Court Opinion

ID: 3157009
Source: CourtListenerOpinion
Date Created: 2015-11-23 21:04:47.818502+00
Date Added: 2024-06-11T18:17:00.706528
License: Public Domain

FIRST DIVISION
                                DOYLE, C. J.,
                          PHIPPS, P. J, and BOGGS, J.

                    NOTICE: Motions for reconsideration must be
                    physically received in our clerk’s office within ten
                    days of the date of decision to be deemed timely filed.
                                http://www.gaappeals.us/rules

                                                                  November 17, 2015

In the Court of Appeals of Georgia
 A15A1222. THE DAN J. SHEEHAN COMPANY v. FAIRLAWN DO-061
     ON JONES CONDOMINIUM ASSOCIATION, INC., et al.

      DOYLE, Chief Judge.

      The Dan J. Sheehan Company (“Sheehan”), a renovation and construction

company, sued The Fairlawn on Jones Condominium Association, Inc. (“COA”) and

The Fairlawn on Jones Homeowners’ Association (“HOA”), seeking payment of a

judgment Sheehan had obtained against the HOA for its failure to pay for work

Sheehan had performed. Sheehan’s complaint alleged three counts: successor liability

of the COA based on corporate continuation theory (Count 1), successor liability

based on fraudulent attempt to avoid liability (Count 2), and fraudulent transfer under

the Uniform Fraudulent Transfers Act1 (“UFTA”) (Count 3). Sheehan also sought

      1
      OCGA § 18-2-70 et seq. Effective July 1, 2015, this Act became known as the
Uniform Voidable Transfers Act. See Ga. L. 2015, p. 996 § 4A-1/SB 65.
prejudgment interest, attorney fees, and punitive damages. All parties moved for

summary judgment, and the trial court granted summary judgment in favor of the

defendants on each count. Sheehan now appeals, contending that the trial court erred

because the undisputed facts show that (1) the newly formed COA was a mere

continuation of the HOA, (2) the COA’s formation was a fraudulent attempt to avoid

the HOA’s liability, and (3) Sheehan is entitled to summary judgment. Because the

trial court incorrectly applied the successor liability doctrine, we reverse in part and

affirm in part.

             Summary judgment is proper when there is no genuine issue of
      material fact and the movant is entitled to judgment as a matter of law.
      A de novo standard of review applies to an appeal from a grant of
      summary judgment, and we view the evidence, and all reasonable
      conclusions and inferences drawn from it, in the light most favorable to
      the nonmovant.2

      The material facts are essentially undisputed, and the record shows that the

HOA was the original entity organized as the association for the Fairlawn on Jones

condominium, a four-building, fifteen-unit residential complex. . The HOA was

      2
       (Citation omitted.) Matjoulis v. Integon Gen. Ins. Corp., 226 Ga. App. 459 (1)
(486 SE2d 684) (1997).

                                           2
created by articles of incorporation, governed by a board of directors, and comprised

of the owners of the condominium units. The common areas of the condominium

were jointly owned by the unit owners; the HOA did not own the real property. Each

unit owner had voting rights and was required to pay dues and a proportionate share

of the common expenses of the HOA.3

      To address certain needs for repair, the HOA hired Sheehan to perform the

work, which it did. After a dispute arose over payment for the work, Sheehan sued

the HOA in 2009, seeking payment.4

      With the litigation pending, in June 2012, the unit owners held an annual

meeting of the HOA and voted to begin the process of amending and restating the

condominium declaration and bylaws to form a new association (the COA) and make

some minor changes to better conform with the Georgia Condominium Act,5 such as

adopting a plat and identifying parking spaces as common elements.

      3
        The proportion of common expenses owed by an owner was determined
according to the size of the owner’s unit.
      4
          The 2009 suit was a precursor to the present case, which arose in 2013.
      5
          OCGA § 44-3-70 et seq.

                                           3
      In September 2012, the HOA moved to continue the pending October 2012 trial

date, and the trial date was re-set to December 2012. On November 2, 2012, the

Certificate of Incorporation for the new COA was filed with the Secretary of State,

and on November 13, 2012, the HOA board members voted to amend the HOA

budget so that it would cease operations on November 27, 2012. On November 27,

2012, less than a week before trial, the unit owners voted to adopt the Amended and

Restated Declaration of Condominium Fairlawn on Jones (“Restated Declaration”).

According to an affidavit by Robert Conway, who served as president of both the

HOA and COA, the Restated Declaration “transferred responsibility for governing the

condominium . . . to the [COA].” Sheehan apparently was not made aware of the

transfer, and nothing about the COA was filed in the trial court.

      On December 3, 2012, the trial began, the HOA participated, and the jury

returned a verdict in favor of Sheehan in the amount of $122,159.95 plus $47,097.11

in attorney fees. On January, 30, 2013, a judgment was entered in favor of Sheehan

and against the HOA in the amount of $169,257.06.

      In October 2013, after the HOA and the COA refused to satisfy the judgment,

Sheehan filed the present case against the HOA and COA. All parties conducted

discovery and ultimately moved for summary judgment. Following a hearing, the trial

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court denied Sheehan’s motion and granted the motion filed by the HOA and COA.

Sheehan now appeals.

      1. Sheehan contends that the trial court erred by ruling that the COA was not

a mere continuation of the HOA, and was therefore not subject to successor liability

for the HOA’s judgment. We conclude that, based on the undisputed facts, the COA

was a mere continuation of the HOA.

      Ordinarily, a successor entity does not assume the liabilities of its predecessor

unless “(1) there is an agreement to assume liabilities; (2) the transaction is, in fact,

a merger; (3) the transaction is a fraudulent attempt to avoid liabilities; or (4) the

[successor] is a mere continuation of the predecessor corporation.”6 The latter of these

circumstances refers to “the common law doctrine of corporate continuity[, which]

applies where . . . there is a substantial identity of ownership and a complete identity

of the objects, assets, shareholders, and directors.”7 The corporate continuity

doctrine is one of equity.8

      6
          Bullington v. Union Tool Corp., 254 Ga. 283, 284 (328 SE2d 726) (1985).
      7
       (Emphasis supplied.) Davis v. Concord Commercial Corp., 209 Ga. App. 595,
597 (1) (434 SE2d 571) (1993).
      8
          See In Re: Acme Security, Inc., 484 B.R. 475, 487 (III) (B) (Bankr. N.D. Ga.
2012).

                                           5
      Here, after the COA was formed, it had the same purpose, same subject

property, same board of directors, same officers, same voting members, same unit

owners, same physical location, same registered office, and same authority to assess

dues on the same people to pay for the same expenses. For practical purposes, nothing

changed except the name of the association9 – the subject property did not change, the

corporate composition did not change, the voting membership did not change, and the

dues assessment capacity did not change.

      Despite this, the trial court ruled that Sheehan had failed to show that the HOA

and COA have the same assets on the ground that “there was no transfer of assets

between the entities because the [HOA] never owned any assets since all of the

common elements and limited common elements are owned by the unit owners as

tenants in common.” But the doctrine of corporate continuity merely requires an

“identity” of assets, and in the present factual context, the identity of assets is the

same. As a formal matter, the COA and the HOA do not own real property, so this

demonstrates no distinction between their “assets.” Further, their ability to raise

      9
        The defendants argue that the COA was formed to more fully conform to the
requirements in the Georgia Condominium Act. Nevertheless, those changes did not
alter in any material way the voting members, unit owners, property governed,
officers, board members, or assessment structure.

                                          6
capital through their fee and assessment authority is identical – it comes from the

same people who own the same condominium units and who are obligated to pay the

same common expenses. In the face of this structure, the defendants point to no

distinction between the COA and the HOA that reveals any material difference

between the two entities’ “assets” for purposes of corporate continuity.10

      Further, we note that the COA operated on the same Georgia Power billing

account held by the HOA, which remained in the HOA’s name after the creation of

the COA.11 And the COA continued to pay premiums on a hazard and liability

insurance policy held by the HOA, in the name of the HOA. Sheehan argues that

these facts demonstrate corporate continuity, but the trial court dismissed their

relevance, concluding that the utility account and insurance policy were not assets

transferred to the COA, and instead liabilities. But even assuming this

characterization is correct, it does not account for why the COA could informally and

unilaterally choose to assume some HOA liabilities but not others.

      10
        See generally Oliver v. Oliver, 118 Ga. 362, 369 (45 SE2d 232) (1903)
(“Equity abhors mere names, and looks to the substance.”).
      11
        This was apparently done so the COA could avoid the requirement to pay a
deposit or demonstrate creditworthiness when establishing a new account.

                                         7
      Based on the undisputed facts before us, we conclude that the doctrine of

corporate continuity should apply here because the HOA and the COA have identical

ownership structure, objects, assets, voting members, and directors.12 Thus, the trial

court erred by granting the defendants’ motion for summary judgment as to the

corporate continuation count and by denying Sheehan’s motion for summary

judgment as to this count.

      2. Sheehan also argues that the trial court erred by granting summary judgment

against it as to Count 2 based on an alleged fraudulent attempt to avoid liability,13 and

Count 3 alleging a fraudulent transfer under the UFTA.

      12
         See Pet Care Professional Center v. Bellsouth Advertising & Publishing
Corp., 219 Ga. App. 117, 118-119 (1) (464 SE2d 249) (1995) (summary judgment
appropriate where undisputed record establishes corporate continuity); Davis v.
Concord Commercial Corp., 209 Ga. App. 595, 597 (1) (434 SE2d 571) (1993);
Johnson-Battle Lumber Co. v. The Emanuel Lumber Co., 33 Ga. App. 517 (126 S.E.
861) (1925). See also Sarl v. Kapla USA, LP, Case No. 12-0230 *25 (III) (E) (S.D.
Ga. 2013) (“An entity is but a continuance of the old entity by reason of such identity
of name, objects, assets, and stockholders.”), quoting Ney-Copeland & Assoc., Inc.
v. Tag Poly Bags, Inc., 154 Ga. App. 256, 257 (267 SE2d 862) (1980) (“Based on the
identical nature of the prior partnership and the newly formed corporation, which
constitute a single continuous business entity,” the acts of the prior partnership could
be attributed to the later formed corporation for Long Arm jurisdiction purposes); Ed
Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 268 (II) (B) (2) (d) (1st Cir.
R.I. 1997) (“[E]quity is loath to elevate the form of the transfer over its substance, and
deigns to inquire into its true nature.”).
      13
           See generally Bullington, 254 Ga. at 284.

                                            8
      With respect to Count 2, in light of our holding in Division 1, the trial court

erred by concluding as a matter of law that the creation of the COA did not amount

to a continuation of the HOA. As to the element of fraud, the record is mixed. For

example, the timing of the creation of the COA, essentially on the eve of trial, could

support an inference that it was done for the purpose of improperly avoiding liability,

especially since Sheehan was not notified of the existence of the COA in time to

address the issue at the initial trial, and in light of the HOA’s option to conform with

the Georgia Condominium Act without creating a new entity altogether. On the other

hand, there is evidence in the record that the HOA had intended to address the switch

sooner and that the COA formation was a good faith legal exercise. On this record,

and in light of Sheehan’s burden to prove fraudulent intent,14 summary judgment is

not appropriate in favor of either party on Count 2.

      With respect to Count 3, the UFTA explicitly requires a “transfer” of an

“asset,” which is defined as certain forms of “property.”15 Because neither entity

      14
         See generally Mills v. Parker, 253 Ga. App. 620, 624 (1) (a) (560 SE2d 42)
(2002) (summary judgment inappropriate where factual question remains as to
fraudulent intent); In Re: Acme Security, Inc., 484 B.R. at 485-486 (III) (A)
(discussing fraud element of attempt to avoid liabilities).
      15
           OCGA §§ 18-2-71 (2); 18-2-73; 18-2-75.

                                           9
owned property in this classic sense, the UFTA is not the appropriate vehicle for

Sheehan’s recovery, and the trial court correctly granted summary judgment in favor

of the defendants as to Count 3.

      3. Sheehan argues that the trial court erred by denying him summary judgment.

In light of our rulings in Divisions 1 and 2, we agree as to Count 1 based on corporate

continuation doctrine. Factual issues preclude summary judgment as to Count 2

(fraudulent attempt to avoid liability), and Count 3 (UFTA) was appropriately

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

      Judgment affirmed in part and reversed in part. Phipps, P. J., and Boggs, J.,

concur.

                                          10