FI L ED

U.S. COURT OF APPEAL S

EL EVENTH CI RCUI T

SEPTEMBER 23, 2011

J OHN L EY

CL ERK [ P U B L I S H ]

I N T H E U N I T E D S T A T E S C O U R T O F A P P E A L S

F O R T H E E L E V E N T H C I R C U I T

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

N o

. 0 6

- 1 0 7 1 5

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

D

. C

. D o c k e t N o

. 0 4

- 0 0 0 0 5

- C V

- H L M

- 4

J I M M Y L E D F O R D

,

L A R R Y O ' D E L L

,

B R Y A N W A L K E R

,

D Y N A V I S I O N G R O U P

, L L C

, S I G N A T U R E L E A S I N G

, L L C

,

P l a i n t i f f s

- A p p e l l a n t s

C r o s s

- A p p e l l e e s

,

v e r s u s

S H E L B Y P E E P L E S

, J R

. ,

P F L C

, L L C

,

I N T E R N A L M A N A G E M E N T

, I N C

. ,

D e f e n d a n t s

- A p p e l l e e s

C r o s s

- A p p e l l a n t s

.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

A p p e a l s f

r o m t h e U n i t e d S t a t e s D i s t r i c t C o u r t

f o r t h e N o r t h e r n D i s t r i c t o f G e o r g i a

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

( S e p t e m b e r 2 3

, 2 0 1 1 )B e f

o r e T J O F L A T

, E D M O N D S O N a n d G I B S O N

, C i r c u i t J u d g e s

. *

T J O F L A T

, C i r c u i t J u d g e :

U p o n t h e m a

j o r i t y v o t e o f t h e j u d g e s i n t h i s C o u r t i n a c t i v e s e r v i c e

, o n

J a n u a r y 1 9

, 2 0 1 1

, t h e e n b a n c C o u r t v a c a t e d t h i s p a n e l ’ s p r i o r o p i n i o n a n d g r a n t e d

r e h e a r i n g e n b a n c

. S e e L e d f o r d v

. P e e p l e s

, 6 3 0 F

. 3 d 1 3 4 5 ( 1 1 t h C i r

. 2 0 1 1 ) ( e n

b a n c ) ; 6 0 5 F

. 3 d 8 7 1 ( 1 1 t h C i r

. 2 0 1 0 )

, v a c a t e d a n d r e h ’ g e n b a n c g r a n t e d

, 6 3 0 F

. 3 d

1 3 4 5

. T h e e n b a n c C o u r t h a s c o n c l u d e d t h a t A p p e l l e e s i n t h e i r c r o s s a p p e a l h a v e

n o t s h o w n t h a t t h e d i s t r i c t c o u r t a b u s e d i t s d i s c r e t i o n i n d e n y i n g s a n c t i o n s

.

B e c a u s e t h e e n b a n c C o u r t c o n s i d e r e d o n l y t h e s a n c t i o n s i s s u e

, w e h e r e b y

r e i s s u e P a r t s I

, I I

, I V

, a n d V o f t h e p a n e l o p i n i o n o f M a y 6

, 2 0 1 0

, a s s e t f o r t h

b e l o w a s n o w P a r t s I

, I I

, I I I

, a n d I V

. W e a f f i r m t h e d i s t r i c t c o u r t ’ s g r a n t o f

s u m m a r y j u d g m e n t t o A p p e l l e e s

.

I n t h i s c a s e

, t w o p a r t i e s

, X a n d Y

, e a c h o w n e d a f i f t y p e r c e n t i n t e r e s t i n a

l i m i t e d l i a b i l i t y c o m p a n y t h a t m a n u f a c t u r e d a n d s o l d c a r p e t s

. X p r o v i d e d t h e

f i n a n c i n g ; Y r a n t h e c o m p a n y a n d m a r k e t e d i t s p r o d u c t

. T h e p a r t i e s h a d a b u y

- s e l l

a g r e e m e n t t h a t e n a b l e d e i t h e r p a r t y t o b u y o u t t h e o t h e r a t a n y t i m e b y o f f e r i n g t o

p u r c h a s e t h e o t h e r ’ s i n t e r e s t i n t h e c o m p a n y a t a n o f f e r e d p r i c e

. A f

t e r r e c e i v i n g a n

Honora ble J ohn R. Gibson, United States Circuit J udg e for the Eig hth Circuit, sit ting by *

desig nation. J udg e Gibson re tired fr om service on J anuar y 26, 2011. This case is decided by a

quorum of the pa

nel pursuant to 28 U.S.C. § 46(d).

2o f

f e r

, t h e o f f e r e e w o u l d h a v e t h i r t y d a y s i n w h i c h t o a c c e p t t h e o f f e r o r e l e c t t o

p u r c h a s e t h e o f

f e r o r ’ s i n t e r e s t a t t h e o f

f e r e d p r i c e

.

Y o f f e r e d t o p u r c h a s e X ’ s i n t e r e s t f o r $ 3

. 5 m i l l i o n

. X d e m a n d e d t o k n o w

w h e t h e r Y w o u l d b e b o r r o w i n g t h e f u n d s f r o m Z

, w h o e a r l i e r h a d e x p r e s s e d a n

i n t e r e s t i n p u r c h a s i n g t h e c o m p a n y

. Y s a i d t h a t n e i t h e r Z n o r a n y o n e e l s e w o u l d b e

p r o v i d i n g t h e m o n e y

. X a s k e d Z i f i t w a s f i n a n c i n g Y ; Z s a i d n o

.

X

, u n a b l e t o o p e r a t e t h e f a c t o r y a n d m a r k e t i t s p r o d u c t w i t h o u t Y o r

s o m e o n e w i t h Y ’ s e x p e r t i s e

, h a d t o s e l l a n d t h e r e f o r e a c c e p t e d Y ’ s o f

f e r

. P r i o r t o

t h e d a t e s e t f

o r t h e c l o s i n g

, h o w e v e r

, X t o l d Y t h a t i t w o u l d n o t g o f o r w a r d w i t h

t h e c l o s i n g u n l e s s Y r e p r e s e n t e d t h a t n o t h i r d p a r t y w a s p r o v i d i n g t h e f u n d s t o p a y

X

. Y r e s p o n d e d t h a t i t h a d n o o b l i g a t i o n t o d i s c l o s e t h e s o u r c e o f i t s f u n d s a n d t h a t

X w a s b o u n d b y c o n t r a c t t o t r a n s f e r i t s i n t e r e s t t o Y u n c o n d i t i o n a l l y

. X t a c i t l y

a g r e e d b y a p p e a r i n g a t t h e c l o s i n g a n d t r a n s f e r r i n g i t s i n t e r e s t t o Y

.

X s u b s e q u e n t l y l e a r n e d t h a t Z h a d p r o v i d e d t h e p u r c h a s e p r i c e a n d

,

f o l l o w i n g t h e c l o s i n g

, h a d a c q u i r e d t h e f a c t o r y ’ s a s s e t s a n d h i r e d Y t o r u n t h e

b u s i n e s s

. A f

t e r d i s c o v e r i n g Z ’ s i n v o l v e m e n t

, X t o o k Y t o c o u r t

. I n a c o m p l a i n t

f i l e d i n s t a t e c o u r t

, X a l l e g e d t h a t Y b r e a c h e d a f i d u c i a r y d u t y t o t e l l i t t h a t Z h a d

f i n a n c e d t h e p u r c h a s e o f i t s i n t e r e s t

, a n d m o r e o v e r

, t h a t Y ’ s f a i l u r e t o d i s c l o s e Z ’ s

3i n v o l v e m e n t f r a u d u l e n t l y i n d u c e d X t o s e l l i t s i n t e r e s t t o Y

. X a l s o b r o u g h t s u i t 1

a g a i n s t Z i n f

e d e r a l d i s t r i c t c o u r t

, t h e c a s e n o w b e f o r e u s

, c l a i m i n g t h a t Z v i o l a t e d

f e d e r a l s e c u r i t i e s l a w

, s t a t e s e c u r i t i e s l a w

, a n d s t a t e c o m m o n l a w b y d e n y i n g

i n v o l v e m e n t i n t h e t r a n s a c t i o n a n d c a u s i n g X t o s e l l i t s i n t e r e s t t o Y

.

X l o s t b o t h c a s e s o n s u m m a r y j u d g m e n t

. B o t h c o u r t s c o n c l u d e d t h a t Y ’ s 2

a l l e g e d m i s r e p r e s e n t a t i o n a b o u t Z ’ s i n v o l v e m e n t i n t h e b u y

- o u t d i d n o t c a u s e X t o

s e l l i t s i n t e r e s t

. R a t h e r

, X s o l d b e c a u s e i t w a s i n X ’ s e c o n o m i c s e l f

- i n t e r e s t t o d o

s o

. X n e e d e d Y ’ s s k i l l s ; h a d X p u r c h a s e d Y ’ s i n t e r e s t

, i t w o u l d h a v e h a d n o o n e t o

r u n t h e c a r p e t f

a c t o r y o r t o m a r k e t i t s p r o d u c t

. X t h e r e f o r e h a d n o e c o n o m i c a l l y

v i a b l e o p t i o n b u t t o s e l l

.

T h e d i s t r i c t c o u r t g r a n t e d Z s u m m a r y j u d g m e n t

. X a p p e a l e d t h e d i s t r i c t

c o u r t ’ s d e c i s i o n r e

j e c t i n g i t s c l a i m

. T h i s o p i n i o n i s o r g a n i z e d a s f o l l o w s

. P a r t I

i d e n t i f i e s X

, Y

, a n d Z a n d s e t s o u t t h e e v e n t s t h a t h a v e g i v e n r i s e t o t h i s

c o n t r o v e r s y

. P a r t I I c a n v a s s e s t h e l i t i g a t i o n a s i t e v o l v e d i n s t a t e c o u r t a n d s p r e a d

3

I nvoking the same fiduc iary duty and fr audulent induce ment theories, X a lso claimed that Y 1

had wr ong fully

obtained the pa

rce l of rea l estate on whic h the ca rpet fa ctory

was loca ted.

X lost its s tate ca se with the exception of a c laim ag ainst Y involving the r eal e state re fer red to 2

supra note 1. T hat claim is still pending in state c ourt.

I n doing so, w e ar e mindful that we a re r eviewing a summary

judgme nt. Thus, the fac ts we 3

rec ite in portray

ing the rele vant eve nts are those established by the evidenc e, take n in the light

most favora

ble to the non-movant, X, a nd the infer ence s rea sonably draw n there from. Watkins

v. For d Motor Co., 190 F.3d 1213, 1216 (11th Cir. 1999).

4t o f

e d e r a l c o u r t ; d e s c r i b e s t h e s t a t e t r i a l a n d a p p e l l a t e c o u r t s ’ d i s p o s i t i o n o f X ’ s

c l a i m s a g a i n s t Y a n d t h e d i s t r i c t c o u r t ’ s d i s p o s i t i o n o f X ’ s c l a i m s a g a i n s t Z ; a n d

,

a f t e r t h a t

, d e l i n e a t e s t h e i s s u e s t h a t X ’ s a p p e a l t o t h i s c o u r t p r e s e n t s

. P a r t I I I

a s s e s s e s t h e m e r i t s o f X ’ s a p p e a l a s t o t h e s e c u r i t i e s l a w c l a i m s

. P a r t I V e x a m i n e s

X ’ s c l a i m t h a t Z a i d e d a n d a b e t t e d Y ’ s b r e a c h e s o f f i d u c i a r y d u t y t o w a r d s X

.

I

.

A

.

X i s D y n a V i s i o n G r o u p

, L L C ( “ D y n a V i s i o n ” ) a n d i t s p r i n c i p a l o w n e r s

, 4

J i m m y L e d f

o r d

, L a r r y O ’ D e l l

, a n d B r y a n W a l k e r

. Y i s B r e n d a S m i t h

, R o b e r t 5

T h o m a s

, a n d B r y a n O w n b e y

. Z i s S h e l b y P e e p l e s

.

I n J u l y 1 9 9 8

, P a u l W a l k e r

, B r y a n W a l k e r ’ s f a t h e r

, a p p r o a c h e d S m i t h

,

T h o m a s

, a n d O w n b e y

, e x p e r i e n c e d m a n a g e r s i n t h e c a r p e t m a n u f a c t u r i n g i n d u s t r y

i n D a l t o n

, G e o r g i a

, w i t h t h e i d e a o f f o r m i n g a c o m p a n y t o m a n u f a c t u r e a n d s e l l

c a r p e t s t o h o t e l s

, m o t e l s

, r e s t a u r a n t s

, a n d o t h e r s e n g a g e d i n t h e h o s p i t a l i t y

Dy naVision and the othe r L L Cs involved in thi s case wer e org anized under the Geor g ia 4

L imited L iability

Company

Act, O.C.G.A. §§ 14- 11-100, et seq.

L edfor d, O’De ll, and Walker ea ch owne d 29% of Dy naVision. L amar

Dix on and Da

n Bow en 5

owned the r emaining 13% but had no a ctive par ticipation in the events that g ave r ise to the

litigation at hand. U nder G eorg ia law, the ow nership rig hts of the member s of a limited liability

company are ref err ed to as intere sts, rather tha n share s, which indicate owner ship rights in a

corpor ation. See O.C.G.A. § 14- 11-101 (de fining “[l] imited liabili ty company interest” a s “a

member’ s share of the prof its and losses of a limited liabilit y company and a me mber' s rig ht to

rec eive distributions”); O.C.G.A. § 14-2- 140 (def ining “ share s” as the “ units int o which the

proprieta ry interests in a c orpora

tion are divided” ).

5b u s i n e s s

. S o o n t h e r e a f t e r

, S m i t h

, T h o m a s

, O w n b e y

, a n d P a u l W a l k e r f o r m e d

S i g n a t u r e H o s p i t a l i t y C a r p e t s

, L L C ( “ S i g n a t u r e ” )

, d i v i d i n g t h e c o m p a n y ’ s i n t e r e s t s

e q u a l l y b e t w e e n D y n a V i s i o n o n o n e h a n d a n d S m i t h

, T h o m a s

, a n d O w n b e y o n t h e

o t h e r

. 6

U n d e r S i g n a t u r e ’ s o p e r a t i n g a g r e e m e n t

, S m i t h

, T h o m a s

, a n d O w n b e y

m a n a g e d t h e c o m p a n y

, a n d D y n a V i s i o n p r o v i d e d t h e c a p i t a l

. S i g n a t u r e s o l d 7

c a r p e t t o h o s p i t a l i t y c u s t o m e r s

— m a i n l y t h r o u g h c o n t a c t s t h a t S m i t h

, w h o w a s w e l l

r e s p e c t e d i n t h e i n d u s t r y

, h a d p r e v i o u s l y e s t a b l i s h e d

— a n d a r r a n g e d f o r

m a n u f a c t u r e r s i n t h e D a l t o n a r e a t o f i l l t h e o r d e r s

. D y n a V i s i o n p r o v i d e d t h e f u n d s

t h a t S i g n a t u r e n e e d e d t o p a y t h e m a n u f a c t u r e r s b y e s t a b l i s h i n g a $ 2 0 0

, 0 0 0 l i n e o f

c r e d i t a t a b a n k n e a r D a l t o n

, t h e F i r s t N a t i o n a l B a n k o f C h a t w o r t h ( “ F N B C ” )

. 8

S i g n a t u r e i n i t i a l l y o p e r a t e d o u t o f r e n t e d o f f i c e s p a c e ; o n c e t h e c o m p a n y

e s t a b l i s h e d i t s e l f a s a g o i n g c o n c e r n

, h o w e v e r

, i t s o w n e r s d e c i d e d t o f i n d t h e i r o w n

Smit h, Thomas, and Ownbey decide d to share e qual owner ship of their one- half intere st in 6

Signatur e; thus, eac h owned one six th of Signa ture.

The Ge org ia L imited L iability Company

Act def ines an “ Oper ating Ag ree ment” as “ any 7

ag ree ment, written or or al, as to the c onduct of the business a nd aff airs of a limit ed liability

company that is binding upon all of the me mbers.” O .C.G.A. § 14-11-101. Sig nature

, Dy naVision, Smit h, Thomas, and Ow nbey enter ed into the oper ating ag ree ment under w hich

Smit h, Thomas, and Ow nbey commence d running the company on J uly 9, 1998. This initi al

ag ree ment is not part of the re cord.

L edfor d and O’ Dell, who mana g ed Dy naVision’s af

fairs, a rra ng ed for the line of c redit. Paul 8

Walker, who ha d formed D y naVision, play ed a limited role in its aff airs. He looked af

ter his son

Br y an’s inter est in the company , and fr equently spoke for L edfor d and O’ Dell as we ll as Br y an.

6m a n u f

a c t u r i n g p l a n t

. A n t i c i p a t i n g t h a t t h e y w o u l d b e a b l e t o a c q u i r e a s u i t a b l e s i t e

i n t h e D a l t o n a r e a

, D y n a V i s i o n

, S m i t h

, T h o m a s

, a n d O w n b e y e n t e r e d i n t o a n e w

o p e r a t i n g a g r e e m e n t ( t h e “ O p e r a t i n g A g r e e m e n t ” o r “ A g r e e m e n t ” )

, o n M a y 6

,

1 9 9 9

. T h e A g r e e m e n t r e f e r r e d t o S m i t h

, T h o m a s

, O w n b e y

, a n d D y n a V i s i o n a s

S i g n a t u r e ’ s “ M e m b e r s

, ” a n d S m i t h

, T h o m a s

, a n d O w n b e y a s t h e “ A c t i v e

M e m b e r s

. ” I t c r e a t e d a s i x

- m e m b e r B o a r d o f D i r e c t o r s

, w i t h t h r e e d i r e c t o r s

9

a p p o i n t e d b y D y n a V i s i o n a n d t h r e e b y t h e A c t i v e M e m b e r s

. T h e A c t i v e M e m b e r s

a p p o i n t e d t h e m s e l v e s ; D y n a V i s i o n a p p o i n t e d i t s a c c o u n t a n t

, E d w a r d S t a t e n

, a n d

l e f t t w o o f i t s s e a t s v a c a n t

. T h e O p e r a t i n g A g r e e m e n t r e q u i r e d t h e B o a r d t o

u n a n i m o u s l y a u t h o r i z e a l l o f S i g n a t u r e ’ s a c t i o n s

. T h i s m e a n t t h a t D y n a V i s i o n

,

t h r o u g h S t a t e n

, c o u l d h a v e b l o c k e d a n y a c t i o n t h e A c t i v e M e m b e r s w a n t e d t o t a k e

.

T h e B o a r d r a r e l y m e t

, h o w e v e r

, f a c e t o f a c e o r o t h e r w i s e

, s o t h e A c t i v e M e m b e r s

r a n S i g n a t u r e ’ s o p e r a t i o n s w i t h o u t o b j e c t i o n

.

U n d e r t h e A g r e e m e n t

, S m i t h w a s t h e c o m p a n y ’ s p r e s i d e n t a n d t h e p e r s o n i n

c h a r g e o f m a r k e t i n g

, T h o m a s w a s t h e v i c e

- p r e s i d e n t o f s a l e s

, a n d O w n b e y w a s t h e

The district cour

t, in its order

g ranting summary

judgme nt, used the term “ Active Me mbers” to 9

ref er to Smith, Thomas, and Ownbe y in the ag g reg ate, a

nd both sides have c ontinued the use of

this term in briefing the ca se to this court. We adopt this use of this term for the r emainder of

this opini on.

7v i c e

- p r e s i d e n t o f m a n u f a c t u r i n g

. A n o n

- s o l i c i t a t i o n c l a u s e p r o v i d e d t h a t i f a

1 0

M e m b e r s o l d h i s o r h e r i n t e r e s t

, t h a t m e m b e r c o u l d n o t f o r o n e y e a r t h e r e a f

t e r

“ c a l l

, s o l i c i t

, o r f

u l f i l l o r d e r s ” f

r o m “ c u s t o m e r s o r p r o s p e c t s ” o f S i g n a t u r e

. I n 1 1

r e a l i t y

, t h e c l a u s e a p p l i e d o n l y t o t h e A c t i v e M e m b e r s

, s i n c e t h e y w e r e t h e o n e s

w h o p o s s e s s e d S i g n a t u r e ’ s c u s t o m e r c o n t a c t s

. 1 2

T h e A g r e e m e n t a l s o c o n t a i n e d a b u y

- s e l l p r o v i s i o n

, w h i c h i s a t t h e c e n t e r o f

t h e p r e s e n t c o n t r o v e r s y

. T h i s p r o v i s i o n i s c o n t a i n e d i n A r t i c l e N i n e o f t h e

Smit h, Thomas, and Ow nbey worke d for Sig nature in these ca pacities a s full-time employ ees, 1 0

terminable a t will on the vote of four B oard me mbers. Since the B oard ha d but four member s,

there was no likelihood that the employ ment of an A ctive Membe r would be te rminated unless

Dy naVision completely

filled the three Boa

rd positions it controlled.

The non-solicitation cla

use appe ars in Ar

ticle Ten of

the Ag ree ment, “Employ ment of Ac tive 1 1

Member; Restric tive Covenant; Non-Solicitation; No Publi cation of Confide ntial I nformation,”

as § 10.4. I t rea ds, in pertinent par t, as follows:

No Solicitation of Company Employ ees or

Customers. I n the eve nt a Member

sells his I ntere st in the Company , the Member . . . for a period of one (1) y ear

afte r the sale of the I

ntere st, shall not . . . call, solicit or fulfill orders fr om

customers or pr ospects who have bee n contac ted by the Company

within twenty

four ( 24) months prior to the sale of the I ntere st . . . for the purpose of inducing

those customers or

prospec ts to cease doing busine ss with the Company or to

induce those c ustomers to do business with another in compe tition wit h the

business of the Company

. . . .

On its face , § 10.4 appea

rs to apply

to Dy naVision as we ll as the Active Me mbers. I n rea lity , it

applied only

to the Active Me mbers. Dy naVision had no c ontact with Signa ture’s c ustomers

and, if it sold its i ntere st, lacked the know-how to c ompete with Signa ture. I n this opini on, we

there fore trea t § 10.4 as apply ing only to the Active Me mbers.

Dy naVision nee ded the non- solicitation clause to protec t its i nvestment. Wit hout the clause

, 1 2

the Active Me mbers, espe cially Smit h, who had most if not all of the c ustomer contac ts, could

leave the company

and immediately

compete w ith Si g nature , there by substantially

depre ciating

the value of

Dy naVision’s intere st in S igna ture.

8A g r e e m e n t

, e n t i t l e d “ T r a n s f e r a n d A s s i g n m e n t o f M e m b e r I n t e r e s t s

. ” S e c t i o n 9

. 5

,

“ M a n d a t o r y P u t a n d C a l l

, ” r e a d s a s f o l l o w s :

A t a n y t i m e D y n a

- V i s i o n o r t h e A c t i v e M e m b e r s b y m a j o r i t y v o t e

w i t h i n t h a t g r o u p

, m a y s e t a p r i c e p e r p e r c e n t a g e I n t e r e s t a n d g i v e

w r i t t e n n o t i c e o f t h a t p r i c e t o t h e o t h e r g r o u p

, ( t h e “ N o t i c e o f O f f e r t o

S e l l o r P u r c h a s e ” )

. T h e M e m b e r s r e c e i v i n g t h e N o t i c e o f O f f e r t o S e l l

o r P u r c h a s e s h a l l h a v e t h i r t y ( 3 0 ) c a l e n d a r d a y s t o d e c i d e w h e t h e r t o

s e l l a l l t h e i r I n t e r e s t a t t h a t p r i c e o r t o p u r c h a s e a l l t h e I n t e r e s t o f t h e

g r o u p g i v i n g N o t i c e o f O f f e r t o S e l l o r P u r c h a s e a t t h e P r i c e s e t f o r t h

i n t h e N o t i c e o f O f

f e r t o S e l l o r P u r c h a s e

. I f t h e M e m b e r s r e c e i v i n g

t h e N o t i c e o f O f

f e r t o S e l l o r P u r c h a s e f

a i l t o m a k e a n e l e c t i o n

. . . ,

t h e M e m b e r s r e c e i v i n g t h e N o t i c e o f O f f e r t o S e l l o r P u r c h a s e s h a l l

h a v e t o s e l l t h e i r I n t e r e s t a t t h e p r i c e s e t f o r t h i n t h e N o t i c e o f O f f e r t o

S e l l o r P u r c h a s e

.

F o l l o w i n g t h e e x e c u t i o n o f t h e O p e r a t i n g A g r e e m e n t

, t h e p a r t i e s l o c a t e d a

s i t e f o r S i g n a t u r e ’ s m a n u f

a c t u r i n g p l a n t a n d o f

f i c e s o n G r e e n R o a d i n C h a t s w o r t h

,

G e o r g i a

, a s h o r t d i s t a n c e f r o m D a l t o n

. T o p u r c h a s e t h e s i t e

, w h i c h i n c l u d e d a

b u i l d i n g t h a t c o u l d b e c o n v e r t e d t o a c c o m m o d a t e S i g n a t u r e ’ s r e q u i r e m e n t s

, t h e

A c t i v e M e m b e r s f

o r m e d a n o t h e r l i m i t e d l i a b i l i t y c o m p a n y

, S i g n a t u r e L e a s i n g

,

L L C ( “ L e a s i n g ” )

, w i t h L e d f o r d

, O ’ D e l l

, a n d B r y a n W a l k e r

. O n O c t o b e r 1 9

, 1 3

1 9 9 9

, L e a s i n g p u r c h a s e d t h e p r o p e r t y ( “ G r e e n R o a d P r o p e r t y ” ) w i t h t h e p r o c e e d s

o f a $ 6 3 0

, 0 0 0 l o a n f

r o m D a l t o n W h i t f

i e l d B a n k

. B a n k e m p l o y e e C y n t h i a T r a m m e l

Smit h, Thomas, and Ow nbey owned 50% of L easing in equal shar es; L edfor d, O’De ll, and 1 3

Walker owne d 50%, pre sumably in equal shar es.

9m a n a g e d t h e p a p e r w o r k f o r t h e l o a n

. O n c e t h e b u i l d i n g w a s e q u i p p e d t o

1 4

m a n u f a c t u r e c a r p e t s

, S i g n a t u r e m o v e d i n

. 1 5

S i g n a t u r e t h e n l o o k e d t o F N B C f o r w o r k i n g c a p i t a l

. O v e r a p e r i o d o f

s e v e r a l m o n t h s f

o l l o w i n g i t s o c c u p a n c y o f t h e G r e e n R o a d P r o p e r t y

, S i g n a t u r e

r e c e i v e d s e v e r a l u n s e c u r e d l o a n s f r o m t h e b a n k

. I n O c t o b e r 2 0 0 1

, S i g n a t u r e

1 6

a s k e d F N B C f

o r a l o a n t h a t w o u l d p a y o f f i t s F N B C l o a n s a n d t h e b a l a n c e d u e o n

t h e D a l t o n W h i t f

i e l d B a n k l o a n a n d p r o v i d e S i g n a t u r e w i t h a d d i t i o n a l w o r k i n g

c a p i t a l

. I n t o t a l

, S i g n a t u r e n e e d e d $ 9 1 1

, 0 0 0

.

A t S i g n a t u r e ’ s r e q u e s t

, T r a m m e l

, w h o h a d m o v e d f r o m D a l t o n W h i t f

i e l d

B a n k t o F N B C t h e y e a r b e f o r e

, h a n d l e d t h e t r a n s a c t i o n

. T r a m m e l i n f o r m e d

S i g n a t u r e t h a t

, s u b

j e c t t o t h e a p p r o v a l o f t h e F N B C ’ s b o a r d o f d i r e c t o r s

, t h e b a n k

Acc ording to Trammel on deposition in the state cour t case , Smit h, Thomas, Ownbe y

, 1 4

L edfor d, and O’ Dell, whom the bank c onsidered to be L easing ’s principa l owners, sig ned the

note and ther eby

g uara nteed L easing ’s loan. B ry an Walker ow ned the sa me intere st in L easing

as L edfor d and O’ Dell. Why he wa s not require d to sign the note and g uara ntee the loa

n is not

clea r fr om the rec ord. Ther e is an infe renc e, howe ver, tha t Paul W alker

had a sig nificant

rela tionship wit h the bank a nd that the bank, a cce ding to his wishes, wa s willing to make the

loan without Bry an Walker’ s participation.

L easing did not give Sig nature a for mal lease for the pr operty . Acc ording to L edfor d on 1 5

deposition in the state court c ase, Sig nature paid L easing eac h month for use of the proper ty , but

he did not indicate the a

mount of the pay

ments.

Although the notes Signa ture g ave the bank we re ne ither made part of the rec ord nor 1 6

published via witness testimony , we infe r that they wer e unsec ured. We dra w this infere nce

beca use the ba nk signific antly

lowere d the intere st rate it was c harg ing Sig nature when it

ref inance d Signatur e’s de bt with a loan sec ured by a dee d to secure debt on the Gr een Roa d

Property

.

10w o u l d m a k e t h e l o a n o n t h e f o l l o w i n g c o n d i t i o n s : S i g n a t u r e w o u l d g i v e t h e b a n k a

d e e d t o s e c u r e d e b t o n t h e G r e e n R o a d P r o p e r t y a n d S i g n a t u r e ’ s c a r p e t

m a n u f a c t u r i n g m a c h i n e s ; S m i t h

, T h o m a s

, O w n b e y

, L e d f o r d

, a n d O ’ D e l l ( t h e

“ G u a r a n t o r s ” ) w o u l d s i g n t h e n o t e a n d t h u s g u a r a n t e e i t s p a y m e n t

. S i g n a t u r e a n d 1 7

t h e G u a r a n t o r s a g r e e d t o t h e s e c o n d i t i o n s

, t h e b a n k ’ s b o a r d a p p r o v e d t h e l o a n

, a n d

T r a m m e l p r o c e e d e d t o p r e p a r e f o r t h e c l o s i n g

.

T r a m m e l ’ s f

i r s t t a s k w a s t o h a v e F N B C ’ s c o u n s e l

, T o d d M c C a i n

, e x a m i n e 1 8

t h e t i t l e t o t h e G r e e n R o a d P r o p e r t y

. A f t e r e x a m i n i n g t h e t i t l e

, M c C a i n s e n t

T r a m m e l a n o p i n i o n i n d i c a t i n g t h a t L e a s i n g

, n o t S i g n a t u r e

, o w n e d t h e G r e e n R o a d

P r o p e r t y

. S i g n a t u r e t h e r e f o r e c o u l d n o t g i v e t h e b a n k a d e e d t o s e c u r e t h e d e b t

w i t h t h e p r o p e r t y u n l e s s a n d u n t i l L e a s i n g c o n v e y e d t h e p r o p e r t y t o S i g n a t u r e

.

T r a m m e l o v e r l o o k e d t h e n e e d f o r t h e c o n v e y a n c e

, a n d t h e l o a n c l o s e d o n

O c t o b e r 2 4

, 2 0 0 1 w i t h o u t L e a s i n g h a v i n g c o n v e y e d t h e p r o p e r t y t o S i g n a t u r e

.

T h e r e f o r e

, a s p a r t o f t h i s t r a n s a c t i o n

, S i g n a t u r e g a v e F N B C a d e e d t o s e c u r e d e b t

f o r r e a l p r o p e r t y i t d i d n o t o w n

. A m o n t h o r s o l a t e r

, T r a m m e l h a p p e n e d t o r e a d 1 9

Trammel a

ppare ntly ag ree d to leave B ry an Walker out of the transac tion for the same rea son 1 7

he wa s not require d to sign the note for the $630,000 loa n the Dalton Whitfield Bank ma de to

L easing so it could purchase the Gre en Road Proper ty . See supra

note 14.

McCain was the principal a ttorney in the McCain L aw F irm, located in Da lton. 1 8

The note a

nd deed to se cure debt wer e not made pa rt of the r ecor d befor e the district cour t and 1 9

thus are not be fore us.

11M c C a i n ’ s o p i n i o n

, n o t e d t h a t L e a s i n g

, n o t S i g n a t u r e

, o w n e d t h e G r e e n R o a d

P r o p e r t y

, a n d r e a l i z e d t h a t S i g n a t u r e ’ s d e e d t o s e c u r e t h e d e b t w a s w o r t h l e s s

.

S o m e t h i n g h a d t o b e d o n e

, s o T r a m m e l c a l l e d M c C a i n

. I n m i d

- J a n u a r y 2 0 0 2

, 2 0

M c C a i n s e n t T r a m m e l t h e d o c u m e n t n e e d e d t o s o l v e t h e p r o b l e m

, a w a r r a n t y d e e d

c o n v e y i n g t h e G r e e n R o a d P r o p e r t y f r o m L e a s i n g t o S i g n a t u r e

.

T r a m m e l t h e n c o n t a c t e d S m i t h

, i n f o r m i n g h e r t h a t s h e a n d t h e o t h e r

G u a r a n t o r s w o u l d h a v e t o r e t u r n t o t h e b a n k a n d s i g n a “ d o c u m e n t ” t h a t h a d b e e n

n e g l e c t e d a t t h e c l o s i n g

. T h e d o c u m e n t w a s t h e w a r r a n t y d e e d

, a l t h o u g h T r a m m e l

d i d n o t e x p l a i n t h e d o c u m e n t ’ s s i g n i f i c a n c e t o S m i t h a t t h a t t i m e

. T r a m m e l a s k e d

t h a t S m i t h p a s s a l o n g t h i s m e s s a g e t o t h e o t h e r G u a r a n t o r s

, w h i c h S m i t h d i d

.

S m i t h

, T h o m a s

, a n d O w n b e y p r o m p t l y w e n t t o t h e b a n k a n d s i g n e d t h e

d o c u m e n t b e f

o r e a n o t a r y p u b l i c

, A n g e l a G a r l a n d

, a n d i n t h e p r e s e n c e o f a w i t n e s s

,

T r a m m e l

. S m i t h r e a d t h e d o c u m e n t

, w h i c h b o r e t h e h e a d i n g “ W a r r a n t y D e e d

, ”

a n d r e c o g n i z e d i t s s i g n i f i c a n c e

— t h a t L e a s i n g w a s c o n v e y i n g t h e G r e e n R o a d

P r o p e r t y t o S i g n a t u r e t o s a t i s f y o n e o f t h e c o n d i t i o n s o n w h i c h t h e b a n k h a d m a d e

t h e l o a n

.

L e d f o r d a n d O ’ D e l l d i d n o t a p p e a r t o s i g n t h e d o c u m e n t

, s o T r a m m e l a s k e d

Trammel spoke to McCain’s sec reta ry in his absence . Trammel’ s testimony on deposition in 2 0

the state c ourt ca se is muddled as to prec isely what Tra mmel said to the secr etar

y . What is clear

is that, in response to Trammel’s call, McCain’ s office sent Tra mmel a war

ranty deed, w hich

would convey

the prope rty

from L easing to Signature , for L easing ’s execution.

12S m i t h t o r e m i n d t h e m t o d o s o

. S m i t h t h e r e u p o n c a l l e d L e d f o r d a n d a s k e d h i m t o

g o t o t h e b a n k a n d s i g n w h a t s h e d e s c r i b e d a s “ a d o c u m e n t t h a t h a d b e e n l e f t o u t o f

t h e c l o s i n g

. ” S h e d i d n o t i n f o r m L e d f

o r d o f t h e d o c u m e n t ’ s l e g a l s i g n i f i c a n c e

. 2 1

S m i t h a l s o a s k e d L e d f

o r d t o c o n t a c t O ’ D e l l a n d r e m i n d h i m t o s i g n t h e d o c u m e n t

.

L e d f o r d d i d s o

, a n d

, i n e a r l y F e b r u a r y

, h e a n d O ’ D e l l s e p a r a t e l y w e n t t o t h e b a n k

a n d s i g n e d t h e w a r r a n t y d e e d

, a l s o b e f o r e G a r l a n d a n d T r a m m e l

. T r a m m e l

f o r w a r d e d t h e e x e c u t e d w a r r a n t y d e e d t o t h e M c C a i n f i r m

, w h i c h f

i l e d i t w i t h t h e

C l e r k o f t h e M u r r a y C o u n t y S u p e r i o r C o u r t o n F e b r u a r y 7

, 2 0 0 2

.

L e d f o r d a n d O ’ D e l l i n s i s t t h a t t h e y d i d n o t k n o w t h a t t h e y w e r e s i g n i n g a

w a r r a n t y d e e d ; m o r e o v e r

, t h e y c l a i m t h a t t h e y h a d n o u n d e r s t a n d i n g o f t h e l e g a l

s i g n i f i c a n c e o f a w a r r a n t y d e e d a n d w o u l d n o t h a v e s i g n e d t h e i n s t r u m e n t h a d t h e y

k n o w n t h a t i t t r a n s f

e r r e d t h e G r e e n R o a d P r o p e r t y t o S i g n a t u r e

. 2 2

B

.

I n D e c e m b e r 2 0 0 1

, S h e l b y P e e p l e s

, a D a l t o n b u s i n e s s m a n w i t h i n t e r e s t s i n

t h e c a r p e t

- m a n u f

a c t u r i n g i n d u s t r y

, c o n t a c t e d P a u l W a l k e r a n d L e d f o r d a n d

L edfor d, appar ently

curious about why

he nee ded to sig n a docume nt at the bank, c alled 2 1

Trammel a fter his c onversa tion with S mith. Trammel told him t hat there was some “ paper work”

that neede d to be sig ned. She did not inform L edfor d of the pa perw ork’s leg al sig nificanc e, and

L efor d made no f

urther inquiry

on this point

.

Both men te stified to this effec t on deposition in t he state c ourt ca se and in the district c ourt 2 2

proce eding now under

revie w.

13e x p r e s s e d a n i n t e r e s t i n p u r c h a s i n g S i g n a t u r e

. P a u l W a l k e r

, L e d f o r d

, a n d P e e p l e s

h a d b e e n i n v o l v e d i n s e v e r a l b u s i n e s s v e n t u r e s a n d w e r e o n f r i e n d l y t e r m s

. T h e

2 3

t h r e e m e n m e t a t l e a s t o n c e d u r i n g D e c e m b e r t o d i s c u s s t h e p o s s i b l e s a l e o f

S i g n a t u r e

. A t s o m e p o i n t

, W a l k e r i n f o r m e d t h e A c t i v e M e m b e r s t h a t P e e p l e s h a d 2 4

s h o w n a n i n t e r e s t i n p u r c h a s i n g S i g n a t u r e

.

O n J a n u a r y 9

, 2 0 0 2

, P a u l W a l k e r

, L e d f o r d

, O ’ D e l l a n d t h e A c t i v e M e m b e r s

m e t a n d a g r e e d t o o f

f e r S i g n a t u r e a n d t h e G r e e n R o a d P r o p e r t y t o P e e p l e s f o r

b e t w e e n $ 1 0

– 1 2 m i l l i o n

. T h e y d e s i g n a t e d P a u l W a l k e r t o r e p r e s e n t t h e m i n 2 5

n e g o t i a t i o n s w i t h P e e p l e s

. L a t e r t h a t d a y

, P a u l W a l k e r

, T h o m a s

, a n d O w n b e y m e t

w i t h P e e p l e s a n d s o m e o f h i s a s s o c i a t e s

. W a l k e r i n f o r m e d P e e p l e s t h a t t h e G r e e n

R o a d P r o p e r t y w a s o w n e d b y a s e p a r a t e c o m p a n y b u t o f f e r e d t o s e l l b o t h S i g n a t u r e

a n d t h e p r o p e r t y f

o r $ 1 2 m i l l i o n

. P e e p l e s r e j e c t e d t h e o f

f e r

. W a l k e r c o u n t e r e d

w i t h a n o f

f e r o f $ 1 0 m i l l i o n

. P e e p l e s r e j e c t e d t h a t o f

f e r a s w e l l

. P e e p l e s t h e n

a s k e d W a l k e r i f h e c o u l d m e e t s e p a r a t e l y w i t h h i m a n d

, a f t e r t h a t

, w i t h t h e A c t i v e

The Pee ples and Walker f amilies had strong persona l ties. Bry an Walker, on de position i n the 2 3

state cour t case , testified that “the Pee ples are like family to me, and Shelby ’s son is my best

friend a nd has bee n fore ver.”

I n these a

nd subsequent mee tings involving the disposition of S igna ture or the Gre en Road 2 4

Property , Paul Walker ac ted for his son B ry an. He also appe are d to speak for O’De ll in his

absenc e. See supr a note 8.

The $10–12 million figur e wa s based on the A ctive Membe rs’, Walker’ s, and O’D ell’s off- 2 5

hand eva luation of the worth of the company

absent a formal a ppraisal. L edfor d believed the

company was wor th more and oppose d selling the company

.

14M e m b e r s

. W a l k e r s a i d y e s b u t t h a t P e e p l e s c o u l d m e e t w i t h t h e A c t i v e M e m b e r s

o n l y o n c e

. W a l k e r

, h a v i n g m a d e t h a t p o i n t c l e a r

, m e t w i t h P e e p l e s t o d i s c u s s t h e

m a t t e r

. P e e p l e s o f

f e r e d h i m $ 2 m i l l i o n f

o r D y n a V i s i o n ’ s i n t e r e s t

. W a l k e r

a p p a r e n t l y f

e l t i n s u l t e d

, s o P e e p l e s i n c r e a s e d t h e o f f e r t o $ 2

. 5 m i l l i o n

. W a l k e r

r e j e c t e d i t o u t o f h a n d

, a n d t h e d i s c u s s i o n e n d e d

.

A s J a n u a r y w o r e o n

, W a l k e r m e t w i t h P e e p l e s o n c e o r t w i c e a w e e k t o

d i s c u s s s o m e b u s i n e s s v e n t u r e s i n w h i c h t h e y w e r e i n v o l v e d

. D u r i n g s o m e o f t h e i r

m e e t i n g s

, W a l k e r a s k e d P e e p l e s w h e t h e r h e h a d b e e n n e g o t i a t i n g w i t h t h e A c t i v e

M e m b e r s

. P e e p l e s s a i d n o

, b u t h i s d e n i a l w a s f a l s e

. P e e p l e s a n d t h e A c t i v e

M e m b e r s h a d b e e n m e e t i n g a l l a l o n g t o d i s c u s s w a y s t h a t P e e p l e s c o u l d a c q u i r e

D y n a V i s i o n ’ s i n t e r e s t i n S i g n a t u r e w i t h o u t d e a l i n g d i r e c t l y w i t h D y n a V i s i o n

.

M o r e o v e r

, w i t h t h e a s s i s t a n c e o f h i s l a w y e r

, P e e p l e s h a d m e m o r i a l i z e d t h e

s u b s t a n c e o f h i s d i s c u s s i o n s w i t h t h e A c t i v e M e m b e r s i n a l e t t e r

, w h i c h h e f a x e d t o

t h e A c t i v e M e m b e r s o n J a n u a r y 2 1

.

T h e l e t t e r m a p p e d o u t t h e s t e p s t h a t P e e p l e s a n d t h e A c t i v e M e m b e r s w o u l d

t a k e

. F i r s t

, t h e A c t i v e M e m b e r s w o u l d a c q u i r e D y n a V i s i o n ’ s i n t e r e s t i n S i g n a t u r e

u s i n g t h e M a n d a t o r y P u t a n d C a l l p r o v i s i o n o f t h e O p e r a t i n g A g r e e m e n t

.

A c c o r d i n g t o t h e l e t t e r

, “ o n t e r m s a n d c o n d i t i o n s t o b e s e t f o r t h i n a d e f

i n i t i v e

,

l e g a l l y b i n d i n g

, w r i t t e n a g r e e m e n t

, . . . a c o m p a n y o w n e d o r c o n t r o l l e d b y

. . .

15P e e p l e s ” w o u l d l o a n $ 3

. 5 m i l l i o n t o t h e A c t i v e M e m b e r s “ f o r t h e p u r p o s e o f

e n a b l i n g t h e A c t i v e M e m b e r s t o c o m p l e t e t h e a c q u i s i t i o n o f t h e D y n a V i s i o n

I n t e r e s t

. ” T h i s l o a n w o u l d b e m a d e a f t e r t h e A c t i v e M e m b e r s a c q u i r e d

D y n a V i s i o n ’ s i n t e r e s t

. N e x t

, P e e p l e s w o u l d p u r c h a s e a l l o f S i g n a t u r e ’ s a s s e t s 2 6

f r o m t h e A c t i v e M e m b e r s

, f o r g i v e t h e $ 3

. 5 m i l l i o n l o a n

, a n d p a y t h e A c t i v e

M e m b e r s $ 3 m i l l i o n

. T h e A c t i v e M e m b e r s w o u l d r e m a i n a s m a n a g e r s o f 2 7

S i g n a t u r e u n d e r f

i v e

- y e a r e m p l o y m e n t c o n t r a c t s

, w i t h a n n u a l s a l a r i e s s t a r t i n g a t

$ 1 6 0

, 0 0 0 a n d i n c r e a s i n g e a c h y e a r a n d p o s s i b l e b o n u s e s b a s e d o n S i g n a t u r e ’ s

p e r f o r m a n c e

. 2 8

T h e l e t t e r c o n t a i n e d s e c t i o n s e n t i t l e d “ C o n f i d e n t i a l i t y ” a n d “ N o D i s c u s s i o n s

w i t h O t h e r s

. ” T h e “ C o n f i d e n t i a l i t y ” s e c t i o n p r o v i d e d

, i n p e r t i n e n t p a r t :

N o n e o f t h e p a r t i e s h e r e t o w i l l

. . . ( 1 ) d i s c l o s e o r p u b l i c i z e i n a n y

m a n n e r ( e x c e p t a s m a y b e r e q u i r e d b y a p p l i c a b l e l a w ) t h a t d i s c u s s i o n s

r e l a t i n g t o m a t t e r s c o v e r e d [ i n t h i s l e t t e r ] o r t h e L o a n o r t h e

A c q u i s i t i o n a r e t a k i n g p l a c e b e t w e e n o r a m o n g t h e A c t i v e M e m b e r s

,

The loan w ould be sec ured by “a f irst priority

secur ity interest in . . . all of the issued a nd 2 6

outstanding inter ests in Signature [and] a sec urity interest in and to all asse ts of Signatur e.”

The Ac tive Members a

rrived at the $3 milli on price for their interest and the $3.5 milli on price 2 7

for Dy naVision’s intere st based on their una ppraised e valuation of Sig nature ’s worth.

The bonus, to be sha

red e qually

among st the Active Membe rs, would “e qual . . . twenty 2 8

perc ent (20%) of the a mount by which the ne t pre-ta x profits of [Si g nature ] ex cee ded One

Milli on Five H undred Thousa nd Dollars ($1,500,000) on an annua l basis.” I n 2001, Signatur e

paid the Ac tive Members a round $130,000 per

y ear . Under

the Oper ating Ag ree ment, they wer e

elig ible for c ollective bonuses of 20% of a ll of Signature ’s y ear ly profits, if betwe en

$500,000–$1,000,000, and 25%, if be tween $1,000,000–$2,000,000.

16t h e P e e p l e s G r o u p

, S i g n a t u r e a n d / o r B u y e r

, o r ( 2 ) r e v e a l t h e t e r m s o r

p r o p o s e d t e r m s o f e i t h e r t h i s L e t t e r o r t h e L o a n

. . . t o a n y p e r s o n o r

e n t i t y o t h e r t h a n r e p r e s e n t a t i v e s [ o f P e e p l e s w h o w o u l d b e c o n d u c t i n g

a d u e d i l i g e n c e i n v e s t i g a t i o n i n t o S i g n a t u r e a f t e r t h e A c t i v e M e m b e r s

p u r c h a s e d D y n a V i s i o n ’ s i n t e r e s t ]

.

T h e “ N o D i s c u s s i o n ” s e c t i o n s t a t e d

, a g a i n i n p e r t i n e n t p a r t :

[ N ] o n e o f t h e A c t i v e M e m b e r s

. . . w i l l

, d i r e c t l y o r i n d i r e c t l y ( i )

n e g o t i a t e o r d i s c u s s w i t h a n y o t h e r p e r s o n o r e n t i t y a n y t r a n s a c t i o n

i n v o l v i n g a n y b u s i n e s s c o m b i n a t i o n i n v o l v i n g S i g n a t u r e

, o r ( i i ) s o l i c i t

. . . n e g o t i a t e

. . . o r a c c e p t a n y o f f e r

, b i d o r p r o p o s a l f

r o m a n y o t h e r

p e r s o n o r e n t i t y r e s p e c t i n g a n y t r a n s a c t i o n s i n v o l v i n g a s a l e o f a s s e t s

o f S i g n a t u r e ( e x c e p t f

o r s a l e s o f p r o p e r t y i n t h e o r d i n a r y c o u r s e o f

b u s i n e s s ) o r a n y o t h e r b u s i n e s s c o m b i n a t i o n i n v o l v i n g S i g n a t u r e

, o r

( i i i ) d i s c l o s e o r r e v e a l

. . . [ i n f o r m a t i o n r e l a t e d t o S i g n a t u r e ’ s f i n a n c i a l

c o n d i t i o n o r m e t h o d s a n d p l a n s o f o p e r a t i o n s ]

, o t h e r t h a n i n t h e

o r d i n a r y c o u r s e o f b u s i n e s s

, t o a n y p e r s o n o r e n t i t y n o t a p a r t y t o t h i s

L e t t e r i n c o n n e c t i o n w i t h t h e t y p e o f t r a n s a c t i o n s d e s c r i b e d i n c l a u s e s

( i ) a n d ( i i ) a b o v e

. . . . I n a d d i t i o n

, t h e A c t i v e M e m b e r s w i l l

i m m e d i a t e l y c e a s e a n d c a u s e t o b e t e r m i n a t e d a n y p r e v i o u s l y

u n d e r t a k e n o r o n g o i n g

. . . n e g o t i a t i o n s w i t h a n y o t h e r p e r s o n o r e n t i t y

w i t h r e s p e c t t o a n y t r a n s a c t i o n o f t h e t y p e d e s c r i b e d i n t h e p r e c e d i n g

c l a u s e s ( i ) a n d ( i i ) a b o v e

.

T h e l e t t e r s t a t e d a d d i t i o n a l l y t h a t

, “ t o t h e e x t e n t o f a n y c o n f l i c t i n t h e

p r o v i s i o n s o f t h i s L e t t e r a n d t h e p r o v i s i o n s o f t h e S i g n a t u r e O p e r a t i n g A g r e e m e n t

,

t h e p r o v i s i o n s o f t h e S i g n a t u r e O p e r a t i n g A g r e e m e n t s h a l l p r e v a i l a n d t h e

c o n f l i c t i n g p r o v i s i o n ( s ) o f t h i s L e t t e r s h a l l b e v o i d a n d o f n o e f f e c t w h a t s o e v e r

. ”

A f t e r t h e A c t i v e M e m b e r s r e c e i v e d t h e l e t t e r

, t h e y c o n t i n u e d t h e i r

n e g o t i a t i o n s w i t h P e e p l e s

, w h i c h

, t o w a r d t h e e n d o f J a n u a r y o r e a r l y F e b r u a r y

, l e d

17t o a v e r b a l u n d e r s t a n d i n g

. A s i n d i c a t e d i n t h e J a n u a r y 2 1 l e t t e r

, P e e p l e s w o u l d

l o a n t h e A c t i v e M e m b e r s $ 3

. 5 m i l l i o n t o p u r c h a s e D y n a V i s i o n ’ s i n t e r e s t s

. I f t h e

p u r c h a s e m a t e r i a l i z e d

, t h e A c t i v e M e m b e r s w o u l d c a u s e S i g n a t u r e t o s e l l i t s a s s e t s

t o P e e p l e s

.

O n F e b r u a r y 8

, S m i t h s u m m o n e d L e d f o r d a n d O ’ D e l l t o d i s c u s s t e n s i o n s

b e t w e e n L e d f

o r d a n d O ’ D e l l a n d t h e A c t i v e M e m b e r s

. T o w a r d t h e e n d o f t h i s

m e e t i n g

, S m i t h p r e s e n t e d L e d f o r d a n d O ’ D e l l w i t h t h e M a n d a t o r y P u t a n d C a l l

p u r s u a n t t o § 9

. 5 o f t h e O p e r a t i n g A g r e e m e n t

. T h e P u t a n d C a l l i n f o r m e d

D y n a V i s i o n t h a t t h e A c t i v e M e m b e r s w o u l d p u r c h a s e i t s i n t e r e s t i n S i g n a t u r e f o r

$ 3

. 5 m i l l i o n u n l e s s D y n a V i s i o n o p t e d t o p u r c h a s e t h e A c t i v e M e m b e r s ’ i n t e r e s t s

f o r $ 3

. 5 m i l l i o n w i t h i n t h i r t y d a y s

. T h e P u t a n d C a l l a l s o s t a t e d t h a t i f D y n a V i s i o n

e l e c t e d t o p u r c h a s e t h e A c t i v e M e m b e r s ’ i n t e r e s t s

, i t w o u l d r e l e a s e t h e A c t i v e

M e m b e r s f

r o m t h e i r o b l i g a t i o n s u n d e r t h e O p e r a t i n g A g r e e m e n t ’ s n o n

- s o l i c i t a t i o n

c l a u s e

. L e d f

o r d a s k e d S m i t h w h e t h e r P e e p l e s o r a n y o n e e l s e w o u l d b e p r o v i d i n g

t h e p u r c h a s e p r i c e

. S m i t h ’ s r e p l y

, a c c o r d i n g t o L e d f o r d

, w a s t h a t w e “ a r e d o i n g

t h i s o n o u r o w n

. ” 2 9

L edfor d rec alled his and O’ Dell’s re action to Smith’s presentation of the Put and Call in 2 9

testify ing on de position i n the state c ourt ca se:

HORST [ Counsel for the Ac tive Members]: So they [t he Ac tive Members] talked

to y ou about these Cre scent Extrusions i nvoices, a nd then af ter that discussion,

they hand y ou the Fe bruar

y 8th put-and-c all letter?

18O n F e b r u a r y 2 2

, D y n a V i s i o n ' s l a w y e r

, H

. G r e e l y J o i n e r

, J r

. , w r o t e a l e t t e r 3 0

t o t h e A c t i v e M e m b e r s s t a t i n g t h a t b e c a u s e § 9

. 5 o f t h e O p e r a t i n g A g r e e m e n t

p r e c l u d e d t h e i m p o s i t i o n o f c o n d i t i o n s o n a P u t a n d C a l l

, D y n a V i s i o n w o u l d n o t

h o n o r t h e P u t a n d C a l l w i t h t h e n o n

- s o l i c i t a t i o n c l a u s e c o n d i t i o n

. T h e A c t i v e

M e m b e r s t a c i t l y a g r e e d

. O n F e b r u a r y 2 5

, t h e y p r e s e n t e d D y n a V i s i o n w i t h a n e w

P u t a n d C a l l a t t h e s a m e p r i c e

, $ 3

. 5 m i l l i o n

, b u t w i t h o u t t h e r e q u i r e m e n t t h a t

D y n a V i s i o n v o i d t h e n o n

- s o l i c i t a t i o n c l a u s e

. P a u l W a l k e r a n d D y n a V i s i o n t r e a t e d

t h i s P u t a n d C a l l a s v a l i d

.

L EDF ORD: Well, i t was — L arr y [O’Dell] and I wer e sitting a t the table, and

Br enda [Smit h] said som ething to the eff ect, “ we may

as we ll do this now,” or

something. I

don’t know. She wa s standing at that corne r of he r desk a nd she

handed the put-and-c all to us. I don’t know if we had stopped discussing the

Cresce nt invoices. I

don’t know if we had re solved any — I don’t know. I

just

know that we disc ussed that and then w e g ot the put-and-c all.

HORST: W hat was y our re action whe n y ou g ot the put-and-c all?

L EDF ORD: I was shocke d.

HORST: W hy ?

L EDF ORD: I thought we had a g ood partne rship.

HORST: W hat did y ou say to her whe n y ou g ot it?

L EDF ORD: Well, after we rea d it, I asked if the re w as any body else involved or a

third party

funding it, and she said “N o, this is us . We’re doing this on our own.”

I said, “I s there a

ny chanc e that this could be undone ? ” And I think L arr

y

[O’Dell] m ade the comment that “This par tnership is over with.” . . . .

HORST: W hat else did Mr. O ’De ll say at that meeting other than “ This

partne rship is over with? ”

L EDF ORD: I don’t rec all.

HORST: Didn’t he say

something to the e ffe ct that, “Oh, he ll, J im [ L edfor d], y ou

know who’s f

unding this and he ’s g oing to sc rewus”?

L EDF ORD: He c ould’ve said something about that. I ’m sure w e had a rea l good

idea who w as funding it. . . .

J oiner is a sole pr actitioner a nd owner of H. Gr eely

J oiner, L L C. 3 0

19D y n a V i s i o n ’ s p r i n c i p a l s w e r e n o t p l e a s e d

. T h e y w a n t e d S i g n a t u r e t o

c o n t i n u e o n

, u n d e r t h e A c t i v e M e m b e r s ’ m a n a g e m e n t

, b e c a u s e t h e y b e l i e v e d t h a t

i n t i m e t h e c o m p a n y w o u l d b e c o m e i n c r e a s i n g l y p r o f i t a b l e

. N o n e t h e l e s s

, t h e y

r e c o g n i z e d t h a t t h e y h a d t w o o p t i o n s

— b u y o r s e l l

— a n d t h i r t y d a y s t o d e c i d e

.

T h e y d i d n o t w a n t t o s e l l b e c a u s e

, a s t h e p r i c e s ( $ 1 2 m i l l i o n a n d $ 1 0 m i l l i o n ) P a u l

W a l k e r q u o t e d t o P e e p l e s i n J a n u a r y i n d i c a t e d

, t h e y b e l i e v e d t h e i r h a l f

- i n t e r e s t i n

S i g n a t u r e w a s w o r t h s u b s t a n t i a l l y m o r e t h a n $ 3

. 5 m i l l i o n

. B u t t h e y d i d n o t w a n t t o

b u y e i t h e r b e c a u s e t h e y l a c k e d t h e c o n t a c t s i n t h e h o s p i t a l i t y i n d u s t r y n e c e s s a r y t o

e n a b l e t h e m t o m a r k e t S i g n a t u r e ’ s p r o d u c t s w i t h a n y m e a s u r e o f s u c c e s s

. W i t h o u t

t h e A c t i v e M e m b e r s

— p a r t i c u l a r l y S m i t h

, w i t h h e r e x t e n s i v e c o n t a c t s i n t h e

h o s p i t a l i t y i n d u s t r y

— D y n a V i s i o n ’ s p r i n c i p a l s k n e w t h e y c o u l d n o t o p e r a t e

S i g n a t u r e a t a p r o f

i t

. F a c e d w i t h t h i s d i l e m m a

, D y n a V i s i o n ’ s p r i n c i p a l s l o o k e d 3 1

L edfor d, O’De ll, and Paul Walker all made state ments to this effec t on deposition in t he state 3 1

court c ase a

nd, later, in the district c ourt in this case. I n his deposition in t he state c ourt ca se,

L edfor d testified:

HORST: At any

time did y ou say , “He y , I ' ll kick in $1 mil lion or $100,000 or

some other amount if we ca n g et some other pe ople to kick in some money to buy out

Bob [Thomas], Bre nda [Sm ith] and B ry an [Ownbey ]”?

L EDF ORD: We discussed — we discusse d that, but the first thing w as marke ting.

I f we had mar

keting , we would have done — if we c ould have se cure d people to

do the marke ting, we would have be en intere sted.

HORST: So y ou neede d people who c ould run the business like B ob, Br enda a nd

Br y an had?

L EDF ORD: We neede d people that c ould run the business, y es, sir.

HORST: Bec ause y ou within Dy navision didn’t have the c ompetency or the skill

set to run Signa ture Hospitality ?

L EDF ORD: I didn’t have the experience with the customer ba se, no sir.

20I n his deposition in t he district cour t case , L edfor d testified:

SI NKF I EL D [Couns el for Pee ples]: . . . i t was marke ting he lp that was the ke y

fac tor in y our dec ision to sell rather than buy . I s that a fa ir statement?

L EDF ORD: Had we been a ble to reta in Bre nda, we would have pur chase d the

company

. SI NKF I EL D: I s it fair to say that marke ting he lp was the ke y fac tor in y our

decision to sell rathe r than buy ?

L EDF ORD: The lac k of a ma rketing g roup for ced us to sell the c ompany

.

I n his deposition in t he state c ourt ca se, O’D ell testified:

HORST: Now, Dy

navision had the money

to pay three and a ha lf milli on dollars

to the active me mbers, didn’t it?

O' DEL L : I

could have g ot the money

HORST: W hy

didn’t y ou . . . .

O' DEL L : Wi thout an opera ting g roup, a ma nag ing g roup, that would be most

foolish on my

part, in my

decision or my

opinion. . . .

HORST: So y ou didn’t think that if Dy navision boug ht out Bob, B renda , and

Br y an, y ou g uy s would have the ability to compete with them?

O’DEL L : Not without qualified people in that field, no.

HORST: The Dy

navision people we re not qua lified people in that fie ld?

O’DEL L : No, they

wer en’t.

I n his deposition in t he district cour t case , O’De ll testified:

SI NKF I EL D: You ar e running out of time, corr ect?

O' DEL L : Uh-huh.

SI NKF I EL D: Now, if y ou boug ht out the Active Membe rs for 3.5 to g ive y ourself

time to complete [a deal with a pote ntial third-party buy er f or $8 million] , that' s

what, about a

milli on dollars diffe rential . . . . that y ou could make just on turning

it over . . . did y ou ever

consider doing that?

O' DEL L : Well, t hat would have been a heck of a g amble to take. I

mean, y ou

could have , obviously , looked at it that way and thoug ht well, I ' ll max imiz e this in

another 30 day s or 60 day s but that would have be en a g amble y ou wer e taking . I

could have been le ft with a compa ny without any

manag ers, without any one that

knew a ny thing a bout marketing . No, that was — tha t — I don' t think that was an

option we could take

. . . . SI NKF I EL D: You thoug ht about, but y ou did not want to take the r isk of buy ing

the Active Me mbers' interest on the potential that y ou could turn it and either

make a profit or find somebody

who could run it in time to keep it from g oing

under. I s that a fa ir statement?

21f

o r a n i m m e d i a t e b u y e r w h o w o u l d b e w i l l i n g t o p a y $ 1 0 m i l l i o n f o r t h e c o m p a n y

.

I f t h e y c o u l d f

i n d a b u y e r w i l l i n g t o p a y a s m u c h a s $ 8

. 5 m i l l i o n

, t h e y w o u l d o p t

t o b u y o u t t h e A c t i v e M e m b e r s f o r $ 3

. 5 m i l l i o n

. T h e $ 5 m i l l i o n t h e y w o u l d n e t

O' DEL L : Correc t.

I n his deposition in t he state c ourt ca se, Walker testified:

HORST: W ell, if y ou thought the c ompany was wor th more than the put-a

nd-ca ll

offe r, we re y

ou interested in try

ing to f ind somebody

to lend y ou the money

or for

Dy naVision to raise the money to buy out the company ?

WAL KER: We would have had to have found a marke ting g roup to repla ce the

exis ting mar

keting g roup. So its [ sic] more than just the money , its [ sic] a matter

of also finding a g roup that ca n continue to g row the c ompany

. HORST: You neede d to find a marke ting g roup bec ause D y navision did not have

any body that was a ssociated with it that had the skill set that Bob, B renda , and

Br y an did; corr ect

WAL KER: That is corre ct . . . .

HORST: So i f y ou thought the of fer that the ac tive members made on Fe bruar y

8th of three and a ha lf milli on dollars was too low, why didn't Dy navision buy

the

active me mbers out of Sig nature Hospitality ?

WAL KER: I don' t think that a marketing g roup could be found in the short per iod

that they had to look for one

.

I n his deposition in t he district cour t case , Walker testified:

SI NKF I EL D: So to y our knowledg e, one, y ou did not seek to borrowmoney , g et

a cor e investor, or

any one to assist y ou in buy ing out the A ctive Membe rs Group;

is that corre ct? You didn' t personally do that?

WAL KER: No.

SI NKF I EL D: Why

not?

WAL KER: There is no need to buy out the Active Me mbers without a mar keting

g roup. The a

bility to obtain a marke ting g roup first wa s nece ssary , since none of

the Active — none of the Dy na-V ision Group wer e a pa rt of the e very day

manag ement or ma

rketing of Signa

ture Hospitality

. SI NKF I EL D: I s there a

ny other re ason they

y ou did not personally

seek a

financ ial source to assist y ou in buy ing out the A ctive Membe rs' interest?

WAL KER: That would have been the only rea son.

22w a s w h a t t h e y t h o u g h t t h e i r h a l f o f S i g n a t u r e w a s w o r t h

.

L e d f o r d a n d O ’ D e l l c o n t a c t e d t h r e e f i r m s

, M o h a w k C a r p e t s

, C l a y M i l l e r

C a r p e t s

, a n d M a t e l C a r p e t s

, i n t h e i r s e a r c h f o r a b u y e r

. T h e y i n i t i a l l y p r o p o s e d a

$ 1 0 m i l l i o n p r i c e f

o r S i g n a t u r e

, e v e n t u a l l y l o w e r i n g t h e p r i c e t o $ 8

. 5 m i l l i o n a s t h e

t h i r t y

- d a y P u t a n d C a l l p e r i o d d r e w t o a c l o s e

. A s p a r t o f h i s p i t c h t o s e l l

S i g n a t u r e

, L e d f

o r d t o l d J e r r y T h o m a s

, M a t e l ’ s o w n e r

, t h a t T h o m a s o u g h t t o b u y

S i g n a t u r e t o p r o t e c t h i s c o m p a n y f r o m S i g n a t u r e ’ s c o m p e t i t i o n s h o u l d S i g n a t u r e

f a l l i n t o P e e p l e s ’ s h a n d s

. L e d f o r d s t r e s s e d “ t h e d y n a m i c s o f w h a t m i g h t h a p p e n 3 2

s h o u l d a

. . . c o m p a n y l i k e [ S i g n a t u r e ] f a l l i n t o t h e h a n d s o f

. . . t h e P e e p l e s

f a m i l y

. ” B u t T h o m a s w a s n o t p e r s u a d e d

, n o r w a s a n y o n e e l s e

. W i t h t i m e

3 3 3 4

r u n n i n g o u t

, L e d f

o r d a s k e d S m i t h i f s h e w o u l d b e w i l l i n g t o s t a y o n a n d r u n t h e

c o m p a n y i f h e a n d t h e o t h e r s b o u g h t t h e A c t i v e M e m b e r s ’ i n t e r e s t s

. S m i t h w a s n o t

i n t e r e s t e d

.

P a u l W a l k e r a n d D y n a V i s i o n ’ s p r i n c i p a l s d i s c u s s e d a m o n g t h e m s e l v e s t h e

L edfor d and O’ Dell identified the pe rsons they contac ted and spoke to at these thre e firms. 3 2

The re cord doe s not disclose what wa s said during the conve rsations with Mohawk and Clay

Miller; all that the rec ord re veals is what wa s said in conver sation with J err y Thomas at Mate l.

We infer that in making their sales pitche s to Mohawk and Clay Miller, L edfor d and O’ Dell

urg ed them to consider

purcha sing Sig nature in order to a void competition from Peeples.

The quotation is taken f

rom L edfor d’s testimony

on deposition in the state court c ase. 3 3

Thomas consider ed the possibility of buy ing Sig nature if the Ac tive Members r emained w ith 3 4

the company , so he met with them to expl ore tha t possibil ity . They wer e not intere sted, so he

abandone d the idea.

23p o s s i b i l i t y t h a t P e e p l e s h a d f i n a n c e d t h e A c t i v e M e m b e r s ’ F e b r u a r y 2 5 P u t a n d

C a l l

. M o t i v a t e d b y t h e s e s u s p i c i o n s

, W a l k e r c o n f r o n t e d P e e p l e s d i r e c t l y

. P e e p l e s

d e n i e d a n y i n v o l v e m e n t

. A t o n e p o i n t

, W a l k e r w a r n e d P e e p l e s t h a t i f h e w a s 3 5

i n v o l v e d

, h e w o u l d n o t b e g e t t i n g t h e G r e e n R o a d P r o p e r t y

, b e c a u s e L e a s i n g

o w n e d i t

, n o t S i g n a t u r e

.

C

.

O n M a r c h 2 7

, t h e t h i r t y

- d a y e l e c t i o n p e r i o d p r o v i d e d b y t h e P u t a n d C a l l

e x p i r e d

. D y n a V i s i o n h a d n o t e x e r c i s e d i t s o p t i o n t o p u r c h a s e t h e A c t i v e M e m b e r s ’

i n t e r e s t s w i t h i n t h e e l e c t i o n p e r i o d ; c o n s e q u e n t l y

, i t h a d t o s e l l i t s i n t e r e s t f o r t h e

$ 3

. 5 m i l l i o n P u t a n d C a l l p r i c e

. O n M a r c h 2 8

, D y n a V i s i o n a n d t h e A c t i v e

M e m b e r s b e g a n t o n e g o t i a t e t h e f i n e r t e r m s o f t h e s a l e

.

A f e w d a y s l a t e r

, J o i n e r

, p r e s u m a b l y r e p r e s e n t i n g L e d f o r d

, O ’ D e l l

, a n d

B r y a n W a l k e r a s o n e

- h a l f o w n e r s o f L e a s i n g

, a s k e d S m i t h i f h e c o u l d d r a w u p a

l e a s e f o r t h e G r e e n R o a d P r o p e r t y b e t w e e n L e a s i n g

, a s l e s s o r

, a n d S i g n a t u r e

, a s

l e s s e e

. S m i t h r e s p o n d e d t h a t S i g n a t u r e

, n o t L e a s i n g

, o w n e d t h e p r o p e r t y

. J o i n e r

c h e c k e d t h e t i t l e a n d d i s c o v e r e d t h e w a r r a n t y d e e d f r o m L e a s i n g t o S i g n a t u r e t h a t

h a d b e e n r e c o r d e d o n F e b r u a r y 7

. P a u l W a l k e r a n d L e d f o r d t h e n d e m a n d e d t h a t

t h e A c t i v e M e m b e r s c o n s e n t t o a c o n v e y a n c e o f t h e p r o p e r t y b a c k t o L e a s i n g

. T h e

Paul Walker also had pr eviously suspected tha t Peeples wa s behind the Ac tive Members’ 3 5

Fe bruar y 8 Put and Call and confr onted him. Peeples had de nied any involvement.

24A c t i v e M e m b e r s r e f u s e d

, e x p l a i n i n g t h a t i t h a d b e e n e v e r y o n e ’ s i n t e n t t o t r a n s f e r

t h e p r o p e r t y t o S i g n a t u r e s o t h a t S i g n a t u r e c o u l d g o f o r w a r d w i t h t h e F N B C l o a n

t r a n s a c t i o n ; S i g n a t u r e h a d t o h a v e t i t l e t o t h e p r o p e r t y i n o r d e r t o g i v e t h e b a n k a

v a l i d d e e d t o s e c u r e d e b t

.

M e a n w h i l e

, a t a m e e t i n g o f D y n a V i s i o n ’ s m e m b e r s

, t h e m e m b e r s

u n a n i m o u s l y a d o p t e d r e s o l u t i o n s a u t h o r i z i n g O ’ D e l l a n d L e d f o r d t o “ n e g o t i a t e

,

e x e c u t e a n d c o n v e y t h e i n t e r e s t s o f D y n a

- V i s i o n i n S i g n a t u r e

. . . t o S m i t h

,

T h o m a s

, a n d O w n b e y

. . . . ” T h e r e s o l u t i o n s w e n t o n t o a l l o w O ’ D e l l a n d L e d f o r d

t o s e t c e r t a i n c o n d i t i o n s o n t h e c o n v e y a n c e i n c l u d i n g :

t h e r e p a y m e n t o f a l l l o a n s d u e a n y [ D y n a V i s i o n ] m e m b e r o r a n y

a f f i l i a t e o f a n y m e m b e r ; t h e r e l e a s e o f a l l [ D y n a V i s i o n ] m e m b e r s

f r o m a n y g u a r a n t e e s i s s u e d o n b e h a l f o f S i g n a t u r e t o a n y f i n a n c i a l

i n s t i t u t i o n o r v e n d o r ; t h e r e p a y m e n t o f a n y a n d a l l f u n d s d u e D y n a

V i s i o n b y S i g n a t u r e w i t h r e s p e c t t o a n y d i s t r i b u t i o n s w h i c h h a d n o t

b e e n a u t h o r i z e d b y t h e B o a r d o f D i r e c t o r s o f S i g n a t u r e ; a n d a l o n g

t e r m L e a s e A g r e e m e n t b e t w e e n S i g n a t u r e a n d L e a s i n g

, w i t h a

m i n i m u m t e r m o f f

i v e ( 5 ) y e a r s a t a r e n t a l r a t e o f $ 1 1

, 0 0 0 p e r m o n t h

p l u s t a x e s

, i n s u r a n c e

, m a i n t e n a n c e a n d r e p a i r

.

T h e m i n u t e s o f t h i s m e e t i n g i n d i c a t e t h a t D y n a V i s i o n ’ s m e m b e r s k n e w t h a t t h e

t r a n s a c t i o n w o u l d c l o s e o n A p r i l 3 0

. T h e y p r o v i d e d t h a t b e c a u s e O ’ D e l l

,

D y n a V i s i o n ’ s c h a i r m a n

, w o u l d b e o u t o f t o w n t h a t d a y

, L e d f o r d w o u l d a c t f

o r

D y n a V i s i o n i n h i s p l a c e

. 3 6

The minutes also re flec t that L edfor d, O’De ll, and Br y an Walker simultaneously held a 3 6

meeting of L easing ’s member s to discuss the status of the Gre en Road Proper ty . Smit h,

25A f

t e r t h i s m e e t i n g a d

j o u r n e d

, L e d f

o r d a n d O ’ D e l l m e t w i t h J o i n e r a n d

s p e l l e d o u t s e v e r a l c o n d i t i o n s t h e A c t i v e M e m b e r s w o u l d h a v e t o m e e t b e f o r e

c l o s i n g

. J o i n e r i n f

o r m e d t h e A c t i v e M e m b e r s o f t h e s e c o n d i t i o n s i n a n A p r i l 1 1

l e t t e r t o t h e i r a t t o r n e y

, D o u g l a s K r e v o l i n

. O n e c a l l e d f o r t h e A c t i v e M e m b e r s a n d

D y n a V i s i o n t o e x e c u t e a n a g r e e m e n t J o i n e r h a d d r a f t e d a n d e n c l o s e d i n h i s l e t t e r

.

T h e a g r e e m e n t c o n t a i n e d t h e f o l l o w i n g c o v e n a n t

, p r e s u m a b l y d e s i g n e d t o s m o k e

o u t t h e A c t i v e M e m b e r s ’ i n v o l v e m e n t w i t h P e e p l e s :

[ e ] a c h A s s i g n e e [ i

. e

. , A c t i v e M e m b e r ] d o e s h e r e b y r e p r e s e n t a n d

w a r r a n t t o t h e A s s i g n o r [ i

. e

. , D y n a V i s i o n ] t h a t s u c h A s s i g n e e h a s

a c q u i r e d t h e I n t e r e s t f

r o m t h e A s s i g n o r f

o r i n v e s t m e n t s s o l e l y f

o r s a i d

A s s i g n e e ’ s o w n a c c o u n t

. . . w i t h o u t a n y i n t e n t i o n o f c o n v e y i n g

. . .

a n y p o r t i o n o f s u c h A s s i g n e e ’ s I n t e r e s t

, a n d w i t h o u t t h e f i n a n c i a l

p a r t i c i p a t i o n o f a n y o t h e r P e r s o n i n a c q u i r i n g t h e A s s i g n e e ’ s I n t e r e s t

.

A n o t h e r c o n d i t i o n r e q u i r e d t h e c o n v e y a n c e o f t h e G r e e n R o a d P r o p e r t y f r o m

S i g n a t u r e t o L e a s i n g

.

K r e v o l i n r e s p o n d e d t o J o i n e r ’ s A p r i l 1 1 l e t t e r w i t h a l e t t e r d a t e d A p r i l 1 6

.

H e i n f o r m e d J o i n e r t h a t t h e A c t i v e M e m b e r s w o u l d n o t c o n s e n t t o e i t h e r o f t h e t w o

c o n d i t i o n s

. R e s p o n d i n g t o t h e t h r e a t i m p l i c i t i n J o i n e r ’ s l e t t e r

— t h a t D y n a V i s i o n

w o u l d n o t c l o s e i f t h e A c t i v e M e m b e r s r e f u s e d t o r e p r e s e n t t h a t t h e y w e r e

Thomas, and Ow nbey , L easing ’s other me mbers, who c ollectively owned 50% of L easing , wer e

not present. Althoug h L easing ’s Oper ating Ag ree ment is not part of the re cord, w e assume tha t

the terms of the ag ree ment did not authorize L edfor d, O’De ll, and Walker to ca ll a meeting of

L easing ’s member s without noti fy ing Smith, Thomas, and Ownbe y

.

26a c q u i r i n g D y n a V i s i o n ’ s i n t e r e s t w i t h o u t t h e f i n a n c i a l p a r t i c i p a t i o n o f a t h i r d

p a r t y

— K r e v o l i n s a i d t h i s : “ I f y o u r c l i e n t i s n o t w i l l i n g t o p r o c e e d w i t h t h e c l o s i n g

i n a c c o r d a n c e w i t h t h e t e r m s o f t h e O p e r a t i n g A g r e e m e n t

, t h e A c t i v e M e m b e r s

m a y h a v e n o a l t e r n a t i v e b u t t o s e e k a c o u r t o r d e r c o m p e l l i n g i t t o c l o s e

. ”

J o i n e r i n f

o r m e d L e d f

o r d o f w h a t K r e v o l i n h a d w r i t t e n a n d t h e p o s i t i o n t h a t

t h e A c t i v e M e m b e r s w o u l d t a k e i f D y n a V i s i o n r e f u s e d t o c l o s e

, a n d L e d f

o r d

i n s t r u c t e d J o i n e r t o p r o c e e d w i t h t h e c l o s i n g o n A p r i l 3 0

.

D

.

I n l a t e A p r i l

, p r i o r t o t h e c l o s i n g

, t h e A c t i v e M e m b e r s s i g n e d t w o

p r o m i s s o r y n o t e s a n d a c o l l a t e r a l a g r e e m e n t

. I n t h e c o l l a t e r a l a g r e e m e n t

, e n t i t l e d

“ C o l l a t e r a l A s s i g n m e n t o f M e m b e r s h i p I n t e r e s t

, ” t h e y p l e d g e d

, “ a s r e c o r d a n d

b e n e f i c i a l ” o w n e r o f S i g n a t u r e

, a l l o f t h e i r o w n e r s h i p i n t e r e s t i n S i g n a t u r e a s

c o l l a t e r a l f

o r a l o a n o f $ 3

. 5 m i l l i o n f r o m P F L C

, L L C a n d a l o a n o f $ 8 5 5

, 0 0 0 f r o m

I n t e r n a l M a n a g e m e n t

, I n c

. , b o t h c o m p a n i e s o w n e d b y P e e p l e s

. T h e p r o c e e d s o f

t h e s e l o a n s w e r e t o b e u s e d

, r e s p e c t i v e l y

, t o p a y f o r D y n a V i s i o n ’ s i n t e r e s t i n

S i g n a t u r e a n d t o p a y t h e b a l a n c e d u e

, $ 8 5 5

, 0 0 0

, o n t h e l o a n F N B C h a d m a d e t o

S i g n a t u r e t h e p r e v i o u s O c t o b e r

.

A t s o m e p o i n t b e t w e e n t h e A p r i l 3 0 c l o s i n g a n d M a y 7

, t h e A c t i v e M e m b e r s

a n d P e e p l e s s i g n e d a n A s s e t P u r c h a s e A g r e e m e n t p u r s u a n t t o w h i c h t h e A c t i v e

27M e m b e r s

, a s o w n e r s o f a l l o f S i g n a t u r e

, c a u s e d t h e t r a n s f e r o f S i g n a t u r e ’ s a s s e t s t o

P e e p l e s f o r $ 5

. 7 5 m i l l i o n

. O f t h a t a m o u n t

, $ 2

. 2 5 m i l l i o n w e n t d i r e c t l y t o t h e 3 7

A c t i v e M e m b e r s

, a n d $ 3

. 5 m i l l i o n s e r v e d t o c a n c e l t h e l o a n P e e p l e s h a d m a d e t o

e n a b l e t h e m t o b u y o u t D y n a V i s i o n

. T h e a g r e e m e n t a l s o c o n t a i n e d P e e p l e s ’ s

p r o m i s e t o i n d e m n i f

y t h e A c t i v e M e m b e r s f o r a n y e x p e n s e s

, i n c l u d i n g t h o s e

a r i s i n g f r o m l i t i g a t i o n

, t h e y m i g h t i n c u r a s a r e s u l t o f t h e t r a n s f e r o f t h e G r e e n

R o a d P r o p e r t y f

r o m L e a s i n g t o S i g n a t u r e

.

C o n t e m p o r a n e o u s w i t h t h e e x e c u t i o n o f t h e A s s e t P u r c h a s e A g r e e m e n t

,

P F L C

, L L C e n t e r e d i n t o s i x

- y e a r e m p l o y m e n t c o n t r a c t s w i t h t h e A c t i v e M e m b e r s

,

t h e i r c o m p e n s a t i o n t o c o n s i s t o f $ 1 1 8

, 0 0 0 s i g n i n g b o n u s e s

, i n i t i a l s a l a r i e s o f

$ 1 6 0

, 0 0 0 p e r y e a r

, a n n u a l s a l a r y i n c r e a s e s o f $ 1 0

, 0 0 0

, a n d b o n u s e s i f S i g n a t u r e

m a d e o v e r $ 1

. 5 m i l l i o n i n p r e

- t a x p r o f i t s i n a c a l e n d a r y e a r

.

I I

.

A

.

O n N o v e m b e r 1 5

, 2 0 0 2

, D y n a V i s i o n

, L e d f o r d

, O ’ D e l l

, B r y a n W a l k e r

, a n d

L e a s i n g f

i l e d s u i t f

o r e q u i t a b l e a n d l e g a l r e l i e f a g a i n s t t h e A c t i v e M e m b e r s a n d

S i g n a t u r e i n t h e S u p e r i o r C o u r t o f M u r r a y C o u n t y

, G e o r g i a

. T h e p l a i n t i f f s a l l

None of the exhibit s in the rec ord evide nce the dispositi on the Active Me mbers made , if any

, 3 7

of their inter ests in Signature afte r they acquir ed Dy

naVision’s intere st. The testimony taken a s a

whole, howe ver, c rea tes the infer ence that at some point following the acquisition, they

transfe rre d Signatur e’s a ssets to PFL C, L L C.

28r e t a i n e d J o i n e r a s c o u n s e l

, a l o n g w i t h H

. L a m a r M i x o n a n d D a v i d G

. H

. B r a c k e t t

,

t w o p a r t n e r s i n B o n d u r a n t

, M i x o n a n d E l m o r e

, L L P

. T h e i r c o m p l a i n t w a s f r a m e d 3 8

i n f o u r c o u n t s a n d a s s e r t e d s i x c l a i m s

, a l l o n b e h a l f o f t h e p l a i n t i f f s b o t h

i n d i v i d u a l l y a n d c o l l e c t i v e l y

. F o u r c l a i m s w e r e b a s e d o n L e a s i n g ’ s c o n v e y a n c e 3 9

o f t h e G r e e n R o a d P r o p e r t y t o S i g n a t u r e ; t w o i n v o l v e d t h e t r a n s f e r o f

D y n a V i s i o n ’ s i n t e r e s t i n S i g n a t u r e t o t h e A c t i v e M e m b e r s

. W e b e g i n w i t h t h e

c l a i m s r e g a r d i n g t h e G r e e n R o a d P r o p e r t y

.

T h e f i r s t c l a i m w a s t h a t L e a s i n g

, a n d L e d f o r d

, O ’ D e l l

, S m i t h

, T h o m a s

, a n d 4 0

O w n b e y a s o w n e r s o f i n t e r e s t s i n L e a s i n g

, m i s t a k e n l y e x e c u t e d t h e w a r r a n t y d e e d

c o n v e y i n g t h e G r e e n R o a d P r o p e r t y t o S i g n a t u r e a n d t h u s w e r e e n t i t l e d t o a

r e s c i s s i o n o f t h a t t r a n s a c t i o n

. T h e s e c o n d c l a i m w a s t h a t S m i t h i n d u c e d L e d f o r d 4 1

a n d O ’ D e l l t o e x e c u t e t h e w a r r a n t y d e e d b y f a l s e l y r e p r e s e n t i n g t h a t F N B C n e e d e d

a c o r r e c t i v e d o c u m e n t w i t h o u t w a r n i n g t h a t t h e d o c u m e n t w a s i n f a c t a w a r r a n t y

Dy naVision amende d its complaint on Dece mber 27, 2002. Our ref ere nces to the c omplaint 3 8

are to the amende d complaint.

Although the complaint is not clear on this point, we a ssume that eac h plaintiff asser ted ea ch 3 9

of the c laims we desc ribe, such tha t the complaint contained 30 c auses of action in all.

We place pla intiffs’ claims in an orde r diffe rent fr om the order in which they

appea r in the 4 0

complaint. The fir st claim appea rs in Count One.

This claim appea

red in Count Two. The c omplaint impl ied, if not alleg ed, that Thomas a nd 4 1

Ownbey wer e vica

riously responsible for

Smit h’s conduc t, as descr ibed in claims two and five

. For relief on this and the rema ining c laims describe d infra, pla intiffs sought c ompensatory and

punitive damag es.

29d e e d

. T h e t h i r d c l a i m w a s t h a t S m i t h a n d t h e A c t i v e M e m b e r s b r e a c h e d t h e i r

f i d u c i a r y d u t i e s t o L e a s i n g

, c a u s i n g L e a s i n g t o l o s e t h e v a l u e o f t h e G r e e n R o a d

P r o p e r t y

, o n t w o o c c a s i o n s

— w h e n S m i t h i n d u c e d L e d f o r d a n d O ’ D e l l t o s i g n t h e

w a r r a n t y d e e d u n d e r f

a l s e p r e t e n s e s a n d w h e n t h e A c t i v e M e m b e r s r e f u s e d t o

c a u s e S i g n a t u r e t o r e t u r n t h e p r o p e r t y t o L e a s i n g

. T h e f o u r t h c l a i m w a s t h a t

4 2

S i g n a t u r e

, S m i t h

, T h o m a s

, a n d O w n b e y w e r e u n j u s t l y e n r i c h e d b y t h e a c q u i s i t i o n

o f t h e G r e e n R o a d P r o p e r t y

.

T h e f i f t h a n d s i x t h c l a i m s i n v o l v e d t h e t r a n s f e r o f D y n a V i s i o n ’ s i n t e r e s t i n

S i g n a t u r e

. T h e f

i f t h c l a i m

, a f

r a u d c l a i m

, a l l e g e d t h a t u p o n p r e s e n t i n g t h e 4 3 4 4

c o n d i t i o n a l P u t a n d C a l l o n F e b r u a r y 8

, 2 0 0 2

, S m i t h f a l s e l y s t a t e d t h a t t h e A c t i v e

M e m b e r s w e r e “ d o i n g t h i s o n o u r o w n

, ” i n t e n t i o n a l l y i n d u c i n g D y n a V i s i o n t o s e l l

i t s i n t e r e s t

. T h e s i x t h c l a i m a l l e g e d t h a t b y f a i l i n g t o d i s c l o s e t h e i r d i s c u s s i o n s 4 5

a n d f i n a l a r r a n g e m e n t s w i t h P e e p l e s

, t h e A c t i v e M e m b e r s b r e a c h e d f i d u c i a r y

This claim appea

red in Count Three

. 4 2

We describe these c laims in the tex t as the Murra y County Superior Court and the G eorg ia 4 3

Court of Appea ls, in L edfor d v. Smit h, 618 S.E.2d 627 (Ga. Ct. App. 2005), f rame d the claims in

their final dispositions.

This claim appea

red in Count Two. 4 4

This claim appea

red in Count Four

. 4 5

30d u t i e s i m p o s e d b y t h e O p e r a t i n g A g r e e m e n t

, t h e G e o r g i a L i m i t e d L i a b i l i t y 4 6

Plaintiffs’ theory

that the Active Me mbers had a fiduciar y duty under the Oper ating 4 6

Ag ree ment to disclose their final a rra ng ement with Peeples, a

nd that they

brea ched tha t duty , is

based on § 9.2 of

Article N ine of the O pera ting Ag ree ment, entitled “Rig ht of First Ref usal,” a nd

two of its parts, §§ 9.2.1 and 9.2.3. The se two sec tions state:

9.2.1 Notice of

I ntended Disposition. No Member in the Company

may sell less than all their I ntere st, and in the eve nt a Member

rec eives a bona fide offe r fr om any person in an a

rms leng th

transac tion to purchase a ll of the I ntere st which they own in the

Company and if the pe rson re ceiving the offe r of pur chase desires

to sell all the I ntere st that is the subject of the off er, notice of the

desire to se ll the I ntere st shall be g iven in writing to the other

Members a

nd the terms of the offe r, which notice shall include the

price offe red, the name of the offe ror, a

nd the pay

ment terms (the

“Notice of I ntended Disposition”).

9.2.3 Option to Purchase – Sale by Active Me mber other

than Dy na-V ision.

Dy na-V ision shall have the rig ht to purchase all of the . . .

I ntere st[ s] t o be sold at the same price and under the same te rms

and conditions as desc ribed in the [Active Membe rs’] Notice of

I ntended Disposition. The ele ction to purcha se by Dy na-V ision

shall be exercise d by

g iving wr itten notice to [t he Ac tive]

Members w ithin . . . thi rty (30) c alenda

r day s after

rec eipt of [the

Notice of I ntended Disposition]

.

The Ac tive Members did not consider their discussions with Peeples and his off er to loan

them the funds to ac quire Dy naVision’s intere st as a “bona fide off er” to purcha se their inter ests

in Signature so as to require them to notify Dy naVision pursuant to § 9.2.1; henc e, they did not

notify Dy naVision of the discussions. Acc ording ly , to preva il on their six th claim based on §§

9.2.1 and 9.2.3, plaintiffs would ha ve to prove that, prior to Marc h 27 (whe n Dy naVision

beca me obliga ted to sell its int ere st), Peeples made the Active Me mbers a bona fide off er to

purcha se their inter ests at a se t price a nd on set terms, that they “desire [d] to sell” their intere sts

to Peeples, that § 9.2.1 there fore obliga ted them to notify Dy naVision of the of

fer , that their

failure to notify

Dy naVision brea ched tha t obligation, and tha t but for the bre ach, D y naVision

would have e x erc ised its right of f irst refusa l and boug ht the Active Me mbers’ inter ests at the

price and on the ter

ms indicated in Peeples’ s offe r. Unde r this scena rio, the Ac tive Members’

Fe bruar y 25 Put and Call would become a nullity , repla ced by

the trig g ering of § 9.2.3 of the

Oper ating Ag ree ment. That is, Dy naVision would have purcha sed the Ac tive Members’

interests pursua

nt to § 9.2.3 inst ead of

selling its intere st pursuant to the § 9.5 Put and Call

provision.

31C o m p a n y A c t

, a n d G e o r g i a c o m m o n l a w

. 4 7

O n A u g u s t 1 3

, 2 0 0 3

, a f t e r t h e p a r t i e s h a d j o i n e d t h e i s s u e s

, p l a i n t i f f s 4 8

m o v e d t h e s t a t e c o u r t f

o r l e a v e t o a m e n d t h e i r c o m p l a i n t t o a d d P e e p l e s a n d h i s

t w o c o m p a n i e s

, P F L C

, L L C a n d I n t e r n a l M a n a g e m e n t

, I n c

. , a s c o

- d e f e n d a n t s

. 4 9

P l a i n t i f f s r e p r e s e n t e d t h a t t h e y h a d n o t l e a r n e d o f P e e p l e s ’ s i n v o l v e m e n t u n t i l t h e

d a y b e f o r e

, A u g u s t 1 2

, w h e n t h e y t o o k O w n b e y ’ s d e p o s i t i o n a n d O w n b e y t e s t i f i e d

t h a t P e e p l e s h a d p r o v i d e d t h e f u n d s t o e n a b l e t h e A c t i v e M e m b e r s t o t r i g g e r t h e

P u t a n d C a l l

. 5 0

T h e s t a t e c o u r t h e a r d o r a l a r g u m e n t o n t h e m o t i o n o n S e p t e m b e r 2 5

, 2 0 0 3

,

The Ac t imposes a g ener al duty of loy alty

on the member s and mana g ers of a limited liabilit y 4 7

company but does not expl icitly

cre ate a duty to disclose particula

r fa cts. O.C.G.A. § 14-11- 305

descr ibes this duty

as follows:

I n manag ing the business or af fairs of a limited liabilit y

company :

(1) A me mber or ma

nag er sha ll act in a manne r he or she believe s in good f

aith to

be in the best intere sts of the limit ed liability company and with the ca

re a n

ordinarily prudent pe rson in a like position would ex erc ise under similar

circ umstances. A me mber or ma nag er is not liable to the limited liabilit y

company , its members, or its manag ers f or any action take n in manag ing the

business or af

fairs of the limited liabili ty

company if he or she perf

orms the duties

of his or her

office in compliance w ith this Code section.

Def endants’ a

nswers a re not in the re cord. We infe r fr om what is in the rec ord, and in the 4 8

Geor g ia Court of Appe als opinion in L edfor d v. Smit h, that the Active Me mbers denie d the

alleg ations underpinning plaintiffs’ seve ral c auses of action.

Neither plaintiffs’ motion for lea ve to amend nor

the proposed a

mended c omplaint are in the 4 9

rec ord. The r ecor d does include, thoug h, the superior court’s O ctober

29, 2003 order

deny ing

plaintiffs’ motion, and that orde r addr esses the a rg ument plaintiffs made in support of the

motion.

Def endants de posed L edfor d on the same da y , Aug ust 12. 5 0

32a f

t e r d i s c o v e r y h a d c l o s e d

. I t d e n i e d t h e m o t i o n o n O c t o b e r 2 9

, 2 0 0 3

, c o n c l u d i n g 5 1

t h a t D y n a V i s i o n “ k n e w o r s h o u l d h a v e k n o w n ” a t t h e t i m e i t f i l e d i t s c o m p l a i n t

t h a t P e e p l e s w a s “ i n v o l v e d

. ” I n i t s o r d e r

, t h e c o u r t n o t e d t h a t p l a i n t i f f s

, i n t h e i r

c o m p l a i n t

, h a d a l l e g e d t h a t a t h i r d p a r t y h a d b e e n i n v o l v e d i n n e g o t i a t i o n s w i t h t h e

A c t i v e M e m b e r s a n d D y n a V i s i o n i n e a r l y J a n u a r y 2 0 0 2 o v e r a p o s s i b l e p u r c h a s e

o f S i g n a t u r e

, b u t t h a t t h e s e n e g o t i a t i o n s w e r e u n s u c c e s s f u l

. F u r t h e r

, t h e y h a d

a l l e g e d

, “ u p o n i n f

o r m a t i o n a n d b e l i e f

, ” t h a t a t h i r d p a r t y h a d f i n a n c e d t h e A c t i v e

M e m b e r s ’ a c q u i s i t i o n o f D y n a V i s i o n ’ s i n t e r e s t i n S i g n a t u r e a n d

, a f t e r t h e A c t i v e

M e m b e r s h a d D y n a V i s o n ’ s i n t e r e s t i n h a n d

, h a d p u r c h a s e d S i g n a t u r e ’ s a s s e t s

. I n

a d d i t i o n

, L e d f

o r d h a d d e p o s e d t h a t h e k n e w t h a t P e e p l e s w a s i n v o l v e d i n t h e

J a n u a r y n e g o t i a t i o n s

. I t s h o u l d h a v e b e e n o b v i o u s t o D y n a V i s i o n t h a t s i n c e

P e e p l e s w a s i n v o l v e d i n t h e J a n u a r y n e g o t i a t i o n s

, h e w a s t h e p a r t y t h a t l i k e l y

f i n a n c e d t h e A c t i v e M e m b e r s a n d p u r c h a s e d S i g n a t u r e

. I n a d d i t i o n

, t h e c o u r t

r e a s o n e d

, a d d i n g P e e p l e s a s a p a r t y a t t h a t l a t e s t a g e o f t h e l i t i g a t i o n

, a f t e r

d i s c o v e r y h a d c l o s e d

, w o u l d c a u s e P e e p l e s u n d u e p r e j u d i c e

.

P l a i n t i f f s m o v e d t h e c o u r t t o r e c o n s i d e r i t s r u l i n g

. T h e c o u r t d e n i e d t h e i r

m o t i o n o n M a r c h 8

, 2 0 0 4

. I n i t s o r d e r

, t h e c o u r t w a s h i g h l y c r i t i c a l o f p l a i n t i f f s ’

d e l a y i n a t t e m p t i n g t o j o i n P e e p l e s a s a p a r t y d e f e n d a n t :

Discover

y closed on Septembe r 7, 2003. The disc overy included the taking of the de positions 5 1

of Peeple s, the Active Me mbers, Dy naVision’s principa ls, and Paul Walker.

33[ A s a r e s u l t o f L e d f o r d ’ s d e p o s i t i o n t e s t i m o n y ] t h e C o u r t [ i n i t s

O c t o b e r 2 9 o r d e r ] c o n c l u d e d t h a t t h e P l a i n t i f f s k n e w o f t h e

i n v o l v e m e n t o f t h e P e e p l e s G r o u p

, a t t h e t i m e t h e o r i g i n a l C o m p l a i n t

w a s f i l e d

. . . . T h e P l a i n t i f

f s t h e n w a i t e d n i n e m o n t h s

, u n t i l A u g u s t

1 3

, 2 0 0 3

, b e f

o r e f i l i n g f o r l e a v e t o a m e n d

. T h e P l a i n t i f f s h a d

c a r e f u l l y w a i t e d u n t i l a f

t e r t h e d e p o s i t i o n o f S h e l b y P e e p l e s [ o n J u n e

2 7

, 2 0 0 3 ] a n d u n t i l a f

t e r t h e c l o s e o f d i s c o v e r y t o h a v e t h e i r m o t i o n

h e a r d [ o n S e p t e m b e r 2 5

, 2 0 0 3 ]

. I n m a k i n g t h e O c t o b e r 2 0 0 3 r u l i n g

,

t h i s C o u r t d e t e r m i n e d t h a t t h e P l a i n t i f f s e n g a g e d i n a d e l i b e r a t e

s c h e m e t o d e l a y j o i n d e r w i t h o u t e x c u s e o r j u s t i f i c a t i o n

. T h e r e f

o r e

,

t h e C o u r t f

i n d s t h a t t h e [ P l a i n t i f

f s ’ ] f a i l u r e t o o f

f e r e v i d e n c e o f e x c u s e

o r j u s t i f i c a t i o n i s a n i n d e p e n d e n t r e a s o n t h a t t h e P l a i n t i f f s ’ M o t i o n

[ f o r R e c o n s i d e r a t i o n ] s h o u l d b e d e n i e d

.

B

.

1

.

O n J a n u a r y 7

, 2 0 0 4

, w h i l e t h e i r m o t i o n f o r r e c o n s i d e r a t i o n w a s p e n d i n g i n

s t a t e c o u r t

, p l a i n t i f

f s

, s t i l l r e p r e s e n t e d b y J o i n e r

, M i x o n

, a n d B r a c k e t t

, b r o u g h t t h e

i n s t a n t l a w s u i t a g a i n s t P e e p l e s i n t h e U n i t e d S t a t e s D i s t r i c t C o u r t f o r t h e N o r t h e r n 5 2

D i s t r i c t o f G e o r g i a

. T h e c o m p l a i n t w a s f r a m e d i n 1 1 6 p a r a g r a p h s a n d s e v e n 5 3

c o u n t s

. E a c h c o u n t i n c o r p o r a t e d b y r e f e r e n c e e a c h p r e c e d i n g c o u n t

, s u c h t h a t

I n addition to Peeples, the plaintiffs sued PF L C, L L C and I nterna l Manag ement, I nc. We ar e 5 2

unable to disce rn fr om the alleg ations of plaintiffs’ c omplaint the nature of the claims asse rted, if

any , ag ainst those two entities. We assume they wer e name d as def

endants solely

for pur poses

of dec lara tory

or equitable relief

involving the title to the Gre en Road Proper ty or the status of

Dy naVision’s for

mer intere st in S igna

ture. B eca

use such r elief w as not forthc oming, a nd

beca use plaintiffs do not contend on a ppeal that the district c ourt err ed in deny ing r elief a g ainst

PFL C, L L C and I nterna l Manag ement, I nc., we omit further re fer ence to them.

Plaintiffs invoked the district court’s subjec t matter jurisdiction to entertain their fede ral 5 3

secur ities law claims under 28 U.S.C. § 1331 and 15 U.S.C. § 78aa.

34C o u n t S e v e n a m a l g a m a t e d a n d a s s e r t e d a l l o f t h e c l a i m s o f t h e p r e c e d i n g c o u n t s

.

P l a i n t i f f s ’ c o m p l a i n t i s a “ s h o t g u n ” p l e a d i n g i n t h a t i t l u m p s m u l t i p l e c l a i m s

t o g e t h e r i n o n e c o u n t a n d

, m o r e o v e r

, a p p e a r s t o s u p p o r t a s p e c i f i c

, d i s c r e t e c l a i m

w i t h a l l e g a t i o n s t h a t a r e i m m a t e r i a l t o t h a t c l a i m

. S e e

, e

. g

. , B y r n e v

. N e z h a t

, 2 6 1

F

. 3 d 1 0 7 5

, 1 1 2 8

- 3 2 ( 1 1 t h C i r

. 2 0 0 1 )

. W h e n f a c e d w i t h a c o m p l a i n t l i k e t h e o n e

h e r e

, i n w h i c h t h e c o u n t s i n c o r p o r a t e b y r e f e r e n c e a l l p r e v i o u s a l l e g a t i o n s a n d

c o u n t s

, t h e d i s t r i c t c o u r t m u s t c u l l t h r o u g h t h e a l l e g a t i o n s

, i d e n t i f y t h e c l a i m s

, a n d

,

a s t o e a c h c l a i m i d e n t i f

i e d

, s e l e c t t h e a l l e g a t i o n s t h a t a p p e a r t o b e g e r m a n e t o t h e

c l a i m

. T h i s t a s k c a n b e a v o i d e d i f t h e d e f e n d a n t m o v e s t h e c o u r t f o r a m o r e

d e f i n i t e s t a t e m e n t o r i f t h e c o u r t

, a c t i n g o n i t s o w n i n i t i a t i v e

, o r d e r s a r e p l e a d e r

.

I n t h i s c a s e

, P e e p l e s d i d n o t m o v e t h e c o u r t f o r a m o r e d e f

i n i t e s t a t e m e n t

,

n o r d i d t h e c o u r t r e q u i r e o n e o n i t s o w n i n i t i a t i v e

. C o n s e q u e n t l y

, i t i s l e f t t o t h i s

p a n e l t o i d e n t i f

y i n t h e f i r s t i n s t a n c e w h a t p l a i n t i f f s w e r e c l a i m i n g

. W e d o s o b y

p r o c e e d i n g a l l e g a t i o n b y a l l e g a t i o n a n d c o u n t b y c o u n t

, w e e d i n g o u t a n d

d i s r e g a r d i n g a s e x t r a n e o u s t h e a l l e g a t i o n s t h a t h a v e n o b e a r i n g o n a c l a i m

.

W e b e g i n t h i s p r o c e s s w i t h C o u n t O n e

, w h i c h a l l e g e d t h r e e v i o l a t i o n s o f t h e

f e d e r a l s e c u r i t i e s l a w s

. F i r s t

, a f t e r t h e P u t a n d C a l l o f

f e r s o f b o t h F e b r u a r y 8 a n d 5 4

Count One incorpor ated by ref ere nce the first eig hty -one pa rag raphs of

the complaint. Those 5 4

para g raphs a lleg ed, in substance and not in the orde r we indicate, that ( 1) on F ebrua ry 8, 2002,

Smit h falsely

told L edfor d and O’ Dell that the Ac tive Members, in issuing the Put and Call,

wer e “doing this on our own” and tha t no third party was involved; (2) on sever al occ asions

35F e b r u a r y 2 5

, P e e p l e s d e n i e d a n y i n v o l v e m e n t i n t h e A c t i v e M e m b e r s ’ p l a n t o

a c q u i r e D y n a V i s i o n ’ s i n t e r e s t

, t h e r e b y v i o l a t i n g § 1 0 ( b ) o f t h e S e c u r i t i e s E x c h a n g e

A c t o f 1 9 3 4 ( t h e “ 1 9 3 4 A c t ” ) a n d R u l e 1 0 b

- 5 ( b ) p r o m u l g a t e d t h e r e u n d e r

. 5 5

betwee n Fe bruar

y 8 and Mar ch 27, 2002, Peeple s falsely told Paul W alker

and/or L edfor d that

he wa s not involved in the Active Member s’ issuance of the Put and Call; (3) the state ments

made in (1) and (2) above w ere made with the intent to induce de trimental relianc e; (4) pla intiffs

did in fact re ly

on these stateme nts to their economic de triment; (5) Peeple s and the Ac tive

Members c onspired to def raud D y naVision of its interest in Signa ture by making these

statements and by

failing to disclose the terms of the J anuar y 21 letter a

nd the Asset Purcha se

Ag ree ment; (6) Peeple s is liable for the Ac tive Members’ fra udulent conduct be cause he

controlled such c onduct within the meaning of 15 U.S.C. § 78t under the ter ms of the J anuar

y

21, 2002, letter a

nd the Asset Purcha se Ag ree ment; (7) Peeple s is liable for the Ac tive Members’

fra udulent conduct unde r the doc trine of r espondea t superior; (8) the Active Me mbers bre ache d

their oblig ations to Dy

naVision under §§ 9.1 a

nd 9.2.1 of the Ope ratingAg ree ment by not

informing plaintiffs that Peeples wa s funding the Fe bruar y 8 Put and Call and that he had of fer ed

to purcha se Signa ture’s a ssets from the Ac tive Members; (9) Peeples is liable for this breac h as

the Active Me mbers’ c o-conspira tor and/or a ider a nd abettor; (10) the Active Me mbers bre ache d

their fiducia

ry duty to plaintiffs by

not reve aling that Peeples wa s providing the funds for the ir

acquisition of Dy

naVision’s intere st in S igna ture a nd had ag ree d to purcha se Signa ture’s a ssets

following their ac quisiti on; (11) Peeple s is liable for this brea ch under the doctrine of re spondeat

superior, a s a co- conspirator , and as a n aider and abe ttor; (12) the Ac tive Members, a cting under

Peeples’s c ontrol and direc tion or in conspirac y with him, fraudulently

induced L edfor d and

O’De ll to ex ecute the war ranty deed by which L easing convey ed the Gr een Roa d Property to

Signatur e; (13) the Active Me mbers, ac ting unde r Peeple s’s control and dir ection or in

conspirac y

with him, breac hed their f iduciary duty to plaintiffs by

not informing L edfor d and

O’De ll that the instrument they signe d at FN BC wa s a wa rra nty deed a nd of the leg al

conseque nces tha t would adher e to their sig ning it.

Section 10(b) of

the 1934 Act, 15 U.S.C. § 78j(b), make s it unlawful 5 5

[t ]o use or employ , in connec tion with the purchase or sale of any secur ity

reg istered on a

national sec urities exchang e or a ny secur ity not so reg istered, or

any secur ities-based swa

p ag ree ment (as de fined in sec tion 206B of the G rammL eac h-B liley

Act [15 U.S.C.S . § 78c note]), any manipulative or de ceptive de vice

or contriva

nce in c ontrave ntion of such rules a nd reg ulations as the Commiss ion

may presc ribe a s nece ssary

or appr opriate in the public inter est or for the

protec tion of investors.

Rule 10b-5, 17 C.F.R. § 240.10b-5, wa s promulga ted under § 10(b). Rule 10b-5 pr ovides:

36S e c o n d

, P e e p l e s “ d i r e c t l y o r i n d i r e c t l y c o n t r o l [ l e d ] t h e a c t i v i t i e s o f t h e A c t i v e

M e m b e r s ” u s i n g t h e “ C o n f i d e n t i a l i t y ” a n d “ N o D i s c u s s i o n s w i t h O t h e r s ”

p r o v i s i o n s o f t h e J a n u a r y 2 1 l e t t e r

, t h e “ s e c r e t d i s c u s s i o n s ” o f J a n u a r y a n d

F e b r u a r y 2 0 0 2

, a n d t h e A s s e t P u r c h a s e A g r e e m e n t

. A s s u c h

, P e e p l e s w a s

r e s p o n s i b l e f

o r t h e A c t i v e M e m b e r s ’ c o n d u c t i n v i o l a t i o n o f § 1 0 ( b ) a n d R u l e 1 0 b

5 ( b ) a s a “ c o n t r o l l i n g p e r s o n ” u n d e r § 2 0 ( a ) o f t h e 1 9 3 4 A c t

. S p e c i f i c a l l y

, 5 6

P e e p l e s w a s r e s p o n s i b l e f o r S m i t h ’ s s t a t e m e n t t h a t w e a r e “ d o i n g t h i s o n o u r o w n ”

I t shall be unlawful f

or any person, dire ctly

or indirec tly , by

the use of a

ny means

or instrumentality

of interstate commerc e, or of the mails or of a

ny fac ility of any

national sec urities exchang e,

(a) To employ

any device , scheme , or ar

tifice to def

raud,

(b) To ma ke any

untrue stateme nt of a mate rial fa ct or to omit to state a mater ial

fac t nece ssary

in order to make the statements made , in the light of the

circ umstances unde r which the y wer e made , not misl eading , or

(c) To eng ag e in any

act, pr actice , or cour se of business whic h opera tes or would

opera te as a

fra ud or dec eit upon any

person, in conne ction with the purcha se or

sale of a ny secur ity

.

“Rule 10b-5 e ncompasses only conduct a lrea dy

prohibited by

§ 10(b). Thoug h the text

of the Sec urities Ex chang e Ac t does not provide for a priva te ca use of a ction for § 10( b)

violations, the [ Supreme] Court has found a r ight of action implied in the words of the statute

and [Rule 10b-5].” St oneridg e I nv. Partners, L L C v. Scientific-Atlanta, I nc., 552 U.S. 148, 157,

128 S. Ct . 761, 768, 169 L . Ed. 2d 627 (2008) ( citations omitt ed). I n this opini on, we r efe r to the

§ 10(b) a nd Rules 10b-5(a) and (b) claims in this case a s claims under Rules 10b-5( a) a nd/or (b).

Section 20(a) of the 1934 Ac t, 15 U.S.C. § 78t (a) , provides: 5 6

Every

person who, dir ectly

or indirec tly , controls any person liable unde r any

provision of this chapter

or of a ny rule or r eg ulation thereunde r shall also be

liable jointly

and seve rally

with and to the same e x tent as such c ontrolled person

to any person to whom such c ontrolled person is liable, unless the c ontrolling

person a cted in g ood faith and did not direc tly or indirec tly

induce the a ct or a cts

constituting the violation or ca use of a ction.

37a n d t h e A c t i v e M e m b e r s ’ b r e a c h o f t h e i r f i d u c i a r y d u t y t o D y n a V i s i o n

. T h i r d

,

P e e p l e s a n d t h e A c t i v e M e m b e r s e n g a g e d i n a “ s c h e m e

, d e v i c e

, a n d a r t i f i c e t o

d e f r a u d ” D y n a V i s i o n

, i n v i o l a t i o n o f § 1 0 ( b ) a n d R u l e 1 0 b

- 5 ( a )

. 5 7

I n s u p p o r t o f t h e i r 1 0 b

- 5 ( a ) c l a i m

, p l a i n t i f f s

, i n t h e i r o p p o s i t i o n t o P e e p l e s ’ s

m o t i o n f o r s u m m a r y j u d g m e n t

, i d e n t i f i e d t h r e e c o m p o n e n t s o f t h e “ s c h e m e ” : ( 1 )

P e e p l e s a n d t h e A c t i v e M e m b e r s a g r e e d n o t t o d i s c l o s e t h e i r n e g o t i a t i o n s

, a s

e v i d e n c e d b y t h e J a n u a r y 2 1 l e t t e r ; ( 2 ) P e e p l e s a n d t h e A c t i v e M e m b e r s u s e d t h e

P u t a n d C a l l p r o v i s i o n “ t o i m p r o p e r l y e x c l u d e D y n a V i s i o n f r o m p a r t i c i p a t i n g i n

t h e s a l e o f [ S i g n a t u r e ] t o P e e p l e s ” ; a n d ( 3 ) P e e p l e s a n d t h e A c t i v e M e m b e r s

c o l l a b o r a t e d t o “ d e c e i v e t h e i n d i v i d u a l P l a i n t i f f s i n t o s i g n i n g [ t h e ] W a r r a n t y

D e e d

. ” 5 8

F i n a l l y

, t h e p l a i n t i f

f s a l l e g e d t h a t t h e m i s r e p r e s e n t a t i o n s

, o m i s s i o n s

, a n d

s c h e m e d e s c r i b e d i n C o u n t O n e c a u s e d D y n a V i s i o n t o s e l l i t s i n t e r e s t s a n d s u f f e r

i n j u r y

. P a r a g r a p h 6 4 o f t h e d i s t r i c t c o u r t c o m p l a i n t s t a t e d : 5 9

See supra

note 55. 5 7

The c omplaint, in contrast to what plaintiffs stated in their opposition to Peeples’s motion for 5 8

summary judgme nt, simpl y

aver red tha t “[t] hroug h the ac tiviti es desc ribed a bove, the

Def endants e mploy ed a sc heme, de vice, a nd artifice to defra

ud that, in fac t, opera

ted as a fra ud

upon Dy naVision.”

The plaintiffs de scribed the Active Me mbers’ misre prese ntations made by Smit h, the sche me 5 9

to defra ud, and the manne r in which these wrong s cause d injury in almost the same way

they had

done so in state cour

t.

38B a s e d u p o n t h e f a l s e a n d m i s l e a d i n g i n f

o r m a t i o n c o n c e r n i n g

[ S i g n a t u r e ] a n d t h e s o u r c e o f f u n d i n g f o r t h e b u y / s e l l o f

f e r s

, w h i c h

h a d b e e n p r o v i d e d b y t h e A c t i v e M e m b e r s a n d D e f e n d a n t s

, a n d i n

r e l i a n c e o n t h e i r m i s r e p r e s e n t a t i o n s t h a t t h e r e w a s n o o f f e r t o

p u r c h a s e [ S i g n a t u r e ] o u t s t a n d i n g

, D y n a V i s i o n c h o s e t o s e l l i t s i n t e r e s t

i n [ S i g n a t u r e ]

, r a t h e r t h a n p u r c h a s e t h e i n t e r e s t o f t h e [ A c t i v e

M e m b e r s ]

. A s a r e s u l t

, i n l a t e M a r c h 2 0 0 2

, D y n a V i s i o n b e c a m e

c o n t r a c t u a l l y r e q u i r e d t o s e l l i t s i n t e r e s t i n [ S i g n a t u r e ] t o t h e A c t i v e

M e m b e r s p u r s u a n t t o t h e t e r m s o f t h e [ S i g n a t u r e ] O p e r a t i n g

A g r e e m e n t

. 6 0

C o u n t s T w o t h r o u g h F i v e a l l e g e d c a u s e s o f a c t i o n u n d e r G e o r g i a c o m m o n

l a w a n d s t a t u t o r y p r o v i s i o n s

. C o u n t T w o

, “ V i o l a t i o n o f t h e G e o r g i a S e c u r i t i e s 6 1

A c t

, ” a l l e g e d t h a t t h e s a m e c o n d u c t t h a t g a v e r i s e t o t h e C o u n t O n e c l a i m s f o r

r e l i e f r e n d e r e d P e e p l e s l i a b l e t o p l a i n t i f f s u n d e r t h e G e o r g i a s e c u r i t i e s l a w s

. 6 2

C o u n t T h r e e

, “ C o n s p i r a c y t o D e f r a u d

, ” a l l e g e d t h a t P e e p l e s c o n s p i r e d w i t h t h e

A c t i v e M e m b e r s t o ( 1 ) f r a u d u l e n t l y i n d u c e D y n a V i s i o n t o s e l l i t s i n t e r e s t i n

Simi larly , para g raph 90 of the district court c omplaint stated: “Dy naVision relied on 6 0

the [Active Member s’] mi srepr esenta tions. Dy naVision made its dec ision to sell under

the put and ca ll based on the fa lse repr esenta tions that there we re no outstanding offe rs to

purcha se [Si g nature ] and, in particular, no of fer s from a stra teg ic purc haser such as the

Def endants.” Although pa

rag raphs 64 a

nd 90 ref er to stateme nts made by

the Active

Members, the only

conce ivably

actionable statement in the evide nce is Smith’s Febr uary

8 statement to L edfor d and O’ Dell that the Ac tive Members w ere “doing this on our

own.”

These c ounts, like Counts Six and Seven, inc orpora ted by ref ere nce a ll antece dent alleg ations 6 1

of the c omplaint. The complaint alleg ed that the district cour t had jurisdiction to entertain these

claims under the doctrines of “pende nt” and “ ancillar

y ” jurisdiction.

Plaintiffs alleg ed a violation of the Geor g ia Secur ities Act, O.C.G.A. § 10-5- 12(a) (2) ( 2005). 6 2

Section 10-5-12 is “G eorg ia' s equivalent of Rule 10b- 5. A plaintiff must prove e ssentially the

same e lements under the state provision as he must prove under the fede ral provision.” Pelletier

v. Z weife l, 921 F.2d 1465, 1511 (11th Cir. 1991).

39S i g n a t u r e a n d ( 2 ) f r a u d u l e n t l y i n d u c e L e a s i n g t o c o n v e y t h e G r e e n R o a d P r o p e r t y

t o S i g n a t u r e

. C o u n t F o u r

, “ A i d i n g a n d A b e t t i n g B r e a c h o f F i d u c i a r y D u t i e s

, ”

a l l e g e d t h a t t h e A c t i v e M e m b e r s

, a i d e d a n d a b e t t e d b y P e e p l e s

, b r e a c h e d t h e

f o l l o w i n g d u t i e s : ( 1 ) t h e f i d u c i a r y d u t y t o D y n a V i s i o n t o i n f o r m i t t h a t P e e p l e s

w a s s u p p o r t i n g t h e F e b r u a r y 2 5 P u t a n d C a l l

, ( 2 ) t h e f i d u c i a r y d u t y t o L e a s i n g

, a n d

L e d f o r d a n d O ’ D e l l a s L e a s i n g ’ s p a r t o w n e r s

, t o i n f o r m t h e m t h a t t h e d o c u m e n t

t h e y s i g n e d a t F N B C w a s a w a r r a n t y d e e d

, a n d ( 3 ) t h e f i d u c i a r y d u t y t o L e a s i n g t o

c a u s e S i g n a t u r e t o c o n v e y t h e p r o p e r t y b a c k t o L e a s i n g

. C o u n t F i v e

, “ T o r t i o u s

I n t e r f e r e n c e w i t h B u s i n e s s R e l a t i o n s

, ” a l l e g e d t h a t P e e p l e s t o r t i o u s l y i n t e r f e r e d

w i t h t h e A c t i v e M e m b e r s ’ b u s i n e s s r e l a t i o n s w i t h D y n a V i s i o n

. C o u n t S i x

,

“ A t t o r n e y s ’ F e e s

, ” s o u g h t p l a i n t i f f s ’ e x p e n s e s

, i n c l u d i n g a t t o r n e y ’ s f e e s

, i n c u r r e d

i n p r o s e c u t i n g C o u n t s O n e t h r o u g h F i v e

. C o u n t S e v e n

, “ P u n i t i v e D a m a g e s

, ”

s o u g h t p u n i t i v e d a m a g e s a s t o e a c h o f p l a i n t i f f s ’ c l a i m s o n t h e g r o u n d t h a t

P e e p l e s ’ s “ c o n d u c t ” “ w a s w i l l f u l

, w a n t o n a n d

. . . w o u l d r a i s e a p r e s u m p t i o n o f

c o n s c i o u s i n d i f

f e r e n c e t o c o n s e q u e n c e s

. ”

O n M a r c h 9

, 2 0 0 4

, t h e d a y a f t e r t h e s t a t e c o u r t r e f

u s e d t o r e c o n s i d e r i t s

O c t o b e r 2 9

, 2 0 0 3

, o r d e r d e n y i n g p l a i n t i f f s ’ m o t i o n f

o r l e a v e t o j o i n P e e p l e s a s a

p a r t y d e f e n d a n t

, P e e p l e s m o v e d t h e d i s t r i c t c o u r t t o d i s m i s s p l a i n t i f f s ’ c o m p l a i n t

.

A l t e r n a t i v e l y

, h e r e q u e s t e d t h a t t h e d i s t r i c t c o u r t s t a y f u r t h e r p r o c e e d i n g s p e n d i n g

40t h e s t a t e c o u r t ’ s r e s o l u t i o n o f L e d f o r d v

. S m i t h

. H e r e q u e s t e d a s t a y b e c a u s e t h e

A c t i v e M e m b e r s h a d m o v e d t h e s t a t e c o u r t f o r s u m m a r y j u d g m e n t

, w h i c h

, i f

g r a n t e d

, c o u l d s e t t l e t h r o u g h i s s u e p r e c l u s i o n s o m e o f t h e f a c t u a l i s s u e s i n v o l v e d i n

p l a i n t i f f s ’ d i s t r i c t c o u r t c l a i m s

. T h e s t a t e c o u r t h e a r d a r g u m e n t o n t h e s u m m a r y

j u d g m e n t m o t i o n s o n A p r i l 1

, 2 0 0 4

. O n M a y 1 7

, 2 0 0 4

, t h e d i s t r i c t c o u r t d e n i e d

P e e p l e s ’ s m o t i o n t o d i s m i s s a n d

, a l t e r n a t i v e l y

, f o r a s t a y

. O n J u n e 6

, 2 0 0 4

, P e e p l e s

a n s w e r e d p l a i n t i f

f s ’ c o m p l a i n t

. 6 3

2

.

O n M a y 1 8

, 2 0 0 4

, t h e s t a t e c o u r t r u l e d o n t h e p e n d i n g m o t i o n s f o r s u m m a r y

j u d g m e n t

. I t g r a n t e d d e f e n d a n t s s u m m a r y j u d g m e n t o n t h e f o u r t h a n d f

i f t h c l a i m s

a n d o n t h e s i x t h c l a i m i n p a r t

. I t d e n i e d s u m m a r y j u d g m e n t o n t h e f i r s t

, s e c o n d

a n d t h i r d c l a i m s a n d o n t h e s i x t h c l a i m i n p a r t o n t h e g r o u n d t h a t m a t e r i a l i s s u e s o f

f a c t r e m a i n e d t o b e l i t i g a t e d

. R e g a r d i n g t h e s i x t h c l a i m

, t h e c o u r t f o u n d t h a t t h e

A c t i v e M e m b e r s h a d a f i d u c i a r y d u t y t o i n f

o r m D y n a V i s i o n o f P e e p l e s ’ s

Peeples’s a

nswer r esponded to e ach of the complaint’s 116 par ag raphs, a dmitti ng or deny ing 6 3

the alleg ations of the par ag raph or stating tha t the defe ndant was w ithout knowledge sufficie nt to

form a be lief as to the truth of the alleg ations. The answ er a lso contained twe nty -nine

“def enses,” in three c ateg ories: (1) f our we re a ffirma tive defe nses either asser ting or imply ing

that the complaint fa iled to state a c laim for re lief; (2) six were c onfession and a voidance

defe nses; and (3) nineteen c onstitut ed g ener al denials. The answe r wa s a shotg un pleading in the

sense that many

of the de fense s in the first two cate g ories fa iled to identify the claim or c laims

for r elief to whic h they

wer e re sponding. This, c oupled with the shotg un manner in which

plaintiffs chose to f

rame their complaint, may explain why

the district court wa ited until the case

was submitted on motion for summary judgme nt to attempt to sort out t he par ties’ claims and

defe nses.

41i n v o l v e m e n t u n d e r t h e L i m i t e d L i a b i l i t y C o m p a n y A c t a n d G e o r g i a c o m m o n l a w

,

b u t n o t u n d e r t h e O p e r a t i n g A g r e e m e n t

.

P l a i n t i f f s a p p e a l e d t h e c o u r t ’ s d i s m i s s a l o f t h e f i f t h c l a i m

, t h a t t h e A c t i v e

M e m b e r s f

r a u d u l e n t l y i n d u c e d D y n a V i s i o n t o p a r t w i t h i t s i n t e r e s t i n S i g n a t u r e

.

T h e A c t i v e M e m b e r s c r o s s

- a p p e a l e d t h e c o u r t ’ s d i s p o s i t i o n o f t h e f i r s t c l a i m

, t h a t

L e a s i n g c o n v e y e d t h e G r e e n R o a d P r o p e r t y d u e t o m u t u a l m i s t a k e ; t h e s e c o n d

c l a i m

, t h a t S m i t h f

r a u d u l e n t l y i n d u c e d t h e t r a n s f e r o f t h e G r e e n R o a d P r o p e r t y t o

S i g n a t u r e b y m i s r e p r e s e n t i n g t h e w a r r a n t y d e e d ; a n d p a r t o f t h e s i x t h c l a i m

, t h a t

t h e A c t i v e M e m b e r s b r e a c h e d a f i d u c i a r y d u t y t o i n f

o r m D y n a V i s i o n o f P e e p l e s ’ s

p a r t i c i p a t i o n

. P l a i n t i f

f s d i d n o t a p p e a l t h e c o u r t ’ s d i s p o s i t i o n o f t h e i r f o u r t h c l a i m

,

u n j u s t e n r i c h m e n t t h r o u g h t h e t r a n s f e r o f t h e G r e e n R o a d P r o p e r t y

, a n d t h e A c t i v e

M e m b e r s d i d n o t a p p e a l t h e c o u r t ’ s d e n i a l o f s u m m a r y j u d g m e n t o n p l a i n t i f f ’ s

t h i r d c l a i m

, t h a t t h e A c t i v e M e m b e r s h a d b r e a c h e d a f i d u c i a r y d u t y t o L e a s i n g

,

O ’ D e l l

, a n d L e d f

o r d w i t h r e s p e c t t o t h e t r a n s f e r o f t h e G r e e n R o a d P r o p e r t y

.

W h i l e t h e s e a p p e a l s w e r e p e n d i n g i n t h e G e o r g i a C o u r t o f A p p e a l s

, t h e d i s t r i c t

c o u r t s e t F e b r u a r y 2 6

, 2 0 0 5 a s t h e d i s c o v e r y d e a d l i n e

.

3

.

O n J u l y 1 2

, 2 0 0 5

, t h e G e o r g i a C o u r t o f A p p e a l s h a n d e d d o w n i t s d e c i s i o n

.

L e d f o r d v

. S m i t h

, 6 1 8 S

. E

. 2 d 6 2 7 ( G a

. C t

. A p p

. 2 0 0 5 )

. T h e c o u r t a f f i r m e d t h e

42s u m m a r y j u d g m e n t f o r t h e A c t i v e M e m b e r s o n p l a i n t i f f s ’ f i f t h c l a i m

, r e v e r s e d t h e

d e n i a l o f s u m m a r y j u d g m e n t o n p l a i n t i f f ' s s e c o n d c l a i m ( e f

f e c t i v e l y g r a n t i n g t h e

A c t i v e M e m b e r s j u d g m e n t o n t h a t c l a i m )

, a n d r e v e r s e d p a r t o f t h e s i x t h c l a i m

.

A f t e r t h e d e c i s i o n

, o n l y t h e p l a i n t i f f s ’ f i r s t c l a i m

, w h i c h a l l e g e d t h a t L e a s i n g

c o n v e y e d t h e G r e e n R o a d P r o p e r t y b e c a u s e o f m u t u a l m i s t a k e

, s u r v i v e d

. 6 4

T h e c o u r t o f a p p e a l s e x p l a i n e d w h y i t h e l d f o r t h e A c t i v e M e m b e r s o n a l l

b u t p l a i n t i f

f s ’ f i r s t c l a i m

. I t b e g a n w i t h p l a i n t i f f s ’ s i x t h c l a i m

, t h a t t h e A c t i v e

M e m b e r s h a d a f

i d u c i a r y d u t y u n d e r t h e L i m i t e d L i a b i l i t y C o m p a n y A c t a n d

c o m m o n l a w t o d i s c l o s e t h e i r n e g o t i a t i o n s w i t h P e e p l e s

. A f t e r o b s e r v i n g t h a t

d e f a u l t f i d u c i a r y d u t i e s a r e t r u m p e d b y a n o p e r a t i n g a g r e e m e n t

, L e d f o r d

, 6 1 8 6 5

As to that aspec t of the first cla im, the court conc luded that unre solved materia l issues of fac t 6 4

prec luded summary

judgme nt.

O.C.G.A. § 14-11- 305(1), whic h imposes a g ener al duty of loy alty

on the manag ers of

a 6 5

limit ed liability

company , see supr a note 47, is subject to modifica tion as follows:

(4) To the extent that, pursuant to parag raph ( 1) of this Code sec tion or otherwise

at law or in equity , a member

or mana g er ha s duties (including fiduciar y duties)

and liabilities relating there to to a limit ed liability company or to another

member

or mana g er:

(A) T he member ’s or mana g er’ s duties and liabilities may be expanded,

restric ted, or e liminated by provisions in . . . a written oper ating ag ree ment;

provided, howe ver, tha t no such provision shall eliminate or limit t he liability of a

member or

manag er:

(i) F or intentional misconduct or a knowing violation of law; or

(ii) For

any transac tion for which the pe rson re ceive d a per sonal bene fit in

violation or brea ch or a

ny provision of a wr itten opera ting a g ree ment; and

(B ) The me mber or ma

nag er sha ll have no liability to the limit ed liability

company or to any other membe r or mana g er f or his or her

g ood faith re liance on

the provisions of a wr itten opera ting a g ree ment, including, w ithout li mitation,

43S

. E

. 2 d a t 6 3 6

, t h e c o u r t e x p l a i n e d t h a t S i g n a t u r e ’ s O p e r a t i n g A g r e e m e n t a l l o w e d 6 6

t h e A c t i v e M e m b e r s t o o b t a i n P e e p l e s ’ s a s s i s t a n c e i n f u n d i n g t h e P u t a n d C a l l

.

C i t i n g § 7

. 3 o f t h e O p e r a t i n g A g r e e m e n t

, w h i c h a u t h o r i z e d t h e A c t i v e M e m b e r s t o

“ e n g a g e i n a l l

. . . o t h e r b u s i n e s s v e n t u r e s

. . . b u t n o A c t i v e M e m b e r s h a l l e n g a g e

i n b u s i n e s s e s s i m i l a r t o t h e b u s i n e s s o f t h e [ S i g n a t u r e ] b y c o m p e t i n g w i t h t h e

b u s i n e s s o f t h e C o m p a n y

, ” t h e c o u r t r e a s o n e d t h a t :

T h i s p r o v i s i o n g a v e t h e A c t i v e M e m b e r s w i d e l a t i t u d e t o e n g a g e i n a l l

o t h e r b u s i n e s s a c t i v i t i e s e x c e p t t h o s e “ s i m i l a r t o t h e b u s i n e s s o f ”

[ S i g n a t u r e ]

, t h a t i s

, a “ c o m p e t i n g ” c a r p e t c o m p a n y

. T h e p r o v i s i o n w a s

b r o a d e n o u g h t o a l l o w t h e A c t i v e M e m b e r s t o n e g o t i a t e w i t h P e e p l e s

f o r t h e p u r p o s e o f o b t a i n i n g f i n a n c i n g t o f

u n d t h e i r b u y

- o u t o f D y n a

V i s i o n ’ s i n t e r e s t i n [ S i g n a t u r e ]

. T h i s a c t i v i t y d i d n o t “ c o m p e t e ” w i t h

[ S i g n a t u r e ] ; t h u s

, i t d i d n o t f a l l w i t h i n t h e e x c e p t i o n

. A n y f i d u c i a r y

d u t y o f d i s c l o s u r e t h a t t h e A c t i v e M e m b e r ’ s [ s i c ] m a y h a v e o w e d

D y n a

- V i s i o n w i t h r e s p e c t t o s u c h a b u s i n e s s a r r a n g e m e n t w a s

e l i m i n a t e d b y t h e t e r m s o f a n o p e r a t i n g a g r e e m e n t t h a t a l l o w e d t h e

b u s i n e s s a c t i v i t y w h i c h o c c u r r e d

. S e e S t o k e r v

. B e l l e m e a d e

, 2 7 2

G a

. A p p

. a t 8 2 4

, 6 1 5 S

. E

. 2 d 1 ( m e m b e r s o f a n L L C d i d n o t b r e a c h

provisions thereof

that rela te to the scope of duties (including fiduciar y duties) of

members a

nd manag ers.

O.C.G.A. § 14-11- 305(4) ( emphasis adde d).

The L edfor d court e x plained the ba sis for this policy : 6 6

The c ontrac tual flexibi lity provided in [O.C.G.A. § 14-11-305] is consistent with

O.C.G.A. § 14-11- 1107(b) of the [L imited L iability

Company ] Act which

provides that: “I t is the policy of this state with respe ct to limit ed liability

companies to g ive maxim um effe ct to the principle of fre edom of c ontrac t and to

the enf orce ability

of oper ating ag ree ments.”

L edfor d, 618 S.E.2d at 636 (quotation omitted).

44f

i d u c i a r y d u t i e s b y p a r t i c i p a t i n g i n o t h e r a l l e g e d l y c o m p e t i n g r e a l

e s t a t e d e v e l o p m e n t s b e c a u s e o p e r a t i n g a g r e e m e n t a l l o w e d t h e m t o d o

s o )

.

L e d f o r d

, 6 1 8 S

. E

. 2 d a t 6 3 6

.

T h e c o u r t a l s o r e

j e c t e d p l a i n t i f

f s ’ a r g u m e n t t h a t t h e O p e r a t i n g A g r e e m e n t ’ s

R i g h t o f F i r s t R e f

u s a l p r o v i s i o n i n § 9

. 2

. 1 c r e a t e d a f i d u c i a r y d u t y t h a t r e q u i r e d t h e

A c t i v e M e m b e r s t o d i s c l o s e t h e i r i n t e n t i o n t o s e l l S i g n a t u r e ' s a s s e t s t o P e e p l e s

.

T h e c o u r t e x p l a i n e d :

A s t h e s u p e r i o r c o u r t c o r r e c t l y c o n c l u d e d

, t h i s p r o v i s i o n w a s p l a i n l y

“ i n t e n d e d t o p r e v e n t o u t s i d e r s f r o m b u y i n g i n t o [ S i g n a t u r e ]

. I n t h i s

w a y

, t h e M e m b e r s m a i n t a i n e d c o n t r o l o v e r w h o t h e i r b u s i n e s s

‘ p a r t n e r s ’ w e r e t o b e

. ” B e c a u s e t h e A c t i v e M e m b e r s ’ p r o p o s e d b u y

o u t o f D y n a

- V i s i o n ’ s i n t e r e s t w o u l d n o t a l l o w a t h i r d p a r t y t o b u y i n t o

[ S i g n a t u r e ] a n d b e c o m e D y n a

- V i s i o n ' s b u s i n e s s p a r t n e r

, t h e p u r p o s e

o f t h e r i g h t o f f

i r s t r e f u s a l w a s n o t i m p l i c a t e d

. T h e r e f o r e

, [ S e c t i o n ]

9

. 2

. 1 d i d n o t r e q u i r e t h e A c t i v e M e m b e r s t o d i s c l o s e t o D y n a

- V i s i o n

h o w i t i n t e n d e d t o f

i n a n c e i t s b u y

- o u t o f

f e r

.

I d

. a t 6 3 3

– 3 4

.

T u r n i n g t o p l a i n t i f

f s ’ f i f t h c l a i m

, t h a t t h e A c t i v e M e m b e r s f r a u d u l e n t l y

i n d u c e d D y n a V i s i o n t o s e l l i t s i n t e r e s t

, t h e c o u r t h e l d t h a t s u m m a r y j u d g m e n t w a s

a p p r o p r i a t e b e c a u s e t h e A c t i v e M e m b e r s ’ f a i l u r e t o i n f

o r m D y n a V i s i o n o f t h e i r

d e a l w i t h P e e p l e s d i d n o t c a u s e D y n a V i s i o n ’ s d e c i s i o n t o s e l l

. O n c e t h e A c t i v e

M e m b e r s i n v o k e d t h e O p e r a t i n g A g r e e m e n t ’ s P u t a n d C a l l p r o v i s i o n

, D y n a V i s i o n

,

b y i t s p r i n c i p a l s ’ o w n d e p o s i t i o n t e s t i m o n y

, h a d n o f e a s i b l e o p t i o n b u t t o s e l l i t s

45i n t e r e s t s

. A s t h e c o u r t o b s e r v e d :

M o r e o v e r

, b o t h L e d f

o r d a n d O ’ D e l l d e p o s e d t h a t

, e v e n i f t h e y c o u l d

h a v e r a i s e d t h e m o n e y t o b u y o u t t h e A c t i v e M e m b e r s

, o w n i n g

[ S i g n a t u r e ] w i t h o u t t h e A c t i v e M e m b e r s w o u l d h a v e b e e n “ f o o l i s h ”

a n d “ m a d e n o s e n s e ” b e c a u s e t h e A c t i v e M e m b e r s w e r e t h e h e a r t o f

[ S i g n a t u r e ’ s ] v a l u e

. A s O ’ D e l l a d m i t t e d “ w e d i d n ’ t r e a l l y h a v e a

c h o i c e

. . . . W e d i d n ’ t h a v e a m a n a g e m e n t g r o u p

. . . . T h e d a y t h e

p u t a n d c a l l c a m e i n

, I w o u l d n ’ t g i v e t w o c e n t s f o r f i n d i n g a g r o u p t o

r e p l a c e t h e m

. ” B e c a u s e P e e p l e s ’ i n v o l v e m e n t d i d n o t a f f e c t t h e v a l u e

o f t h e A c t i v e M e m b e r s ’ i n t e r e s t

, i t w a s i m m a t e r i a l

. O r

, s t a t e d

d i f f e r e n t l y

, [ p l a i n t i f

f s ] c a n n o t s h o w t h a t t h e y s u f f e r e d a n y d a m a g e a s

a r e s u l t o f t h e i r a l l e g e d r e l i a n c e o n t h e A c t i v e M e m b e r s a f f i r m a t i v e

m i s r e p r e s e n t a t i o n t h a t P e e p l e s w a s n o t i n v o l v e d i n t h e b u y

- o u t

.

I d

. a t 6 3 4

– 3 5

.

T h e c o u r t t h e n a d d r e s s e d t h e p l a i n t i f f s ’ s e c o n d c l a i m

, t h a t S m i t h

, a n d t h u s

t h e A c t i v e M e m b e r s

, f

r a u d u l e n t l y i n d u c e d L e a s i n g t o s i g n t h e w a r r a n t y d e e d a t

F N B C b y a s k i n g L e d f

o r d a n d O ’ D e l l t o s i g n t h e d e e d w i t h o u t d i s c l o s i n g t h e n a t u r e

o f t h e d o c u m e n t

. B e c a u s e i t f o u n d n o e v i d e n c e o f m i s r e p r e s e n t a t i o n

, t h e c o u r t

c o n c l u d e d t h a t o n t h i s c l a i m

, t h e A c t i v e M e m b e r s w e r e e n t i t l e d t o s u m m a r y

j u d g m e n t

. I t h e l d :

I n t h i s c a s e

, t h e e v i d e n c e s h o w s t h a t F N B C

, o n i t s o w n i n i t i a t i v e

, d r a f t e d t h e w a r r a n t y d e e d a n d a s k e d a l l t h e p a r t i e s t o t h e l o a n c l o s i n g

t o s i g n t h i s “ c o r r e c t i v e p a p e r

. ” A l t h o u g h L e d f o r d a n d O ' D e l l c o n t e n d

t h e y s i g n e d t h e d o c u m e n t b e c a u s e S m i t h a s k e d t h e m t o d o s o

, t h e

e v i d e n c e o n l y s h o w s t h a t S m i t h w a s r e l a y i n g t h e b a n k ' s r e q u e s t

. T h e r e

i s n o e v i d e n c e i n t h e r e c o r d t h a t S m i t h c a u s e d t h e d e e d t o b e d r a f t e d

,

a c t e d i n c o n c e r t w i t h t h e b a n k

, o r m i s r e p r e s e n t e d o r c o n c e a l e d t h e

d o c u m e n t ’ s n a t u r e

. I n f a c t

, i t a p p e a r s f

r o m t h e r e c o r d t h a t S m i t h w a s

46a s i g n o r a n t o f t h e d o c u m e n t ’ s s i g n i f i c a n c e a s L e d f

o r d a n d O ’ D e l l

. U n d e r t h e s e c i r c u m s t a n c e s

, w e s e e n o e v i d e n c e o f a f r a u d u l e n t

s t a t e m e n t o r t h e c o n c e a l m e n t o f a m a t e r i a l f a c t t h a t S m i t h w a s u n d e r a

d u t y t o d i s c l o s e

.

I d

. a t 6 3 6

– 3 7

.

4

.

O n J u l y 1 5

, 2 0 0 5

, s h o r t l y a f t e r t h e G e o r g i a C o u r t o f A p p e a l s ’ s o p i n i o n

i s s u e d

, P e e p l e s ’ s c o u n s e l s e n t a l e t t e r t o p l a i n t i f f s ’ c o u n s e l

, r e q u e s t i n g t h a t

p l a i n t i f f s d i s m i s s a l l c l a i m s a g a i n s t P e e p l e s

. O n J u l y 2 5

, p l a i n t i f f s ’ c o u n s e l

r e s p o n d e d

, s t a t i n g t h a t n o t h i n g i n t h e c o u r t ’ s o p i n i o n w a r r a n t e d d i s m i s s a l a n d t h a t

t h e y h a d m o v e d t h e c o u r t o f a p p e a l s f o r r e c o n s i d e r a t i o n

. O n J u l y 2 8

, 2 0 0 5

, t h e

m o t i o n f o r r e c o n s i d e r a t i o n w a s d e n i e d

. O n A u g u s t 1

, P e e p l e s ’ s c o u n s e l a g a i n

w r o t e p l a i n t i f

f s ’ c o u n s e l

, a s k i n g t h a t p l a i n t i f f s a g r e e t o a s t a y o f p r o c e e d i n g s i n t h e

d i s t r i c t c o u r t

. P l a i n t i f

f s ’ c o u n s e l r e

j e c t e d t h a t r e q u e s t t h e n e x t d a y ; t h e y p l a n n e d t o

p e t i t i o n t h e S u p r e m e C o u r t o f G e o r g i a f o r a w r i t o f c e r t i o r a r i

.

O n S e p t e m b e r 2 2

, P e e p l e s m o v e d t h e d i s t r i c t c o u r t f o r s u m m a r y j u d g m e n t

o n a l l o f p l a i n t i f

f s ’ c l a i m s

. I n t h e b r i e f a c c o m p a n y i n g t h e m o t i o n

, P e e p l e s c i t e d t h e

c o u r t o f a p p e a l s ’ s L e d f

o r d d e c i s i o n a n d s t a t e d :

S h o u l d t h e G e o r g i a S u p r e m e C o u r t d e n y P l a i n t i f f s ’ p e t i t i o n f

o r

c e r t i o r a r i o r a f

f i r m t h e G e o r g i a C o u r t o f A p p e a l s ’ o r d e r

, t h e n

P l a i n t i f f s ’ d e r i v a t i v e l i a b i l i t y c l a i m s i n t h e f e d e r a l a c t i o n a r e

c o l l a t e r a l l y e s t o p p e d

. I n t h e a b s e n c e o f a f f i r m a n c e o r d e n i a l

, t h e

47r e a s o n i n g o f t h e G e o r g i a C o u r t o f A p p e a l s

, t h e a p p l i c a b l e G e o r g i a l a w

a s c i t e d

, a n d t h e c o n c l u s i o n s r e a c h e d o n t h e u n d i s p u t e d f a c t s a s

p r e s e n t i n t h i s c a s e a r e i n s t r u c t i v e a n d m a y b e c o n s i d e r e d b y t h i s

C o u r t

.

O n O c t o b e r 3 1

, p l a i n t i f f s ’ c o u n s e l r e s p o n d e d t o t h i s s t a t e m e n t i n t h e i r b r i e f

i n o p p o s i t i o n t o P e e p l e s ’ s m o t i o n f o r s u m m a r y j u d g m e n t :

A s a n i n i t i a l m a t t e r

, t h r o u g h o u t t h e i r b r i e f

, t h e D e f e n d a n t s r e f

e r t o a n

O p i n i o n o f t h e G e o r g i a C o u r t o f A p p e a l s i n a s t a t e c o u r t p r o c e e d i n g

b e t w e e n t h e P l a i n t i f

f s a n d t h e A c t i v e M e m b e r s

. . . . T h e s t a t e c o u r t

c a s e h a s n o e f

f e c t o n t h e c e n t r a l s e c u r i t i e s f r a u d c l a i m s i n t h i s a c t i o n ;

t h e o p i n i o n i s n o t b i n d i n g o n t h i s C o u r t

. F u r t h e r m o r e

, a p e t i t i o n f o r

c e r t i o r a r i h a s b e e n f

i l e d w i t h t h e G e o r g i a S u p r e m e C o u r t s e e k i n g t o

c o r r e c t t h e m u l t i t u d e o f l e g a l a n d f a c t u a l e r r o r s c o n t a i n e d i n t h a t

o p i n i o n

. 6 7

O n N o v e m b e r 1 8

, t h e G e o r g i a S u p r e m e C o u r t d e n i e d p l a i n t i f f s ’ p e t i t i o n f

o r

c e r t i o r a r i r e v i e w i n t h e s t a t e c o u r t c a s e

. T e n d a y s l a t e r

, p l a i n t i f f s m o v e d t h e C o u r t

t o r e c o n s i d e r i t s d e c i s i o n

. T h e c o u r t d e n i e d p l a i n t i f f s ’ m o t i o n o n D e c e m b e r 1 6

. 6 8

T h e d e n i a l o p e r a t e d t o m a k e t h e c o u r t o f a p p e a l s ’ s L e d f o r d d e c i s i o n b i n d i n g

a u t h o r i t y o n m a t t e r s o f G e o r g i a l a w

. S e e L e x i n g t o n D e v e l o p e r s

, I n c

. v

. O ’ N e a l

C o n s t

. C o

. , I n c

. , 2 3 8 S

. E

. 2 d 7 7 0

, 7 7 0

– 7 7 1 ( G a

. C t

. A p p

. 1 9 7 7 )

.

O n D e c e m b e r 2 2

, t h e d i s t r i c t c o u r t

, i n a c o m p r e h e n s i v e s i x t y

- e i g h t p a g e

Peeples’s c ounsel responde d to this posi tion on November 30, a dhering to what they 6 7

had stated in People’ s September 22 br ief a nd informing the district court that the

Geor g ia Supreme Court ha d denied c ertiora ri revie w.

On Dec ember

2, the district court orde red c ounsel to inform it instanter of the supre me cour t’s 6 8

dispositi on of the motion.

48o r d e r

, g r a n t e d P e e p l e s ’ s m o t i o n f o r s u m m a r y j u d g m e n t o n a l l o f p l a i n t i f f s ’

c l a i m s

. U s i n g t h e d o c t r i n e o f c o l l a t e r a l e s t o p p e l

, t h e c o u r t d i s p o s e d o f C o u n t

6 9

T h r e e

, t h a t P e e p l e s c o n s p i r e d w i t h t h e A c t i v e M e m b e r s t o d e f r a u d D y n a V i s i o n i n t o

s e l l i n g i t s i n t e r e s t i n S i g n a t u r e

, a n d C o u n t F i v e

, t h a t P e e p l e s t o r t i o u s l y i n t e r f e r e d 7 0

w i t h t h e A c t i v e M e m b e r s ’ b u s i n e s s r e l a t i o n s h i p w i t h D y n a V i s i o n

. T h e c o u r t

r e j e c t e d p l a i n t i f

f s ’ C o u n t F o u r c l a i m s

, t h a t P e e p l e s a i d e d a n d a b e t t e d t h e A c t i v e

M e m b e r s ’ b r e a c h o f f

i d u c i a r y d u t i e s

, o n t h e g r o u n d t h a t G e o r g i a l a w d i d n o t

r e c o g n i z e s u c h c l a i m s

. T h e c o u r t d i s p o s e d o f C o u n t s O n e a n d T w o

, c h a r g i n g

P e e p l e s w i t h s e c u r i t i e s f r a u d

, o n t h e g r o u n d s t h a t p l a i n t i f f s f a i l e d t o d e m o n s t r a t e a

g e n u i n e i s s u e o f m a t e r i a l f a c t a s t o t h e s e v e r a l e l e m e n t s o f t h o s e c l a i m s

. 7 1

5

.

O n J a n u a r y 9

, 2 0 0 6

, P e e p l e s m o v e d t h e d i s t r i c t c o u r t p u r s u a n t t o R u l e 5 9 ( e )

o f t h e F e d e r a l R u l e s o f C i v i l P r o c e d u r e t o a l t e r a n d a m e n d i t s j u d g m e n t

. H e

a r g u e d t h a t

, w i t h r e s p e c t t o p l a i n t i f f s ’ f e d e r a l s e c u r i t i e s l a w c l a i m s i n C o u n t O n e

,

The c ourt enter ed a f

inal judgme nt for Peeple s the same da y

. 6 9

The c ourt g rante d Peeples summary judgme nt on the Count Three c laims that he had 7 0

conspired w ith the Active Membe rs fra udulently to induce L easing to convey the Gre en Road

Property to Signature on the g round that plaintiffs aba ndoned that cla im by

failing to support it

in their brief

in oppositi on to Peeples’s motion for summary judgme nt.

Although the district court’s De cembe r 22 orde r made no expli cit ref ere nce to Counts Six and 7 1

Seven, the c ourt’s disposition of Count s One, Two, a nd Four and its invocation of the doc trine of

collater al estoppel to dispose of Counts Three and F ive implicitly disposed of those two counts,

which soug ht, respec tively , attorney ’s fe es and punitive da mag es.

49t h e c o u r t h a d f a i l e d t o i s s u e t h e f

i n d i n g s r e q u i r e d u n d e r t h e P S L R A

. T h e P S L R A

r e q u i r e s a d i s t r i c t c o u r t

, u p o n f i n a l a d j u d i c a t i o n o f a f

e d e r a l s e c u r i t i e s l a w c l a i m

, t o

“ i n c l u d e i n t h e r e c o r d s p e c i f i c f i n d i n g s r e g a r d i n g c o m p l i a n c e b y e a c h p a r t y a n d

e a c h a t t o r n e y r e p r e s e n t i n g a n y p a r t y w i t h e a c h r e q u i r e m e n t o f R u l e 1 1 ( b ) o f t h e

F e d e r a l R u l e s o f C i v i l P r o c e d u r e a s t o a n y c o m p l a i n t

, r e s p o n s i v e p l e a d i n g

, o r

d i s p o s i t i v e m o t i o n

. ” 1 5 U

. S

. C

. § 7 8 u

- 4 ( c ) ( 1 )

. P e e p l e s u r g e d t h e c o u r t t o s a n c t i o n

p l a i n t i f f s a n d t h e i r c o u n s e l f

o r f a i l i n g t o c o m p l y w i t h R u l e 1 1

. H e a l s o r e q u e s t e d

s a n c t i o n s f

o r t h e C o u n t O n e c l a i m s p u r s u a n t t o 2 8 U

. S

. C

. § 1 9 2 7 a n d t h e d i s t r i c t

c o u r t ’ s i n h e r e n t p o w e r

. 7 2

P l a i n t i f f s a n d t h e i r a t t o r n e y s f

i l e d s e p a r a t e r e s p o n s e s t o P e e p l e s ’ s r e q u e s t f o r

a t t o r n e y ’ s f

e e s a n d e x p e n s e s u n d e r t h e P S L R A

. P l a i n t i f f s

, r e p r e s e n t e d i n t h e

m a t t e r o f s a n c t i o n s b y n e w a t t o r n e y s

, c l a i m e d t h a t t h e y d i d n o t m i s r e p r e s e n t t h e

h i s t o r i c a l f

a c t s t o c o u n s e l

, d i d n o t a d v i s e c o u n s e l r e g a r d i n g t h e l a w

, a n d w e r e n o t

r e s p o n s i b l e f

o r t h e m a n n e r i n w h i c h c o u n s e l l i t i g a t e d t h e c a s e

. R e l y i n g o n o u r

d e c i s i o n i n B y r n e v

. N e z h a t

, 2 6 1 F

. 3 d 1 0 7 5 ( 1 1 t h C i r

. 2 0 0 1 )

, p l a i n t i f f s a v e r r e d t h a t

s a n c t i o n s a g a i n s t t h e m w o u l d n o t b e a p p r o p r i a t e

. I n t h e i r s e p a r a t e r e s p o n s e

,

p l a i n t i f f s ’ a t t o r n e y s a s s e r t e d

, i n e s s e n c e

, t h a t a r e a s o n a b l y c o m p e t e n t a t t o r n e y

Peeples did not move the c ourt to imposes sanctions under Rule 11(b) , § 1927, or the c ourt’s 7 2

inhere nt power w ith respec t to plaintiffs’ prosec ution of Counts Two through Seve n of the

complaint.

50w o u l d h a v e r e c o g n i z e d t h a t t h e c l a i m s s e t o u t i n C o u n t O n e o f t h e c o m p l a i n t w e r e

c o g n i z a b l e u n d e r t h e f

e d e r a l s e c u r i t i e s l a w s

.

O n M a r c h 2 1

, 2 0 0 6

, t h e d i s t r i c t c o u r t g r a n t e d P e e p l e s ’ s m o t i o n t o t h e e x t e n t

t h a t i t s o u g h t P S L R A f

i n d i n g s

, b u t r e f

u s e d t o s a n c t i o n p l a i n t i f f s o r t h e i r c o u n s e l

,

f i n d i n g t h a t t h e y h a d a c t e d i n c o m p l i a n c e w i t h R u l e 1 1 i n p l e a d i n g a n d p r o s e c u t i n g

t h e i r c a s e

.

6

.

A l l f i v e p l a i n t i f

f s n o w a p p e a l t h e d i s t r i c t c o u r t ’ s d i s p o s i t i o n o f e a c h o f t h e i r

c l a i m s

. T h e i r b r i e f

, h o w e v e r

, p r e s e n t s n o a r g u m e n t a s t o C o u n t s T h r e e a n d F i v e

t h r o u g h S e v e n

. W e t h e r e f o r e t r e a t a s a b a n d o n e d t h e i r a p p e a l o f t h e d i s t r i c t c o u r t ’ s

d i s p o s i t i o n o f t h o s e c o u n t s

. W e a l s o t r e a t a s a b a n d o n e d t h e a p p e a l o f t h e c o u r t ’ s

d i s p o s i t i o n o f p l a i n t i f

f s ’ c l a i m s u n d e r t w o o f t h e f e d e r a l s e c u r i t i e s l a w s

. A s n o t e d

,

C o u n t O n e c o n t a i n e d c l a i m s u n d e r § 2 0 ( a ) o f t h e 1 9 3 4 A c t a n d R u l e s 1 0 b

- 5 ( a ) a n d

( b )

. P l a i n t i f

f s ’ b r i e f p r e s e n t s n o a r g u m e n t i n s u p p o r t o f t h e i r § 2 0 ( a ) a n d R u l e 1 0 b

5 ( a ) c l a i m s

, a n d

, a s i n t h e c a s e o f C o u n t s T h r e e a n d F i v e t h r o u g h S e v e n

, w e d e e m

7 3

The district cour

t did not address explicitl y Dy naVision’s Count One Rule 10b-5( a) c laim, 7 3

and plaintiffs’ initial brief in this appeal conta ins no arg ument in support of the Rule 10b-5(a )

claim qua c laim. I nstead, the br ief re fer s to a “sche me,” whic h forms the ba sis of a Rule 10b5(a) claim, in arg uing tha t there w as a g enuine issue of materia l fac t as to the “re liance” element

of Count One’s Rule 10b-5( b) cla im. W e ther efor e tre at Count One’s Rule 10b-5( a) c laim as

having been a

bandoned.

51t h e a p p e a l o f t h e c o u r t ’ s d i s p o s i t i o n o f t h o s e c l a i m s t o h a v e b e e n a b a n d o n e d

. 7 4

A c c o r d i n g l y

, w h a t r e m a i n s a r e p l a i n t i f f s ’ C o u n t O n e c l a i m s u n d e r R u l e 1 0 b

- 5 ( b ) ;

t h e i r C o u n t T w o c l a i m s u n d e r t h e c o m p a r a b l e G e o r g i a s e c u r i t i e s l a w p r o v i s i o n ;

a n d p a r t o f t h e i r C o u n t F o u r c l a i m

, t h a t P e e p l e s a i d e d a n d a b e t t e d t h e A c t i v e

M e m b e r s ’ b r e a c h o f t h e i r f i d u c i a r y d u t y r e g a r d i n g t h e h a n d l i n g o f t h e G r e e n R o a d

P r o p e r t y

. P e e p l e s c r o s s

- a p p e a l s t h e d i s t r i c t c o u r t ’ s r e f u s a l t o s a n c t i o n p l a i n t i f f s 7 5

a n d t h e i r c o u n s e l a s r e q u i r e d b y t h e P S L R A f o r p r o s e c u t i n g C o u n t O n e o f t h e

c o m p l a i n t

.

O u r r e v i e w p r o c e e d s a s f o l l o w s

. W e f

i r s t c o n s i d e r p l a i n t i f

f s ’ C o u n t O n e

1 0 b

- 5 ( b ) c l a i m s

. N e x t

, w e m o v e t o p l a i n t i f f s ’ C o u n t F o u r a i d i n g a n d a b e t t i n g 7 6

c l a i m s

.

I I I

.

W e a d d r e s s t h e s e c l a i m s i n s e q u e n c e

, a f f i r m i n g t h e d i s t r i c t c o u r t ’ s g r a n t o f

We likewise dee m abandone d plaintiffs’ Count Two state lawclaims that mirror the § 20( a) 7 4

and Rule 10b-5( a) c laims. See O.C.G.A. § 10-5- 12(a) (2)( A)–(C).

Plaintiffs did not brief, and ther efor e aba ndoned, the issue of

whether the district court e rre d 7 5

in dismi ssing the c laim that Peeples aide d and abe tted the Active Me mbers’ br eac h of a f iduciary

duty to inform Dy

naVision’s principa ls that he was pr oviding the $3.5 million the Active

Members ne eded to c lose the purc hase of Dy naVision’s intere st.

What we say

about the mer its of the Count One claims applies to the Count Two cla ims. S ee 7 6

GCA Strateg ic I nv. Fund, L td. v. J oseph Charle s & A ssocs., I nc., 537 S.E.2d 677, 682 (Ga . Ct.

App. 2000) (“ To eva luate a c laim of secur ities fraud unde r OCGA § 10- 5-12(a ), we look to the

simil ar e lements a plaintiff must alleg e under section 10(b) of the Sec urities Act of 1934. . . .” ).

52s u m m a r y j u d g m e n t f o r P e e p l e s

.

A

.

I n a t y p i c a l § 1 0 ( b ) c i v i l a c t i o n f o r a v i o l a t i o n o f R u l e 1 0 b

- 5 ( b )

, a p l a i n t i f f

m u s t p r o v e ( 1 ) a m a t e r i a l m i s r e p r e s e n t a t i o n o r o m i s s i o n b y t h e d e f e n d a n t

, ( 2 )

s c i e n t e r

, ( 3 ) a c o n n e c t i o n b e t w e e n t h e m i s r e p r e s e n t a t i o n o r o m i s s i o n a n d t h e

p u r c h a s e o r s a l e o f a s e c u r i t y

, ( 4 ) r e l i a n c e u p o n t h e m i s r e p r e s e n t a t i o n o r o m i s s i o n

,

( 5 ) e c o n o m i c l o s s

, a n d ( 6 ) l o s s c a u s a t i o n

. S t o n e r i d g e I n v

. P a r t n e r s

, L L C v

.

S c i e n t i f i c

- A t l a n t a

, 5 5 2 U

. S

. 1 4 8

, 1 5 7

, 1 2 8 S

. C t

. 7 6 1

, 7 6 8

, 1 6 9 L

. E d

. 2 d 6 2 7

( 2 0 0 8 )

. 7 7

T o e s t a b l i s h a g e n u i n e i s s u e o f m a t e r i a l f a c t a s t o t h e r e l i a n c e e l e m e n t

, 7 8

The litera l definition of a sec urity under the 1934 Securities and E x chang e Ac t, as codified in 7 7

15 U.S.C. §78c(a) (10), doe s not include an intere st in a limi ted liability company . See Ne lson v.

Stahl, 173 F. Supp. 2d 153, 164 (S.D.N.Y. 2001) ( “The Ex chang e Ac t’s definition of sec urity

does not ref

er to membe rship interests in limit ed liability companies.” ). None theless, plaintiffs

asser ted in their complaint and in brie fing to the district court that Dy naVision’s intere st in

Signatur e wa s a sec urity . Peeples did not question this assertion, nor did the district court

analy ze this i ssue on its own initi ative.

Our indepe ndent re sear ch of this issue indicates tha t whether Dy naVision’s intere st could

be conside red a

secur ity is problematic. We ar e satisfied, how ever , that plaintiffs’ alleg ation that

Dy naVision’s intere st was a se curity passes the thre shold test set forth in Be ll v. Hood. See

Wil liamson v. Tucker , 645 F.2d 404, 416 ( 5th Cir. May 1981) (holding that the plaintiff’s

alleg ation that joint venture intere sts were secur ities was not so obviously frivolous as to fa il the

low jurisdictional bar in B ell v. Hood). I n the abse nce of any briefing on this iss ue by

the

parties a nd in light of our r esolution of plaintiffs' Rule 10b-5(b) c laims in favor of Pee ples, we

see no ne ed to dec ide whethe r Dy naVision’s intere st was a se curity

.

The district cour

t used the term “ transac tion causation” in re fer ring to the relianc e ele ment. 7 8

That terminolog y

is irreleva

nt, as “[t] ransa ction causa tion” is no more than “a nother wa y of

descr ibing r eliance .” Robbins v. Kog er Props., I nc., 116 F .3d 1441, 1447 (11th Cir. 1997); see

also Dura Pharm., I nc. v. B roudo

, 544 U.S. 336, 341–342, 125 S. C t. 1627, 1631 (2005)

53p l a i n t i f

f s h a d t o p r e s e n t e v i d e n c e t h a t

, i n c o n v e r s a t i o n s w i t h P a u l W a l k e r

, 7 9

P e e p l e s s t a t e d t h a t h e w a s n o t i n v o l v e d i n t h e A c t i v e M e m b e r s ’ a t t e m p t t o a c q u i r e

D y n a V i s i o n ’ s i n t e r e s t i n S i g n a t u r e

, t h a t h i s s t a t e m e n t s w e r e f a l s e

, t h a t

D y n a V i s i o n ’ s p r i n c i p a l s r e a s o n a b l y r e l i e d o n t h e s t a t e m e n t s

, a n d t h a t b e c a u s e o f 8 0

t h a t r e l i a n c e

, t h e p r i n c i p a l s c a u s e d D y n a V i s i o n “ t o e n g a g e i n t h e t r a n s a c t i o n i n

q u e s t i o n

. ” R o b b i n s v

. K o g e r P r o p s

. , I n c

. , 1 1 6 F

. 3 d 1 4 4 1

, 1 4 4 7 ( 1 1 t h C i r

. 1 9 9 7 )

( q u o t a t i o n o m i t t e d )

. P u t a n o t h e r w a y

, p l a i n t i f f s h a d t o d e m o n s t r a t e t h a t b u t f o r

P e e p l e s ’ s s t a t e m e n t s

, D y n a V i s i o n w o u l d n o t h a v e s o l d i t s i n t e r e s t b u t

, i n s t e a d

,

w o u l d h a v e b o u g h t t h e A c t i v e M e m b e r s ’ i n t e r e s t s

. H u d d l e s t o n v

. H e r m a n &

M a c L e a n

, 6 4 0 F

. 2 d 5 3 4

, 5 4 9 ( 5 t h C i r

. M a r

. 1 9 8 1 )

, r e v ’ d o n o t h e r g r o u n d s

, 4 5 9

U

. S

. 3 7 5

, 1 0 3 S

. C t

. 6 8 3

, 7 4 L

. E d

. 2 d 5 4 8 ( 1 9 8 3 ) ( “ R e l i a n c e i s a c a u s a s i n e q u a

n o n

, a t y p e o f ‘ b u t f

o r ’ r e q u i r e m e n t : h a d t h e i n v e s t o r k n o w n t h e t r u t h h e w o u l d n o t

h a v e a c t e d

. ” )

.

(explaining that re liance is one of the e lements of a Rule 10b- 5(b) c laim and is “often r efe rre d to

in case s involving public sec urities marke ts (fra ud-on-the- marke t case s) as ‘tr ansac tion

causa tion’”).

We refe r to all five plaintiffs. 7 9

I n an ac tion for damag es under Rule 10b-5(b) ba sed on the de fenda nt’s misrepre sentation, the 8 0

plaintiff must show that he “r easona bly relied on a

nd was injured by

the misstatement.” Pelletier

v. Z weife l, 921 F. 2d 1465, 1510 (11th Cir. 1991). I n the Rule 10b-5(b) context, we have use d

the words “

justifiably

relied” as the e quivalent of “ rea sonably relied.” E.g ., Br

uschi v. Br own,

876 F.2d 1526, 1528 ( 11th Cir. 1989). Thus, “re asonably ” and “ justifiably ,” for

Rule 10b-5(b)

purposes, e x press the sa

me eleme nt.

54A f

t e r c a r e f u l l y c o n s i d e r i n g t h e e v i d e n c e b e f o r e i t

, t h e d i s t r i c t c o u r t

c o n c l u d e d t h a t n o g e n u i n e i s s u e o f m a t e r i a l f a c t e x i s t e d a s t o t h i s e l e m e n t :

P e e p l e s ’ s d e n i a l o f a n y i n v o l v e m e n t i n t h e A c t i v e M e m b e r s ’ p l a n d i d n o t c a u s e

D y n a V i s i o n t o s e l l i t s i n t e r e s t

. T h e c o u r t e x p l a i n e d :

T h e e v i d e n c e i n t h e r e c o r d

, v i e w e d i n t h e l i g h t m o s t f a v o r a b l e t o

P l a i n t i f f s

, s h o w s t h a t P l a i n t i f

f s t h e m s e l v e s d i d n o t h a v e t h e n e c e s s a r y

e x p e r i e n c e

, m a r k e t i n g s k i l l s

, a n d e x p e r t i s e t o r u n [ S i g n a t u r e ] i n t h e

a b s e n c e o f t h e A c t i v e M e m b e r s

, a n d t h a t P l a i n t i f f s ’ a t t e m p t s t o o b t a i n

a m a n a g e m e n t g r o u p a n d n e c e s s a r y p e r s o n n e l t o w o r k w i t h

[ S i g n a t u r e ] w e r e u n s u c c e s s f u l

. P l a i n t i f

f s t h e m s e l v e s t e s t i f

i e d t h a t i t

w o u l d b e f

o o l i s h o r r i s k y t o p u r c h a s e t h e A c t i v e M e m b e r s ’ i n t e r e s t s i n

[ S i g n a t u r e ] w i t h o u t h a v i n g a m a n a g e m e n t g r o u p o r m a r k e t i n g g r o u p

i n p l a c e t o r e p l a c e t h e A c t i v e M e m b e r s

. A l t h o u g h P l a i n t i f f s

s u m m a r i l y c o n t e n d t h a t t h e y w o u l d h a v e a c t e d d i f f e r e n t l y i f t h e y h a d

k n o w n o f D e f

e n d a n t P e e p l e s ’ i n v o l v e m e n t

, t h a t s u m m a r y a n d

c o n c l u s o r y c o n t e n t i o n i s n o t s u f f i c i e n t t o a l l o w P l a i n t i f

f s t o a v o i d

s u m m a r y j u d g m e n t

. I n d e e d

, k n o w l e d g e o f D e f e n d a n t P e e p l e s ’ s

i n v o l v e m e n t w o u l d n o t h a v e c h a n g e d t h e f a c t t h a t P l a i n t i f

f s d i d n o t

h a v e t h e n e c e s s a r y e x p e r i e n c e

, m a r k e t i n g s k i l l s

, a n d e x p e r t i s e t o r u n

[ S i g n a t u r e ]

, a n d t h a t P l a i n t i f f s ’ a t t e m p t s t o o b t a i n a m a n a g e m e n t

g r o u p a n d n e c e s s a r y p e r s o n n e l t o w o r k w i t h [ S i g n a t u r e ] w e r e

u n s u c c e s s f

u l

. T h e f a i l u r e t o d i s c l o s e D e f

e n d a n t P e e p l e s ’ i n v o l v e m e n t

t h u s d i d n o t c a u s e P l a i n t i f f s ’ d e c i s i o n t o s e l l P l a i n t i f f D y n a V i s i o n ’ s

i n t e r e s t u n d e r t h e F e b r u a r y 2 5

, 2 0 0 2

, P u t a n d C a l l

. . . . 8 1

This is essentially

verba tim what the Geor g ia Court of Appe als said in L edfor d, that 8 1

Dy naVision would have sold its i ntere st notwithst anding Peeples’s involveme nt.

L edfor d, 618 S.E.2d at 634–35; see also supra part I I .B.2. The court of a ppeals, a fter

considering the evidenc e in the lig ht most favorable to plaintiffs, inferr ed this ultim ate

fac t beca use the e vidence pointed to the fac t as a matter of law. The question for the

district court wa s whether it should i nvoke the doc trine of c ollatera l estoppel and

conclusively

rely on the cour

t of appe als’stateme nt of ultimate fac t in determining

whether , in resolving plaintiffs’ Rule 10b-5( b) cla im (and the c ompara ble Geor g ia

secur ities law claim), Dy

naVision’s principa ls would have sold Dy naVision’s intere st

notwithstanding Pee ples’s denia l of involvement. The district cour t invoked the doctrine

55B

.

T o o b t a i n a r e v e r s a l o f t h e d i s t r i c t c o u r t ’ s r e s o l u t i o n o f t h e r e l i a n c e i s s u e

,

p l a i n t i f f s m u s t s a t i s f

y u s t h a t t h e e v i d e n c e i n t h e r e c o r d c r e a t e s a j u r y i s s u e a s t o

w h e t h e r D y n a V i s i o n w o u l d h a v e p u r c h a s e d t h e A c t i v e M e m b e r s ’ i n t e r e s t s

, r a t h e r

t h a n s e l l i t s i n t e r e s t

, h a d P e e p l e s t o l d P a u l W a l k e r a n d L e d f o r d t h a t h e w a s

p r o v i d i n g t h e A c t i v e M e m b e r s t h e $ 3

. 5 m i l l i o n t h e y n e e d e d t o c l o s e t h e

t r a n s a c t i o n

. T h e r e i s n o d i r e c t e v i d e n c e t h a t D y n a V i s i o n w o u l d h a v e e l e c t e d t o

b u y t h e A c t i v e M e m b e r s ’ i n t e r e s t s h a d P e e p l e s a d m i t t e d t h a t h e w a s p r o v i d i n g t h e

m o n e y

. B e c a u s e t h e r e i s n o d i r e c t e v i d e n c e t h a t D y n a V i s i o n w o u l d h a v e e l e c t e d t o

b u y

, w e a s k w h e t h e r s u c h e l e c t i o n c a n b e i n f e r r e d f r o m t h e r e c o r d

. S p e c i f

i c a l l y

,

w e a s k w h e t h e r i t c a n b e i n f e r r e d a s a n u l t i m a t e f

a c t f r o m t h e s u b s i d i a r y

,

c i r c u m s t a n t i a l f

a c t s s h o w n b y t h e e v i d e n c e

, v i e w e d i n t h e l i g h t m o s t f a v o r a b l e t o

p l a i n t i f f s

.

P l a i n t i f f s a r g u e t h a t c i r c u m s t a n t i a l f a c t s s u f f i c i e n t t o c r e a t e t h e i n f

e r e n c e a r e

p r e s e n t

. P e e p l e s a r g u e s t h a t t h e y a r e n o t

, t h a t t h e c i r c u m s t a n t i a l f a c t s c r e a t e t h e

c o n t r a r y i n f

e r e n c e : D y n a V i s i o n s o l d b e c a u s e d o i n g s o w a s i n t h e e c o n o m i c s e l f

in deciding plaintiffs’ cla ims in C ounts Three and F ive, but not in deciding any of the

fac tual issues involved in plaintiffs’ fede ral a nd state sec urities laws cla ims. W e dec line

to consider the doc trine’s a pplication to those claims as a ma tter of e fficie ncy since the

parties ha ve not brief

ed the issue.

56i n t e r e s t o f i t s p r i n c i p a l s

, a n d i t w o u l d n o t h a v e e l e c t e d t o b u y e v e n i f i t h a d k n o w n

o f P e e p l e s ’ s i n v o l v e m e n t

.

I n a s s e s s i n g t h e s e o p p o s i n g p o s i t i o n s

, o u r f i r s t t a s k i s t o i d e n t i f

y t h e

c i r c u m s t a n t i a l f

a c t s t h a t t h e e v i d e n c e e s t a b l i s h e s a s a m a t t e r o f l a w

. O n c e t h a t i s

d o n e

, w e d e t e r m i n e w h e t h e r i t w o u l d h a v e b e e n p e r m i s s i b l e f o r a j u r y t o d r a w t h e

i n f e r e n c e t h a t D y n a V i s i o n w o u l d h a v e e l e c t e d t o p u r c h a s e t h e A c t i v e M e m b e r s ’ s

i n t e r e s t s h a d i t k n o w n t h a t P e e p l e s w a s p r o v i d i n g t h e $ 3

. 5 m i l l i o n t h a t e n a b l e d t h e

A c t i v e M e m b e r s t o c l o s e

.

T h e e v i d e n c e d i s c l o s e s t h r e e s e t s o f c i r c u m s t a n t i a l f a c t s

, w i t h i n f

e r e n c e s

f l o w i n g f r o m e a c h s e t

. W e s u m m a r i z e e a c h s e t i n t h e h e a d i n g s o f t h e f o l l o w i n g

s u b p a r t s a n d c o n c l u d e t h a t

, a s a m a t t e r o f l a w

, D y n a V i s i o n ’ s p r i n c i p a l s w o u l d h a v e

s o l d e v e n i f t h e y h a d k n o w n a b o u t P e e p l e s ’ s i n v o l v e m e n t

.

1

.

D y n a V i s i o n l a c k e d t h e e x p e r t i s e n e c e s s a r y t o o p e r a t e S i g n a t u r e ’ s f a c t o r y a n d

m a r k e t S i g n a t u r e ’ s p r o d u c t

. C o n s e q u e n t l y

, i f t h e A c t i v e M e m b e r s l e f t

, t h e r e

w o u l d b e n o o n e t o r u n t h e c o m p a n y

, a n d S i g n a t u r e ’ s v a l u e w o u l d r a p i d l y d e c l i n e

.

T h e r e i s n o d i s p u t e r e g a r d i n g t h e r o l e s t h a t D y n a V i s i o n ’ s p r i n c i p a l s a n d t h e

A c t i v e M e m b e r s p e r f

o r m e d f o r S i g n a t u r e

. T h e p r i n c i p a l s f u n c t i o n e d a s

S i g n a t u r e ’ s f

i n a n c i e r s

. B y e s t a b l i s h i n g t h e $ 2 0 0

, 0 0 0 l i n e o f c r e d i t

, t h e y w e r e a b l e

57t o p r o v i d e S i g n a t u r e w i t h t h e f u n d s r e q u i r e d t o s t a r t t h e b u s i n e s s a n d p a y t h e b i l l s

u n t i l c a r p e t s a l e s g e n e r a t e d e n o u g h i n c o m e t o c o v e r t h e c o m p a n y ’ s o p e r a t i n g

e x p e n s e s

. T h e A c t i v e M e m b e r s w e r e t h e m a n a g e r s o f t h e e n t e r p r i s e

. O w n b e y a n d

T h o m a s h a n d l e d t h e m a n u f a c t u r i n g a n d s a l e s

. S m i t h

, t h e c o m p a n y ’ s p r e s i d e n t

,

w a s i n c h a r g e o f m a r k e t i n g

, s i n c e s h e w a s w e l l a n d f a v o r a b l y k n o w n i n t h e

h o s p i t a l i t y i n d u s t r y a n d t h u s c a p a b l e o f a t t r a c t i n g a c o n s i d e r a b l e v o l u m e o f

b u s i n e s s

.

B y t h e i r o w n a d m i s s i o n i n d e p o s i t i o n s t a k e n i n t h e s t a t e c o u r t c a s e a n d i n

t h i s c a s e

, D y n a V i s i o n ’ s p r i n c i p a l s c o u l d n o t

, t h e m s e l v e s

, r e p l a c e t h e A c t i v e

8 2

M e m b e r s

, m o s t n o t a b l y S m i t h

, f o r t h e p r i n c i p a l s h a d n o e x p e r i e n c e i n

m a n u f a c t u r i n g c a r p e t a n d w e r e v i r t u a l l y i n c a p a b l e o f m a r k e t i n g S i g n a t u r e ’ s

p r o d u c t s

. L e d f

o r d t e s t i f i e d t h a t t h e p r i n c i p a l s h a d n o “ e x p e r i e n c e w i t h [ t h e ]

c u s t o m e r b a s e ” a n d t h e r e f o r e c o u l d n o t r u n t h e c o m p a n y

. H e e m p h a s i z e d S m i t h ’ s

k e y r o l e i n m a r k e t i n g S i g n a t u r e ’ s p r o d u c t s

, s t a t i n g t h a t “ h a d w e b e e n a b l e t o r e t a i n

B r e n d a

, w e w o u l d h a v e p u r c h a s e d t h e c o m p a n y

. ” P a u l W a l k e r s a i d t h a t “ n o n e o f 8 3

This testimony

appea rs in the question and a

nswer f ormat appe aring

in note 31 supra. 8 2

The e x pert opinion testimony Dy naVision proff

ere d to the district court conc erning 8 3

Signatur e’s va lue buttressed the fac t that Signature ’s value w as tied to the Ac tive Members’

manag ement, mar

keting skills, and good will. Dy naVision’s expert, in estimating tha t Signature

was wor th $14 mill ion, assumed not only that the Active Me mbers would re main with the

company but also that Smi th would increa se her owner ship interest in Signature to the point that

the firm would qualify

as minority

owned, a nd there fore rec eive a dditional

reve nue—pre sumably

from sale s set aside for

minority -owne d entities. The expert provided no

58t h e D y n a V i s i o n G r o u p w e r e a p a r t o f t h e e v e r y d a y m a n a g e m e n t o r m a r k e t i n g o f

S i g n a t u r e ” a n d t h a t t h i s “ w a s [ t h e ] o n l y r e a s o n ” w h y D y n a V i s i o n d i d n o t e l e c t t o

p u r c h a s e t h e A c t i v e M e m b e r s ’ i n t e r e s t a f t e r t h e P u t a n d C a l l i s s u e d

. O ’ D e l l

a d m i t t e d t h a t D y n a V i s i o n ’ s p r i n c i p a l s w e r e n o t q u a l i f i e d t o r u n t h e c o m p a n y

.

I n a d d i t i o n t o t h i s t e s t i m o n y

, D y n a V i s i o n ’ s p r i n c i p a l s ’ c o n d u c t t o w a r d s t h e

A c t i v e M e m b e r s s p o k e v o l u m e s a b o u t h o w i m p o r t a n t t h e p r i n c i p a l s f e l t i t w a s t o

k e e p t h e A c t i v e M e m b e r s i n t h e c o m p a n y

, a t l e a s t u n t i l t h e p r i n c i p a l s t h e m s e l v e s

d e c i d e d t o s e l l

. T h e p r i n c i p a l s i n c l u d e d i n t h e O p e r a t i n g A g r e e m e n t a p r o v i s i o n 8 4

t h a t m a d e i t h i g h l y u n l i k e l y t h a t t h e A c t i v e M e m b e r s w o u l d l e a v e S i g n a t u r e b e f o r e

t h e p r i n c i p a l s w e r e r e a d y t o s e l l

. I f a n A c t i v e M e m b e r s o l d h i s o r h e r i n t e r e s t i n

t h e c o m p a n y

, § 1 0

. 4 o f t h e A g r e e m e n t w o u l d p r e c l u d e t h a t M e m b e r f r o m

c o m p e t i n g w i t h S i g n a t u r e f o r a p e r i o d o f o n e y e a r

. B e c a u s e t h e y w e r e n o t 8 5

f i n a n c i a l l y i n d e p e n d e n t

, t h e A c t i v e M e m b e r s w o u l d p r e s u m a b l y n e e d t o f i n d o t h e r

estimation as to Signature ’s value w ithout the Active Member s’ pre sence

.

Under the “Rig ht of First Ref

usal” provision of the O pera ting Ag ree ment, if Dy

naVision’s 8 4

principals obtained a

bona fide offe r to sell Dy naVision’s intere st in S igna ture, a nd they desired

to sell the interest, they

would have to notify

the Active Me mbers who, in turn, would ha ve the

rig ht to purchase Dy

naVision’s intere st at the price set in the bona fide offe r. See supr a note 47.

Oddly enoug h, this right of f

irst refusa l would not be trig g ere d if Dy naVision’s principa ls

rec eived a

bona fide offe r to sell their intere sts in Dy naVision and de cided to ac cept it. I n other

words, Dy

naVision’s principa ls could sell their interests in Signa ture in two wa y s: (1) ca using

Dy naVision to sell its i ntere st in S ignature, whic h would trig g er the Active Me mbers’ Rig ht of

First Refusa l; or (2) selling their intere sts in Dy naVision, which would not.

See supra

note 11. 8 5

59e m p l o y m e n t i n t h e c a r p e t b u s i n e s s u p o n l e a v i n g t h e c o m p a n y

. L y i n g i d l e f o r a

y e a r w o u l d b e b u r d e n s o m e

, a n d a n A c t i v e M e m b e r w o u l d t h e r e f o r e t h i n k t w i c e

b e f o r e l e a v i n g S i g n a t u r e

.

T h e p r i n c i p a l s a l s o i n c l u d e d a p r o v i s i o n t o m a k e i t h a r d f o r t h e A c t i v e

M e m b e r s t o b u y o u t D y n a V i s i o n b e f o r e D y n a V i s i o n w a s r e a d y t o s e l l

. S e c t i o n 9

. 1

o f t h e O p e r a t i n g A g r e e m e n t a d d r e s s e d t h e p o s s i b i l i t y t h a t t h e A c t i v e M e m b e r s

m i g h t a t t e m p t t o b u y D y n a V i s i o n ’ s i n t e r e s t p u r s u a n t t o t h e § 9

. 5 P u t a n d C a l l

p r o v i s i o n

. D y n a V i s i o n ’ s p r i n c i p a l s k n e w t h e A c t i v e M e m b e r s l a c k e d t h e p e r s o n a l

r e s o u r c e s s u f

f i c i e n t t o m a k e a n o f

f e r t h a t D y n a V i s i o n ’ p r i n c i p a l s w o u l d b e t e m p t e d

t o a c c e p t ; c o n s e q u e n t l y

, t h e A c t i v e M e m b e r s w o u l d h a v e t o b o r r o w t h e m o n e y t o

8 6

f u n d a n y b u y

- o u t

. O b t a i n i n g a c o n v e n t i o n a l l o a n f r o m a b a n k o r o t h e r l e n d i n g 8 7

I n L edfor d’s state c ourt deposition, he testified as f ollows: 8 6

HORST: Did it m ake a ny differ ence to y ou whether there was a

third party

involved in funding Bob, B renda , and B ry an’s of fer to purcha se Dy

navision . . . .

L EDF ORD: Yes, it would make a differ ence to me.

HORST: W hy ?

L EDF ORD: Be cause if Bob, B renda , and B ry an didn’t have financ ial backing

from them, I

don’t think they

could have boug ht our interest a nd I don’t think this

whole thing would have c ome up.

I n L edfor d’s district court de position, he testified as follows: 8 7

SI NKF I EL D: Do y ou know whethe r collec tively and without help from a

third

person in some for

m or the other the y

had the r esourc es to pay

three -and- a-ha lf

milli on dollars for the Dy na-V ision int ere st?

L EDF ORD: No, sir, Idon’t know.

SI NKF I EL D: You don’t know one way or

the other . . . . D id y ou have a ny opinion on

60i n s t i t u t i o n w o u l d r e q u i r e c o l l a t e r a l

, a n d t h e o n l y c o l l a t e r a l t h e y h a d o f s i g n i f i c a n t

v a l u e w a s t h e i r i n d i v i d u a l i n t e r e s t s i n S i g n a t u r e

. S e c t i o n 9

. 1

, h o w e v e r

, b a r r e d t h e

A c t i v e M e m b e r s f

r o m p l e d g i n g t h e i r i n t e r e s t s t o a l e n d i n g i n s t i t u t i o n

. A s a 8 8

the subject a t the time?

L EDF ORD: At the time we re ceive d the Put and Call . . . I had an opinion, y es,

sir.

SI NKF I EL D: And what wa s that opinion?

L EDF ORD: That they

probably could not.

SI NKF I EL D: And base d on that opinion, how did y ou think they would pay

for

the Dy na-V ision int ere st if y ’all dec ided not to buy them out?

L EDF ORD: I didn’t know.

SI NKF I EL D: Did y ou have a n opinion as to what they would have to do?

L EDF ORD: Well, I assumed if they boug ht us out . . . they

would . . . have to

borrow the money . I f they couldn’t do that, they

would have to g et the money

from someone else.

I n Walker’s district cour

t deposition, he testified as follows:

SI NKF I EL D: So y ou knew [the Active Me mbers] had to have f unding f rom [an

outside] s ource , is that corre ct?

WAL KER: I f they

closed the de al, y es.

SI NKF I EL D: And y ou knew, to the be st of y our knowledg e, that they did not

have suf ficient re source s among themselves to do it without outs ide funding ; is

that corr ect?

WAL KER: I would say

with suspicion, they

didn’t have. B ut to my

initial

knowledg e, no.

SI NKF I EL D: But to the be st information y ou had told y ou they couldn’t fund it

without outsi de help. I s that corr ect?

WAL KER: To the best information I had, y es.

Section 9.1 of Article 9 of the Ope rating Ag ree ment, “Restrictions on Tra nsfer s and 8 8

Encumbra

nces,” states, in pertinent pa rt:

The Membe rs have . . . ag ree d that, without the express written consent of the

Company and all other

Members in the Company , they will not transfer, a ssign,

sell, pledg e, enc umber, hy potheca te . . . any of their I ntere sts . . . ex cept strictly in

acc ordanc e with the ter

ms and requir ements of the this Ag ree ment, the same

being exhaustive of all methods and mea ns by which such [I ntere sts] may be

transfe rre d. Any

purported tr ansfe r in violation of any provision here in shall be

void and of no e ffe ct, and sha ll not operate to tra nsfer any title or interest to the

61p r a c t i c a l m a t t e r

, t h e n

, t h e o n l y w a y t h e A c t i v e M e m b e r s c o u l d a t t e m p t a b u y

- o u t o f

D y n a V i s i o n ’ s i n t e r e s t w o u l d b e t o f i n d s o m e o n e l i k e P e e p l e s

— s o m e o n e w i l l i n g t o

a d v a n c e t h e p u r c h a s e p r i c e o n t h e c o n d i t i o n t h a t

, a f t e r a c q u i r i n g D y n a V i s i o n ’ s

i n t e r e s t

, t h e A c t i v e M e m b e r s w o u l d s e l l h i m a l l o r p a r t o f t h e b u s i n e s s a n d a g r e e t o

s t a y o n a n d r u n t h e c o m p a n y

.

J o i n e r r e v e a l e d h o w i n d i s p e n s a b l e t h e A c t i v e M e m b e r s w e r e t o S i g n a t u r e ’ s

v a l u e i n t h e l e t t e r h e w r o t e t o K r e v o l i n o n A p r i l 1 1

, 2 0 0 2

, n i n e t e e n d a y s b e f o r e t h e

c l o s i n g w a s t o t a k e p l a c e

. I n t h e l e t t e r

, J o i n e r i n f o r m e d K r e v o l i n t h a t D y n a V i s i o n

w o u l d r e f

u s e t o c l o s e u n l e s s t h e A c t i v e M e m b e r s s i g n e d a n e w a g r e e m e n t w i t h

D y n a V i s i o n a n d

, a s r e q u i r e d b y t h a t n e w a g r e e m e n t

, r e p r e s e n t e d i n w r i t i n g t h a t

t h e y w e r e a c q u i r i n g D y n a V i s i o n ’ s i n t e r e s t “ s o l e l y f o r [ t h e i r ] o w n a c c o u n t

. . .

w i t h o u t t h e f

i n a n c i a l p a r t i c i p a t i o n o f [ a t h i r d p a r t y ]

. ” 8 9

purported tr ansfe ree

.

L ike the Rig ht of First Ref usal Provision, supra note 46, this restriction had a n uneven e ffe ct.

Although the Active Me mbers would have to obtain Dy naVision’s conse nt in order to pledg e

their intere sts in S ignature a s collatera l for a loa n, Dy naVision’s principa ls, namely L edfor d,

O’De ll, and Walker, would not have to obtain the Active Me mbers’ c onsent in order to pledg e

their intere sts in Dy

naVision—and, indirec tly , their intere sts in S ignature—a s collatera l for a

loan. The A ctive Membe rs’ c onsent would be ne cessa ry only if Dy naVision itself wante d to

pledg e its interest in Signa ture a s collatera l for a loa n it was obtaining

.

J oiner wa s probably

following L edfor d’s instructions. Dy naVision’s principa ls had 8 9

authorized L edfor d to “neg otiate, execute, a nd convey

the intere sts of” Dy

naVision to the Active

Members “ on such terms a nd conditions and [he] deem[ed] equitable and just.” See supra pa rt

I .C. The re prese ntation called f or by the new a g ree ment was one of the “ terms and c onditions”

L edfor d insisted on; if not, J oiner thoug ht it up on his own.

62A l t h o u g h J o i n e r p o i n t e d t o n o t h i n g i n t h e O p e r a t i n g A g r e e m e n t t h a t w o u l d

r e q u i r e t h e A c t i v e M e m b e r s t o m a k e t h e s e r e p r e s e n t a t i o n s

, h e o r h i s c l i e n t s

a p p a r e n t l y t h o u g h t K r e v o l i n w o u l d a g r e e t h a t t h e A g r e e m e n t

, r e a d a s a w h o l e

,

r e q u i r e d t h a t t h e r e p r e s e n t a t i o n s b e m a d e

. I f K r e v o l i n h a d a g r e e d

, h e w o u l d h a v e 9 0

a d v i s e d h i s c l i e n t s t h a t t h e y c o u l d n o t h o n e s t l y m a k e s u c h m i s r e p r e s e n t a t i o n s

w i t h o u t i n v i t i n g D y n a V i s i o n t o c l a i m f r a u d

. S e e M c F a r l a n d v

. K i m

, 2 7 5 S

. E

. 2 d

3 6 4

, 3 6 6 ( G a

. C t

. A p p

. 1 9 8 0 ) ( h o l d i n g t h a t m i s r e p r e s e n t a t i o n s a b o u t p r e s e n t s t a t e

o f m i n d a r e a c t i o n a b l e a s f r a u d )

. T h e m i s r e p r e s e n t a t i o n s w o u l d a l s o h a v e g i v e n

D y n a V i s i o n a n a f

f i r m a t i v e d e f

e n s e i n t h e e v e n t t h e A c t i v e M e m b e r s s u e d f o r

s p e c i f i c p e r f o r m a n c e

. D e f

e n d i n g a n a c t i o n f

o r f r a u d o r c o u n t e r i n g a n a f f i r m a t i v e

d e f e n s e i n a s u i t f

o r s p e c i f i c p e r f o r m a n c e w o u l d b e e x p e n s i v e a n d c o u l d b e v e r y

u n p l e a s a n t ; J o i n e r a p p a r e n t l y t h o u g h t K r e v o l i n w o u l d t h e r e f o r e a d v i s e h i s c l i e n t s

t o a b a n d o n t h e i r p l a n s a n d c o n t i n u e t o m a n a g e S i g n a t u r e i n p a r t n e r s h i p w i t h

D y n a V i s i o n

.

K r e v o l i n ’ s r e s p o n s e

, i n a l e t t e r t o J o i n e r d a t e d A p r i l 1 6

, w a s b r i e f : T h e

A c t i v e M e m b e r s w o u l d n o t m a k e t h e r e p r e s e n t a t i o n s J o i n e r ’ s l e t t e r w a s s e e k i n g

,

a n d m o r e o v e r

, i f D y n a V i s i o n r e f u s e d t o c l o s e

, t h e A c t i v e M e m b e r s w o u l d t a k e i t t o

Neither of plaintiffs’ br iefs on appe al mentions the new a g ree ment J oiner sent Kr evolin in his 9 0

April 11 letter. Conseque ntly , we do not know whe ther plaintiffs’ counsel discove red something

in the Oper ating Ag ree ment that would have justified Joiner’s demand tha t the Active Me mbers

make the r epre sentations that the new a g ree ment, if executed, would ha ve ca lled for.

63c o u r t

. A s f a r a s t h e A c t i v e M e m b e r s w e r e c o n c e r n e d

, t h e i r b u s i n e s s r e l a t i o n s h i p

w i t h D y n a V i s i o n ’ s p r i n c i p a l s w a s a t a n e n d

. T h e p r i n c i p a l s ’ t h r e a t o f l i t i g a t i o n i f

t h e A c t i v e M e m b e r s d i d n o t a b a n d o n t h e P u t a n d C a l l h a d g o n e f o r n a u g h t

. J o i n e r

i n f o r m e d L e d f

o r d o f K r e v o l i n ’ s r e s p o n s e

, a n d

, a f t e r c o n s i d e r i n g D y n a V i s i o n ’ s

o p t i o n s

, L e d f

o r d i n s t r u c t e d J o i n e r t o g o f o r w a r d w i t h t h e c l o s i n g o n A p r i l 3 0

, a s 9 1

p r e v i o u s l y a g r e e d

. 9 2

2

.

D y n a V i s i o n ’ s p r i n c i p a l s c o u l d n o t h a v e p e r s u a d e d t h e A c t i v e M e m b e r s t o r e m a i n

w i t h t h e c o m p a n y

, o b t a i n e d a m a n a g e m e n t t e a m t o r e p l a c e t h e m

, o r l o c a t e d a b u y e r

f o r S i g n a t u r e

, e v e n i f P e e p l e s a d m i t t e d h i s i n v o l v e m e n t

.

D y n a V i s i o n ’ s p r i n c i p a l s h a v e c o n c e d e d t h a t t h e y w e r e u n a b l e t o p e r s u a d e

t h e A c t i v e M e m b e r s o r S m i t h i n d i v i d u a l l y t o r e m a i n w i t h S i g n a t u r e a n d t h a t t h e y

w e r e u n s u c c e s s f

u l i n f i n d i n g a s u i t a b l e m a n a g e m e n t t e a m t o r e p l a c e t h e m

. T h e y

Dy naVision’s principa ls had two options. One was to c lose the dea l and take the $3.5 milli on 9 1

on the table. I f they

wanted to sue the Active Me mbers, they could do that later

—and they

eventua lly

did. The other option wa s to refuse to close and de fend the Active Me mbers’

expected suit for spec ific per formanc e. We infer that they esche wed this option beca use it was

less attrac tive economica lly

.

The re cord doe s not revea l what J oiner a nd L edfor d said to one anothe r af ter Joiner rec eived 9 2

Kre volin’s letter. We infer that they decide d that Dy

naVision had no ba sis for re fusing to

transfe r its interest to the Active Me mbers; the § 9.5 Put and Call provision of the Oper ating

Ag ree ment require d them to capitulate. On A pril 25, J oiner wr ote Kre volin and acknow ledg ed

that the transa ction would close on Apr il 30. His letter made no r efe renc e of K revolin’s

reje ction of his demands re g arding the re prese ntations and the Gre en Road Proper ty

.

64l i k e w i s e h a v e c o n c e d e d t h a t t h e y h a d n o s u c c e s s i n l o c a t i n g a c a r p e t c o m p a n y o r

a n i n v e s t o r w i l l i n g t o p u r c h a s e t h e c o m p a n y

. T w o o f t h e t h r e e c a r p e t

m a n u f a c t u r e r s L e d f

o r d a n d O ’ D e l l c o n t a c t e d

, M o h a w k C a r p e t s a n d C l a y M i l l e r

C a r p e t s

, e x p r e s s e d n o i n t e r e s t i n b u y i n g S i g n a t u r e

, e v e n i f d o i n g s o m e a n t k e e p i n g

t h e f i r m o u t o f P e e p l e s ’ s h a n d s

. J e r r y T h o m a s o f M a t e l C a r p e t s e x p r e s s e d 9 3

i n t e r e s t b u t o n l y i f S m i t h a n d t h e o t h e r A c t i v e M e m b e r s w o u l d b e w i l l i n g t o s t a y

w i t h S i g n a t u r e

, w h i c h t h e y w e r e n o t

.

I n t h e i r b r i e f t o u s

, h o w e v e r

, p l a i n t i f f s a r g u e t h a t L e d f

o r d a n d O ’ D e l l w o u l d

h a v e b e e n a b l e t o f

i n d a b u y e r f

o r $ 8

. 5 m i l l i o n i f P e e p l e s h a d s i m p l y a d m i t t e d h i s

i n v o l v e m e n t i n t h e P u t a n d C a l l

. W i t h a b u y e r ’ s c o m m i t m e n t i n h a n d

, D y n a V i s i o n

w o u l d h a v e t h e n p u r c h a s e d t h e A c t i v e M e m b e r s ’ i n t e r e s t f o r $ 3

. 5 m i l l i o n a n d

r e a p e d a $ 5 m i l l i o n p r o f i t

.

P l a i n t i f f s e x p l a i n t h a t o n c e P e e p l e s a d m i t t e d h i s i n v o l v e m e n t

, D y n a V i s i o n ’ s

p r i n c i p a l s w o u l d h a v e d i s c o v e r e d t h a t h e a g r e e d t o p a y $ 1 0 m i l l i o n f o r S i g n a t u r e

( i n c l u d i n g $ 3

. 5 m i l l i o n t o D y n a V i s i o n )

. L e d f o r d a n d O ’ D e l l w o u l d h a v e t h e n h a d

t w o e x c e l l e n t s e l l i n g p o i n t s w h e n o f f e r i n g S i g n a t u r e t o M o h a w k

, C l a y M i l l e r

, a n d

M a t e l

. F i r s t

, b e c a u s e P e e p l e s w a s g o i n g t o p a y $ 1 0 m i l l i o n f o r S i g n a t u r e

, t h e i r

a s k i n g p r i c e o f $ 8

. 5 m i l l i o n w a s n o t o n l y r e a s o n a b l e

, i t w a s a n e x c e p t i o n a l b a r g a i n

.

See supra

part I .B. 9 3

65S e c o n d

, P e e p l e s s a w S i g n a t u r e a s a n e f f e c t i v e w a y t o r e a c h t h e h o s p i t a l i t y

i n d u s t r y

. B y b u y i n g S i g n a t u r e

, P e e p l e s ’ s c o m p e t i t o r s c o u l d g a i n e n t r y t o t h e

h o s p i t a l i t y m a r k e t a n d

, a t t h e s a m e t i m e

, k e e p P e e p l e s o u t

. P l a i n t i f f s a r g u e :

H a d [ D y n a V i s i o n ] k n o w n t h e t r u t h

, D y n a V i s i o n ’ s c h a n c e s o f f i n d i n g

a b u y e r w i l l i n g t o p a y m o r e t h a n $ 7 m i l l i o n f o r [ S i g n a t u r e ] w o u l d

h a v e i n c r e a s e d d r a m a t i c a l l y

.

. . . .

P o t e n t i a l b u y e r s a n d i n v e s t o r s w o u l d c e r t a i n l y v i e w t h e [ A c t i v e

M e m b e r s ’ ] a g r e e m e n t t o s e l l [ S i g n a t u r e ] f o r $ 1 0 m i l l i o n t o t h e

P e e p l e s G r o u p a s m a t e r i a l

. T h u s

, t h o s e c o n t a c t e d b y D y n a V i s i o n

d u r i n g t h e [ t h i r t y

- d a y ] e l e c t i o n p e r i o d m a y h a v e a c t e d d i f f e r e n t l y

,

t h e m s e l v e s

, h a d t h e y k n o w n o f t h e a g r e e m e n t b e t w e e n t h e P e e p l e s

G r o u p a n d t h e A c t i v e M e m b e r s

. S u c h k n o w l e d g e m a y h a v e i n c r e a s e d

t h e i r a s s e s s m e n t o f t h e v a l u e o f t h e c o m p a n y o r v a l i d a t e d t h e v a l u e

m e n t i o n e d b y D y n a V i s i o n

. M o r e o v e r

, k n o w l e d g e o f a s t r a t e g i c

a c q u i s i t i o n b y S h e l b y P e e p l e s m i g h t h a v e i n s p i r e d t h o s e w i t h

m a r k e t i n g e x p e r i e n c e t o a s s i s t D y n a V i s i o n i n o r d e r t o m a i n t a i n t h e i r

c o m p e t i t i v e a d v a n t a g e

. K n o w l e d g e o f t h e t r u t h c o u l d h a v e e n a b l e d

D y n a V i s i o n t o f

i n d a p u r c h a s e r a n d / o r m a r k e t i n g g r o u p f o r

[ S i g n a t u r e ]

.

A p p e l l a n t s ’ B r

. a t 3 9

– 4 0

.

S e v e r a l f l a w s i n p l a i n t i f

f s ’ a r g u m e n t a r e i m m e d i a t e l y o b v i o u s

. F i r s t

, t h e r e i s

n o s u p p o r t i n t h e r e c o r d f o r t h e s t a t e m e n t t h a t P e e p l e s a g r e e d t o p a y t h e A c t i v e

M e m b e r s $ 1 0 m i l l i o n f

o r S i g n a t u r e a t a n y t i m e

, l e t a l o n e d u r i n g t h e t h i r t y

- d a y

e l e c t i o n p e r i o d

. T h e m o s t P e e p l e s e v e r o f f e r e d f o r S i g n a t u r e w a s r o u g h l y $ 6

. 5

m i l l i o n

. I n t h e J a n u a r y 2 1 l e t t e r o f i n t e n t

, P e e p l e s d i s c u s s e d l o a n i n g t h e A c t i v e

M e m b e r s $ 3

. 5 m i l l i o n t o e n a b l e t h e m t o p u r c h a s e D y n a V i s i o n ’ s i n t e r e s t a n d t h e n

66f

o r g i v i n g t h e l o a n a n d p a y i n g t h e m $ 3 m i l l i o n f o r S i g n a t u r e ’ s a s s e t s o n c e t h e y

a c q u i r e d t h e c o m p a n y

. I n a c t u a l i t y

, P e e p l e s p a i d a r o u n d $ 6 m i l l i o n t o a c q u i r e 9 4

S i g n a t u r e

. F o l l o w i n g t h e c l o s i n g

, h e f o r g a v e t h e $ 3

. 5 m i l l i o n l o a n h e h a d g i v e n

t h e A c t i v e M e m b e r s a n d p a i d $ 2

. 2 5 m i l l i o n f o r S i g n a t u r e ’ s a s s e t s

. H e l o w e r e d t h e

p r i c e u p o n d i s c o v e r i n g a n e r r o r i n t h e c o m p a n y ’ s b o o k s

.

T o a r r i v e a t t h e $ 1 0 m i l l i o n f i g u r e

, p l a i n t i f

f s a d d t h e b o n u s e s P e e p l e s

a g r e e d t o p a y t h e A c t i v e M e m b e r s u n d e r t h e A s s e t P u r c h a s e A g r e e m e n t a n d

e m p l o y m e n t c o n t r a c t s t o t h e a m o u n t h e a c t u a l l y p a i d f o r S i g n a t u r e ’ s a s s e t s

. 9 5 9 6

T h e a m o u n t o f t h e s e b o n u s e s

, h o w e v e r

, w a s c o n t i n g e n t o n S i g n a t u r e ’ s f u t u r e

p e r f o r m a n c e ; t h e A c t i v e M e m b e r s w o u l d o n l y b e e l i g i b l e i f S i g n a t u r e m a d e a

p r o f i t a b o v e a c e r t a i n a m o u n t o n a y e a r l y b a s i s

. C o n s e q u e n t l y

, t h e b o n u s e s a r e 9 7

See supra

part I .B. 9 4

These a g ree ments are set out in the tex t in part I .D, supra. 9 5

The Plaintiffs’ brie f states: 9 6

The de fenda

nts purchase d the assets of [Signa ture] for conside ration that wa s

valued a t over $10 million at the time of their ag ree ment. . . . The bonuses in the

Asset Purcha se Ag ree ment, which ar e ca pped at $5 million, combined with the

direc t pay ments to the Active Membe rs and the f org iveness of the loan used to

buy out Dy naVision, exceeds $10 million.

There is no refe renc e in the Asset Purc hase A g ree ment to any bonuses “c apped at $5 mill ion,” so

we a ssume plaintiffs ref

er to the bonus pr ovisions refer red to in note 28, supra

.

The Asse t Purchase A g ree ment states: 9 7

I n addition to the base sala ry , eac h of the Ac tive Members sha ll be entitled to an

67n o t p a r t o f P e e p l e s ’ s p a y m e n t f o r S i g n a t u r e ; t h e y a r e s i m p l y p a r t o f t h e A c t i v e

M e m b e r s ’ c o m p e n s a t i o n a r r a n g e m e n t s f o r t h e i r c o n t i n u e d s e r v i c e w i t h t h e

c o m p a n y

.

S e c o n d

, p l a i n t i f

f s h a v e n o t e x p l a i n e d h o w t h e y w o u l d h a v e l e a r n e d o f t h e

p r i c e P e e p l e s i n t e n d e d t o p a y f o r S i g n a t u r e

. A c c o r d i n g t o t h e G e o r g i a C o u r t o f

9 8

A p p e a l s

, t h e A c t i v e M e m b e r s h a d n o o b l i g a t i o n u n d e r t h e O p e r a t i n g A g r e e m e n t t o

r e v e a l t h e d e t a i l s o f t h e i r p l a n

. L e d f o r d

, 6 1 8 S

. E

. 2 d a t 6 3 3

– 3 6

. I f P a u l W a l k e r h a d

a s k e d a b o u t t h e s e d e t a i l s

, P e e p l e s ’ s r e s p o n s e w o u l d t h e r e f o r e u n d o u b t e d l y h a v e

b e e n t h a t i t w a s n o n e o f h i s b u s i n e s s

. T h i s i s e s s e n t i a l l y w h a t K r e v o l i n t o l d J o i n e r

w h e n J o i n e r d e m a n d e d t h a t t h e A c t i v e M e m b e r s r e p r e s e n t p r i o r t o c l o s i n g t h a t t h e y

w e r e p u r c h a s i n g D y n a V i s i o n ’ s i n t e r e s t “ s o l e l y f o r [ t h e i r ] o w n a c c o u n t ” a n d

“ w i t h o u t t h e f

i n a n c i a l p a r t i c i p a t i o n o f a n y o t h e r P e r s o n

, ” m e a n i n g w i t h o u t

P e e p l e s ’ s p a r t i c i p a t i o n

.

annual bonus, e qual to twenty perc ent (20%) of the a mount by which the ne t pretax profits of [ Peeples] exceed One Milli on Five H undred Thousa nd Dollars on an

annual ba sis: provided, howeve r (a ) shortfa lls in annual net pre- tax profits shall

be ca rried f orwa rd to succe eding y ear s . . . .

The e mploy

ment contra cts add the c aveat that “the maximum amount pay able by Employ er to

Employ ee [in bonuses] shall be one [$1.6 mi llion] .”

I n the state c ourt ca se ag ainst the Active Me mbers and Sig nature , plaintiffs claimed tha t it 9 8

was not until Aug ust 12, 2003, when they took Ownbey ’s deposition, that they lear ned of the

price Peeples pa id for Signature a nd the terms of his employ ment arr ang ement with the Ac tive

Members. The next day , they moved the cour

t for lea ve to amend the ir complaint to add Peeple s

as a pa rty defe ndant. See supra

part I I .A.

68P l a i n t i f f s w o u l d t h e r e f

o r e n o t h a v e b e e n a b l e t o l u r e p o t e n t i a l b u y e r s b y

t e l l i n g t h e m t h a t P e e p l e s o f f e r e d $ 1 0 m i l l i o n f

o r t h e c o m p a n y

. I n s t e a d

, p l a i n t i f f s ’

b e s t s e l l i n g p i t c h w a s t h e o n e t h e y a c t u a l l y u s e d : P e e p l e s w a s g o i n g t o a c q u i r e

S i g n a t u r e

, a n d P e e p l e s ’ s c o m p e t i t o r s w o u l d b e n e f i t e c o n o m i c a l l y i f t h e y s t e p p e d

i n

, b o u g h t t h e c o m p a n y

, a n d k e p t i t f r o m f a l l i n g i n t o P e e p l e s ’ s h a n d s

.

3

.

T h e p r i n c i p a l s h a d t o c h o o s e b e t w e e n p u r c h a s i n g t h e A c t i v e M e m b e r s ’ i n t e r e s t a n d

r i s k i n g t h e l o s s o f t h e i r i n v e s t m e n t o r s e l l i n g t h e i r i n t e r e s t f o r a $ 3

. 5 m i l l i o n p r o f

i t

.

D y n a V i s i o n ’ s p r i n c i p a l s h a d t h i r t y d a y s t o d e c i d e w h e t h e r t o b u y o r s e l l

.

T h e y o p t e d t o s e l l a n d r e c e i v e d a $ 3

. 5 m i l l i o n p r o f i t

, a n e x t r a o r d i n a r y r e t u r n o n

t h e i r i n i t i a l i n v e s t m e n t

. L e d f o r d a n d O ’ D e l l a l s o r e c e i v e d t h e r e l e a s e o f t h e i r 9 9

o b l i g a t i o n t o F N B C t o g u a r a n t e e p a y m e n t o f t h e $ 9 1 1

, 0 0 0 l o a n t h e b a n k h a d g i v e n

S i g n a t u r e

. H a d t h e y o p t e d t o b u y i n s t e a d

, t h e y w o u l d h a v e a s s u m e d t h e r i s k t h a t

1 0 0

The re cord indica tes that only a small initial investment was made. Dy naVision’s principa ls 9 9

(1) obtaine d the $200,000 line of c redit F NB C ga ve Signature whe n it commenced ope rations,

(2) g uara nteed, in par

t, the $630,000 loan the Da lton W hitfield Ba nk g ave L easing to purcha se

the Gre en Road Proper

ty in October

1999, and (3) g uara

nteed, in par

t, the $911,000 loan FN BC

g ave Sig nature on October 24, 2001. See supra

part I .A.

L edfor d and O’ Dell wer e not entitled to such re lease . The § 9.5 Manda tory Put and Call 1 0 0

provision specified tha t the “sale [of Dy naVision’s intere st] shall be for cash a t closing, but a ll

loans from a

nd g uara nties executed by

the selling Members must be pa id in full and relea sed

prior to closing .” The Oper ating Ag ree ment define s “Member s” as Dy naVision, Smit h, Thomas,

and Ownbe y . See supra

part I .A. L edfor d and O’ Dell wer e member s of Dy naVision, but were

not Members within the mea ning of the above lang uag e. The ir persona l gua rante es should have

rema ined in forc e. Were Dy naVision to have boug ht the Active Me mbers’ inter ests instead of

69t h e c o m p a n y w o u l d h a v e t o c l o s e d o w n u n l e s s t h e y f o u n d a m a n a g e m e n t t e a m t o

r u n i t

. M o r e o v e r

, w i t h o u t a m a n a g e m e n t t e a m

, t h e y w o u l d h a v e h a d g r e a t

d i f f i c u l t y s e l l i n g t h e c o m p a n y

. P o t e n t i a l b u y e r s

, k n o w i n g t h a t S i g n a t u r e ’ s v a l u e

w a s d i m i n i s h i n g

, p e r h a p s e x p o n e n t i a l l y

, w o u l d h a v e b e e n a b l e t o s i m p l y s t a n d b y

a n d w a i t f

o r t h e d a y w h e n t h e p r i n c i p a l s h a d n o a l t e r n a t i v e b u t t o t a k e w h a t e v e r

p r i c e t h e y c o u l d g e t

.

F a c e d w i t h t h e s e a l t e r n a t i v e s

, D y n a V i s i o n ’ s p r i n c i p a l s h a d t o c h o o s e t h e o n e

t h a t s a t i s f

i e d t h e i r e c o n o m i c s e l f

- i n t e r e s t : T h e y h a d t o s e l l

. A s t h e G e o r g i a C o u r t

o f A p p e a l s

, d r a w i n g o n w h a t L e d f o r d a n d O ’ D e l l h a d t o s a y o n d e p o s i t i o n

, 1 0 1

o b s e r v e d :

E i t h e r t h e A c t i v e M e m b e r s ’ i n t e r e s t i n [ S i g n a t u r e ] w a s w o r t h $ 3

. 5

m i l l i o n t o D y n a

- V i s i o n o r i t w a s n o t

. T h e f a c t t h a t P e e p l e s f

i n a n c e d

t h e o f f e r c o u l d n o t h a v e m a t e r i a l l y a f f e c t e d D y n a

- V i s i o n ' s d e c i s i o n

m a k i n g w i t h r e s p e c t t o [ S i g n a t u r e ’ s ] v a l u e

, b e c a u s e i f D y n a

- V i s i o n

c h o s e t o b u y t h e A c t i v e M e m b e r ' s i n t e r e s t

, i t c o u l d n o t f o r c e P e e p l e s

( o r a n y o t h e r p r o s p e c t i v e b u y e r ) t o b u y [ S i g n a t u r e ] f o r a f i x e d p r i c e

. A n d t h e r e i s n o e v i d e n c e i n t h e r e c o r d t h a t D y n a

- V i s i o n h a d a n

i n t e r e s t e d b u y e r o r t h a t [ S i g n a t u r e ] h a d a n y v a l u e t o a n y o t h e r

p r o s p e c t i v e b u y e r

. M o r e o v e r

, b o t h L e d f o r d a n d O ' D e l l d e p o s e d t h a t

,

e v e n i f t h e y c o u l d h a v e r a i s e d t h e m o n e y t o b u y o u t t h e A c t i v e

M e m b e r s

, o w n i n g [ S i g n a t u r e ] w i t h o u t t h e A c t i v e M e m b e r s w o u l d

selling out, in addition to pay ing the Active Me mbers $3.5 million in cash, it would have bee n

require d to obtain their rele ase a s g uara ntors of F NB C’s $911,000 loan to Signature and, fur ther,

to satisfy any obliga tions they

may have inc urre d on Signatur e’s be half in the proc ess of c arr y ing

on the company ’s business.

The de position t estimony they g ave in state court is par

t of the re cord he re. 1 0 1

70h a v e b e e n “ f o o l i s h ” a n d “ m a d e n o s e n s e ” b e c a u s e t h e A c t i v e

M e m b e r s w e r e t h e h e a r t o f [ S i g n a t u r e ’ s ] v a l u e

. A s O ' D e l l a d m i t t e d

“ w e d i d n ’ t r e a l l y h a v e a c h o i c e

. . . . W e d i d n ’ t h a v e a m a n a g e m e n t

g r o u p

. . . . T h e d a y t h e p u t a n d c a l l c a m e i n

, I w o u l d n ' t g i v e t w o c e n t s

f o r f i n d i n g a g r o u p t o r e p l a c e t h e m

. ” B e c a u s e P e e p l e s ’ i n v o l v e m e n t

d i d n o t a f

f e c t t h e v a l u e o f t h e A c t i v e M e m b e r s ’ i n t e r e s t

, i t w a s

i m m a t e r i a l

.

L e d f o r d

, 6 1 8 S

. E

. 2 d a t 6 3 4

– 3 5

.

W e b e g a n t h i s d i s c u s s i o n b y s t a t i n g t h a t t o o b t a i n a r e v e r s a l o f t h e d i s t r i c t

c o u r t ’ s d e t e r m i n a t i o n t h a t t h e y f a i l e d t o c r e a t e a j u r y i s s u e a s t o t h e r e l i a n c e

e l e m e n t o f t h e i r R u l e 1 0 b

- 5 ( b ) c l a i m s

, p l a i n t i f f s h a d t o c o n v i n c e t h e c o u r t t h a t t h e

e v i d e n c e

, c o n s i d e r e d i n t h e l i g h t m o s t f a v o r a b l e t o t h e m

, y i e l d e d c i r c u m s t a n t i a l

f a c t s f r o m w h i c h a j u r y r e a s o n a b l y c o u l d i n f e r t h a t i f P e e p l e s h a d n o t d e n i e d h i s

i n v o l v e m e n t i n t h e P u t a n d C a l l

, D y n a V i s i o n ’ s p r i n c i p a l s w o u l d h a v e p u r c h a s e d

t h e A c t i v e M e m b e r s ’ i n t e r e s t

. P e e p l e s c o n t e n d s t h a t t h e e v i d e n c e e s t a b l i s h e s

c i r c u m s t a n t i a l f

a c t s t h a t y i e l d b u t o n e i n f e r e n c e : D y n a V i s i o n ’ s p r i n c i p a l s h a d n o

o p t i o n b u t t o s e l l

. W e a g r e e

. P e e p l e s ’ s m i s r e p r e s e n t a t i o n s p l a y e d n o c a u s a t i v e

r o l e i n t h e D y n a V i s i o n p r i n c i p a l s ’ d e c i s i o n t o s e l l t o t h e A c t i v e M e m b e r s

.

C

.

P e r h a p s r e a l i z i n g t h e f

u t i l i t y o f t h e a r g u m e n t s t h e y h a v e a d v a n c e d

, p l a i n t i f f s

p r e s e n t a n a r g u m e n t t h a t t h e y f a i l e d t o p r e s e n t t o t h e d i s t r i c t c o u r t w h i l e i t w a s

c o n s i d e r i n g t h e m e r i t s o f t h e i r c l a i m s

. T h e a r g u m e n t i s f o u n d e d o n § 9

. 1 o f t h e

71O p e r a t i n g A g r e e m e n t

, w h i c h p r e c l u d e s a M e m b e r f r o m p l e d g i n g a n i n t e r e s t i n

S i g n a t u r e a s c o l l a t e r a l f o r a l o a n

. P l a i n t i f

f s c o n t e n d t h a t t h e A c t i v e M e m b e r s 1 0 2

b r e a c h e d t h i s p r o v i s i o n b y p l e d g i n g t h e i r i n t e r e s t s i n S i g n a t u r e a s c o l l a t e r a l f o r t h e

$ 3

. 5 m i l l i o n l o a n t h e y o b t a i n e d f r o m P e e p l e s

. T h e y d i d n o t k n o w a b o u t t h e

1 0 3

p l e d g e p r i o r t o t h e A p r i l 3 0 c l o s i n g

, t h e y r e p r e s e n t

, b u t w o u l d h a v e s u s p e c t e d i t

h a d P e e p l e s a d m i t t e d t h a t h e w a s b e h i n d t h e P u t a n d C a l l

. D y n a V i s i o n n o w a r g u e s

t h a t h a d i t s u s p e c t e d t h a t t h e A c t i v e M e m b e r s h a d p l e d g e d t h e i r i n t e r e s t s i n

v i o l a t i o n o f § 9

. 1

, i t w o u l d h a v e r e j e c t e d t h e P u t a n d C a l l

. T h e n

, i f t h e A c t i v e

M e m b e r s s u e d f

o r s p e c i f i c p e r f o r m a n c e

, i t w o u l d h a v e a s s e r t e d t h e b r e a c h o f § 9

. 1

a s a n a f f i r m a t i v e d e f

e n s e

, c i t i n g t h e G e o r g i a p r i n c i p l e o f e q u i t y

— t h a t “ a p a r t y

s e e k i n g s p e c i f

i c p e r f o r m a n c e o f a c o n t r a c t m u s t s h o w s u b s t a n t i a l c o m p l i a n c e w i t h

h i s p a r t o f t h e a g r e e m e n t

, a n d t h e b r e a c h o f a m a t e r i a l c o n d i t i o n w i l l b a r a d e c r e e

o f s p e c i f i c p e r f o r m a n c e

. ” S a i n e v

. C l a r k

, 2 1 9 S

. E

. 2 d 4 0 7

, 4 0 8

– 0 9 ( G a

. 1 9 7 5 )

.

T h e a l l e g a t i o n t h a t D y n a V i s i o n ’ s p r i n c i p a l s w o u l d h a v e r e j e c t e d t h e P u t a n d

See supra

note 88. 1 0 2

Peeples wa s awa

re of § 9.1' s prohibition aga inst the Active Member s pledg ing the ir interests 1 0 3

as collate ral for

a loan. I n his J anuar

y 21, 2002, letter to the Ac tive Members, se e supra part I .A,

he stated tha t, “to the extent of any conflict in the provisions of this L etter a nd the provisions of

the Signa ture Ope rating Ag ree ment, the provisions of the Signature Ope rating Ag ree ment shall

preva il and the conf

licting pr ovision(s) of this L etter sha ll be void and of no e ffe ct whatsoe ver.”

I n other wor ds, if Dy

naVision should have c laimed that the Ac tive Members ha d pledg ed their

interests in Signa ture a s collatera l for the $3.5 million loan, Peeples would have trea ted the loan

as unsec ured.

72C a l l h a d t h e y s u s p e c t e d a v i o l a t i o n o f § 9

. 1 d o e s n o t a p p e a r i n p l a i n t i f f s ’ c o m p l a i n t

a s p a r t o f t h e C o u n t O n e f e d e r a l s e c u r i t i e s l a w c l a i m s

. N o r w a s i t m a d e i n

p l a i n t i f f s ’ r e s p o n s e t o P e e p l e s ’ s m o t i o n f o r s u m m a r y j u d g m e n t

. P l a i n t i f f s ’ 1 0 4

r e s p o n s e o n s u m m a r y j u d g m e n t d o e s c o n t a i n a f a c t u a l s t a t e m e n t t h a t t h e A c t i v e

M e m b e r s p l e d g e d t h e i r i n t e r e s t s i n d i s r e g a r d o f § 9

. 1

. T h i s s t a t e m e n t

, h o w e v e r

,

w a s n o t m a d e a s p a r t o f p l a i n t i f f s ’ a r g u m e n t o n t h e r e l i a n c e e l e m e n t

— p l a i n t i f f s d i d

n o t a s s e r t t h a t b u t f

o r P e e p l e s ’ s m i s r e p r e s e n t a t i o n s

, D y n a V i s i o n w o u l d h a v e

e l e c t e d t o p u r c h a s e t h e A c t i v e M e m b e r s ’ i n t e r e s t

. M o r e o v e r

, i n i t s o r d e r 1 0 5

g r a n t i n g P e e p l e s s u m m a r y j u d g m e n t

, t h e d i s t r i c t c o u r t m a d e n o r e f e r e n c e t o t h e

a r g u m e n t p l a i n t i f

f s n o w p r e s e n t

, a n d t h e p l a i n t i f f s d i d n o t m o v e t h e c o u r t p u r s u a n t

t o R u l e 5 9 ( e ) t o r e c o n s i d e r i t s d e c i s i o n o n t h e g r o u n d t h a t i t h a d o v e r l o o k e d t h e

a r g u m e n t

.

T h e a r g u m e n t a p p e a r e d f o r t h e f i r s t t i m e i n p l a i n t i f

f s ’ r e s p o n s e t o P e e p l e s ’ s

p o s t

- j u d g m e n t m o t i o n f

o r P S L R A s a n c t i o n s

. P e e p l e s

, i n h i s m o t i o n

, a r g u e d t h a t

p l a i n t i f f s l a c k e d a f

a c t u a l b a s i s t o a s s e r t t h a t D y n a V i s i o n ’ s p r i n c i p a l s r e l i e d t o t h e i r

The plaintiffs a lso failed to ra ise this arg ument at any time during the state c ourt litigation. 1 0 4

During oral a

rg ument befor e this panel, Pee ples’s attorne y told the court that plaintiffs’ 1 0 5

counsel wa s prese nting a

relianc e ar g ument he had not pr esente d to the district court. Plaintiffs’

counsel disag ree d, and cited a pag e in plaintiffs’ r esponse to Peeple s’s motion for summary

judgme nt where counsel said the a rg ument appea

red. The pag e conta ins the fac tual statement

that the Active Me mbers bre ache d § 9.1 without any ref ere nce to a

relianc e ar g ument.

73d e t r i m e n t o n P e e p l e s ’ s m i s r e p r e s e n t a t i o n s

. T h e n

, p l a i n t i f f s f i n a l l y a r g u e d t h a t h a d

t h e y k n o w n a b o u t t h e m i s r e p r e s e n t a t i o n s

, t h e y w o u l d h a v e r e j e c t e d t h e P u t a n d

C a l l a n d r e f

u s e d t o c l o s e

. I f t h e A c t i v e M e m b e r s s u e d

, t h e y w o u l d h a v e p l e d t h e

b r e a c h o f § 9

. 1 a s a n a f

f i r m a t i v e d e f

e n s e

. T h e c o u r t ’ s o r d e r d e n y i n g P e e p l e s ’ s

m o t i o n f o r s a n c t i o n s

, h o w e v e r

, m a d e n o r e f e r e n c e t o t h i s a r g u m e n t

.

I t r e q u i r e s n o c i t a t i o n o f a u t h o r i t y t o s a y t h a t

, e x c e p t w h e n w e i n v o k e t h e

“ p l a i n e r r o r d o c t r i n e

, ” w h i c h r a r e l y a p p l i e s i n c i v i l c a s e s

, w e d o n o t c o n s i d e r

a r g u m e n t s r a i s e d f

o r t h e f i r s t t i m e o n a p p e a l

. A m e r e r e c i t a t i o n o f t h e u n d e r l y i n g

f a c t s

, f u r t h e r m o r e

, i s i n s u f

f i c i e n t t o p r e s e r v e a n a r g u m e n t ; t h e a r g u m e n t i t s e l f m u s t

h a v e b e e n m a d e b e l o w

. S e e C i t y o f N e p h i v

. F e d

. E n e r g y R e g u l a t o r y C o m m ’ n

,

1 4 7 F

. 3 d 9 2 9

, 9 3 3 n

. 9 ( D

. C

. C i r

. 1 9 9 8 ) ( h o l d i n g t h a t a p a r t y d o e s n o t p r e s e r v e a n

a r g u m e n t f

o r a p p e l l a t e r e v i e w b y “ m e r e l y i n f o r m i n g t h e [ d i s t r i c t ] c o u r t i n t h e

s t a t e m e n t o f f

a c t s i n i t s o p e n i n g b r i e f [ o f t h e f a c t u a l b a s i s f

o r t h e c l a i m ] ” ) ; W a s c o

P r o d s

. , I n c

. v

. S o u t h w a l l T e c h

. , I n c

. , 1 6 6 F e d

. A p p ’ x 9 1 0

, 9 1 1 ( 9 t h C i r

. 2 0 0 6 )

( u n p u b l i s h e d ) ( “ A l t h o u g h [ t h e a r g u m e n t w a s ] s t a t e d i n a s t a t e m e n t o f f a c t s

, i t w a s

n e v e r a r g u e d a n d n e v e r r u l e d u p o n

. W i t h o u t a n y p r o f f e r e d e x p l a n a t i o n f

o r t h i s

d e f a u l t

, t h e a r g u m e n t i s w a i v e d

. ” )

. H e r e

, p l a i n t i f f s d i d n o t u s e t h e f

a c t u a l

s t a t e m e n t i n a r g u i n g t h e r e l i a n c e i s s u e

.

G i v e n w h a t w e h a v e s a i d t h u s f a r i n t h i s o p i n i o n

, w e t h i n k i t a p p r o p r i a t e t o

74s a y a w o r d a b o u t t h e r e a c h o f § 9

. 1

. E v e n i f a n A c t i v e M e m b e r h a d a t t e m p t e d t o

p l e d g e o f h i s o r h e r i n t e r e s t i n S i g n a t u r e a s c o l l a t e r a l f o r a l o a n w i t h o u t t h e c o n s e n t

o f D y n a V i s i o n a n d t h e o t h e r A c t i v e M e m b e r s

, § 9

. 1 w o u l d h a v e r e n d e r e d t h e

p l e d g e “ v o i d a n d o f n o e f f e c t

. ” I f t h e l e n d e r a t t e m p t e d t o s e i z e t h e i n t e r e s t i n

S i g n a t u r e t o s a t i s f

y t h e d e b t

, D y n a V i s i o n a n d t h e o t h e r A c t i v e M e m b e r s c o u l d

c l a i m t h a t t h e p l e d g e w a s v o i d

. I f t h e A c t i v e M e m b e r p a i d t h e l o a n

, h o w e v e r

, 1 0 6

a n d n o s e i z u r e o c c u r r e d

, D y n a V i s i o n a n d t h e o t h e r A c t i v e M e m b e r s c o u l d n o t h a v e

s u f f e r e d i n j u r y o n a c c o u n t o f a n y § 9

. 1 b r e a c h

. N o r c o u l d D y n a V i s i o n h a v e u s e d

t h e p l e d g e a s t h e b a s i s f o r a l a w s u i t a g a i n s t t h e b r e a c h i n g A c t i v e M e m b e r

. 1 0 7

I V

.

W e n o w a d d r e s s w h a t r e m a i n s o f p l a i n t i f f s ’ C o u n t F o u r c l a i m s t h a t P e e p l e s

a i d e d a n d a b e t t e d S m i t h

, T h o m a s

, a n d O w n b e y i n b r e a c h i n g t h e i r f i d u c i a r y d u t i e s

I f, prior to a cce pting the c ollatera l, the lender knew that § 9.1 tre ated the ple dg e as void, 1 0 6

whether the lender

would preva il in a contest with Dy naVision would be que stionable.

To be sure , the Oper ating Ag ree ment was struc tured so as to pre vent either side, Dy naVision 1 0 7

or the Ac tive Members, f rom selling its intere st in S ignature to a third pa rty if the other side

objected. T he Ge org ia Court of Appe als made this observa tion in L edfor d, in commenting on

the purpose be hind § 9.2 of Article 9, the “Rig ht of First Ref usal” provision. Section 9.2 wa s

“plainly intended to pre vent outsiders fr om buy ing into [Si g nature ]. I n this way , the Member s

maintained contr ol over who the ir business partne rs wer e to be.” 618 S.E.2d at 633. Howeve r,

once the Active Me mbers invoked the Put and Call provision of § 9.5 and D y naVision did not

elec t within 30 day s to purchase their intere sts, “the rig ht of first re fusal provisions of the

Oper ating Ag ree ment [became] moot since Dy naVision [was] no l ong er . . . a n owner in

[S igna ture] possessing a

rig ht of first re fusal.” L edfor d, 618 S.E.2d at 633. The cour t of

appea ls’s analy sis of the Oper ating Ag ree ment’s structure is straig htforwa rd and c omports with

logic and common sense . I t should not have come a s a surprise to plaintiffs’ counse l.

75t o L e a s i n g a n d

, s e p a r a t e l y

, t o L e d f o r d a n d O ’ D e l l a s M e m b e r s o f L e a s i n g

. 1 0 8

P l a i n t i f f s a r g u e t h a t P e e p l e s a i d e d a n d a b e t t e d t w o s e p a r a t e b r e a c h e s o f t h e

o b l i g a t i o n S m i t h

, T h o m a s

, a n d O w n b e y a s s u m e d u n d e r t h e L i m i t e d L i a b i l i t y

C o m p a n y A c t

, O

. C

. G

. A

. § 1 4

- 1 1

- 3 0 5 ( 1 )

, a s m e m b e r s a n d m a n a g e r s o f L e a s i n g

, t o

“ a c t i n a m a n n e r ” t h a t t h e y “ b e l i e v e [ d ] i n g o o d f a i t h t o b e i n t h e b e s t i n t e r e s t s ” o f

t h e c o m p a n y a n d “ w i t h t h e c a r e a n o r d i n a r i l y p r u d e n t p e r s o n i n a l i k e p o s i t i o n

w o u l d e x e r c i s e u n d e r s i m i l a r c i r c u m s t a n c e s

. ” W e a f f i r m t h e d i s t r i c t c o u r t ’ s 1 0 9

d i s m i s s a l o f t h e c l a i m s a n d h o l d t h a t P e e p l e s c o u l d n o t h a v e a i d e d a n d a b e t t e d a

b r e a c h o f f

i d u c i a r y d u t y b e c a u s e

, a s a m a t t e r o f l a w

, n o s u c h b r e a c h o c c u r r e d

.

A

.

I n s u p p o r t o f t h e i r a i d i n g a n d a b e t t i n g c l a i m

, p l a i n t i f f s a l l e g e t w o s e p a r a t e

b r e a c h e s o f f

i d u c i a r y o b l i g a t i o n

. F i r s t

, t h e y c o n t e n d t h a t S m i t h b r e a c h e d h e r

As indicated in pa

rt I I .B.1, supr a, Count Four a lleg ed that Peeple s aided a nd abetted Smith, 1 0 8

Thomas, and Ow nbey

in brea ching two of their f iduciary duties: to inform the plaintiffs that

Peeples wa s supporting the ir Put and Call and to transfe r the Gr een Roa d Property back to

L easing . Her e, plaintiffs do not cha lleng e the district cour t’s relianc e on the c ourt of appe als’s

holding in L edfor d v. Smit h that the Active Me mbers had no f iduciary duty to inform

Dy naVision of Peeple s’s involvement. Also, Dy naVision obviously

cannot state a Count Four

claim about the Gr een Roa d Property beca use Dy naVision did not hold an interest in L easing or

the Gre en Road Proper

ty and, ther efor e, could have suff ere d no injury

by the alleg ed bre ach of

any fiduciar y duty in connec tion with the transfer of that prope rty . Acc ording ly , the district

court prope rly

dismiss ed Dy

naVision’s Count Four c laim relating to the Gre en Road Proper ty

.

See supra

note 47, for the full tex t of O.C.G.A. § 14-11- 305(1). L easing ’s oper ating 1 0 9

ag ree ment is not part of the re cord in this case . We assume ar g uendo that an ope rating

ag ree ment exis ted and that Smith, as L easing ’s pre sident, assumed the duties the statute

imposed. We also assume that Thomas and O wnbey wer e re sponsible for Smith’s conduct since

the complaint alleg ed that they wer e co- conspirator s.

76f

i d u c i a r y d u t y b y f

a i l i n g t o i n f

o r m L e d f

o r d a n d O ’ D e l l t h a t t h e d o c u m e n t t h e y

s i g n e d b e f

o r e C y n t h i a T r a m m e l a t F N B C w a s a w a r r a n t y d e e d

. H a d S m i t h

d i s c l o s e d t h e n a t u r e o f t h e d o c u m e n t t o L e d f o r d a n d O ’ D e l l

, p l a i n t i f f s s u b m i t

, t h e y

w o u l d n o t h a v e s i g n e d i t

. S e c o n d

, p l a i n t i f f s c o n t e n d t h a t S m i t h

, T h o m a s

, a n d

O w n b e y b r e a c h e d t h e i r f i d u c i a r y d u t i e s t o L e a s i n g

, L e d f o r d

, a n d O ’ D e l l b y

r e f u s i n g t o c o n v e y t h e G r e e n R o a d P r o p e r t y b a c k t o L e a s i n g

, p u r s u a n t t o P a u l

W a l k e r ’ s d e m a n d s

, a f

t e r t h e w a r r a n t y d e e d w a s s i g n e d b u t b e f o r e t h e s a l e o f

D y n a V i s i o n ’ s i n t e r e s t c l o s e d

. P l a i n t i f f s a r g u e t h a t P e e p l e s a i d e d a n d a b e t t e d t h e s e

b r e a c h e s s o t h a t t h e A c t i v e M e m b e r s w o u l d b e i n a p o s i t i o n t o g i v e h i m t i t l e t o t h e

G r e e n R o a d P r o p e r t y a f t e r a c q u i r i n g D y n a V i s i o n ’ s i n t e r e s t

. 1 1 0

T h e d i s t r i c t c o u r t

, c o n c l u d i n g t h a t G e o r g i a d i d n o t r e c o g n i z e a c a u s e o f

a c t i o n f o r a i d i n g a n d a b e t t i n g t h e b r e a c h o f a f i d u c i a r y d u t y

, d i s m i s s e d p l a i n t i f f s ’

c l a i m s

. T h e G e o r g i a C o u r t o f A p p e a l s s u b s e q u e n t l y h e l d

, h o w e v e r

, i n I n s i g h t

T e c h s

. , I n c

. v

. F r e i g h t C h e c k

, L L C

, 6 3 3 S

. E

. 2 d 3 7 3 ( G a

. C t

. A p p

. 2 0 0 6 )

, t h a t s u c h

As proof tha t Peeples induce d Smit h and the Ac tive Members to c ommit t hese statutory 1 1 0

brea ches, pla intiffs point to P eeple s’s J anuar y 21 letter of intent to the Ac tive Members, w hich

plaintiffs descr ibe in their initial brief on a ppeal a s a “c ontrac t[ ] t o purcha se the Gr een Roa d

Property as par t of the asse ts of [S igna

ture]” and the pr omise Peeples made in the Asset

Purchase Ag ree ment to indemnify the Active Me mbers for

any expenses they

might incur

if held

liable for r efusing to acc ede to Paul Walker a nd L edfor d’s demand tha t Signature transfe r the

proper ty back to L easing

.

77a n a i d i n g a n d a b e t t i n g c l a i m i s c o g n i z a b l e

. 1 1 1

I n l i g h t o f t h e c o u r t o f a p p e a l s d e c i s i o n i n t h a t c a s e

, w e a s s u m e f o r p u r p o s e s

o f t h i s c a s e t h a t t h e o b l i g a t i o n § 1 4

- 1 1

- 3 0 5 i m p o s e s o n l i m i t e d l i a b i l i t y c o m p a n y

m e m b e r s a n d m a n a g e r s i s

, a s p l a i n t i f f s ’ c o n t e n d

, a “ f

i d u c i a r y d u t y

, ” a n d w e

t h e r e f o r e p r o c e e d t o t h e m e r i t s o f p l a i n t i f f s ’ a i d i n g a n d a b e t t i n g c l a i m s

. A s

i n d i c a t e d a b o v e

, p l a i n t i f f s ’ c l a i m s a r e f

o u n d e d o n t w o d i s t i n c t b r e a c h e s o f t h e i r

s t a t u t o r y o b l i g a t i o n

. T h e b r e a c h e s h a v e t o h a v e o c c u r r e d ; o t h e r w i s e

, P e e p l e s

c a n n o t b e h e l d l i a b l e f

o r a i d i n g a n d a b e t t i n g

. W e t h e r e f o r e d e t e r m i n e w h e t h e r

, a s a

t h r e s h o l d m a t t e r

, a j u r y r e a s o n a b l y c o u l d f i n d

, a s p l a i n t i f

f s a l l e g e

, t h a t S m i t h a n d

,

s u b s e q u e n t l y

, S m i t h

, T h o m a s

, a n d O w n b e y b r e a c h e d t h e o b l i g a t i o n s t h e y a s s u m e d

u n d e r § 1 4

- 1 1

- 3 0 5 a s m e m b e r s a n d m a n a g e r s o f L e a s i n g

.

B

.

W e b e g i n w i t h p l a i n t i f

f s ’ a r g u m e n t t h a t S m i t h s h o u l d h a v e e x p l a i n e d t h e

s i g n i f i c a n c e o f t h e w a r r a n t y d e e d t h a t L e d f o r d a n d O ’ D e l l s i g n e d b e f o r e C y n t h i a

The e lements of the c laim are : 1 1 1

(1) throug h improper a ction or wrong ful conduc t and without privileg e, the

defe ndant ac ted to procur e a br eac h of the primar y wrong doer' s fiduciar

y duty to

the plaintiff;

(2) with knowledg e that the pr imary wrong doer ow ed the plaintiff a fiduciar y duty , the def

endant a cted pur

posely and with malice a

nd the intent to injure;

(3) the de fenda

nt's w rong ful conduc t procure d a bre ach of the primary

wrong doer’ s fiduciar

y duty ; and

(4) the de fenda

nt's tortious conduc t prox imately cause d damag e to the plaintiff.

I nsight Te chn., I nc. v. F reig htCheck, L L C, 633 S.E.2d 373, 379 (Ga. Ct. App. 2006).

78T r a m m e l a t F N B C

. T o a n a l y z e t h i s a r g u m e n t

, w e p r o c e e d t h r o u g h t h e e x p l a n a t i o n

t h a t

, a c c o r d i n g t o t h e p l a i n t i f f s

, S m i t h s h o u l d h a v e g i v e n i n o r d e r t o f u l f i l l h e r

f i d u c i a r y o b l i g a t i o n s

. W e t h e n c o n c l u d e t h a t

, a s a m a t t e r o f l a w

, s u c h a n

e x p l a n a t i o n w o u l d n o t h a v e c a u s e d t h e p l a i n t i f f s t o a c t d i f

f e r e n t l y t h a n t h e y

a c t u a l l y d i d

.

S m i t h ’ s e x p l a n a t i o n

, t o b e c o m p l e t e a n d l e a v e n o s t o n e u n t u r n e d

, w o u l d

h a v e t a k e n L e d f

o r d a n d O ’ D e l l b a c k t o O c t o b e r 2 0 0 1

, w h e n L e d f o r d

, O ’ D e l l

, a n d

t h e A c t i v e M e m b e r s a p p l i e d t o F N B C f o r a l o a n o n b e h a l f o f S i g n a t u r e

. T h a t l o a n

w a s i n t e n d e d t o p a y o f

f S i g n a t u r e ’ s c u r r e n t l o a n s a t F N B C

, p a y o f f t h e b a l a n c e d u e

o n t h e n o t e L e a s i n g g a v e t h e D a l t o n W h i t f i e l d B a n k

, a n d p r o v i d e S i g n a t u r e w i t h

1 1 2

a d d i t i o n a l w o r k i n g c a p i t a l

. S i g n a t u r e n e e d e d i n e x c e s s o f $ 9 0 0

, 0 0 0 t o a c c o m p l i s h

a l l o f t h i s

.

S m i t h w o u l d h a v e r e m i n d e d L e d f o r d a n d O ’ D e l l t h a t C y n t h i a T r a m m e l

— t h e

F N B C o f f i c e r w h o p r o c e s s e d t h e i r l o a n a p p l i c a t i o n a n d

, b e f o r e t h a t

, h a n d l e d t h e

l o a n t h e y h a d o b t a i n e d f r o m t h e D a l t o n W h i t f

i e l d B a n k f

o r L e a s i n g

— h a d t o

s u b m i t t h e i r a p p l i c a t i o n t o F N B C ’ s b o a r d o f d i r e c t o r s f o r a p p r o v a l

. S h e w o u l d

a l s o h a v e e x p l a i n e d t h a t t h e b o a r d a p p r o v e d t h e l o a n s u b j e c t t o c e r t a i n c o n d i t i o n s

,

The note w as in the principa l amount of $630,000, the sum of money L easing neede d, and 1 1 2

used, to purcha se the Gr een Roa d Property . Smit h, Thomas, Ownbe y , L edfor d, and O’ Dell had

signe d the note and g uara nteed its pay

ment. See supra

note 14.

79a m o n g t h e m ( 1 ) t h a t L e d f o r d

, O ’ D e l l

, S m i t h

, T h o m a s

, a n d O w n b e y s i g n

S i g n a t u r e ’ s n o t e

, a n d t h u s g u a r a n t e e i t s p a y m e n t a n d ( 2 ) t h a t S i g n a t u r e

, j o i n e d b y

L e d f o r d

, O ’ D e l l

, S m i t h

, T h o m a s

, a n d O w n b e y

, g i v e t h e b a n k a d e e d t o s e c u r e d e b t

o n t h e G r e e n R o a d P r o p e r t y

. T h i s m e a n t t h a t i f L e a s i n g h e l d t i t l e t o t h e 1 1 3

p r o p e r t y

, i t w o u l d h a v e t o c o n v e y t h e p r o p e r t y t o S i g n a t u r e s o t h a t S i g n a t u r e

, i n

t u r n

, c o u l d d e e d t h e p r o p e r t y u n e n c u m b e r e d t o F N B C t o s e c u r e t h e l o a n

. L e d f o r d

,

O ’ D e l l

, a n d t h e A c t i v e M e m b e r s h a d a g r e e d t o t h e s e c o n d i t i o n s

.

N e x t

, S m i t h w o u l d h a v e e x p l a i n e d t h a t T r a m m e l

, h a v i n g o b t a i n e d t h e i r

c o n s e n t t o t h e s e c o n d i t i o n s

, t o o k t h e s t e p s n e c e s s a r y t o c l o s e t h e t r a n s a c t i o n

. O n e

w a s t o h a v e t h e b a n k ’ s l a w y e r

, T o d d M c C a i n

, c o n d u c t a t i t l e s e a r c h o f t h e G r e e n

R o a d P r o p e r t y

. M c C a i n c o n d u c t e d a s e a r c h

, i s s u e d a n o p i n i o n

, a n d d e l i v e r e d i t t o

T r a m m e l

. T h e o p i n i o n s t a t e d t h a t t i t l e t o t h e p r o p e r t y w a s h e l d b y L e a s i n g a n d t h a t

S i g n a t u r e c o u l d n o t g i v e t h e b a n k a d e e d t o s e c u r e d e b t u n l e s s L e a s i n g d e e d e d t h e

p r o p e r t y t o S i g n a t u r e b e f o r e t h e l o a n c l o s e d

.

S m i t h w o u l d h a v e g o n e o n t o s a y t h a t t h e c l o s i n g w e n t a s p l a n n e d e x c e p t

t h a t S i g n a t u r e g a v e t h e b a n k a d e e d t o s e c u r e d e b t o n p r o p e r t y i t d i d n o t o w n ;

L e a s i n g h a d n e g l e c t e d t o c o n v e y t h e G r e e n R o a d P r o p e r t y t o S i g n a t u r e

. T r a m m e l

I n handling the $630,000 L easing loan at the Da lton W hitfield Ba nk, Trammel r equire d the 1 1 3

same five individuals sign the note a nd g uara ntee its pay

ment. The infe renc e is that they wer e

responsible for

Signatur e’s business a ffa irs to the same e x tent they wer e re sponsible for

L easing ’s af

fairs.

80h a d o v e r l o o k e d M c C a i n ’ s c a v e a t t h a t t h e c o n v e y a n c e o c c u r p r i o r t o c l o s i n g

. H e r

f a i l u r e t o o b t a i n t h e n e c e s s a r y w a r r a n t y d e e d f r o m L e a s i n g t o S i g n a t u r e d i d n o t

c o m e t o l i g h t u n t i l l a t e r

, w h e n s h e r e a d M c C a i n ’ s o p i n i o n l e t t e r

.

U p o n r e a d i n g M c C a i n ’ s l e t t e r

, T r a m m e l r e a l i z e d t h a t s h e h a d t o o b t a i n a

d e e d f r o m L e a s i n g t o S i g n a t u r e s o t h a t t h e d e e d t o s e c u r e d e b t S i g n a t u r e h a d g i v e n

t h e b a n k w o u l d n o t b e w o r t h l e s s

. T o s o l v e t h e p r o b l e m

, T r a m m e l c a l l e d 1 1 4

M c C a i n ’ s o f

f i c e

, a n d i t p r e p a r e d t h e w a r r a n t y d e e d a t i s s u e

. T r a m m e l t h e n c a l l e d

S m i t h

. S h e t o l d S m i t h t h a t a “ d o c u m e n t ” n e e d e d t o c o m p l e t e t h e l o a n c l o s i n g h a d

t o b e s i g n e d a n d a s k e d h e r t o c o m e t o t h e b a n k w i t h L e d f o r d

, O ’ D e l l

, T h o m a s

, a n d

O w n b e y f

o r t h a t p u r p o s e

. S m i t h i m m e d i a t e l y i n f o r m e d t h e o t h e r s o f T r a m m e l ’ s

r e q u e s t

. A d a y o r s o l a t e r

, s h e a r r i v e d a t t h e b a n k w i t h T h o m a s a n d O w n b e y a n d

s i g n e d t h e d o c u m e n t

, t h e w a r r a n t y d e e d

, b e f o r e a n o t a r y a n d a w i t n e s s

. W h e n

L e d f o r d a n d O ’ D e l l f

a i l e d t o a p p e a r

, T r a m m e l c a l l e d S m i t h a g a i n

. S m i t h

, i n t u r n

,

c a l l e d L e d f

o r d

, w h o c o n t a c t e d O ’ D e l l

, a n d t h e y

, t o o

, s i g n e d t h e d e e d

, b e f o r e t h e

s a m e n o t a r y a n d w i t n e s s

. A t t h a t t i m e

, p l a i n t i f f s a r g u e

, S m i t h s h o u l d h a v e

i n f o r m e d t h e m t h a t t h e d o c u m e n t w a s a w a r r a n t y d e e d

.

T h e p o s i t i o n p l a i n t i f

f s h a v e t a k e n t h r o u g h o u t t h i s l i t i g a t i o n i s t h a t

The re cord doe s not contain a c opy of the de ed to sec ure de bt L edfor d, O’De ll and the others 1 1 4

g ave the bank; thus, we do not know whe ther, in sig ning it, they expressly war rante d that

Signatur e wa s g iving the ba nk title to property

it owned.

81n o t w i t h s t a n d i n g a f u l l e x p l a n a t i o n b y S m i t h

— t h a t L e a s i n g h a d t o c o n v e y t h e

G r e e n R o a d P r o p e r t y t o S i g n a t u r e s o t h a t t h e $ 9 1 1

, 0 0 0 l o a n c o u l d g o

t h r o u g h

— L e d f

o r d a n d S m i t h w o u l d n o t h a v e s i g n e d t h e “ d o c u m e n t

. ” W e q u e s t i o n

w h e t h e r L e d f

o r d a n d O ’ D e l l w o u l d h a v e r e f u s e d t o s i g n a f

t e r S m i t h i n f

o r m e d

T r a m m e l o f t h e i r n o n c o m p l i a n c e

, T r a m m e l r e f e r r e d t h e m a t t e r t o t h e b a n k ’ s

l a w y e r

, M c C a i n

, a n d M c C a i n c o n t a c t e d L e d f o r d a n d O ’ D e l l ’ s l a w y e r

. L e d f o r d

a n d O ’ D e l l ’ s l a w y e r w o u l d h a v e i n f o r m e d t h e m o f t h e l e g a l c o n s e q u e n c e s t h a t

m i g h t f l o w i f t h e y s t i l l r e f

u s e d t o a c c e d e t o t h e c o n v e y a n c e o f t h e G r e e n R o a d

P r o p e r t y t o S i g n a t u r e

. I n a n y e v e n t

, w h a t c o u n s e l w o u l d h a v e h a d t o s a y h a s a

b e a r i n g o n w h e t h e r

, i n t h e f i n a l a n a l y s i s

, S m i t h ’ s f

a i l u r e t o t e l l L e d f

o r d a n d O ’ D e l l

t h a t t h e “ d o c u m e n t ” t h e y w e r e t o s i g n w a s a w a r r a n t y d e e d c o n s t i t u t e d a b r e a c h o f

S m i t h ’ s § 1 4

- 1 1

- 3 0 5 o b l i g a t i o n t o “ a c t i n a m a n n e r

. . . s h e b e l i e v e s i n g o o d f a i t h

t o b e i n t h e b e s t i n t e r e s t s o f ” L e a s i n g a n d i t s m e m b e r s

, “ w i t h t h e c a r e a n o r d i n a r i l y

p r u d e n t p e r s o n i n a l i k e p o s i t i o n w o u l d e x e r c i s e

. ”

M c C a i n w o u l d h a v e t o l d L e d f o r d a n d O ’ D e l l ’ s l a w y e r t h a t L e d f o r d

, O ’ D e l l

,

S m i t h

, T h o m a s

, a n d O w n b e y i n d u c e d t h e b a n k t o l o a n S i g n a t u r e $ 9 1 1

, 0 0 0 o n t h e

c o n d i t i o n t h a t S i g n a t u r e g i v e t h e b a n k a d e e d t o s e c u r e d e b t o n t h e G r e e n R o a d

P r o p e r t y

. T o d o t h a t

, S i g n a t u r e w o u l d h a v e t o p o s s e s s c l e a r t i t l e t o t h e p r o p e r t y

.

A l t h o u g h t h e b a n k i n s i s t e d t h a t t h e s e f i v e i n d i v i d u a l s g u a r a n t e e t h e p a y m e n t o f t h e

82l o a n b y c o

- s i g n i n g S i g n a t u r e ’ s n o t e

, t h e i r g u a r a n t e e w a s n o t e n o u g h ; t h e b a n k

n e e d e d c o l l a t e r a l i n t h e f o r m o f a d e e d t o s e c u r e d e b t f r o m S i g n a t u r e

. A n o t h e r

r e a s o n w h y t h e b a n k n e e d e d t h i s a d d i t i o n a l s e c u r i t y i s t h a t p a r t o f t h e $ 9 1 1

, 0 0 0

l o a n w o u l d b e u s e d t o p a y o f f L e a s i n g ’ s d e b t t o t h e D a l t o n W h i t f i e l d B a n k

, t h e r e b y

r e l i e v i n g L e a s i n g ’ s g u a r a n t o r s

, i n c l u d i n g L e d f o r d a n d O ’ D e l l

, o f p o t e n t i a l l i a b i l i t y

f o r L e a s i n g ’ s n o n

- p a y m e n t o f t h e d e b t

, a n d

, a t t h e s a m e t i m e

, d e p r i v i n g S i g n a t u r e

o f t h e f u l l v a l u e o f t h e l o a n

. 1 1 5

M c C a i n w o u l d h a v e t h e n o b s e r v e d t h a t

, i n e x e c u t i n g S i g n a t u r e ’ s d e e d t o

s e c u r e d e b t

, L e d f

o r d a n d O ’ D e l l r e p r e s e n t e d t h a t S i g n a t u r e o w n e d t h e p r o p e r t y

, o n

t h e s u r f a c e a f a l s e r e p r e s e n t a t i o n

. I f m a k i n g s u c h r e p r e s e n t a t i o n w a s i n t e n t i o n a l

, a s

t h e i r c u r r e n t p o s i t i o n s e e m s t o i m p l y

, t h e y o b t a i n e d t h e b a n k ’ s f u n d s u n d e r f

a l s e

p r e t e n s e s

. A n d

, m o r e o v e r

, L e a s i n g l i n e d i t s p o c k e t s

, a n d t h e g u a r a n t o r s o f

L e a s i n g ’ s d e b t t o t h e D a l t o n W h i t f i e l d B a n k w e r e r e l i e v e d o f p o t e n t i a l l i a b i l i t y

, a t

S i g n a t u r e a n d F N B C ’ s e x p e n s e

. M c C a i n w o u l d i n f o r m L e d f

o r d a n d O ’ D e l l ’ s

c o u n s e l o f t h e e l e m e n t s o f t h e f e d e r a l b a n k f

r a u d s t a t u t e

, 1 8 U

. S

. C

. § 1 3 4 4

, t h a t

a c c o r d i n g t o t h e E l e v e n t h C i r c u i t C o u r t o f A p p e a l s

, i n U n i t e d S t a t e s v

. D e L a

The re cord doe s not indicate the ba lance due on L easing ’s $630,000 note to the Da lton 1 1 5

Whit field B ank. An inesc apable infere nce is that the pa y off c onsumed a g oodly

portion of the

amount due on that note a nd that Signatur e would be de prived of the benef it of the pay off unless

it owned the Gr een Roa d Property . Also inescapa ble is the infer ence that in inducing the FNB C

to make the loan on the conditions its board of direc tors dictated, L edfor d, O’De ll, Sm ith,

Thomas, and Ow nbey

wer e ac ting a s members of L easing as we ll as on behalf of Signatur e.

83M a t a

, 2 6 6 F

. 3 d 1 2 7 5

, 1 2 9 8 ( 1 1 t h C i r

. 2 0 0 1 )

, m a k e s i t a c r i m e t o k n o w i n g l y m a k e

m a t e r i a l l y f

a l s e r e p r e s e n t a t i o n s t o a f e d e r a l l y i n s u r e d b a n k f

o r t h e p u r p o s e o f

o b t a i n i n g m o n e y

. L e d f o r d a n d O ’ D e l l m i g h t b e s u b j e c t t o p r o s e c u t i o n e v e n i f 1 1 6

t h e y i n t e n d e d t o r e p a y S i g n a t u r e ’ s $ 9 1 1

, 0 0 0 l o a n

. 1 1 7

G i v e n t h e r e p r e s e n t a t i o n s S m i t h a n d t h e o t h e r s m a d e t o i n d u c e t h e F N B C t o

m a k e t h e S i g n a t u r e l o a n a n d t h e b e n e f i t t h a t i n u r e d t o L e a s i n g a n d i t s g u a r a n t o r s

w h e n i t s n o t e t o t h e D a l t o n W h i t f i e l d B a n k w a s p a i d o f

f

, w e f a i l t o d i s c e r n h o w

S m i t h c o u l d b e s a i d t o h a v e b r e a c h e d h e r § 1 4

- 1 1

- 3 0 5 o b l i g a t i o n t o L e a s i n g

,

L e d f o r d

, a n d O ’ D e l l

. S h e d i d p r e c i s e l y w h a t s h e a n d t h e o t h e r s h a d p r o m i s e d t h e

b a n k t h e y w o u l d d o

. I n s u m

, p l a i n t i f f s f a i l e d t o e s t a b l i s h a b r e a c h o n S m i t h ’ s p a r t

a n d

, a s a r e s u l t

, f

a i l e d t o m a k e o u t a c a s e o f a i d i n g a n d a b e t t i n g a g a i n s t P e e p l e s

.

C

.

T h i s b r i n g s u s t o t h e s e c o n d a l l e g e d b r e a c h

, t h e r e f u s a l o f S m i t h

, T h o m a s

,

a n d O w n b e y t o a c c e d e t o P a u l W a l k e r a n d L e d f o r d ’ s d e m a n d t h a t t h e y c a u s e

Although the rec ord does not re veal that F NB C was insured by the Fe dera l Deposit I nsuranc e 1 1 6

Corporation, the proba

bility is that it was. And if not, L edfor d and O’ Dell would be a menable to

prosec ution under Ge org ia law f or theft by

dece ption. See, e.g ., O.C.G.A. § 16-8- 3; Gentry v. State, 414 S.E.2d 696, 697 (Ga. Ct. App. 1992).

See United States v. Hollis, 971 F.2d 1441, 1452 ( 10th Cir. 1992) (holding tha t a “pe rson 1 1 7

violates the bank f

raud statute w hen he know ingly executes a sc heme to obtain money from a

financ ial instit ution by

means of f

alse or f raudule nt repre sentations . . . . [I ]f a defe ndant

knowing ly

provided mate rially

false inf ormation in order

to induce the loan, the crime is

complete, a

nd it is i rre levant whe ther or not he intended to re pay or wa s capa

ble of re pay ing

it.”).

84S i g n a t u r e t o c o n v e y t h e G r e e n R o a d P r o p e r t y t o L e a s i n g

. A c c o r d i n g t o 1 1 8

p l a i n t i f f s

, O

. C

. G

. A

. § 1 4

- 1 1

- 3 0 5 o b l i g a t e d t h e A c t i v e M e m b e r s

, a s m e m b e r s o r

m a n a g e r s o f L e a s i n g

, t o m a k e t h e c o n v e y a n c e

. P l a i n t i f f s i g n o r e t h e f

a c t t h a t § 1 4

-

1 1

- 3 0 5 a c t u a l l y o b l i g a t e d t h e A c t i v e M e m b e r s

, a s m a n a g e r s o f S i g n a t u r e

, n o t t o d o

t h a t : i f t h e y h a d m a d e t h e c o n v e y a n c e

, t h e A c t i v e M e m b e r s w o u l d

, i n e f f e c t

, h a v e

g i v e n L e a s i n g t h e p a r t o f t h e $ 9 1 1

, 0 0 0 F N B C l o a n p r o c e e d s S i g n a t u r e u s e d t o p a y

o f f L e a s i n g ’ s n o t e t o t h e D a l t o n W h i t f i e l d B a n k w h i l e g a i n i n g S i g n a t u r e n o t h i n g i n

r e t u r n

. G i v e n o u r d i s p o s i t i o n o f t h e f i r s t b r e a c h

, i t w o u l d b e i n c o n s i s t e n t t o h o l d

t h a t § 1 4

- 1 1

- 3 0 5 o b l i g a t e d t h e A c t i v e M e m b e r s t o c a u s e S i g n a t u r e t o t r a n s f e r t h e

p r o p e r t y b a c k t o L e a s i n g

. T h e s e c o n d b r e a c h t h e r e f o r e f a i l s a s a f o u n d a t i o n f

o r

p l a i n t i f f s ’ s e c o n d a i d i n g a n d a b e t t i n g c l a i m a g a i n s t P e e p l e s

.

T h e d i s t r i c t c o u r t

, h a d i t e n t e r t a i n e d C o u n t F o u r o n t h e m e r i t s

, w o u l d h a v e

b e e n r e q u i r e d t o g r a n t P e e p l e s s u m m a r y j u d g m e n t

. W e a c c o r d i n g l y a f f i r m i t s

j u d g m e n t d i s m i s s i n g t h e c o u n t f o r f a i l u r e t o s t a t e a c l a i m f

o r r e l i e f

.

V

.

Walker and L edfor d made this demand on be half of L edfor d, O’De ll, and Br y an Walker, qua 1 1 8

L easing members, a fter the Put and Call’s 30-day elec tion period ende d and Dy naVision bec ame

obliga ted by

opera tion of § 9.5 of the Ope rating Ag ree ment to transfe r its interest in Signatur e to

the Active Me mbers. I f this were not the case , and Dy naVision maintained its interest in

Signatur e until the April 30, 2002, closing , the Active Me mbers could not have complied with

Walker and L edfor d’s demand; Sig nature could not have c onvey ed the Gr een Roa d Property to

L easing unless Dy

naVision’s re prese ntative on Signa ture’s boa rd of dire ctors, Edwa

rd Staten,

consente d to the convey ance . His consent mig ht be problema tic since not all of Dy naVision’s

members we re me mbers of L easing as we ll.

85F o r t h e r e a s o n s s e t o u t h e r e i n

, w e A F F I R M t h e d i s t r i c t c o u r t ’ s j u d g m e n t

g r a n t i n g d e f

e n d a n t s ’ m o t i o n f

o r s u m m a r y j u d g m e n t

.

A F F I R M E D

.

86