FOURTH D I VI SI ON

DI LLA R D, C. J.

, D OYLE, P. J.

, and M ERCI ER, J.

N O T IC E : M otions for r e c ons i de r a tion m us t be ph y sic a l ly r e ce iv ed i n our c le r k ’s offic e w ithin te n da y s of the da te of de c is ion to be de e m ed tim e ly file d.

http://w w w .ga a ppe a l s .us /r ule s

October 2, 2018



# I n th e Co u r t o f

A p p eals o f

G eo r g ia

A1 8 A1 23 2 . PATEL et

al . v . 2 6 0 2 DEERFIELD, LLC.

D I LLA R D , Ch i ef J u d g e.

A g ro u p o f s h areh o l d ers , o p erat i n g as So u t h eas t ern Ho sp i t al i t y M an ag em en t

,

In c. (“ So u t heas t ern ”), pu rch as ed a t ract o f co m m erci al pro p ert y in Al b an y , G eo rg i a,

t h at i n cl ud ed a d i st res s ed h ot el

. Ap p ro x i m at el y o ne y ear l at er, So u t h eas t ern s o l d t h e

p ro p ert y t o So u t h Geo rg i a Part ners , LLC (“ SGP”). Th ereaft er, 2 6 0 2 Deerfi el d

, LLC

(“ Deerf ie ld” )

, a S outhe a ste r

n sha r e holde r , a nd Deerfi el d ’ s o wn ers , Rajen d ra Pat el an d

Sav an Pat el

, fi l ed s u i t ag ai n s t

, am o n g o th ers , So u t h eas t ern sh areh o l d ers M i l an Pat el

,

Um an g Pat el

, an d SGP. Sp eci fi cal l y , t h e p l ai n t i f fs al l eg ed th at M i l an an d Um an g

fai l ed t o d i s cl o s e t o t h e o t h er So u t h eas t ern s h areh o l d ers t h e ex i s ten ce o f a v al u ab l e

l e a s e o n t h e pro p ert y o r t h ei r i n t eres t in SGP, res ul t i n g i n So ut h eas t ern s el l i n g t h ep ro p ert y t o SGP fo r l es s t h an i t was wo rt h. 1 Th e p l ai n t i ffs as s ert ed nu m ero u s cau s es

o f act io n , i n cl u d i n g cl ai m s fo r b reach o f fi d uci ary du t y , b reach o f t h e d u t y o f l o y al t y ,

an d frau d

. Th ereaft er, t h e d efen d an t s fi l ed a m o t i on fo r s u m m ary j u d gm en t, arg u i n g

t h at t h e p l ai n ti ffs sh o ul d h av e b ro u g h t t h ei r cl ai m s in a d eri v at i ve act i o n o n b eh al f o f

So u t heas t ern , rat h er t h an as a d i rect act i o n. Bu t t h e tri al co u rt d en i e d i n p a r t t h i s

m o ti o n , an d t h e d efen d an t s ap p eal ed . Fo r t h e reas on s s et fo rt h i n f ra , we rev ers e.

Vi ewed i n t he l i g h t m o s t fav o rab l e to t h e p l a i n t i f f s ( i .e. , t h e n o n m o v i n g

p art i es )

, 2 t h e r eco rd s h ows t h at Rajen d ra was a fri en d an d bu s in es s as s o ci at e o f

M i l an ’ s fat h er. In 2 01 0

, Rajen d ra, an d h i s s o n , Sav a n

— b o t h res i den t s o f New

J ers ey —d eci d ed to pu rch as e a n o t e, s ecu red b y a 4

. 6

- acre tract o f co m m erci al

p ro p e r t y i n Al b an y , Geo rg i a, co n t ai n i n g a t h en -cl o s ed h o t el

. Sav an an d Rajen d ra

d eci d ed t o b u y t h e no t e wi t h M i l an an d Um an g , b u s i n es s p art n ers wh o fi rs t b ecam e

fri en ds i n co l l eg e

. T h e n o t e was i n i t i al l y p urch as ed fo r ju s t o v er $ 8 8 0

, 0 0 0 b y a

d i fferen t en t i t y o w n e d b y Sav an an d Rajen d ra, b u t i t was lat er t ran s ferred to

1 Becau s e n um ero us p art i es an d wi tn es s es i n t h i s cas e s h are t h e sam e l as t n am e,
Pat e l

, we refer to t h em b y t h ei r fi rs t nam es fo r t he s ak e o f cl ari t y

. W e h av e al s o i n cl u d ed a fl o w ch art as an ap p en d i x to t h i s o p i ni o n to fu r t h e r as s i s t t h e read er,

s h o wi n g t h e p art i es ’ o wn ers h i p i n t eres t s at t h e t i m e o f t h e l eas e t ran sfer.

2 S ee, e.g

. , S h ekh a wa t v. Jo n es , 2 9 3 Ga. 4 6 8

, 4 69 (7 4 6 SE2 d 8 9 ) (2 0 1 3 ).

2So u t heas t ern , an “ o p en ” Geo rg i a c o rp o rat i o n

. W i t h reg ard t o t h e n o te, Sav an an d

Rajen d ra were res p o n s i b l e f o r p ro v i d i n g 5 0 p ercen t o f t h e cap i t al

, wh i ch t h ey d id

t h ro u g h Deerfi el d

, a co rp orat i o n i n wh ich t h ey were s h areh o ld ers

. Li k ewi s e, M i l an

an d Um an g were res p o n s i b l e fo r p ro v i d i n g t h e o t h er 5 0 p ercen t o f t h e cap i t al

. M i l an

an d Um an g each co n t ri b u t ed a p o rt i o n o f t h e cap i t al t h em s el v es , an d t hey rai s ed t h e

res t o f t h e m o n ey fro m t h ei r fam i l y an d cl os e fri en d s

. Ul ti m at el y , So u th eas t ern was

o wn ed b y t h e fo l l o w i n g s h areh o l d ers : Deerfi el d ; M i l an ; Um an g ; U m an g ’ s fat h er-i n

l aw, Rajes h Des ai ; Um an g ’ s gran d fat h er, Val l ab h b h ai Pat el ; 3 M i lan ’ s fat h er-i n -l aw,

Su d h i r Pat el ; an d M il an an d Um an g ’ s fri en d s , S u n i l Nai r, Ch i rag Pat el

, an d Rah ul

Pat el

. M ila

n a nd U m a ng u nila

t eral l y m ad e t h em sel v es o ffi cers o f So u th eas t ern , wh i ch

fo l l o w ed n o co rp o rat e fo rm al i t ies an d h ad n o o p erat i n g ag reem en t

. An d

, b ecau s e t h ey

l i ved i n Geo rg i a, M i l an an d Um an g h an d l ed t h e co rp orat i o n ’ s d ay -t o -d ay op erat i o n s

.

Th e So u t h eas t ern s h areh o l d ers ’ p l an w as t o “ m ax i m i ze” t h e p ro p ert y ’ s v al ue,

ei t h er b y o p en i n g an d o p erat i n g t h e cl o s ed ho t el o r fi n d i n g o th er co m m erci al t en an t s

.

To t hat en d

, So u t h eas t ern o b tai n ed a d eed i n l i eu o f fo recl o s u re o n t he p ro p ert y , an d

i t b ri efl y reo p en ed t h e h o t el in M ay 2 0 1 1

. M ean wh i l e, Sav an , Rajen d ra, an d M i l an

s o u g ht ten an t s an d ot h er b u s i n es s o p p ort u n i t i es fo r t h e pro p ert y

. Bu t i n t h e s p ri n g o f

3 Val l ab h b h ai p as s ed away i n Oct o b er 2 0 1 3

.

32 0 1 1

, M i l an an d Um an g t o l d Sav an an d Rajen d ra t h at t h ey h ad n ot b een ab le t o l o cat e

an y t en an t s an d t h ey

reco m m en d ed t h at So u th eas t ern s el l t h e p ro p ert y

.

In Au g u st 2 0 1 1

, M i l an , act i n g o n b eh al f o f So u th eas t ern , s i g ned a p u rch as e an d

s al e ag reem en t t o tran s fer t h e p ro p ert y t o SGP fo r $ 1 ,6 0 0,0 0 0

. Um an g rep res en t ed to

Sav an an d Rajen d ra t hat SGP was co m p ri s ed o f “ a g ro u p o f d o ct o rs fro m Co l u m b u s ,

Geo rg i a.” Bu t i n fac t

, U m a n g o rg an i zed SGP. An d i n i t i al l y , Um an g o wn ed 1 0 0

p ercen t o f SGP; b u t h e l at er t ran s ferred t wo -t h ird s o f h i s i n t eres t t o M i l an

.

Sh o rt l y aft er So u t h eas t ern co m m i t t ed t o t h e pu rch as e an d s al e ag reem en t wi th

SGP, M i l an s i gn ed a 3 0 -y ear l eas e o n b eh al f o f t h e co rp orat i o n t o d ev el o p an Ol i v e

Gard en res t au ran t on t he p ro p ert y

. At t h e cl o s in g , wi t h M il an an d Um an g act i n g o n

b eh al f of b ot h So u t heas t ern an d SGP, So u t h eas t ern as s ig n ed it s i n t eres t i n t h e Ol i v e

Gard en l eas e t o SGP. A n d u l t i m at el y , o n Feb ru ary 14

, 2 0 12

, t h e day aft er Um an g

t ran s ferred p art o f h i s i n t eres t i n SGP to M i l an , SGP p urch as ed th e p ro p ert y fo r

$ 1 ,5 5 0 ,0 0 0

. Acco rd i n g t o ev i d en ce ad d u ced b y t h e p l ai n t i ffs

, h o w ev er, at t h e t i m e o f

t h e 2 0 12 s al e, t h e p ro p ert y was act u al l y

wo rt h $ 3 ,5 0 0 ,0 0 0

. 4

4 In 20 1 5 an d 2 0 16

, t he v al u e o f th e p ro p ert y was es t i m at ed t o b e b et ween $ 4 ,4 7 5 ,0 0 0 an d $ 5 ,7 36 ,0 0 0

.

4Th ereaft er, Um an g an d M i l an tran s ferred t h ei r en t i re i n t eres t s i n SGP t o t h ei r

wi v es an d o th er fam il y m em bers

— i n cl u d in g a fi ve p ercen t i n t eres t t o each o f t h ei r

fat h ers -i n -l aw, Rajes h an d Su d h i r. Des p it e t he t ran s fer, M i l an an d Um an g co n t i n u ed

t o m a na ge SGP, h an d l i n g t h e day -t o -d ay o p erat i o n s

. Th en , i n 2 0 1 4

, M i l an an d Um an g

s u b d iv i d ed t h e p ro p ert y an d creat ed Daws o n Ro ad Part n ers , LLC (“ DRP”) to h o l d t h e

t h en -v acan t lan d, wh i l e SGP co n t i n u ed to ho l d t h e p o rt io n o f t he p ro p ert y co n t ai n i n g

t h e Ol i v e Gard en res t au ran t

. Th e s am e p eo pl e wh o own SGP, i n cl u d i n g Rajes h an d

Su d h i r, al s o o wn DRP. An d as wi t h SGP, M i l an an d Um an g m an ag e DRP.

In Sep t em b er 2 0 1 5

, t he p l ai n t i ffs

— Deerfi el d

, Rajen d ra, an d Sav an

— fi l ed s u i t

ag ai n s t M i lan

, Um an g, SGP, an d DRP, as s ert in g n u m ero u s cl ai m s , i n cl u d i ng cl ai m s

fo r b r e a ch o f fi d u ci ary d u t y , b reach o f t he d ut y o f l o y al t y , frau d

, co n s p i racy ,

frau du l en t t ran s fer, s t at e RICO v i ol at i o n s , p u n i ti v e d am ag es , an d at t orn ey fees

.

Sp eci fi cal l y , t h e pl ai n t i ffs al l eg e t h at M i l an an d Um an g , i n t er a l i a , fai led t o i n fo rm

t h em of an d m ad e affi rm at i v e m i s rep res en t at i o ns reg ard i n g t he Ol iv e Gard en l eas e

an d th ei r i n t eres t i n SGP p ri o r t o t he s al e o f t h e p ro p ert y

. In i t i al l y , So u th eas t ern was

al s o a p l ai n t i ff, b u t i t s u b seq uen t l y d i s m i s s ed i ts cl ai m s ag ai n s t t h e d efen d an t s

. 5

5 Th e p l ai n ti ffs al so d i s m i s s ed a c l a i m fo r u s u rp at i o n o f co rp o rat e

o p p o rt u ni t i es

.

5Di s co v ery en s u ed

, d u ri n g wh i ch ev i de nce was ad du ced t h at Su d hi r an d Rajes h,

M i l an an d Um an g ’ s fat h ers -i n -l aw, w e r e s at is fi ed wi th t h ei r i n v es t m en t s in

So u t heas t ern , had n o co n cern s reg ard i n g Mi l an an d U m an g ’ s m an ag em en t o f t h e

co m p an y , an d wo u l d n o t s u e M i l an an d Um an g ov er t h e i n v es t m en t

. Li k ewi s e, Su n i l

Nai r, o n e o f t h e o t h er n o n p art y s h areh o l ders

, was al s o s at is fi ed wi t h h is i nv es t m en t

i n So u t h eas t ern

. Su n i l l at er part n ered wi th Mi lan an d Um a n g i n an o t h er b u s i n es s

v en tu re an d t es t i fi ed i n a d ep o si t i o n t h at h e b el i ev ed t h ey were h o nes t

.

On e o f t h e ot h er n o n p art y s h areh ol d ers , Rah u l

— wh o al s o h ad ot h er b u s i n es s

d eal s wi t h M i lan

— t es ti fi ed at h i s d ep o si t io n t h at h e recei v ed n o u p d at es ab o u t t h e

p ro p ert y d ev el o p m en t an d k n ew n o t h i n g ab o u t t h e Ol i v e Gard en l eas e. N ev ert h el es s ,

h e t ru s t ed M i l an an d was p leas ed w i t h th e ret u rn on h i s i n v es t m en t i n So u t heas t ern

.

An d wh i l e h e d i d n ot b el i ev e th at M i l an an d Um an g l i ed to hi m o r cau s ed h i m an y

d am ag e, Rah u l d i d n ot h av e a cl ear u n d ers t an d i n g o f t h e l aws u i t

. In deed

, at t h e t i m e

o f h i s d ep o s it i on in Oct o b er 2 0 1 6

, Rah u l h ad no t co n s u l t ed wi t h a l awy er o r m ad e a

d eci s i o n reg ard i n g wh et h er t o jo i n t h e s u i t as a p l ai n t i ff.

Ch i rag , t h e fi n al n on p art y s h areh o l d er, was s t i l l i n v o l v ed in a dif f e r e nt busi n es s

d eal wi t h Um an g at t he t i m e o f h i s Decem b er 2 0 1 6 d ep o s i t i o n Ch i rag t es t i fi ed t h at

,

i n i t i al l y , he t ru s t ed Um an g an d M i l an an d ex pres s ed n o d i s s at i s fact i o n w i t h t h e ret u rn

6o n h is in v es t m en t i n So u t h eas t ern b ecau s e “ [h e] h ad n o cl ue ab o ut an y t h i n g

. ” He l at er

l earn ed o f t h e Ol i v e Gard en l eas e an d as k ed Um an g ab o ut i t

. Su ffi ce i t t o s ay , Ch i rag

was n o t h ap py t h at U m an g h ad fai l ed t o d is cl os e t h e l eas e earl i er, b ut h e fi g u red

, “ I

g o t w h at I g o t fo r i t an d I’ m h ap p y wi t h i t an d I m o v ed o n wi th i t .” Bu t wh en Ch i rag

l earn ed o f t h e l aws u i t

, h e was s h o ck ed

, u p s et

, an d b ecam e co n cern e d t h a t h e l o s t

m o ney o n th e v en t ure b ecau s e t h e p ro p ert y s ho u l d h av e b een s o l d at a h i g h er p ri ce.

In th at reg ard

, Ch irag ex p lai n ed t h at “ i f t h ere was m o n ey left o n t h e t ab l e an d I d i d n ’ t

recei v e i t

, I n eed t o g et t h at m o ney .” M o rev er, i f t h e p l ai n t i ffs were g o i n g t o reco v er

d am ag es , Ch i rag d i d n o t w an t t o b e left o u t. A n d w h en as k ed if Um an g h ad ev er

co m m u n icat ed an y t h i n g t o h i m t h at h e b el i ev ed t o b e fal s e, Ch i rag rep li ed t h at h e was

t o l d t h e p ro p ert y was p ri ced at $ 1 ,6 0 0 ,0 0 0

, an d t h at Um an g fai l ed t o d i s cl os e h i s o wn

i n v es t m en t i n SGP.

At t i m e o f h i s d ep o s it i on , Ch i rag h ad no t s p o k e n t o a n a t t o rn ey , b u t h e s ai d,

“ I’ m s t i l l wei gh i n g m

y o pt i o n s o n wh at I w an t to d o at t h i s m o m en t

. . . . [W ] h en I d o

m ak e t h e d eci s i o n , I wi l l s eek m y o wn co u n s el an d fi g u re o u t t h i n gs o n m y o wn ,

wh at ev er I n eed t o d o

. ” In ad d i t i o n t o t h e d ep o s i t i o n t es t i m o ny d et ai l ed su p ra , Su n i l

,

Rah ul

, an d Ch i rag al s o fi l ed affi d av i t s , i n wh i ch th ey av erred t hat t h ey h ad “ n o t ru l ed

o u t t h e p o s s i bi l i t y o f fi l i ng a l aws u i t ” ag ai n st Mi l an an d Um an g. In co n t ras t t o Rajes h

7an d Su d hi r, t h e o t h er n on p art y s h areh o ld ers w ere n o t g i v en an o pp o rt u n i t y to

p u rch as e an y i n t eres t i n SGP.

Bas ed o n t h e fo reg o i ng ev i d en ce, t h e d efen d an t s fi led a m o t i on fo r s u m m ary

ju d g m en t

, arg u i n g , i n t er a l ia

, t h at t h e p l ai n t iffs were as s ert i n g im perm is si b l e d i rect

cl ai m s

. T h e d efen d an t s al s o as s ert ed t h at Sav an an d Rajen dra h ad n o s t an d i n g to

b ri n g an y cl ai m s b ecau s e t h ey

were n o t So u t heas t ern s h areh o ld ers

.

Fo l l owi n g a h eari ng , t h e t ri al g ran t ed s um m ary ju d g m en t t o t h e d efen d an t s as

t o t h e cl ai m s b y Sav an an d Rajen d ra, fi n d i ng t h at t h ey h ad n o s t an di n g t o as sert d i rect

cl ai m s , an d d i s m is s ed t hem

. Bu t t h e co u rt d en i ed t h e d efen d an t s ’ m o ti on fo r s u m m ary

ju d g m en t as t o Deerfi el d

, fi n d i n g t hat i t s cl ai m s co u l d b e bro u g h t i n a d i rect act i o n.

Fo l l o wi ng t h e d en i al

, i n part

, of t h e m o ti o n fo r s u m m ary ju d g m en t

, t h e d efen d an t s

o b t ai n ed a cert i fi cat e of i m m ed i a t e r e v iew. Sh o rt l y t h ereaft er, t h is Co u rt g ran t ed

i n t erl o cu t o ry

rev i ew. Th i s ap p eal fo l lo ws

.

Th e s t an d ard s fo r s um m ary ad j u d i cat i o n are wel l s et t led

. Su m m ary ju d g m en t

i s p ro p er “ i f t h e p l ead i n g s , d ep o s i t i o n s , an s w ers t o in t erro gat o ri es , an d ad m i s s i o n s o n

fi le, t og et h er wi t h t h e affi d av i t s, i f an y , s h ow t h at t h ere i s n o g en ui n e is s u e as t o an y

8m at eri al fact an d t h at t h e m o v i n g p art y i s en t i tl ed t o ju d g m en t as a m at t er o f l aw[.] ” 6

A s u m m ary ju d g m en t ru l i n g en

jo y s “ n o p res u m

p t i o n of co rrect n es s o n ap p eal

, an d an

ap p el l at e co u rt m

u st sat i sfy i t s el f d e n ov o t h at t h e req u irem en t s o f OCGA § 9 -1 1 -5 6

(c) h av e b een m et .” 7 Im

p o rt an tl y , i t i s n o t t h e ro l e o f t hi s Co u rt t o “ s o rt t h ro u g h t h e

ev i d en ce, res o l v e co n fl i ct s , an d m ak e fi n d i n g s o f fact b as ed o n th e ev i d en ce i t fi nd s

c r e d i b le.” 8 Rat h er, i n o u r d e n o vo rev i ew o f a t ri al co urt ’ s d en i al o f a m o t i o n f o r

s u m m ary ju d g m en t

, we m

u s t “ d et erm i n e wh et h er t h ere i s a g en u i n e i s s u e o f m at eri al

fact an d w h e t h er t h e u n d i s p u ted fact s , v i ewed i n t h e l i g ht m o s t fav o rab le t o t h e

n o n m o v i n g p art y , warran t ju d g m en t as a m at ter o f l aw.” 9

6 OCGA § 9 -1 1 -5 6 (c). S ee Ha r d in v. Ha r d in

, 3 0 1 Ga

. 5 3 2

, 5 3 6 (8 01 SE2 d

7 7 4 ) (2 0 1 7 ) (“ T o prev ai l at s um m ary ju d g m en t u n d er O CGA § 9 -1 1 -5 6

, t he m o v i n g

p art y m u s t d em o n s trat e t h at t here i s n o g en u i n e i s s u e o f m at eri al fact an d t h at t h e

u n d i s p u t ed fact s , v i ewed i n t h e l i g h t m o s t fav o rab l e t o t h e no n m o v i n g p art y , warran t ju d g m en t as a m at t er o f l aw.” (p u n ct u at i o n o m i tt ed )).

7 Co wa r t v. W

i d en er , 2 8 7 Ga. 6 2 2

, 6 24 (1 ) (a) (6 97 SE2 d 7 7 9 ) (2 0 1 0 ); a cco r d

Ha r di n , 3 0 1 Ga. at 5 37

.

8 Ha r d i n , 3 0 1 Ga. at 5 3 6 (p u n ct u at i o n o m i tt ed ); ac c o r d M ontgom e r y v

. Ba r r o w , 2 8 6 Ga. 8 9 6

, 8 9 8 (1 ) (6 9 2 SE2 d 3 5 1 ) (2 0 1 0 ).

9 S h ekh a wa t

, 29 3 G a. at 4 6 9 ; a cco r d Y o u n g b l o o d v. Gwi nn ett R ockd al e Newt o n Cmt y. S er v. Bd

. , 2 7 3 Ga. 7 1 5 , 7 1 7 -1 8 (4 ) (5 4 5 SE2 d 8 7 5 ) (2 0 0 1 ).

9Here, i n s ev eral rel at ed cl ai m s o f erro r, th e d efen dan t s as s ert t h at t h e t ri al co u rt

ap p li ed i n co rrect leg al s t an dard s an d th u s erred i n co ncl u d in g th at D eerfi el d ’ s d i rect

cl ai m s co u l d p ro ceed . W e ag ree.

As t h i s Co u rt h as p rev i o u s l y ex p l ai n ed

, “ [a] d eri v at iv e s u i t i s b ro u gh t o n b eh al f

o f a co rp o rat i o n fo r h arm d o ne t o i t an d an y d am ag es r e c o v e r ed are p ai d t o t h e

co rp o rat i o n.” 1 0 An d t h e d et erm i n at i on o f wh et h er a cl ai m i s d eri v at i v e o r d i r e c t i s

m ad e b y “ l oo k i n g t o wh at t h e p l ead er al l eg ed .” 1 1 Im po rt an t l y , i t i s “ th e n at ure o f t h e

wro ng al l eg ed an d n o t t he pl ead er’ s d es i g n at i o n o r s tat ed i nt en t i o n t h at co n t ro l s t h e

co u rt ’ s d eci si o n.” 1 2 No n et h e l es s , th e g en eral ru le is t h at “ al l eg at i o n s o f

m i s ap p ro p ri at io n of co rp o rat e as s et s an d breach o f fi d u ci ary du t y can o nl y b e p u rs u ed

1 0 S o u th la n d Pr o

p a n e, In c. v. McW

h o rt er , 3 1 2 Ga. Ap p

. 8 1 2

, 81 6 (1 ) (7 2 0 SE2 d

2 7 0 ) (2 0 1 1 ) (p u n ct uat i o n o m i tt ed ); a cco r d Cr i t t en t o n v. S o ut h l a n d Own er

s As s ’n

, In c ., 3 1 2 Ga. Ap p . 5 2 1, 5 2 4 (2 ) (7 1 8 SE2 d 8 3 9 ) (2 0 1 1 ).

1 1 McW h o r t er , 31 2 Ga. Ap p

. at 8 1 6 (1 ) (p un ct u at io n o m i tt ed ); a cco r d Ph o en i x A i r l i n e S er vs

., In c. v. M

et ro Ai r l i n es

, In c ., 2 6 0 Ga. 5 8 4

, 5 8 5 (1 ) (3 97 SE 2 d 6 9 9 ) (1 9 9 0).

1 2 McW h o r ter

, 3 12 Ga. Ap p

. at 8 16 (1 ) (p un ct u at io n o m i tt ed ); a cco r d Ph o en i x Ai r l i ne S er vs

. , 2 6 0 Ga. at 5 85 (1 ).

10i n a s h areh o l d er deri vat i v e s u it b ro u g h t o n b eh al f o f t h e co rp o rat io n , b ecau s e t h e

i n ju ry i s t o t h e co rp o rat io n an d i t s s h areh o l d ers co l l ect i vel y .” 1 3

Al t h o u g h a p l a i n ti ff m ay b ri n g a d i rect act i o n fo r i n ju ri es d o n e t o i t i n i t s

i n d i v i d u al cap aci t y by co rp o rat e fi d u ci ari es , “ o u r Su prem e Co u rt h as hel d t h at t o h av e

s t an d i n g t o s u e i n d i vi d u al l y , rat h er t h an d eri v at i v el y on b eh al f o f t h e co rp o rat i o n , t h e

p l ai n t i ff m

u s t al leg e m o re t h an an i n

ju ry res u lt i n g fro m a wro n g to t h e co rp o rat i o n .” 1 4

Th u s, t o s et ou t an i n d i vi d u al act i o n , t h e p l ai nt i ff m u st “ al l eg e ei t h er an i nju ry wh i ch

i s s ep arat e an d d i s t i n ct fro m t h at s uffered b y o t h er s h areh o l d ers , o r a w ro n g i nv o l v i n g

a co n t ract u al ri gh t o f a s h areh o l d er wh i ch ex i s t s i n d ep en d en t l y o f a n y r i g h t o f t h e

co rp o rat i o n.” 1 5 Bu t ev en i f a s h areh o l d er fai l s t o al l eg e a s p eci al i n ju ry , i t m ay

n ev ert h el es s b ri n g a d irect act i o n i f t h e co rp o rat i o n i s cl o s el y h el d an d “t h e

1 3 McW h o r t er , 3 1 2 G a. Ap p

. at 8 1 6 (1 ) (p u n ct u at i o n o m i t t ed ); a cco r d Ba r n et t
v. Fu l l a r d , 3 0 6 Ga. Ap p . 1 4 8

, 1 5 2 (3 ) (a) (7 0 1 SE2 d 6 0 8 ) (2 0 1 0 ).

1 4 McW ho r t er , 31 2 Ga. Ap p

. at 8 1 6 (1 ) (p u n ct uat i on o m i tt e d ) ; a cco r d

Cr i t t en t on , 3 1 2 Ga. Ap p

. at 5 2 4 (2 ); s ee a l s o Ph o en i x Ai r l i n e S

er vs ., 2 6 0 Ga. at 5 8 5 (1 ) (“ Th e g en eral ru le i s t h at act i o n s fo r b reach of fi d u ci ary d u t i es are to b e b ro u g ht

i n d eri vat i v e s u i t s .”).

1 5 McW ho r t er , 31 2 Ga. Ap p

. at 8 1 6 ( 1 ) ( p u n ct u at io n om i t t ed ); a cco r d

Cr i t t en t on , 3 1 2 Ga. Ap p . at 5 2 4 (2 ).

11ci r cu ms ta n ces s h o w t h at t h e rea s o n s f o r t h e g en er al r ul e r eq u i r i n g a d er i va t i ve s u i t

d o n o t a p p l y.” 1 6 Th e reas on s fo r o rd i n ari ly req u iri n g d eri v at i v e act i o n s are:

(1 ) t o prev en t m

u l t i p l e s u i t s b y s h areh o l d ers ; (2 ) t o p ro t ect co rp o rat e

cred it o rs b y en s uri ng t h at t h e reco v ery g o es t o t h e co rp o rat i on ; (3 ) t o

p ro t ect th e in t eres t o f al l t h e s h areh o l ders b y en s u ri n g t h at t h e reco v ery

g o es t o t h e co rp orat i o n , rat her t h an al l o wi n g reco v e r y b y o n e o r a few

s h areh o l d e r s t o t h e p reju d i ce o f o t h ers ; an d (4 ) t o ad eq u at el y

co m p en s at e i nju red s hareh o l ders b y i n creas i n g t h ei r s h are v al u es

. 1 7

In it s o rd er d en y in g s u m

m ary ju dg m en t

, t h e t ri al co u rt fo u n d t h at t h e al l eg ed l y

frau du l en t m i s s t at em en t s o r o m i s s io n s o f m at eri al fact w ere m ad e o n l y t o Deerfi el d ’ s

s h areh o ld ers , Rajen d ra an d S a v a n , an d n o t to an y o f t h e o t h er s hareh o l d ers o f

So u t heas t ern , s u ch t h at i t co ul d n o t s ay as a m at t er o f l aw t h at t h ere w as n o s p eci al

i n ju ry t o Deerfi el d

. Fu rt h erm o re, ev en if Deerfi el d h ad n o t al l eg ed a s p eci al i n ju ry ,

t h e t ri al co u rt fo u n d th at t h e d efen d an t s h ad no t s h own t h e reas o n s fo r a d e r i v a t i v e

act i on were ap pl i cab le h ere. Sp eci fi cal l y , t h e n on p art y s h areh o l d ers are ei t h er rel at ed

t o M il an an d Um an g o r h av e cl o s e rel at i o ns h i p s wi t h t h em an d s u g g es ted

, i n t h ei r

1 6 McW h o r ter

, 3 1 2 G a

. A p p

. at 8 1 6 -1 7 (1 ) (p u n ct u at i on o m i t t ed ); a cco r d

Ba r net t , 3 0 6 Ga. Ap p . at 1 5 3 (3 ) (b ).

1 7 McW h o r ter

, 3 12 Ga. Ap p . at 8 1 7 (1 ); a cco r d Ba rn et t , 3 0 6 G a. Ap p

. at 1 5 3 (3 ) (b ).

12d ep os i t i o n s , t h at t h ey wo u l d n o t p u rs u e a laws u i t ag ai n s t t h e d efen d an t s

. W i t h reg ard

t o t h e t h i rd reas o n fo r a deri v at i v e act i o n , t h e co u rt no t ed t h at t he p lai n ti ffs are o n l y

s eek i n g “ Deerfi el d ’ s 50 [p ercen t ] s h are o f t h e d am ag e s ” an d t h e o th er n o n p art y

s h areh o ld ers are “ free t o b ri n g t h ei r o wn d i rect cl ai m s i f t h ey s o ch o o s e.” 1 8

As an i ni ti a l m at t er, we d i s ag ree wi t h t h e t ri al co u rt th at an y o f t h e cl ai m s

al l eg ed a s peci al i n

ju ry to Deerfi el d s ep arat e an d d i s t i n ct fro m t h at s u ffered b y t h e

o t h er n o n p art y s h a r eh ol d ers

. Co n t rary t o Deerfi el d’ s arg um en t, th ere was ev i d en ce

t h at M i l an an d Um an g fai led t o d i s cl o se t h e Ol i v e Gard en l eas e t o s o m e o f t h e

n o n p art y s h areh o ld ers an d t h ei r i n t eres t i n SGP t o at l eas t o n e n o n p art y s h areh o l d er.

Bu t ev en i f t he d efen dan t s ’ wro n g fu l act s were d i rect ed o n l y t o ward Deerfi el d an d i t s

s h areh o ld ers , a n

y i n j u r y s uffered b y Deerfi el d as a res u l t o f Mi l an an d Um an g ’ s s al e

o f So ut h eas t ern ’ s p ro p ert y t o SGP at an u nd erv al u ed p ri ce i s t he s am e as t h e i n ju ry

1 8 Th e s eco n d an d fo urt h reas o n s fo r req u i ri n g a deri v at i v e act i o n a r e n o t at
i s su e here as t h ere i s n o ev i d en ce o f an y co rp o rat e cred i t o rs w h o n eed pro t ect i o n an d,

as a cl o s el y h el d co rp orat i o n , t h ere i s n o read y m ark et fo r So u t h eas t ern ’ s s h ares

. See

Th o ma s v. Di cks o n , 2 5 0 Ga. 7 7 2

, 7 7 5 (3 0 1 SE2 d 4 9 ) (1 9 8 3 ) (n o t i n g t h at a d eri v at i v e

act i on wo u l d n ot ad eq u at el y co m p en s at e a p l ai nt i ff b ecau s e, “ [f] o r a s hareh o l d er, t h e

p o t en t i al b en efi t o f a co rp o rat e reco v ery in s u ch cas es i s t h e in creas e in t h e v al u e o f

h i s o r h er s h ares

. . . [b u t ] i n a cl o s el y h el d co rp o rat i o n , t h ere i s n o read y m ark et ” fo r

t h e s h ares ).

13s u ffered b y t h e n o np art y s h areh o l d ers an d So u th eas t e r n i t s el f. 1 9 No t ab l y , al t h o u g h

Su d h i r an d Rajes h o wn s h ares o f SGP a n d DRP, t h e o t h er n o np art y s h areh o l d ers ,

i n c l u d i n g Rah u l, Su n i l Nai r, an d Ch irag

, d o n ot

. Th u s, becau s e Deerfi el d h as n o t

a l l e g ed a s p eci al in

ju ry t h at was n o t s u ffered by t h es e n on p art y s h areh o l ders

, i t i s

1 9 S ee Ha ski ns v. Ha ski n s , 2 7 8 Ga. Ap p . 5 1 4 , 5 2 0 (1 ) (6 2 9 SE2 d 5 0 4 ) (2 0 0 6 ) (h o l d i n g t h at a p l ai n t i ff d i d n o t s u ffer a s ep arat e an d di s t i n ct i n ju ry fro m o t h er

s h areh o ld ers b as ed o n a co m p l ai n t t h at “ h i s b r o t h e r en g ag ed i n s el f-d eal i n g an d

co n vers io n b y p ay i n g h i m s el f a d i v id en d ” b ecau se t h e i m p act o f h i s b ro t her’ s al l eg ed

act i on s w o ul d b e o n t h e v al u e o f t h e st o ck i n g e n e r a l a n d n o t ju s t t o t h e p l ai n t i ff’ s

s h ares ). S ee a l s o Gr a ce Br o s

. v. Fa r l ey In d us

., In c. , 2 6 4 Ga. 8 1 7

, 8 1 9 (2 ) (4 5 0 SE2 d

8 1 4 ) (1 9 9 4 ) (“ [A] s h areh ol der m u s t b e i nju re d i n a w ay wh i ch i s d i fferen t fro m t h e

o t h er s hareh o ld ers or i n d ep en d en t l y o f t h e co rp o r a t i o n t o h av e st an d in g t o as s ert a d i rect act i o n

. ”); Levy v. Rei n er , 2 9 0 Ga. Ap p

. 4 7 1

, 4 7 3 -7 4 (2 ) (6 5 9 SE2 d 8 4 8 ) (2 0 0 8 ) (h o l d i n g t h at p l ai n t i ff co ul d n ot m ai n t ai n a d i rect act i on o n a b re a c h-o f-fi du ci ary -d u t y cl ai m ag ai n s t co rp o r a t e d i rect o rs an d o ffi cers b as ed o n al l eg at io n s t h at th ey p ai d

t h em s el v es ex ces s i v e s al ari es ); Ma tt h ews v. Tel e-S ys

., In c ., 2 40 Ga. Ap p

. 87 1

, 8 7 2 -7 4 (2 ) (5 2 5 SE2 d 4 1 3 ) (1 9 9 9 ) (h o l d i n g t h at a breach -o f-fi d u ci ary du t y c l a i m , w h i ch

es s en t i al l y al l eg ed t h at ex ces s i ve s al ari es dep l et ed o r was t ed co rp o rat e as s et s , co u ld

o n l y b e b ro u g ht i n a d eri v at i v e act i o n ).

Deerfi el d arg ues t h at

, u n der Ar g en t u m In t ’l

, LLC v. W

oo d s , 2 8 0 Ga. Ap p

. 4 4 0,

4 4 7 (2 ) (e) (6 3 4 SE2 d 1 95 ) (2 0 0 6 ), f r a udule nt m isr e pr es en t at i o ns an d o m i s s i o n s m ad e

t o s peci fi c s h areh o l d ers res u l t ed i n d i rect cl ai m s

. Bu t i n t h a t cas e, we h el d t h at t h e

p l ai n t i ffs ’ “ cl ai m s fo r frau d an d co n s p i racy [were] p ers o nal to th em [,] ” s u ch t h at t h ey h ad al leg ed a s p eci al i n

ju ry

. S ee i d

. Here, i n st ark co n t ras t

, t h ere was an i d en t i cal

i n ju ry t o al l s h areh o ld ers , an d at l eas t o n e of t h e n on p art y s h areh o l d ers t es ti fi ed i n h i s d ep os i t i o n as t o m i srep res en t at i o n s an d o m i ss i o ns m a d e t o h i m

. Acco rd i n g l y , Ar g en t um i s eas i l y

d i s t i n gu is h ab l e.

14req u i red t o b ri ng it s cl ai m s i n a d eri v at i v e act i o n u n l es s i t can s h ow t h at t h e reas on s

fo r t h e g en eral ru l e req u i ri ng a d eri v at i v e s u i t d o n o t ap p l y

. 2 0

Here, t h e t ri al co u rt fo u n d t h at a di rect act i o n was p erm i t t ed b ecau s e t h e

n o n p art y s hareh o l d ers co ul d b ri n g t h ei r o wn d i rect act i o n s , b u t th is reas o n i n g can n ot

s u p p ort a d i rect act i o n b ecau s e, as ex p l ai n ed su p r a , o n e o f th e reas o n s fo r req u i ri n g

a d eri vat i v e s u i t i s t o p rev en t m u l t i p l e l aws u i t s

. 2 1 An d d u ri n g h i s d ep o s i t i o n , o n e o f

t h e n o n part y s h areh o l d ers s ai d t h at

, wi t h reg ard t o t h e l aws u i t

, h e i n t en d ed t o p o s s i b l y

s eek h i s own co u n s el

. M o reo v er, i n t h ei r affi d av i t s, 2 2 Rah ul

, Su n i l N ai r, an d Ch i rag

av erred t h at th ey had n o t ru led o u t t h e p o s s i b i l i t y o f fi li n g s u it

. Th us , ev en as s u m i n g

t h at m o s t o f t h e no n p art y sh areh o l d ers wo u ld n o t s u e Um an g an d M i l an d u e t o t h ei r

2 0 S ee s u p r a n o t es 1 6 -1 7 & acco m p an y i n g t ex t

.

2 1 S ee s u pr a n o t e 1 7 & acco m

p an y in g t ex t ; Ba r n et t

, 3 06 Ga. A p p

. at 1 5 3 -5 4 (3 ) (b ) (h o l d i n g t h at b ecau s e al l o f co rp o rat i o n ’ s s hareh o l d ers were n o t p art i es t o t h e l aws u i t

, ri s k o f m

u lt i p l e l aws u i t s an d p os s i b l e p reju di ce to th e o t h e r r i g h t s o f o t h er

s h areh o ld ers p ro h ib i t ed s hareh o l d er’ s d i rect act i o n ).

2 2 Deerfi el d urg es t h at Rah u l

, Su n i l Nai r, an d Ch i rag ’ s affi d av it s are a “ farce”

an d t h at t h ei r d ep os i t i o n t es t i m o n y m ak es cl ear t h a t t h e y are “ al i g n ed wi t h ” t h e d efen d an t s an d h av e n o in t en t io n o f pu rs u in g cl ai m s ag ai ns t t h e m

. Bu t i t i s n o t o u r

ro l e t o “ so rt t h ro u g h t h e ev i d en ce, res o l v e co n fl i ct s , an d m ak e fi n di n g s o f fact b as ed

o n t he ev i d en ce i t fi n d s cred i bl e.” Ha r d in

, 3 0 1 Ga. at 5 3 6 (p un ct u at i o n o m i t t ed ).

No t ab l y , al t h o u g h t h e pl ai n t i ffs fi l ed a m o t i o n t o s t ri k e t he affi d av it s o f Su n i l Nai r, Ch i rag , an d Rah u l , t h at m o t i o n was l at er wi t h d rawn

.

15rel at i o n s h i p s wi t h t h em , t h ere i s a ri s k t h at an y o n e o f t h em co u l d fi l e an o th er act i o n

as s ert i n g t h e s am e cl ai m s at i s s u e i n t hi s cas e. 2 3

Fi n al l y , t h ere are n u m ero u s So ut h eas t ern s h areh o l ders wh o are n o t p art i es to

t h i s l i ti g at i o n , b u t w h o co u l d b e p reju di ced i f d a m a g e s are award ed s o l el y to

Deerfi el d

, rat h er t h an t o So u t h eas t ern

. A n d if t h e po s si b i l i t y o f p reju d i ce t o o t h er

i n t eres t ed part i es , su ch as cred i t o rs o r o t h er s h areh o l d e r s e x i s ts

, “ a d i rect reco v ery

s h o u ld n o t b e al l owed .” 2 4 A n d wh i l e t h e t ri al co u rt fo un d t h at al l o f t h e n o n p art y

s h areh o ld ers h av e cl os e, p ers o n al rel at i on s h i p s w it h M il an o r Um an g , t h ere i s n o

ev i d en ce t h at

, i f Deerfi el d ’ s cl ai m s are s u cces s fu l

, al l o f t h e n o n p art y sh areh o l d ers

2 3 S ee S w. Hea l t h & W

el l n es s

, LLC. v. W

o r k

, 2 8 2 Ga. Ap p

. 6 19

, 6 2 6 -2 7 (2 ) (c) (6 3 9 SE2 d 5 7 0 ) (2 0 0 6 ) (h o l di ng t h at t h e p l ai n t i ff sh areh o l d ers m u s t b ri n g a d eri v at i v e

act i on wh en t h ey al l eg ed t h at t h e n o n p art y s h areh o l d ers were g i v en th e o p p o rt u n i t y

t o p art i ci p at e i n t he l aw s u i t a n d ch o s e no t t o , b u t t h ere was n o ev i den ce t o s u p p o rt

t h at arg u m en t i n t h e reco rd

, a n d t h u s, p l ai n ti ffs co ul d n o t s ho w th at t h ere was n o d an ger o f m

u l t i p l e l aws u i t s ). Bu t s ee Pa r ks v. Mu lt i m ed i a Tech s

. , In c. , 2 3 9 G a. Ap p. 2 8 2

, 2 87 -8 8 (2 ) (5 2 0 S E 2 d 5 1 7) (1 9 9 9 ) (h o l d i ng th at s o le i nju red s h areh o l d er was

p erm i t t ed t o b ri n g d i rect act i o n wh en t h ere was n o ri s k of m u l t i p le s u it s b ecau s e o n l y

o t h er s h areh ol d ers were d efen d an t ’ s wi fe an d ch i l dren ).

2 4 Th o ma s , 2 50 Ga. at 7 7 5 ; a cco r d Ma t t h ews , 2 4 0 Ga. Ap p

. at 8 7 3 (2 ) (“ If t h e

co rp o rat i o n h as

. . . ot h er s h areh o l d e r s w h o w o u l d b e preju d iced i f t h e

m i s ap p ro p ri at ed fu nd s were n o t ret u rn ed to t h e co rp o rat i o n, t h en a d i rect act i o n m u s t
fai l .”). Bu t s ee Th o ma s , 2 50 Ga. at 7 7 5 (h o l d i n g th at s o l e i n ju red s h areh o l d e r was

p erm i t t ed to b ri n g a d i rect act i o n wh en t h e reas o n s fo r a d e r i v a t i v e act io n d i d n ot

ex i s t ).

16h av e co n s en t ed t o t he res u l t i n g d am ag es b ei n g p ai d o n l y t o D eerfi el d

, rat h er t h an to

So u t heas t ern fo r t h e b en efi t of al l i t s s h areh o ld ers —i ncl u d in g t h os e w h o , l i k e

Deerfi el d

, h av e n o i nt eres t i n SGP an d DR P

. 2 5 In d eed

, o ne o f t h e n o n p art y

s h areh o ld ers t es t i fi ed t h at h e d i d n o t wi s h t o b e left o u t o f an y reco v ery o f d am ag es

i f t h e p ro p ert y h ad b een s ol d fo r l es s t h an i ts v al u e.

In su m , t h e t ri al co u rt erred i n fi n d i n g th at Deerfi el d ’ s cl ai m s co ul d b e b ro u g ht

d i rect l y becau se D e e r f

i el d (1 ) h as n ot al l eg ed a sp eci al i n ju ry n o t s uffered b y t h e

o t h er n o n p art y s hareh o l d ers an d So ut h eas tern

, an d (2 ) can n o t s h ow t h at n o n e o f t h e

reas on s fo r req u i ri n g a d eri v at i v e s u i t ap p l y

. 2 6

2 5 S ee Ro l l i ns v. LOR, In c. ,

_

_ Ga. Ap p

.

_

_ (4 ) (_

_ SE2 d

_ _ ) 20 1 8 W L 2 2 9 5 7 5 8,

at *1 5 (2 0 1 8 ) (n o t i n g t hat “ al t h o u g h t h e t ri al co u rt fo un d th at al l o f t h e n o n -p art y

s h a r e h o l d ers h av e co n sen ted t o an d b en efi t t ed fro m t h e b reach es of fi d u ci ary d u t y al l eg ed i n t h e co m

p lai n t

, t h ere i s n o ev id en ce t h at

, i f t h e [ p l ai n t i ffs ’ ] cl ai m s are

s u cces s fu l

, t h e n o n -p art y s h areh o l d ers h av e co n s en t ed t o t h e res u l t in g d am ag es b ei n g

p ai d o n l y t o t h e [p l ai n ti ffs ]

, rat h er t h an t o [t h e co rp orat i o n ] fo r t h e b en efi t o f al l t h e

s h areh o ld ers ”); Levy

, 2 9 0 G a. Ap p

. at 4 7 4 (2 ) (h o l d i ng t h at

, al t h o u g h t h e ap p el l an t

co n ten d ed t h at o t h er s hareh o l d ers w ere u n li k el y t o b ri n g ad d i t io n al cl ai m s b ecau s e

t h ey b en efi t t ed fro m t h e al l eg ed wro n g fu l co n d u ct

, t h ere was n o e v i d en ce i n t h e

reco rd t o s u p p o rt t h at as s ert i o n ). Cf

. Pa r ks

, 2 3 9 Ga. A p p

. at 28 7 -8 8 (2 ) (h o ld i n g t h at
b ecau s e p l ai n t i ff was t he s o l e i n ju red s h areh o l d er, t h ere was n o co n cern ab o ut

p reju d i ci n g o t her s hareh o l d ers ).

2 6 S ee McW h o rt er , 3 1 2 G a

. Ap p

. at 8 1 6 -1 7 (1 ) (h o l d i n g th at th e p l ai n t i ff

s h areh o ld ers co u l d n o t b ri n g a d i rect act io n wh en o n e o f t h e reas o n s fo r req u i r i n g d eri v at i v e act i on s ap p l i ed

, wh ich was t o p ro t ect co rp orat e cred i t o rs ); Levy

, 2 9 0 Ga. Ap p

. at 4 7 4 (2 ) (h o l d i n g t h at t h e p l ai n ti ff s h areh o l d ers m u s t b ri n g a d eri vat i ve act i o n

17Fo r al l t h es e reas o ns , t he t ri al co u rt ’ s o rd er d en y in g s u m m a r y ju d g m en t i s

rev ers ed

.

Ju d g men t r ever sed . Do yl e, P. J., a nd

Mer ci er

, J., co n cu r

.

wh en on e o f t h e reas on s fo r req u i ri n g a d eri v at i v e act i o n ap p l i ed

, wh i ch was to

p rev en t m

u l t i p l e l aws u i ts ); W

o r k , 2 8 2 Ga. Ap p. at 6 2 6 -2 7 (2 ) (c) (s am e).

18Ap p end i x

* D RP i s n o t d ep i ct ed d u e t o i t s m in o r ro l e i n t h e p ro ceed i n g s

19