding, this Court need only address Appellant’s first and second
issues.
A. Nature of Ga. Code § 14-2-627(d)
In its brief, Appellant asks whether the list of mechanisms set forth by Ga. Code §
14-2-627(d) constitutes the exclusive means by which a transfer restriction may achieve
its purpose. (Doc. 3 at 2.) Although the Official Comment and Georgia case law do not
explicitly answer this question, the Court now holds that the list provided by Ga. Code §
14-2-627(d) is a complete list of the acceptable mechanisms that may be utilized by a
transfer restriction.
Georgia courts “look to the literal language of the statute[], the rules of statutory
construction and rules of reason and logic, the most important of which is to construe
the statute[] so as to give effect to the legislature’s intent.” See, e.g., Moore v. MooreMcKinney, 678 S.E.2d 152, 155 (Ga. 2009); Oni v. Oni, No. A13A0368, 2013 WL
3498514, at *3 (Ga. Ct. App. July 15, 2013); Collins v. Davis, 733 S.E.2d 798, 800 (Ga.
Ct. App. 2012). Courts should “give words their plain and ordinary meaning, and []
7

avoid a construction that makes some language mere surplusage.” Ga. Transmission
Corp. v. Worley, 720 S.E.2d 305, 307 (Ga. Ct. App. 2011).
The Official Comment to MBCA § 6.27 notes that “Section 6.27(c) [Ga. Code § 142-627(c)] describes the purposes for which restrictions may be imposed while section
6.27(d) [Ga. Code § 14-2-627(d)] describes the types of restrictions that may be
imposed.” Subsection (c) lists two examples of purposes, and provides that “any other
reasonable purpose” will suffice. Thus, subsection (c) provides a catch-all, allowing
courts to deem various purposes reasonable as those courts deem fit. Subsection (d)
does not contain such a catch-all provision. If the Georgia Legislature intended for
transfer restrictions to use mechanisms not contemplated by subsection (d), it would
have included the same catch-all language used by subsection (c).
Subsection (d) states that a “restriction on the transfer or registration of transfer
of shares may” do various things. GA. CODE ANN. § 14-2-627(d). Appellant argues that
the word “may” is permissive, and gives a list of suggestions for mechanisms that
parties may utilize. (Doc. 3 at 3.) Therefore, Appellant argues, the mechanisms listed
“are, by plain meaning, not mandatory.” (Id.) Of course, no person is required to draft
a transfer provision to do anything or draft such a provision at all. In that sense,
subsection (d) is not mandatory.
Since Georgia law emphasizes the plain meaning of words, the Court should first
look to the typical interpretation of the word, as well as the dictionary definition of the
word. See, e.g., Ga. Transmission Corp., 720 S.E.2d at 307. The word “may” typically
indicates “discretion or a choice between two or more alternatives.” United States v.
Cook, 432 F.2d 1093, 1098 (7th Cir. 1970). The Merriam-Webster Dictionary provides
various definitions of “may.” One definition states that “may” means “shall, must …
8

where the sense, purpose, or policy requires this interpretation.” However, another
definition indicates that “may” means “have permission to.” For the reasons stated
below, “may” should be interpreted in this context to refer to “discretion or a choice
between two or more alternatives.” See Cook, 432 F.2d at 1098.
Also, it should be noted that the list of cases provided by the Official Comment
only highlight examples of the use of mechanisms enumerated by subsection (d). See,
e.g., Goldberg v. United Postal Serv. of Am., Inc., 605 F. Supp. 508 (E.D.N.Y. 1985)
(right to first refusal); Hodges v. Pittman, 384 So. 2d 14 (Ala. 1980) (buy-sell
agreement); In re Estate of Hatfield, 403 N.Y.S.2d 172 (Sup. Ct. 1978) (right of first
refusal with exception for legatees in will).

Furthermore, subsection (d) includes

restrictions that are not absolute restrictions on alienation, which are against public
policy under Georgia law. See, e.g., Wills v. Pierce, 67 S.E.2d 239, 241 (Ga. 1951). For
instance, subsection (d) permits rights of first refusal, buy-sell agreements, provisions
for approval before stock transfers, and prohibitions against transfers to designated
persons or classes of persons.

See GA. CODE ANN. § 14-2-627(d).

The latter two

mechanisms, which would prohibit transfer in certain situations altogether, require that
the resulting effect not be manifestly unreasonable. See id. § 14-2-627(d)(3) & (4).
These mechanisms are consistent with the stated goal of the drafters of MBCA § 6.27,
which was to strike a balance between the public policy against absolute restraints on
alienation and the ability of corporations to contract. Therefore, the Court holds that
subsection (d) lists the permissible mechanisms that may be used by a transfer
restriction, and all mechanisms not listed are impermissible.

9

B. Mossy Dell’s Stock Transfer Restrictions
Appellant’s restrictions may be enforced under Georgia law, assuming all other
statutory requirements are met, if they use a mechanism deemed permissible by the
statute. Among the permitted mechanisms are those that “[p]rohibit the transfer … to
designated persons or classes of persons, if the prohibition is not manifestly
unreasonable.” GA. CODE ANN. § 14-2-627(d)(4).
i.

Ten-Year Transfer Restriction

The Bankruptcy Court held that the ten year provision was unenforceable under
Georgia law because it did not utilize one of the mechanisms enumerated in subsection
(d). This Court agrees. In Georgia, absolute restrictions on alienation are against public
policy. See, e.g., Wills v. Pierce, 67 S.E.2d at 241. Although the ten-year restriction is
not absolute in the sense that transfer will be permitted after ten years, it is
unreasonable. For instance, under the strict construction of its terms, see Rockowitz v.
Raab & Berger, 518 N.Y.S.2d 251 (N.Y. App. Div. 1987), the ten-year restriction
prohibits transfer even to lineal descendants of Robert and Flora Lee. Therefore, if any
current holder of Mossy Dell shares were to die within the next ten years, the terms of
the transfer restriction would purport to prohibit transfer in any sense.

This is

unreasonable and unenforceable under Georgia law.
Furthermore, as noted above, transfer restrictions must fit within one of the four
categories listed by Ga. Code § 14-2-627(d) to be enforceable under Georgia law. The
ten-year restriction is not provided for by that section.

For these reasons, the

Bankruptcy Court’s holding that the ten-year transfer restriction is invalid and
unenforceable under Georgia law is AFFIRMED.

10

ii.

Non-Family Transfer Restriction

The Bankruptcy Court held that the non-family transfer restriction did not fit
within the ambit of (d)(4) because it prohibited transfer to the world, allowing transfer
only to a narrow class of individuals, which the Court found to be the inverse of what the
statute allows.

(Id. at 165.)

The Court additionally held that the restriction was

manifestly unreasonable because it did not provide an avenue for a shareholder to
realize the value of his or her shares. (Id.)
Transfer restrictions on shares of corporate stock are treated like contracts. See
Butner v. United States, 440 U.S. 48, 55 (1979). However, they are strictly construed in
light of the law’s general disfavor of restraints on alienation. See, e.g., Rockowitz, 518
N.Y.S.2d at 251. “As a general rule, restrictions on the transferability of stock are
enforceable in [Georgia].” Brown v. Momar, Inc., 411 S.E.2d 718, 722 (Ga. Ct. App.
1991). In fact, a transfer restriction that permitted transfer only to lineal descendants of
the shareholders, albeit in dicta, was declared enforceable under Georgia law. See id. at
720-21, 722 n.1. As recognized by Chief Justice Holmes, “Stock in a corporation is not
merely property. It also creates a personal relation analogous otherwise than technically
to partnership… [T]here seems to be no greater objection to retaining the right of
choosing one’s associates in a corporation than in a firm.” Barrett v. King, 63 N.E. 934,
935 (Mass. 1902).
The Court finds that the non-family transfer restriction fits within the ambit of
Ga. Code § 14-2-627(d)(4). “[S]hareholders can restrict the potential market for their
shares to a single entity.” In re Taylor, 228 B.R. 491, 498 (Bankr. M.D. Ga. 1998). The
language used by Ga. Code § 14-2-627(d)(4) to authorize the use of provisions that are

11

designed to restrict transfer of shares to individuals within a family is the standard
language used by over one-half of the states. To find that language that excludes the
world and permits transfer only to a small class of individuals, i.e. a family, is invalid
under the statutory language would impose an onerous burden on drafters of such
restrictions. For instance, it would be impossible to specifically list all classes of persons
to whom transfer is prohibited where, as here, transfer to one class of individuals, i.e.
family members, is all that is permitted. Instead, “excluding the world” is less tedious
and just as effective as the inverse. Furthermore, the statute permits the prohibition of
“transfer of the restricted shares to designated persons or classes of persons.” GA. CODE
ANN. § 14-2-627(d)(4).

Appellant’s transfer restriction does just that; transfer is

prohibited to any person belonging to any class of persons who are not lineal
descendants of Robert and Flora Lee. (Doc. 1 at 73.)
This Court also disagrees with the Bankruptcy Court’s finding that the non-family
transfer provision is manifestly unreasonable because it does not “provide[] some
alternative means for a shareholder to realize the value of his stock.” (Id. at 165.) The
Court reasoned that this result was necessary because otherwise, “if Debtor’s family
were unwilling or unable to purchase his shares, the restriction would serve as an
absolute prohibition on transfer. Absolute restrictions on transfer are ‘unreasonable
and contravene public policy.’ ” (Id.)
The Official Comment to MBCA § 6.27 explains that a model rule for transfer
restrictions was necessary because some courts “have rigidly followed the common law
rule that [transfer restrictions] constituted restraints on alienation and should be
strictly construed [but these] principles are often inappropriate [because] share transfer

12

restrictions … are often essential parts of fundamental control structures for a closely
held business.”
In FBI Farms, Inc. v. Moore, 798 N.E.2d 440 (Ind. 2003), the Indiana Supreme
Court interpreted an identical statute.3 In that case, the transfer restrictions required
that (1) all stock sales be first approved by the Board of Directors, (2) the corporation be
given the right of first refusal, (3) all other shareholders be given a right of refusal before
the shares were offered to any third-party, and (4) any transfers of stock that had been
refused by the corporation and all shareholders could only be to family members and
only be for book value. Id. at 442.
The FBI Farms Court held all four of the transfer restrictions valid. The two
provisions giving a right of first refusal to the corporation and shareholders were upheld
because the statute expressly allows such provisions without regard to whether they are
manifestly unreasonable. See IND. CODE ANN. § 23-1-26-8(d)(1). The court noted that,
unlike the right of first refusal provisions, the restrictions requiring board approval and
prohibiting transfer to non-family members were additionally required by the statute to
not be manifestly unreasonable. See id.; see FBI Farms, 798 N.E.2d at 447.
The factors that are relevant in determining whether a transfer restriction is
reasonable include the size of the corporation, the degree of restraint upon alienation,
the time the restriction is to continue in effect, the method to be used in determining the
transfer price of shares, the likelihood of the restriction’s contributing to the attainment
of corporate objectives, the possibility that a hostile shareholder might injure the
corporation, and the probability of the restriction’s promoting the best interests of the

The Indiana and Georgia statutes governing restrictive transfers are identical to Model Business
Corporation Act § 6.27. Compare IND. CODE ANN. § 23-1-26-8(d)(1) with GA. CODE ANN. § 14-2-627.

3

13

corporation. FBI Farms, 798 N.E.2d at 447; Goldblum v. Boyd, 341 So. 2d 436, 446 (La.
App. 1976). The Bankruptcy Court did not expressly consider these factors.
It is not necessary that the transfer restriction explicitly provide alternative
means for a shareholder to realize the value of his stock.

Mossy Dell could not

arbitrarily decide not to purchase Debtor’s shares because a corporation’s board of
directors is constrained by their fiduciary duties and may not take actions in bad faith.
See GA. CODE ANN. § 14-2-830. Although a shareholder of Mossy Dell may not be able to
sell his or her shares if the corporation did not have the funds to buy them, that fact
does not render the transfer restriction manifestly unreasonable.

An individual’s

inability to sell shares of corporation stock does not necessarily mean that person has
been treated unfairly, it may simply mean that no one is willing to pay for the shares or
that the shares are not worth what the holder is asking. This is a fact of economics, not
an unfairness of Mossy Dell’s transfer restriction.
Furthermore, the fact that the securities at issue were obtained by an involuntary
transfer does not necessarily render the transfer restriction invalid.

The Uniform

Commercial Code holds that “a purchaser of a certificated … security acquires all rights
in the security that the transferor had or had power to transfer.” U.C.C. § 8-302. FBI
Farms held that the creditor in that case could properly buy the stock at the sheriff’s sale
but, since he took the shares with knowledge of the restrictions, it was “not unfair to
[the] creditors that a purchaser at a foreclosure sale acquire the disputed shares subject
to the same restrictions, and with whatever lessened value that produces.” FBI Farms,
798 N.E.2d at 449.
As further evidence that this result is not manifestly unreasonable or unfair, it
should be noted that the Georgia Legislature has mandated this result. Georgia law
14

provides for a right to transfer shares to third parties after a right of first refusal has
been given to the corporation. GA. CODE ANN. § 14-2-911(a). However, this right applies
only to statutory close corporations, which Mossy Dell is not. Id.; see also id. § 14-2910. If the Georgia Legislature intended to provide this option to shareholders in a
corporation such as Mossy Dell, it would have done so.
The Bankruptcy Court suggested that the non-family transfer restriction could be
reasonable if it “require[d] the corporation to purchase the shares at a formula price if a
shareholder wanted to sell his stock [GA. CODE ANN. § 14-2-627(d)(2)] [or] require[d]
the seller to offer the stock to the corporation or existing shareholders prior to selling it
to outsiders [GA. CODE ANN. § 14-2-627(d)(1)].” (Doc. 1 at 165.) A requirement that
enables a shareholder to have the ability to realize the value of his or her shares at all
times ignores the possibility that the corporation or its shareholders may not always
have the resources to purchase the shares. In such a scenario, the only way for a
shareholder to realize the value of her shares would be to sell the shares to a third party.
The plain language of (d)(4), however, avoids this result; the corporation may
prohibit the transfer of shares to designated persons regardless of the corporation’s
ability to purchase the shares as long as the prohibition is reasonable. See GA. CODE
ANN. § 14-2-627(d)(4).

Requiring an avenue to realize the value of one’s shares

threatens a corporation’s ability to restrict transfer to certain persons.

Thus, by

requiring that a right of first refusal or a buy-sell agreement accompany a prohibition
against the “transfer of the restricted shares to designated persons or classes of
persons,” the apparent purpose of the latter mechanism, i.e. ensuring that transfer to
certain persons is impossible, is frustrated.

See id. § 14-2-627(d)(4).

Under the

Bankruptcy Court’s holding, if the corporation is unable to purchase the shares, the
15

shares could be transferred to classes of persons the corporation sought to exclude from
meddling with its affairs. This result would render Ga. Code § 14-2-627(d)(4) “mere
surplusage,” which is not permitted under Georgia law. See Ga. Transmission Corp.,
720 S.E.2d at 307.
This Court does not interpret (d)(4) as requiring an avenue for every shareholder
to realize the value of his or her shares. Instead, the Court finds that the intent of the
“manifestly unreasonable” requirement of (d)(4) was to at least prevent absolute
restrictions on transfer. Although there may be provisions that do not amount to
absolute restrictions on transfer but would nonetheless offend the “manifestly
unreasonable” requirement of (d)(4), the restriction at issue in this suit is not such a
restriction. See FBI Farms, 798 N.E.2d at 447. Accordingly, the Bankruptcy Court’s
holding that the non-family transfer restriction is unenforceable under Georgia law is
REVERSED.4
For the foregoing reasons, the Bankruptcy Court’s Memorandum Opinion is
AFFIRMED-IN-PART

AND

REVERSED-IN-PART,

and

this

matter

is

REMANDED for further proceedings consistent with this Opinion.

It should be noted that this holding does not leave Appellee without recourse. Courts have long held that
there is no reason that a creditor who obtains a debtor’s share in a corporation should be entitled to any
greater property right than that previously held by the debtor. See, e.g., U.C.C. § 8-302. In this case,
Debtor held the shares of Mossy Dell with the same transfer restriction that binds Appellee. Whatever
depreciation in value caused by that restriction is to be suffered by Debtor and Appellee alike. If
Appellant has acted fraudulently to deprive Appellee of its rights, Georgia law provides Appellee with the
opportunity to seek retribution. See GA. CODE ANN. § 18-2-70, et seq. In its brief, Appellee argues that
Georgia’s enactment of the Uniform Fraudulent Transfers Act “is helpful in understanding why a court of
equity should not enforce the position being taken by Mossy Dell.” (Doc. 8 at 8.) Appellee may be correct
that “Debtor obviously had full knowledge of his financial situation when the transfer of assets occurred
and for the corporation to now take the position that the stock it issued is not subject to levy and sale flies
in the face of all logic and equity.” (Id. at 9.) However, for the Bankruptcy Court to hold that there has
been a violation of Georgia’s Fraudulent Transfers Act, it must necessarily have concluded that there was
no dispute of fact regarding Mossy Dell’s alleged fraudulent purpose of enacting the transfer restrictions.
See In re Taylor, 228 B.R. 491 (Bankr. M.D. Ga. 1998). However, the record does not at this point require
that conclusion.
4

16

SO ORDERED, this

25th day of September, 2013.

/s/ W. Louis Sands ___________________
THE HONORABLE W. LOUIS SANDS,
UNITED STATES DISTRICT COURT

17