Raiford et al v. National Hills Exchange, LLC et al

Filing 239

ORDER granting Plaintiffs' 184 Motion to Reinstate Count IV; denying Plaintiffs' 187 Motion for Reconsideration of Denial of Plaintiffs' Motion to Amend; and, denying Plaintiffs' 189 Motion for Reconsideration of the Court's granting of summary judgment in favor of Defendants on Count II. Signed by Judge J. Randal Hall on 5/17/2016. (jah)

IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF GEORGIA
AUGUSTA DIVISION

J. WAYNE RAIFORD and B, T & R
ENTERPRISES, LLC,

*
*
•

Plaintiffs,

*
*

v.

NATIONAL HILLS EXHANGE, LLC;
SNELLVILLE CORSSING, LLC;

*
*

RICHARD D. SWOPE; RONALD J.
DeTHOMAS; JAMES S. TIMBERLAKE;
THOMAS L. ABERNATHY; and

*
*
*

STEVEN E. GAUNTLEY,

*

Defendants.

l:ll-cv-152

*

ORDER

In April and May 2015,
reconsider
these

the

Court's

motions

seek

Plaintiffs

March

27,

filed three motions to

2013

reconsideration

of

Order.
the

Specifically,

Court's

denial

of

Plaintiffs' motion to amend their complaint (Doc. 187); grant of

summary judgment in Defendants' favor on Plaintiffs' fraud claim
(Doc.
relief

189);
(Doc.

information
Court

and dismissal of Plaintiffs'
184).
and

the

addresses

each

After
legal
of

setting
standard

these

out
for

motions

claim for equitable
relevant

background

reconsideration,

separately.

The

the
Court

REINSTATES Plaintiffs' claim for equitable relief (Count IV) and
DENIES the other motions.

I.

This
members

case

who

concerns

are

Shopping Center
Augusta,

BACKGROUND

a dispute between businesses

former

and

current

("the Property"),

Georgia.

Court

of

National

Hills

located on Washington Road in

The complete factual background is set out in

the Court's March 27, 2013 Order.
the

owners

and their

summarizes

the

(Doc. 118 at 1-30.)

procedural

history

Briefly,

relevant

to

the

claims

against

present motions.

Plaintiffs'
Defendants:

(1)

with contract
M

20-32.)

moved

to

Complaint
breach

(3)

fraud;

After

amend

fiduciary

the

their

duty

DeThomas,

of

James

alleged
contract;

and

(4)

(2)

deadline

Complaint

to

add

Defendants

Timberlake,

tortious

interference

specific performance.

Court's

against

four

Thomas

to

amend,

claims

Richard

Plaintiffs'

motion

was

for

Defendants

motion for summary judgment on Plaintiffs'

48.)

The

Magistrate

Judge

then

amend, and Plaintiffs objected.

for

Magistrate

summary

Judge's

relevant here,

judgment

Order.

the Court:

four

of

Ronald

and

Steven

(Doc. 45.)
filed

their

claims.

Plaintiffs'

(Doc.

motion

to

(Docs. 102, 104.)

In its March 27, 2013 Order,
motion

denied

breach

Swope,

Abernathy,

pending,

1

Plaintiffs

Gaultney (collectively the "Individual Defendants").
While

(Doc.

and

Among

the Court resolved Defendants'
Plaintiffs'

other

objection

rulings

that

to

the

are

not

1. Overruled Plaintiffs'
objections
to the Magistrate
Judge's Order denying Plaintiffs' motion to amend;
2. Granted
summary
judgment
in
Defendant's
favor
on
Plaintiffs'
fraud
claim,
claim
for
tortious
interference with contract,
and claim for specific
performance;

3. Denied

summary

contract

(Order,

Doc.

118

reconsideration
their

fraud

judgment

Plaintiffs'

breach-of-

claim.

at

of

72-73.)

the

Plaintiffs

Court's

claim.

(Doc.

"[did]

not

grant

119.)

Plaintiffs

because

on

The

of

immediately
summary

Court

establish

judgment

denied

any

sought

that

clear

motion

error

manifest injustice imposed by the Court's prior ruling."
123

at

8.)

Since

that

time,

most

of the

Court's

been consumed with resolving discovery disputes.
Docs.

171,

176,

179,

181.)

The

II.

LEGAL

Ga.

Local

Jan.

1423,

30,

reconsider

No

2013) .

motions

of this

3:10-cv-087,

for

case.

STANDARD

a court must

District

orders

54(b).

2012 WL 4372289,

the

Collins v. Int'1 Longshoremen's

2:09-cv-093,

interlocutory

judgment under Rule

Orders,

finality and judicial economy against

need to render just decisions."
Ass'n

(Doc.

(E.g.,

"In considering a motion for reconsideration,
balance the need for

or

attention has

present

reconsideration return the Court to the merits

on

2013

courts

at

Watkins
at *4

WL

have

any
v.

393096,

the

time

Capital

(S.D.

Ga.

at

*1

(S.D.

discretion

before

final

City Bank,

Sept.

to

No.

24, 2012);

Lambert

v.

156875,

Briggs

at *1

&

(S.D.

Stratton

Ga.

Jan.

Corp.,

No.

6:04-cv-016,

2006

WL

19, 2006).

Although the text of Rule 54(b) does not specify a standard

to

be

used by

courts
for

courts

in this

Circuit

reconsideration

intervening

evidence;
manifest

Fla.

2d 1313,

No.

Servs.,

Mar.

1320

14,

The

convincing
decision,

employed

2013

nature
for

to

Inc.,

No.

offer

to

present

new

legal

law;

if

(2)

error

Deposits

Conduit,

set

forth

induce

Voter

at

the
is

*1

(M.D.
or

Court

6:09-cv-1969,

prevent
v.

to

Inc.

2011 WL

at *l-2

of

Co.,

Sept.
a

its

Election
at

19,

strongly

prior

remedy

3862450,

Supp.

Ins.

reverse

v.

Index

696 F.

extraordinary

Verified,

or

Fla.

law

an

discovered

Liberty Mut.

facts

an

(1)

2008 WL 5691349,

Merrett v.

5289095,

a motion

LLC

Jones,

Rule,

is

newly

accord Bryant v.

WL

the

there

clear

correct

07-22735,

reconsideration

Fla. Aug. 31, 2011).

used

No.

2010);

must

sparingly.

Software,

LLC,

Ga.

movant

to

Insured

2008);

(N.D.

3:10-cv-1195,

2013) .

need

under

position that

granted

controlling

the

authority

"have taken the

in

injustice."

Powered Fin.

(S.D.

(3)

exercising

should only be

change

or

in

to

be

Sys.

*2

&

(M.D.

A motion for reconsideration should not be

arguments
theories

already
or

heard

evidence

presented before the original decision.

and

that

dismissed,

a party

S.E.C.

or

to

could have

v. Mannion,

l:10-cv-3374, 2013 WL 5999657, at *2 (N.D. Ga. Nov. 12, 2013).

No.

III.

DISCUSSION

A. Reconsideration of the Court's Denial of
Plaintiffs7

In

the

Motion to Amend

March

27,

2013

Plaintiffs'

objections

to

Plaintiffs

leave

amend

Plaintiffs'

motion

to
for

the

Order,

the

Magistrate

their

Court

Judge's

Order

Complaint.

reconsideration

overruled

denying

(Doc.

requests

118.)

permission

to

amend their Complaint in light of newly discovered evidence that

Plaintiffs

contend

discovery.

Given Defendants'

the

amendment,

Defendants

Plaintiffs

improperly

withheld

during

conduct during discovery,

argue,

would

amount

to

a

to

deny

manifest

injustice.

Before

addressing

restating

the

objections

to

March

2013

27,

failed

to

the Court

Court's
the

reasons

Magistrate

Order,

provide

Plaintiffs'

the

complete

for

Judge's

Court

argument,

overruling
Order.

found that, by January 10,

the

that

responses;

is

worth

Plaintiffs'

In

acknowledged

discovery

it

Court's

Defendants

nevertheless,

2012, the date Plaintiffs

deposed Peter Blum, they had the necessary information to add a
breach-of-fiduciary duty claim.

the Court explained,

(Order, Doc. 118 at 34-35.)

As

"[h]ad Plaintiffs exercised the requisite

degree of diligence, they would have filed a breach of fiduciary

duty claim soon thereafter," instead of waiting an additional
four months.
because

(Id.

at

Plaintiffs'

35.)
lack

Further,

the

information

Court

observed that

concerning

these

transactions,

depositions
claims.

diligence

to

determine

(Id.

Plaintiffs'

required

at

whether

36-37.)

them

they

The

to

seek

should

Court,

add

forensic

examination

evidence

Richard

Below

of

March 21,

consists

Atkins,

the

overruled

objections.

Defendant

Steve

gleaned from

Gaultney's

which was conducted pursuant to the Court's May 15,
The

additional

therefore,

Plaintiffs now come forward with new evidence,
a

earlier

of

an

National

Court

email

Hills

excerpts

the

chain

between

Exchange,

relevant

2014 Order.
Gaultney

LLC's

portion

computer,

("NHX")

of

and

CPA.

Gaultney's

2011 email to Atkins:

2
National
Hills
Exchange
(which
has
Snellville Crossing as its managing member)
will be selling the Property to NHEP, LLC.
The

current

Partners

of

NHX

will

entity, 2701 Partners LLC[.]
will then acquire the Assets
but

not

under

the

same

form

a

new

2701 Partners
of NHEP, LLC,

terms.

I

believe

27 01 would be managing member of NHEP.
The
price will be marked up.
The estimated
asset repurchase is estimated to be $8.4m.

(Gaultney-Atkins

Email

Chain,

Doc.

187-1,

Ex.

1

at

2.)

According to Plaintiffs, this email demonstrates that, as early
as March 21, 2011,

Defendants intended to enter into the precise

straw

of

transaction

which

Plaintiffs

accuse

them.

As

this

email appears to contemplate, NHX sold the Property to National
Hills Exchange

Partnership, LLC

approximately the same time,
2701

Partners

LLC

and

("NHEP")

on April 22,

the Individual

contracted

to

lease

2011. At

Defendants
and

formed

manage

the

property for NHEP;
NHEP,

Harrel

(Order,

out'

sold

Doc.

"direct and

118

(Doc.

Plaintiffs

Order

against

the

his

at

187,

the

for

(Id.

now

Defendants'

at

Plaintiffs,

argue

question

squeeze
failure

new evidence,

leave

4-5.)

that

because

2701

Partners.

consider

this

scheme to

that

email

^squeeze

Hills

Shopping

to

amend

solely

allow

is

amendment

the

that

is

ground

of

separating

warranted

greater

(Id.

[discovery]

using this email as

expressly

out.

on

submit

reconsideration

prior

diligence and ruled

Plaintiffs,

email

Court's

Defendants'

Plaintiffs

Plaintiffs

the

Plaintiffs'

than

states

at

5.)

would,

in

because

initially

Defendants'
According
light

of

to
the

result in manifest injustice.

As the Court explained above,
one of the reasons the Court,

reconsider

to

National

of

misconduct

the

to

of

however,

justified.

discovery

and
to

NHEP

1 at 4.)

acknowledge,

the inquiry is not

intent

ownership

Ex.

motion

latter."

thought

in

Plaintiffs

from the question of

the

evidence,

after NHX sold the property to

interest

12-16.)

from

"separated

misconduct

56 days

primary evidence of Defendants'

Plaintiffs

Center."

and,

a prior

order.

newly discovered evidence is

in exercising its discretion,

Insured

Deposits

Conduit,

may

2008

5691349, at *l-2.

Typically, on a motion for reconsideration,

movant

new

resorts

addressed

the

to

merits

evidence
of

a

when

claim.

the

Court's

Here,

prior

Plaintiffs

WL
a

ruling
have

presented new evidence supporting the claim that they wish to

add by amendment, which the Court did not permit as a procedural
matter.

Unfortunately

for

Plaintiffs,

this

new

evidence

does

not dislodge the Court's prior conclusion that Plaintiffs failed

to

act

with

amending

their

Plaintiffs

and

January 10,

not

Complaint.

add

2012

does

the

a

2012.

Defendants

January

necessary

possessed

Complaint

or

the

diligence
As

the

necessary

claim

for

to

show

Court

of

cause

previously

information

breach

good

to

found,

amend

fiduciary

not

change

the

Court's

email

their

duty

Instead they waited until May 2012.

should have produced this

in

by

Whether

chain before

conclusion

they acted

without the necessary diligence.1

The Court DENIES Plaintiffs'

motion

Plaintiffs'

(Doc.

to

reconsider

the

denial

of

motion

to

amend.

187.)

B. Reconsideration of the Court's Grant of Summary Judgment
on Plaintiffs'

Fraud Claim

1. Introduction

In

the

judgment

March

in

favor

(Count II).

what

the

of

2013

Order,

Defendants

the

on

Court

granted

Plaintiffs'

summary

fraud

claim

The Court's analysis on Count II relied heavily on

parties

agreement.
IV.C.1(b)

27,

represented

was

the

correct

operating

Plaintiffs now request reconsideration of Section
of

that

Order

in

light

of

discovering

a

different

1 In their briefs, the parties dispute whether this new evidence
should have been produced in response to Plaintiffs' first request for
production. The Court takes no position on that question.

operating

agreement

currently

pending

Georgia.2

Brown

in

in

the

Defendants

operating

agreement

interest in NHX.

Timberlake

Superior

now

was

v.

admit

in

Court

that

effect

et

of

which

Gwinnett

the

when

al.,

newly

Raiford

County,

discovered

acquired

(Defs.' Opp. Br., Doc. 195 at 2.)

is

his

In light of

that new evidence,

the Court has reconsidered its previous Order

and

this

substitutes

causation

for

the March 27,

There

case.

2.)

Plaintiffs'

which

fraud claim,

addresses

for

Section

Individual

in

The

March

later

irrelevant.

proximate

IV.C.1(b)

of

2013 Order.

are now three Operating Agreements

The

Agreement

analysis,

To

Defendants

2007.

adopted NHX's

(Timberlake Aff.,

amendments
facilitate a

have

at

made

transfer under §

States Internal Revenue Code,

first

Doc.

this

in August 2007,

issue

in

this

Operating

195,

Ex.

Agreement

1 S[

largely

1031 of the United

REES Holdings,

LLC

became the sole member of NHX and adopted the newly discovered

Operating Agreement II.

(Id.

1 4.)

Defendants now admit this

Agreement was in effect when Plaintiffs and NHX closed the sale
and when

BTR received a

15%

equity ownership

interest

in

NHX.

2 Plaintiffs and Defendants argue over whether Operating Agreement
II should have been produced in this case.
At this time, the Court
takes no position on whether Plaintiffs' requests for production
included

this

document.

The

Court

notes,

however,

that

Defendants

stipulated that the document now known to be Operating Agreement III
(Defs.' Statement of Mat. Facts 5 2 (citing
was in effect at closing.
Operating Agreement III, Doc. 48, Ex. 20.))
Defendants should have
known that Operating Agreement II was actually in effect.
(See
Timberlake Aff. f 3; Operating Agreement II, Doc. 188 Ex. 2).

(Id.

f

6.)

In August

2009,

NHX's

members

adopted

Operating

Agreement III, which was in place when NHX sold the Property to
(Id^ 18.)

NHEP.
On
that

proximate

Plaintiffs

Defendants'

damages.

Intent]

and

of

the

a

in NHX,"

told

Plaintiffs

Lease,

causal

about

66-67.)

concluded

Lease

between

and

their

that they had no voting
reasoned that

the

had

Order

connection

Electrolux

the Court

Plaintiffs

prior

Electrolux

no

way

"even if

[Letter

to

decision to sell the Property . . . ."

303(b)(3),

assets,

Court's

show

rights

had

Defendants'

members

not

the

Because Plaintiffs "conced[ed]

Defendants

at

could

concealment

or management

118

causation,

of

influence

(Order,

The Court also explained that O.C.G.A.

Doc.

§ 14-11-

a default rule which requires a unanimous vote among

to

dispose

of

all

or

substantially

all

of

an

LLC's

did not help Plaintiffs because neither Raiford nor BTR

were members
operating

under

what

agreement.

the
(Id.

parties'
at

stipulated was

67-68.)

As

the

explained

valid
below,

Plaintiffs no longer make these concessions and, under Operating

Agreement II, now argue that they could have become a member and
stopped the sale.

Before
under

the

embarking
various

on

an

operating

recall the overall question:

analysis

of

agreements,

the
the

parties'
Court

whether Defendants'

rights

pauses

to

concealment of

the Electrolux Lease proximately caused Plaintiffs'

injury.

As

explained below, under the newly discovered Operating Agreement
10

II,

Plaintiffs

they

could

have

have

an

elaborate

blocked

NHX's

sale

known of the Electrolux Lease.
analysis,

here

the

empowered

under

the

Court

step-by-step theory as
of

the

Property

to

had

how
they

Unlike a typical proximate cause

focuses

operating

on

whether

agreements

Plaintiffs

to

take

the

were
steps

necessary to stop NHX from selling the Property to NHEP.

2. Plaintiffs' Argument

The following constitutes Plaintiffs'

argument for how they

could have prevented NHX from selling the Property to NHEP.

Court

acknowledges,

but,

for

the

moment,

Defendants counterarguments to Plaintiffs'

does

not

The

address

individual points.

Plaintiffs premised their argument on Raiford's

ability to

elect to become a member under Article VI of Operating Agreement

II.

Under Operating Agreement

II and the Second Amended Sales

Agreement, REES Holdings, LLC assigned Raiford a 15% "Interest"3
in

NHX.

(See

Second Amended

Operating

Sales

Agreement

Agreement,

II,

Doc.

48

Doc.

Ex.

188

22

Ex.

1

2

4.)

art.

Because

Raiford held an "Interest," he was an "Interest Holder."4
because REES Holdings assigned its interest to him,

3 An

"^Interest'

means

a

Person's

share

of

of, and the right to receive distributions
(Operating Agreement II, Doc. 188 Ex. 2 art. I.)

the

And

Raiford was

Profits

from,

I;

the

and

Losses

Company."

4 An '"Interest Holder' means any Person who holds an Interest,
whether
as
a Member
or
as
unadmitted
assignee
of
a Member."
(Operating Agreement II, Doc. 188 Ex. 2 art. I.)

11

a transferee "entitle[d]

... to become a Member5 and exercise

any

at

rights

VI.)6

of

a Member"

Plaintiffs

Electrolux Lease,
Plaintiffs

have

which

requires

option.

(Doc.

turn

sale.

a

to

how

Raiford,

In contrast

to

as

for

substantially all of its assets

(Doc.

118

Operating Agreement

directors

Agreement

II

308(b)(3)

to

substantially
company."
Plaintiffs

II

or

requires

members"

does

sell the Property,

not

managers

to

that

the
§

Ex.

do

unanimous

vote

lease,

assets

of

would

NHX's lone asset,

member,

to

sell

art.

could

all

or

5.1.2.14),
the

Because

Operating

O.C.G.A.
or

§

consent

transfer

the

limited

have

III,

address

or

14-11-308(b)(3).

Raiford

a

3 art.

so.

otherwise,

exchange,

of

NHX

specifically

provide

"the

O.C.G.A.
assert

does

not

sell,

all

2

Operating Agreement

vote

the

Ex.

Raiford would have elected to become a member.

supermajority

of

118

assert that if Defendants had revealed the

then

stopped the

his

Once
withheld

power

14-11of

"all

the
or

liability
a

member,

consent

to

to NHEP.

5 "Member" is defined as "each Person signing this Agreement and any
Person who subsequently is admitted as a member of the Company."
(Operating Agreement II, Doc. 188 Ex. 2 art. I.)
6 In full, Article VI of Operating Agreement II provides:
6.1 Transfers.
An Interest Holder at any time and from time to time
may Transfer all or any portion of the Interest Holder's Interest. The
Transfer of all or a portion of an Interest entitles the transferee to
become a Member and to exercise any rights of a Member.
(Doc. 188 Ex.
2 art.

VI.)

12

Finally,

because

Operating

members adopted in August 2009,

Agreement

III,

which

eliminates Raiford's entitlement

to become a member and requires a supermajority vote,
must

demonstrate

why

that

agreement

Plaintiffs provide three explanations.
that,

as

assignees of REES Holdings,

"enforceable

rights,"

REES.

Br.,

(Pis.'

Doc.

Plaintiffs claim,
so,

they

Second,

the

would

be

make

Agreement

20(b))).
that

not

enforceable

Operating

Finally,

these

two

189 Ex.

§

Plaintiffs

argue

they succeeded to

14-11-101(18),

1 at 13.)

the

held

by

"Enforceable rights,"

in

any

related argument

as

(Id.

third

at

14

meaningful

that

party

(citing

drawing from corporate law,

rights,

effect.

eliminated by amendment because,

rights

II.

Plaintiffs

without

First,

enforceable
a

is

LLC,

O.C.G.A.

cannot be

Plaintiffs

same

see

NHX's

what

the

Court

if

sense.

they possessed

beneficiaries

O.C.G.A.

§

of

9-2-

Plaintiffs argue

will

refer

to

as

"membership" and "unanimity," are "vested rights" that cannot be
impaired by bylaw amendments.
three arguments,
without

effect

as

(Id.

at

15-16.)

Based on these

Plaintiffs believe Operating Agreement

III

was

to Raiford.

3. Analysis

As

theory

the

of

questions:
and

NHX

above

proximate

(1)

closed

description

causation

shows,

involves

resolving

at

least

Plaintiffs'

five

sub-

what Operating Agreement was in effect when BTR
the

sale

of

the

13

Property?;

(2)

was

BTR

an

"Interest Holder"
have

unilaterally

under Operating Agreement
become

a

Member

at

NHX's adoption of Operating Agreement
to

become

stopped

a

member?;

the

sale?

(5)

and,

if

Plaintiffs

its
III

not,

and

II?;

(3)

could BTR

election?;

(4)

did

eliminate BTR's power
could

Plaintiffs

Defendants

have

have

persuasive

arguments on each of these individual points.

For

the

discussion,

and NHX

an

of

providing

context

on

the

Property,

(Abernathy Aff.,

equity

ownership"

"Interest"

and

Doc.

195 Ex.

interest

made

BTR

an

Agreement,
2

197

at

its

art.

I.

8-9

a

"Interest

7

when BTR

II

was

in

5-6.)

transferred

Second,

to

constituted

BTR

Holder"

as

those

the

terms

(See Second Amended Sales

But

see

Action

of

the

Sole

Member

LLC purporting to

Percentages"

in

NHX

to

member

at

its

election

and

(See Operating Agreement II,

But see id.

art.

Presumably

interest

First,

of

NHX,

assign a

Snellville

Doc.

100%

of

Crossing,

Third, Article VI of Operating Agreement II allowed BTR

become

approval.

1 M

remaining

48 Ex. 22 f 4; Operating Agreement II, Doc. 188

(REES Holdings,

"Ownership

LLC.7))
to

Doc.

the

Operating Agreement

are defined in Operating Agreement II.

Ex.

for

the following assumptions are made.

closed

effect.

"15%

purpose

to

without

the

Manager's

Doc. 188 Ex. 2 art. VI.

5.1.2.14.)

Snellville

Defendants

Crossing

Richard

Swope

later
and

assigned
Ronald

parts

DeThomas

of
who

its
were

listed as shareholders on Operating Agreement
III.
(Operating
Agreement III, Doc. 188 Ex. 4 at 21.)
Those assignments do not appear
to be on the

record.

14

Below,

and

the

five:

Court

(4)

eliminate

did

BTR's

focuses

NHX's

power

its

discussion

adoption

to

become

of

a

the

Court

to

consider

member?;

whether

questions

Operating

could Plaintiffs have stopped the sale?
ask

on

four

Agreement

(5)

and,

if

III
not,

Both of these questions

Operating

Agreement

III

was

entitlement

to

effective against Plaintiffs.

a. "Enforceable Rights" as an Assignee

Plaintiffs

become
the

first

argued

that

a member under Article VI

unanimity

rule

§ 14-11-101(18).

were
That

of

Operating Agreement

"enforceable
section

provide

Raiford's

rights"

states

that

agreement

may

including

a

agreement,

to the extent set forth therein."

person

enforceable

who

is

not

rights

a

under

party

to

and

O.C.G.A.

"[a]n
to

II

operating

any

the

person,

operating

O.C.G.A.

§ 14-11-

101(18).

Plaintiffs mistake
this

context.

It

is

the meaning
true

that

of

an

bylaws

enforceable

may

create

right

in

enforceable

rights and that Georgia courts are available for members of LLCs
to

enforce

them.

But

there

is

nothing

inconsistent

with

a

definition that provides that bylaws are enforceable while still

noting

they

statutes

are

are

enforceable

legislatures may
Supreme

amendable.

Court

still
of

For

an

obvious

through private

amend them.

Georgia

has

15

On
long

comparison:

rights

of

the

other

held

that

many

action,

but

hand,

the

Georgia's

Constitution

impair
n.13

prohibits

the

"vested rights."
(Ga.

2013)

enactment

See

Deal

(discussing

retroactive legislation).

of

v.

the

retroactive

Coleman,

historical

that

S.E.2d

751

laws

337,

prohibition

But the term "enforceable" does not

possess the same meaning as, for example,

"vested."

Black's Law

Dictionary defines "enforce" as "[t]o give force or effect to
statute,

etc.);

to

compel

645

defined

"[h]aving become

present

or

absolute."

future
Id.

at

ed.

obedience

Dictionary
as

(10th

a

NHX

Plaintiffs'

may

By

not

permissibly

Enforce,

are not

§ 14-11-101(18)

the

"vested"

consummated

contingent;

amend

Black's

comparison,

completed,

These terms

Court concludes that O.C.G.A.

whether

to."

2014).

enjoyment;
17 94.

on

right

(a
Law
is
for

unconditional;

synonymous.

The

has no bearing on

bylaws

in

question.

argument that they have unamendable rights is better

considered under the "vested rights" doctrine discussed below.

b. "Enforceable Rights" as Third-Party Beneficiary

Plaintiffs'

second argument focuses on their alleged status

as a third-party beneficiary of Operating Agreement II.

in

traditional

contracts,

in

third-parties.

O.C.G.A.

the third-party issue,

bylaws
§

can

create

14-11-101(18).

Plaintiffs'

Just as

enforceable
Though

vague,

but

as

intended

beneficiaries

Agreement II.

16

on

argument appears to be that

they gained the same enforceable rights discussed above,

assignees,

rights

under

not as

Operating

This
above,

argument

fails

O.C.G.A.

enforceable

§

three

14-11-101(18)

rights,

unamendable.

for

but

Second,

says

reasons.
allows

nothing

First,
bylaws

about

those

just

to

as

create

rights

being

based on their arguments here and the lack

of evidence presented,

Plaintiffs cannot show that they are the

intended beneficiaries of Operating Agreement II because Georgia
law requires that "the contracting parties'

intention to benefit

the

contract."

third

All-Tech

...

Inv.

2003).

be

shown

Group,

Finally,

on

the

Inc.,

face

595

of

the

S.E.2d

517,

524

to the extent that Plaintiffs'

Brown v.

(Ga.

Ct.

App.

argument is that

a generic "Interest Holder" is the intended beneficiary and that
they

simply

gained

the

rights

possessed

by

when they received the rights as assignees,

an

Interest

Holder

that argument fails

because it just collapses into their argument discussed above.

c. "Vested Rights" Doctrine

Finally,

impairs

Plaintiffs

BTR's

vested

argue

right

to

unanimous voting requirement.
continuing relevance

in doubt.

of

the

that

Operating

become

(Doc.

a

Agreement

member

and

to

189, Ex. 1 at 15-17).

vested-rights

doctrine

is

II

the

The

somewhat

Some courts point to a general trend away from using

the language of "vested rights" coinciding with the adoption by
many

states of the Model

Glass,

438

Fidelity

So.2d

Savings

1389,

&

Loan

Business Corporations Act.
1370

(Ala.

Ass'n.,

17

539

1983)

P.2d

(citing

649

(Or.

Black v.
Dentel

1975);

v.

8

Fletcher Cyc.

Corp.

§ 4177.10.

Though Georgia courts appear to

have not considered the vested-rights doctrine in decades,
remains

authority

for

its

existence

questioned by Georgia courts.
curious

that

legislature

courts

have

enacted

its

1968.

Further,

rights

in

Georgia

the

context

have

The Court does,

not

cited

first

these

Business

appears
of

that

an

to
LLC.

not

however,

authorities

never

been

find it

since

Corporations

have

there

Code

the

in

addressed vested

Nevertheless,

the

Court

assumes the doctrine applies to LLCs to the same extent that it

would to corporations.

Georgia cases discussing vested rights occur in the general
context

of

contracting

a

contractual

business

relationship

entities'

bylaws

where withdrawal rights are concerned.8
on vested rights is

S.E.

738

brought

(Ga.

1901) .

suit against

agreement.

Interstate Bldg.

When

There,

one of

the

8 See Interstate Bldg.

a

that

into

the

the

agreement

& Loan Ass'n v. Wooten,

its members

took

& Loan Ass'n v.

or

The leading Georgia case

building

member

incorporates

and

loan

38

association

for breach of her loan

out

her

Wooten,

loan,

38 S.E.

which

738

(Ga.

1901) (building and loan association); Crittenden v. S. Home Bldg. &
Loan Ass'n, 36 S.E. 642 (Ga. 1900 (same); Georgia Masonic Mut. Life
Ins. Co. v. Gibson, 52 Ga. 640 (1874) (mutual life insurance company);
Helmly v.

Schultz,

131 S.E.2d 924

(Ga.

1963)

(plaintiff alleged vested

right in bylaw requiring selling shareholder to first offer shares to
other shareholders); see also 18A Am. Jur.
2d Corporations § 266

(listing example impairments including those "impacting plans of
insurance, altering consideration to be received upon redemption of
shares, or altering the right to receive upon termination of a
membership the fair book value of the member's shares").

incorporated the association's bylaws, she was required to pay
back the
she

loan in 84 monthly installments.

sought

association

compliance

to

settle

refused

with

installments.

the

and

an

balance

required

her

amended
Because

Id.

bylaw
she

defendant stopped paying,

Id. at 739.

of

to

her

pay

loan,

the

requirement

considered

this

but

loan

of

Later,

back

98

a

the

in

monthly

breach,

the

leading the association to bring suit.

Id.

The

Supreme

Court

of

Georgia

stated

that

"although

corporation has the power of amending its by-laws,
as

they

enter

into

with its members,
by-laws,

and

form a part

they cannot,

of

the

yet,

contracts

under the guise

a

inasmuch
it

makes

of amending its

impair the obligations of such contracts."

Id.

In the

context of a building and loan association,

the Supreme Court of

Georgia

back

analogized

the

member

paying

her

loan

to

withdrawing from an association and held that the ability to pay
back

the

loan

and

thus

withdraw

from

the

association

was

a

vested right that an association cannot deny a member of without
their consent.

Id.

The court noted,

which do not increase

method

of

withdrawing,

[her]

are

however,

that "amendments

obligations but provide a different

valid."

Id.

(internal

quotations

omitted).

Other Georgia cases have recognized the distinction between
amendments that affect "vested rights" and those that "relate to

the

plan

upon

which

its

businesses
19

shall

be

transacted."

Wooten,

38 S.E.

738,

Co.

Gibson,

52

v.

amendment

741

(citing Georgia Masonic Mut.

Ga.
a

changing

640,

641

notice

(1874)

(finding

procedure

"only

Life Ins.

that

by-law

regulated

the

proceedings of the company" and "did not annex any new condition
to

the

similar

1983);

[insurance]
rules.

8

See

policy"));
Black v.

Fletcher

Cyc.

Most

Glass,

Corp.

§

states

438

appear

to

apply

1359,

1371

(Ala.

So.2d

4177.10

("Bylaws

that

merely

regulate the general administrative policies and affairs of the

corporation,

the course and forms of procedure in the conduct of

its affairs,

the relations of the members

corporation and among themselves,
are

a

recent

proper

and

statutory

persuasive as

liability

property interest

disclaims

though

power.").

not

constitutes
Code

the

Georgia
view

vest

capital markets,

does

a

not

property
mention

Business

that

rights

a

determinative,

whether

LLC

corporation's

dividend entitlement,

to

are

Beginning in

interest.

Corporation

relating

Moreover,

interest in a limited

in any particular way an

the

incorporation

the

Georgia provides that an

The

Additionally,

of

to what constitutes a vested right.

company

14-11-501.

and similar internal matters,

exercise

enactments,

the LLC context,

§

valid

and officers with the

a

O.C.G.A.

member

governs

Code

has

a

itself.

expressly

articles

"management,

of

control,

or purpose or duration of

the corporation." O.C.G.A. § 14-2-1001.

Georgia's vested-rights cases and its more recent statutory

enactments

appear

to

reflect

the
20

following

dichotomy:

Vested

rights

are

those

related to

a member

or

shareholders'

interest in a business entity, including the members'
withdraw their economic interest.
who

may

become

members,

action,

and

managers

and

members,

affairs.

The

its

the

with

the

considers

just

earlier

unanimous

case

whether

303(b)(3))

grant

VI

voting
vested

members
of

how

finds

law

of

bylaws regulating

are

the

that

and

each

needed

to

this

modern

of

the

requirement
or

merely

conducts

distinction

statutes.

bylaws

from

take

between

business

question

II

O.C.G.A.
regulate

is

Below,

in

Operating Agreement

rights

ability to

responsibilities

regulate

Court

(membership under Article

implied

many

distribution

consistent

Court

how

Conversely,

economic

and the

§

14-11-

the

NHX's

a

vested

activities.

Applied

in

this

case,

Plaintiffs

right in becoming a member.

did

The Court has

not

have

assumed that Article

VI of Operating Agreement II entitled Plaintiffs,
of

an

Interest

Elsewhere,

the

Holder,

to

operating

become

agreement

manager to admit new members.
assigns
member.

its

interest

member

granted

at

their

discretion

election.

to

with

the

other cases,

manager.

another,

that

person

the discretion to

(Id.

NHX's

In cases where an Interest Holder
may

become

(Operating Agreement II, Doc. 188, Ex. 2 art. VI)

seemingly all

lies

to

a

as an assignee

art.

In

admit new members

5.1.2.14.)

merely distribute the power to control membership.

21

a

These

bylaws

Accordingly,

the

enforceable

rights

provided in Article

VI

were

not

"vested

rights" and could be amended without Plaintiffs consent.

Additionally,
after all,

Operating

is

also

not

Agreement

voting

a

vested

Ill's

internal

rights.

requirement,

a

right,

which,

Doc.

§ 14-

and,

therefore,

voting

supermajority

(Operating Agreement III,

mentioned above,
the

unanimous

is only implied as a default rule by O.C.G.A.

11-303 (b) (3) ,

applies.

the

provision

188 Ex.

3 § 5.5(f)).

As

courts distinguish between bylaws that regulate

affairs

of

the

corporation,

and

those

that

vest

An amendment requiring a supermajority vote for NHX to

take certain actions,

including disposing of all

falls into the regulatory category.

(providing that,

in

"do[]

a

not

have

the

context

vested

See O.C.G.A.

of

of its assets,

§ 14-2-1001(b)

a corporation,

property

right

provision in the articles of incorporation,

shareholders

resulting

from

any

including provisions

relating to management [and] control . . . ." (emphasis added)).
Because
and

the

the

amendment

Individual

supermajority,

selling

the

requiring
Defendants

Plaintiffs

Property.

a

supermajority

together

could

not

Plaintiffs,

would

have

was

constitute

stopped

therefore,

effective
a

NHX

from

cannot

show

proximate causation.
Though the

2013 Order,
show

their

a

analysis

above

is different

the conclusion remains the same:

causal

injury.

connection between

Defendants'

than the March 27,

Plaintiffs fail to
alleged

fraud

and

Summary judgment was therefore properly granted
22

in

Defendants'

favor,

and

the

Court

for reconsideration on Count II.

DENIES

(Doc.

Plaintiffs'

motion

189.)

C. Reconsideration of the Court's Grant of Summary Judgment
on Plaintiff s Claim for Equitable Relief

Plaintiffs

argue

that

the

Court's

Order

dismissing

their

count for specific performance constituted clear error and would

work

a

manifest

reconsideration.

(Doc.

substantive law,

an

adequate

remaining
assets

injustice

remedy

no

Ex.

in their view,

at

Defendant

and

184,

on

value.

and

law

1

at

1. )

As

a

warrants
matter

of

the Court erred in finding that

existed

their

therefore

because

NHX,

breach-of-contract

Moreover,

as

a

procedural

the

claim,

only

has

matter,

no

they

argue that the Court erred in considering the adequacy of legal
remedies

as

a

basis

raise that issue,

for

dismissal

because

Defendants

did

not

and they lacked the requisite notice to argue

that damages were inadequate.

Count

IV

of

Plaintiff's

Complaint

is

titled

"Specific

Performance," and requests the following relief:

31.

Alternatively,

Plaintiffs are entitled in equity to a 15%

interest in the new limited liability company to which
the Center has been transferred, without any accompanying
financial responsibility.

32.

Plaintiffs
are
entitled
to
an
injunction
requiring
Defendants to convey such an interest in the new limited
liability company to Plaintiffs.

(Compl.,

Doc.

1 M

31-32.)

damages in this case and,

In other words,

Plaintiffs sought

if no damages could be had,

23

requested

equitable relief

requiring Defendants to

convey a 15%

interest

in NHEP to Plaintiffs.

Although Defendants moved for summary judgment on Count IV,
both parties'

brief,

briefing on Count IV was sparse.

Defendants

concerning

led

specific

with

the

relevant

performance.

See

("Specific performance of a contract,
party,

will

recoverable

be
at

decreed,

law

nonperformance."

would

be

an

(emphasis added)).

statutory
O.C.G.A.

provision

§

23-2-130

if within the power of the

generally,
not

In their opening

whenever

adequate

the

damages

compensation

But their argument

for

focused

solely on

Plaintiff's lack of a contractually enforceable right

to

interest

a

15%

Likewise,

in

NHEP

or

2701

in their reply brief,

Partners.

Defendants

(Doc.

48

at

8.)

argued that "[t]here

is no specific performance to which Plaintiffs are entitled that
would

create

exists."

an

ownership

recognized

summary

judgment

response,

Plaintiffs

agreement

of

percent

on

in

this

sham transaction

The

above

was

the

aS

profits

"Defendants'

count."

argued that

purchase

member

this

where

(Doc.

sole

80

none

the

entity

that
extent

that

18.)

owned

the

of

became

Shopping

In

the
a 15

Center"

the Shopping Center to Harrell was

should be
of

at

argument

they "seek performance

and sale whereby Plaintiffs'

because the "alleged sale of

a

or

194 at 17.)

Plaintiffs

for

(Doc.

interest

the

disregarded."
discussion

during the summary-judgment briefing.
24

(Id.

regarding

at

19.)

Count

IV

In the Order,
"(1)

the Court summarized Defendants'

Plaintiffs

still

own

15%

of

NHX,

and

arguments as
there

contractual right for the Court to enforce,

and

law

preclude

constitute

performance."

quoted

the

adequacy

an

adequate

(Order,

Doc.

relevant

of

legal

remedy

118

at

statutory

remedies.

and

71.)

To be

language

But,

upon

sure,

that

ground

no

damages at

specific
Defendants

discusses

further

the Court considers a reference to the statute,
argument,

(2)

is

the

consideration,

absent any legal

insufficient to raise adequacy of legal remedies as a

for

dismissal.

reconsideration,

Moreover,

Defendants

have

on

not

their

attempted

briefing

on

defend

the

to

Court's ruling with any suggestion that they raised the adequacy
of damages before;
the lack of
NHEP

or

Partners.

lacked the

of legal remedies.
1264-67

877-78

Plaintiffs

damages

against

remedy at law.

the

that

adequate or,

Court,

requisite

2008);

(11th Cir.
are

an

to

also

correct

insolvent

is

a

concludes

address

the

517

Red Door Homes,

that

adequacy

F.3d 1256,
LLC,

553 F.

2014).

equivalent

there

therefore,

notice

Karlson v.

under

Georgia

an

law,

inadequate

the remedy "must be complete and

of

equitable

remedy

in other words,

that,

company constitutes

To be adequate,

substantial

enough

The

See Byars v. Coca-Cola Co.,

(11th Cir.

App'x 875,

they have reargued their point about

a contractually enforceable right to an interest in

2701

Plaintiffs

instead,

at

law.

relief.

It must

It

be

is

not

plain

and

as practical and as efficient to
25

the ends of justice and its prompt administration as the remedy
in

equity."

Contractors

Concrete
&

Eng'r,

Coring

Inc.,

Coast

(Ga. 1937)).

In the context of

such

R.R.

Inc.

S.E.2d

141

(quoting Atl.

clear:

Line

Contractors,

442

Co.

v.

439,

Gunn,

insolvency,

194

v.

Mech.

(Ga.

1965)

S.E.

365,

367

Georgia courts

are

"Insolvency of the defendant and inability to respond to
damages

as

the

plaintiff

might

recover

for

contract is ground for equitable intervention."
Contractors,

141

S.E.2d at

442

(citing Tanner

breach

of

Concrete Coring
v.

Campbell,

184

S.E. 705, 706 (Ga. 1936)).9
In this case,
assets and is

66,

71.)

the Court's Order recognized that NHX has no

valueless.

(March 27,

2013 Order,

at

It was error for the Court to conclude as

14,

42,

47,

a matter of

law that contractual damages were an adequate remedy at law.

Briefly,

the Court addresses the argument originally raised

by Defendants and re-raised on this motion for
Defendants

have

frequently pointed out

contractual right to

a 15%

that

reconsideration.

Plaintiffs

interest in NHEP 2701

have

no

Partners that

9 Georgia's rule is also recognized by leading treatises.

See 25

Williston on Contracts § 67:10

("insolvency of the defendant affords a

sufficient

in connection with other

specific

though

reason of

enforcement

apart

from

itself or

of

a

contract

defendant's

to

transfer

insolvency

no

facts

personal

right

to

for

the

property

specific

performance exists") (citing, e.g., Crawford v. Williams, 99 S.E. 378
(Ga. 1919)); 12 Corbin on Contracts § 63.19 ("A money judgment against
a defendant who has no property that is subject to levy and execution
is not a complete and adequate remedy for an injury caused by a breach
of contract."); 71 Am. Jur. 2d Specific Performance § 13
("insolvency
of the defendant may be considered along with other factors in the
determination of whether the legal remedy of damages is inadequate")

26

this Court
But

can enforce by specific performance.

Defendants'

interpretation
Count

IVs

argument

of

Plaintiffs'

heading

paragraphs,

form of

injunction to

liability

company

equitable

remedy

and

specific

not

which

that

is

better

request
15%

interest

understood

performance.

See

the
as

property

to

trustee

the

is

to

claimant,

on

its

in

the

the

limited

Property.

This

constructive

Restatement

surrender

such

a

on

of

relief
in

an

focus

instead

equitable

controls

enough.

narrow

Defendants

Restitution and Unjust Enrichment § 55(2)
constructive

too

Performance")

convey a

now

from

Complaint.

("Specific

substantive
an

follows

True

trust

(Third)

of

("The obligation of a
the

constructive-trust

conditions

as

the

court

may

direct.")10

Accordingly, Defendants' argument regarding specific

performance

does

not

entitle

requested equitable relief.

them

to

That said,

summary

judgment

on

the

whether Plaintiffs will

eventually be entitled to equitable relief is an open question.
As this issue has been insufficiently briefed and argued to this
point,

the Court is not in a position to

determine as

a matter

of law that Plaintiffs are not entitled to equitable relief.

10 The Court notes that, under Georgia law, a constructive trust is
a remedy to prevent unjust enrichment and not an independent cause of
action.
Morrison v. Morrison, 663 S.E.2d 714, 717 (Ga. 2008).
The
Court

therefore

doubts

whether

Count

IV

should

be

maintained

separate Count as opposed to being a remedial request to Count I.

as

a

For

procedural convenience, and to make clear that Plaintiffs' requested
equitable relief is reinstated, at the present time, the Court simply
reinstates

Count

IV.

27

In dismissing Count IV, the Court incorrectly reasoned that

Plaintiffs possessed an adequate legal remedy.
Plaintiffs'

motion

(Doc.

184)

and

The Court GRANTS

REINSTATES

Count

IV

of

Plaintiffs' Complaint.
IV.

As

discussed above,

reinstate

Count

IV

reconsider denial

to

reconsider

of

the

CONCLUSION

the Court GRANTS

(Doc.

184),

Plaintiffs'

DENIES

their

Plaintiff's motion to amend

Court's

Defendants on Count II.

(Doc.

summary

judgment

motion to

motions

(Doc.

in

to

187)

and

favor

of

189.)

ORDER ENTERED at Augusta, Georgia, this _/j/_Sday of May
2016.

RANDAL

STATES

HALL

DISTRICT

JUDGE

lERN DISTRICT OF GEORGIA

28