Court Opinion

ID: 1036966
Source: CourtListenerOpinion
Date Created: 2013-08-09 14:16:29.203972+00
Date Added: 2024-06-11T09:18:38.039293
License: Public Domain

Case: 12-11863   Date Filed: 08/09/2013   Page: 1 of 22

                                                       [DO NOT PUBLISH]

           IN THE UNITED STATES COURT OF APPEALS

                   FOR THE ELEVENTH CIRCUIT
                     ________________________

                           No. 12-11863
                     ________________________

                 D.C. Docket No. 4:10-cv-00045-CDL

DENIM NORTH AMERICA HOLDINGS, LLC,

                                                          Plaintiff - Appellee,

                                versus

SWIFT TEXTILES, LLC,
GALEY AND LORD, LLC,
PATRIARCH PARTNERS, LLC,

                                                    Defendants - Appellants.

                     ________________________

              Appeal from the United States District Court
                  for the Middle District of Georgia
                    ________________________

                           (August 9, 2013)
                Case: 12-11863       Date Filed: 08/09/2013       Page: 2 of 22

Before PRYOR, JORDAN, and KLEINFELD, ∗ Circuit Judges.

PRYOR, Circuit Judge:

       This appeal requires that we determine, first, whether a denim manufacturer

waived its right to rescission of a joint venture based on fraudulent inducement

when it demanded and accepted a capital contribution from its partner after it had

already demanded rescission based on the alleged fraud, and, second, whether a

non-manager member of a member-managed limited liability company owed

fiduciary duties to its fellow member. Denim North America Holdings, LLC,

entered a joint venture with Swift Textiles, LLC, and its parent companies for the

manufacture and sale of denim. Holdings later discovered an alleged fraud

committed by the Swift defendants and demanded rescission of the joint venture.

But, a year after the discovery of the alleged fraud, Holdings made a capital

contribution to the joint venture and demanded that the Swift defendants do the

same. The Swift defendants satisfied that demand. Ten months later, Holdings

filed a complaint against Swift, its parent company, and the owner of the parent

company for breach of contract, fraudulent inducement, and breach of fiduciary

duty. The Swift defendants removed that action from a state court to the district

court. At trial, the jury returned a verdict in favor of Holdings on its claim of

rescission based on fraudulent inducement, but did not reach its alternative claim

∗
 Honorable Andrew J. Kleinfeld, United States Circuit Judge for the Ninth Circuit, sitting by
designation.
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for breach of fiduciary duty. Because Holdings waived its right to rescission and

Swift, as a matter of law, owed no fiduciary duties to Holdings through its

membership in the joint venture, we vacate the judgment in favor of Holdings and

render a judgment as a matter of law in favor of the Swift defendants.

                                  I. BACKGROUND

      Swift is the denim manufacturing division of Galey & Lord, LLC, a twill

manufacturer. Galey and all of its assets, including Swift, are owned by Patriarch

Partners, LLC, a private equity firm based in New York. Holdings operates a

denim manufacturing plant in Columbus, Georgia.

      Swift and Holdings entered a joint venture in 2006. The joint venture was

governed by three agreements: a subscription agreement, a manufacturing and

supply agreement, and an operating agreement. Swift and Holdings became joint

members of the new Denim North America, LLC, and each owned a 50 percent

interest in the joint venture. Holdings agreed to manufacture and Swift agreed to

sell the denim manufactured by their venture. Under the terms of the joint venture,

Swift would close its manufacturing plant and transition the production of its

higher-priced denim to the Holdings plant. Holdings agreed to sell its existing

weaving machines, install the weaving machines used at the Swift plant, and hire

and train additional employees.

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      During the negotiation of the joint venture, the Swift defendants provided

Holdings sales projections for the first five quarters following the creation of the

venture. Holdings had requested that the Swift defendants guarantee the sales

projections in writing, but the Swift defendants refused. Although the sales

projections were appended to the subscription agreement, it provided that the

projections were “based on a number of assumptions that are beyond the control of

[Swift]” and that “possible developments [] could cause actual results to differ

materially from those forecasted in such sales projections.” The subscription

agreement also provided that “[a]ny failure to attain the sales projections shall not

constitute a breach of the foregoing representation or otherwise give rise to a cause

of action by . . . Holdings.”

      The operating agreement provided that the joint venture would be managed

by eight managers and that Holdings and Swift would each appoint four managers

to the joint venture. The operating agreement provided that, except when the

consent of the members of the joint venture was required, “the [m]anagers ha[d]

full and complete authority, power and discretion to manage and control the

business, affairs and properties of the [joint venture], to make all decisions

regarding those matters and to perform any and all other acts or activities

customary or incident to the management of the [] business [of the joint venture].”

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The operating agreement also provided that two-thirds of the members of the joint

venture could vote to increase the total number of managers.

      The operating agreement also established a method for demanding capital

contributions to the joint venture. According to the operating agreement, if the

funds of the joint venture were “insufficient to timely meet its current or imminent

cash needs,” either Holdings or Swift could demand that both “contribute the funds

required” to fulfill the cash needs of the joint venture. Whichever member made

the demand determined the amount and timing of the capital contribution. If either

Holdings or Swift failed to meet the demand of the other for the capital

contribution, the contributing party could elect to increase its interest in the joint

venture at the expense of the non-contributing party.

      The relationship between Holdings and the Swift defendants eventually

began to deteriorate. Holdings was dissatisfied with the amount of denim that

Swift was selling on behalf of the joint venture, and the principals of Holdings

became convinced that the Swift defendants had defrauded them. During the

negotiations for the joint venture, the Swift defendants had provided to Holdings a

series of sales projections that Swift represented that it had calculated in good

faith. But Holdings came to believe that the Swift defendants had provided it with

sales projections that “were deliberately false” in order to “induce [Holdings] to

agree to the [joint venture].” Holdings also believed that the Swift defendants

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were selling denim in competition with the joint venture. Holdings knew when it

entered the joint venture that Swift had an existing denim inventory and that Swift

planned to sell that inventory. But Holdings did not know how much denim Swift

had in its inventory, and Holdings came to believe that Swift had concealed

millions of yards of denim that it intended to sell in competition with the joint

venture. At trial, Holdings presented evidence that Swift had approximately $36

million worth of inventory, or ten-and-a-half million yards, when the agreements

were executed.

      Holdings became aware of the alleged fraud in 2007 and 2008, and Holdings

demanded rescission of the joint venture in May 2008. Larry Galbraith, the chief

executive officer of Holdings, testified that he became aware that Holdings had a

claim against the Swift defendants in the second or third quarter of 2007. Tracy

Sayers, a manager of the parent company of Holdings, testified that he became

aware of the alleged fraud committed by the Swift defendants in the first quarter of

2008, but that Holdings first became suspicious of the actions of Swift “[s]ometime

in late 2007.” In its complaint, Holdings alleged that it made its “[d]emand for

rescission of the partnership” at a board meeting of the joint venture on May 9,

2008. At the board meeting of the joint venture on September 3, 2008, Holdings

outlined the fraud it alleged the Swift defendants had committed, including the

inflated sales projections and the stockpiled inventory.

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      In 2009, about one year after Holdings demanded rescission of the

agreements, Holdings made a capital contribution of $750,000 to the joint venture

and demanded that Swift make a contribution in the same amount. Swift fulfilled

that demand and contributed $750,000 to the joint venture. Galbraith testified that

the capital contribution “was made by Swift because there’s a provision in the

operating agreement that requires Holdings or Swift to give capital to contribute

cash if one or the other parties say it needs to be contributed.”

      Holdings filed a complaint against Swift, Galey, and Patriarch in a Georgia

court. Holdings asserted claims for fraud in the inducement, breach of fiduciary

duty, rescission, breach of contract, and breach of a duty owed by a member of a

Georgia limited liability corporation, O.C.G.A. § 14-11-307. The claim of breach

of fiduciary duty alleged that the Swift defendants made fraudulent

misrepresentations and committed acts of fraudulent concealment, usurped

partnership opportunities and engaged in conflict of interest transactions, and

terminated its sales staff to the detriment of the joint venture. The claim of

rescission alleged that Holdings was entitled to rescind the agreements because of

“the fraudulent and illegal conduct engaged in by [the Swift] [d]efendants.”

Holdings requested compensatory and punitive damages, litigation expenses, and

attorney’s fees.

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      The Swift defendants removed the action to the district court and moved to

dismiss the complaint. The district court dismissed the claim for breach of

fiduciary duty against Patriarch and Galey, the claim for breach of contract, and the

claim for breach of membership duties under Georgia Code section 14-11-307.

The district court denied the motion to dismiss the claim for breach of fiduciary

duty against Swift and the claim for rescission based on fraud in the inducement

against all of the Swift defendants.

      The Swift defendants then moved for a summary judgment, which the

district court granted in part and denied in part. The district court described the

claim for rescission based on fraudulent inducement as resting on two

misrepresentations: that the Swift defendants fraudulently represented that they

would produce a larger volume of “higher margin denim orders” than they were

capable of producing and that the Swift defendants would provide financial records

to Holdings that were never provided. The district court granted a partial summary

judgment in favor of the Swift defendants insofar as the claim rested on the

financial records, but denied a summary judgment against the claim that rested on

the increased sales. The district court granted a summary judgment against the

claim for breach of fiduciary duty insofar as the claim rested on the closure of two

foreign manufacturing plants of Swift, but denied a summary judgment against the

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remainder of that claim. Holdings and the Swift defendants proceeded to trial on

the remaining claims.

      Holdings argued at trial that, when the Swift defendants were negotiating the

joint venture, they were stockpiling denim to sell in direct competition with the

joint venture. Holdings argued that Swift also solicited new customers and sold

denim to those customers in direct competition with the joint venture. The Swift

defendants argued that Holdings understood that Swift would independently sell its

existing denim inventory and that Holdings complained about the joint venture

only after a downturn in the national economy and the denim industry. The Swift

defendants also argued that Holdings waived its right to rescission when it

demanded and accepted the capital contribution from Swift in 2009.

      At the close of the evidence, the Swift defendants moved for a judgment as a

matter of law. See Fed. R. Civ. P. 50(a). The Swift defendants described the claim

for breach of fiduciary duty as resting on two separate breaches: that Swift sold

denim in competition with the joint venture and that Swift terminated the sales

staff of the joint venture. And the Swift defendants argued that there was

insufficient evidence for a reasonable jury to find that Swift was liable for either

breach. The Swift defendants also argued that Holdings waived its claim for

rescission based on fraudulent inducement when it “repeatedly affirmed and

acknowledged the contracts after discovering the alleged fraud.” The district court

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dismissed the claim of breach of fiduciary duty insofar as it rested on the

termination of the sales staff. But the district court deferred judgment as to the

claim for rescission based on fraudulent inducement and the claim for breach of

fiduciary duty that rested on the sales of Swift inventory.

      The district court instructed the jury about the claims for both rescission

based on fraudulent inducement and for breach of fiduciary duty. The district

court instructed the jury that Holdings had alleged that the Swift defendants

“misrepresented the volume and price of denim sales that would be achieved

during the joint venture, that when they made the misrepresentations, they knew

they were untrue, and that [Holdings] entered into the joint venture in reliance

upon the misrepresentations which [Holdings] believed to be true at the time.” The

district court instructed the jury about the affirmative defense of waiver raised by

the Swift defendants and explained that, “if [the Swift] [d]efendants prove that

[Holdings] took an action inconsistent with the repudiation of the agreements, you

may find that [Holdings] has waived its right to rescind the contracts.” The district

court instructed the jury that it should address the claim for breach of fiduciary

duty against only Swift if it found against Holdings on the claim for rescission.

      The jury returned a verdict in favor of Holdings on the claim for rescission

and did not reach the liability of Swift on the claim for breach of fiduciary duty. In

a special verdict form, the jury found that the Swift defendants had “fraudulently

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induced [Holdings] to enter the subscription agreement and operating agreement

that created the joint venture that is the subject of this lawsuit.” The jury found

that Holdings had not waived its right to rescind the subscription and operating

agreements. The jury found that the subscription and operating agreements should

be rescinded and the joint venture terminated. The jury also found that the Swift

defendants should pay the attorney’s fees of Holdings but that Holdings should not

be awarded punitive damages.

      After the verdict, the Swift defendants renewed their motion for a judgment

as a matter of law, but the district court denied the motion. The district court ruled

that there was sufficient evidence to support the finding that the Swift defendants

“had no intention of using commercially reasonable sales efforts to sell the denim.”

The district court ruled, without elaboration, that the jury had found “that Holdings

had not waived its right to rescind the Agreements” and that this finding was

“supported by the evidence and [is] not against the great weight of the evidence.”

The district court also ruled that, although the jury did not reach this question,

there was sufficient evidence for a reasonable jury to find that Swift was a manager

of the joint venture and breached a fiduciary duty to Holdings when it sold its

denim inventory in competition with the joint venture. The district court then

ordered the Swift defendants to transfer their ownership interest in the joint venture

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to Holdings, and the district court ordered Holdings to pay the Swift defendants

$2,242,500.

                          II. STANDARD OF REVIEW

      “We review the denial of a motion for a judgment as a matter of law de

novo.” Russell v. N. Broward Hosp., 346 F.3d 1335, 1343 (11th Cir. 2003)

(quoting McCormick v. Aderholt, 293 F.3d 1254, 1258 (11th Cir. 2002)). We

must uphold a jury verdict unless “a reasonable jury would not have a legally

sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P.

50(a)(1). “In deciding a motion for judgment as a matter of law, we review all the

evidence, drawing all reasonable inferences in favor of the nonmoving party.”

Hubbard v. BankAtlantic Bancorp, Inc., 688 F.3d 713, 724 (11th Cir. 2012). “The

interpretation of a contract is a question of law that [we] [also] review[] de novo.”

Daewoo Motor Am., Inc. v. Gen. Motors Corp., 459 F.3d 1249, 1256 (11th Cir.

2006).

                                 III. DISCUSSION

      We divide our discussion in two parts. First, we explain why the Swift

defendants are entitled to a judgment as a matter of law against the claim for

rescission because Holdings waived its right to that remedy. Second, we explain

why Swift is entitled to a judgment as a matter of law against the claim for breach

of fiduciary duty because Swift was not a manager of the joint venture. Because

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we reverse the denial of the renewed motion for a judgment as a matter of law of

the Swift defendants, we need not address the challenges of the Swift defendants to

either the evidentiary rulings of the district court or its rulings on motions in

limine.

                     A. Holdings Waived Its Right to Rescission.

      The Swift defendants argue that the district court should have granted a

judgment as a matter of law in their favor on the claim for rescission for two

reasons. First, the Swift defendants rely on the decision of the Supreme Court of

Georgia in Novare Group, Inc. v. Sarif, 718 S.E.2d 304, 308 (Ga. 2011), to argue

that Holdings cannot sue for the failure of Swift to fulfill a future promise and that

Holdings agreed in the subscription agreement that it would not sue Swift for a

failure to attain the sales projections. Second, the Swift defendants argue that

Holdings waived its right to rescission when it affirmed its agreements with the

Swift defendants after it became aware of the alleged fraud. Because we conclude

that Holdings waived its right to rescission when it demanded and received a

capital contribution from Swift after Holdings became aware of the alleged fraud,

we need not reach the argument of the Swift defendants that the decision of the

Supreme Court of Georgia in Sarif bars the claim for rescission based on

fraudulent inducement.

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      A party who has knowledge of fraud that gives rise to a claim for rescission

cannot, after he becomes aware of that fraud, act as if the contract is not rescinded:

      Where a party who is entitled to rescind a contract on ground of fraud
      or false representations, and who has full knowledge of the material
      circumstances of the case, freely and advisedly does anything which
      amounts to a recognition of the transaction, or acts in a manner
      inconsistent with a repudiation of the contract, such conduct amounts
      to acquiescence, and, though originally impeachable, the contract
      becomes unimpeachable in equity. If a party to a contract seeks to
      avoid it on the ground of fraud or mistake, he must, upon discovery of
      the facts, at once announce his purpose and adhere to it. Otherwise he
      cannot avoid or rescind such contract.

Brooks v. Hooks, 144 S.E.2d 96, 100 (Ga. 1965) (quoting Gibson v. Alford, 132

S.E. 442, 445 (Ga. 1926)). Under Georgia law, whether a party has waived its

right to rescind an agreement is ordinarily a question of fact for the jury to decide,

Akins v. Couch, 518 S.E.2d 674, 675 (Ga. 1999), but where “the facts and

circumstances essential to the waiver issue are clearly established[,] waiver

becomes a question of law,” Forsyth Cnty. v. Waterscape Servs., LLC, 694 S.E.2d

102, 110 (Ga. Ct. App. 2010) (quoting Mauldin v. Weinstock, 411 S.E.2d 370, 374

(Ga. 1991)).

      We agree with the Swift defendants that, as a matter of law, Holdings

waived its right to rescission. Holdings acknowledges that Tracy Sayers testified

that he learned of the fraud of the Swift defendants in early 2008. And Larry

Galbraith testified that he believed Holdings had been defrauded in May 2008.

Holdings alleged in its complaint that it demanded rescission from the Swift
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defendants at the board meeting of the joint venture on May 9, 2008. And

Holdings describes the board meeting on May 9, 2008, as the meeting in which it

“informed [the Swift] [d]efendants in no uncertain terms that it needed a ‘divorce’

from Swift Galey . . . .” Holdings acknowledges that it “specifically outlined the

various fraudulent acts that [the Swift] [d]efendants committed in the inducement

of the joint venture” during the board meeting on September 3, 2008. But

Holdings also freely admits that it invoked a provision of the operating agreement

in 2009 when it demanded that both it and Swift make separate capital

contributions of $750,000 to the joint venture. There is no dispute then that

Holdings discovered the alleged fraud, demanded rescission of the agreement in

2008, and then demanded and accepted a capital contribution from Swift in 2009

under the terms of that same agreement. See Hill v. Fed. Trade Comm’n., 124

F.2d 104, 106 (5th Cir. 1941).

      When Holdings relied on the agreement to demand and accept the capital

contribution in 2009, it waived its right to rescission. “[A]n attempt to continue to

operate [a venture] and to do so in a profitable manner” when a party seeks to

rescind the sale of that venture is “totally incompatible with contract rescission”

and constitutes a waiver of the right to rescission. Orion Capital Partners, L.P. v.

Westinghouse Elec. Corp., 478 S.E.2d 382, 385 (Ga. Ct. App. 1996); see also

Brooks, 144 S.E.2d at 100 (explaining that when a party entitled to rescind a

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contract “freely and advisedly does anything which amounts to a recognition of the

transaction, or acts in a manner inconsistent with a repudiation of the contract, such

conduct amounts to acquiescence,” and the party cannot rescind the contract on

grounds of fraud). Because invoking an agreement to obtain a contractual benefit

is “incompatible with contract rescission,” Holdings waived the right to sue the

Swift defendants for rescission. See Orion Capital, 478 S.E.2d at 385.

      Holdings argues that we cannot disturb the finding by the jury that it did not

waive its right to rescission, but “facts judicially admitted are facts established not

only beyond the need of evidence to prove them, but beyond the power of evidence

to controvert them.” Hill, 124 F.2d at 106. Holdings concedes that it was aware of

the fraud that gave rise to its claim for fraudulent inducement by 2008 and that it

demanded and accepted the capital contributions from Swift in 2009. The finding

by the jury that Holdings did not waive its right to rescission is foreclosed by the

legal effect of the unequivocal concessions of Holdings (in its complaint and brief)

that it demanded the capital contribution after becoming aware of the alleged fraud

by the Swift defendants. These concessions, which are consistent with the

undisputed evidence at trial, are “no longer [] fact[s] in issue.” Id. Given these

facts, Holdings waived its right to rescission as a matter of law.

      Holdings also argues that, under the tender rule of Georgia law, its demand

that Swift make the capital contribution was not an action inconsistent with its

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earlier discovery of fraud and demand for rescission, but we disagree. Under

ordinary circumstances, “[o]ne who seeks rescission of a contract for fraud must

restore or offer to restore the consideration received thereunder, as a condition

precedent to bringing the action.” Crews v. Cisco Bros. Ford-Mercury, Inc., 411

S.E.2d 518, 519 (Ga. Ct. App. 1991). But “restoration by the purchaser is not an

absolute rule,” id., and a party need not “restore or tender back the benefits

received under the contract” if he can “show a sufficient reason for not doing so,”

id. For example, the party claiming rescission “need not tender back what he is

entitled to keep, and need not offer to restore where the defrauding party has made

restoration impossible, or when to do so would be unreasonable.” Id. But this

rule, as the Swift defendants argue, has nothing to do with the application of the

doctrine of waiver in this case.

      Holdings relies on our decision in Vivid Investments, Inc. v. Best Western

Inn-Forsyth, Ltd., 991 F.2d 690 (11th Cir. 1993), to support its argument, but that

decision is inapposite. In Vivid, the purchaser in a real estate contract sought

rescission of the contract, but did not tender the property back to the seller. Id. at

692. We held that a factual dispute existed about whether the purchaser was

required to tender the property. Id. at 693. The purchaser had argued that it was

not required to tender the property because the tender “would be an abandonment

of its investment and because the [property] is the security for debt owed by [the

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purchaser] to third parties.” Id. Holdings argues that the capital contribution of

Swift was necessary because the joint venture was in dire financial straits and

Holdings otherwise would have been forced to “abandon[ ] its investment,” see id.,

but Holdings misreads Vivid and the tender rule, which concern only whether a

purchaser must return property it has already received from the seller, not whether

a party may demand new investments under the terms of a contract after it has

demanded rescission. Although the tender rule does not require a party to return

all of the property it has received when doing so would be impossible, the tender

rule did not permit Holdings to make a new investment in the joint venture and

demand that Swift comply with future obligations under the operating agreement.

 B. Swift Was Not a Manager of the Joint Venture and Did Not Owe Holdings Any
                               Fiduciary Duties.

      Swift also argues that it was not a manager of the joint venture and, as a

matter of law, did not owe Holdings any fiduciary duties. “To support a claim of

breach of fiduciary duty, a plaintiff must prove the existence of such duty. . . .”

Wright v. Apartment Inv. & Mgmt. Co., 726 S.E.2d 779, 787 (Ga. Ct. App. 2012).

The Georgia Limited Liability Company Act, O.C.G.A §§ 14-11-100–1109,

establishes as follows that, where a limited liability company vests its management

in a manager, a member of the limited liability company who is not a manager

owes no duties to the company or other members:

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      Except as otherwise provided in the articles of organization or a
      written operating agreement, a person who is a member of a limited
      liability company in which management is vested in one or more
      managers, and who is not a manager, shall have no duties to the
      limited liability company or to the other members solely by reason of
      acting in his or her capacity as a member.

Id. § 14-11-305(1). Unless there is an operating agreement to the contrary,

“management of the business and affairs of the limited liability company shall be

vested in the members. . . .” Id. § 14-11-304(a); see also id. § 14-11-304(b) (“If

the articles of organization or a written operating agreement vests management of

the limited liability company in one or more managers, then such persons shall

have such right and authority to manage the business and affairs of the limited

liability company.”). And, under Georgia law, courts read written operating

agreements that form limited liability companies “to give maximum effect to the

principle of freedom of contract and to the enforceability of operating agreements.”

Id. § 14-11-1107(b). “Although the parties may impose such duties in the

operating agreement or articles of organization,” the plain language of the Georgia

statute establishes “that non-managing members in manager-managed [limited

liability companies] owe no duties to the [company] or other members.” ULQ,

LLC v. Meder, 666 S.E.2d 713, 721 (Ga. Ct. App. 2008).

      Holdings argues that Swift owes it fiduciary duties because it was a manager

of the joint venture, but the terms of the operating agreement of the joint venture

provide that Swift is only a member, not a manager, of the joint venture. See id.
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The operating agreement explains as follows that the management power of the

joint venture will be vested in the managers:

      Except for situations in which the approval of the Members is
      expressly required by the Articles of Organization or by this
      Operating Agreement or by nonwaivable provisions of applicable law,
      the Managers shall have full and complete authority, power and
      discretion to manage and control the business, affairs and properties
      of the Company, to make all decisions regarding those matters and to
      perform any and all other acts or activities customary or incident to
      the management of the Company’s business. At any time when there
      is more than one Manager, no one Manager may take any action
      permitted to be taken by the Managers, unless the action has been
      approved by a majority of the Managers.

Along with vesting the management power in the managers, the operating

agreement states that there were to be eight managers of the joint venture and that

Swift and Holdings were to appoint four managers each. Based on the terms of the

operating agreement, Swift is not a manager of the joint venture. Although Swift

had the authority to appoint four managers for the joint venture and at least

theoretically could have appointed itself, see O.C.G.A. § 14-11-304(b)(2) (stating

that managers of a limited liability company need not be “natural persons”), there

is no allegation in the pleadings or evidence in this record that Swift appointed

itself as a manager of the joint venture.

      Although the district court ruled that the authority of Swift to appoint four

managers gave it “de facto control” over the board of managers, Georgia law

forecloses that reasoning. Unless otherwise provided by an operating agreement, a

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“manager” of a Georgia limited liability company “[s]hall be designated,

appointed, elected, removed, or replaced by the approval of more than one half by

number of the members.” Id. § 14-11-304(b)(1). In other words, Georgia law

presumes that managers will be appointed by the members of a limited liability

company. Georgia law also states that “a person who is a member of a limited

liability company in which management is vested in one or more managers, and

who is not a manager, shall have no duties to the limited liability company or to the

other members solely by reason of acting in his or her capacity as a member.” Id.

§ 14-11-305(1) (emphasis added). Because Georgia law presumes that members

will appoint the managers of a limited liability company, the act of a member

appointing a manager cannot give rise to a fiduciary duty.

      Holdings cites Internal Medicine Alliance, LLC v. Budell, 659 S.E.2d 668

(Ga. Ct. App. 2008), for the proposition that the status of “manager” is not limited

to the designation in an operating agreement, but that decision does not control this

appeal. Unlike this appeal, Budell did not involve a written operating agreement.

See id. at 670 (“Notably, [the parties] never entered into a written operating

agreement for [the limited liability company].”). In this appeal, the operating

agreement controls the terms of management and provides that only the eight

members of the board of managers manage the joint venture. Where management

power of a limited liability company “is vested in one or more managers,” a

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member who is not a manager has “no duties to the limited liability company or to

the other members solely by reason of acting in his or her capacity as a member,”

O.C.G.A. § 14-11-305(1), and the operating agreement of the joint venture

establishes that Swift is not a manager of the joint venture.

                                IV. CONCLUSION

      We VACATE the judgment in favor of Holdings and RENDER a judgment

as a matter of law in favor of the Swift defendants.

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