Opinion ID: 76811
Heading Depth: 2
Heading Rank: 2

Heading: Georgia Alter Ego Law

Text: 16 There is no Georgia law that directly addresses whether a trustee for a debtor corporation in bankruptcy can bring an alter ego action against the corporation's former principal. In Georgia, alter ego and veil-piercing actions are based on equitable principals. Acree v. McMahan, 276 Ga. 880, 882, 585 S.E.2d 873 (2003). Georgia courts allow alter ego actions to remedy injustices which arise where a party has overextended his privilege in the use of a corporate entity in order to defeat justice, perpetrate fraud or evade contractual or tort responsibility. Paul v. Destito, 250 Ga.App. 631, 550 S.E.2d 739, 747 (2001) (citations omitted). The Georgia Supreme Court in past decisions, however, has noted that it has been reluctant to disregard the corporate entity except where third parties were involved in dealing with the corporation and director or shareholder liability was in question, or where public policy might require looking beyond the corporate structure in the public interest. Pickett v. Paine, 230 Ga. 786, 199 S.E.2d 223, 227 (1973). 8 In Pickett, the court refused to pierce the corporate veil for the benefit of a minority shareholder's suit against the majority shareholder. Id. at 228. The Georgia Court of Appeals, however, has rejected the proposition that Georgia law per se prohibits a director, officer, or shareholder from piercing the corporate veil. Paul, 550 S.E.2d at 747; see also Cheney v. Moore, 193 Ga.App. 312, 387 S.E.2d 575, 576-77 (1989) (holding that a 50 percent shareholder can pierce the corporate veil). Thus, as far as we can determine there is no clear demarcation in Georgia law that allows us to say an alter ego action is property of the bankruptcy estate. 17 The only courts in Georgia to address this issue directly are the federal bankruptcy courts, but they are divided on whether Georgia law allows a corporation to bring this type of alter ego action. Compare Adam Furniture, 191 B.R. at 255 (considering the corporation's alter ego claim as property of the estate under Georgia law), and City Communications, 105 B.R. at 1022 (interpreting Georgia law to allow corporations to bring alter ego claims), with In re Mattress N More, 231 B.R. 104, 109 (Bankr.N.D.Ga.1998) (holding that Georgia law does not allow a corporation to bring alter ego actions). In the first case to consider the question, the City Communications court compared the Koch and Ozark cases and determined that, like the Koch court, Georgia alter ego law would allow a debtor corporation to bring general alter ego claims in bankruptcy because Georgia law was founded on equity concerns. See City Communications, 105 B.R. at 1022. 9 The Adam Furniture court subsequently followed the same reasoning and determined Georgia law allowed a corporation's alter ego suit for equity reasons. 191 B.R. at 255. 18 The Mattress N More court, on the other hand, rejected the reasoning of both City Communications and Adam Furniture to hold that Georgia law will not allow a corporation's alter ego suit. The court reasoned that although it might make sense for a trustee to have exclusive possession of an alter ego action, there was no basis in Georgia or bankruptcy law for such a result. See Mattress N More, 231 B.R. at 109-10. The court was troubled that a corporate entity created to shield shareholders from liability would itself assert a claim to destroy that protection. Id. at 109. Further, the court determined that it was relatively difficult to pierce the corporate veil in Georgia. Id. Thus as the court explained, the issue is ripe for certification to the Georgia Supreme Court. Id. at 109 n. 3. Considering the split between Georgia bankruptcy courts and the uncertain state of Georgia alter ego law, we choose to certify the following question to the Georgia Supreme Court: 19 1. WILL GEORGIA LAW ALLOW THE REPRESENTATIVE OF A DEBTOR CORPORATION TO BRING AN ALTER EGO CLAIM AGAINST THE CORPORATION'S FORMER PRINCIPAL? 20 2. IF SO, WHAT IS THE MEASURE OF RECOVERY?