Court Opinion

ID: 4657537
Source: CourtListenerOpinion
Date Created: 2021-02-04 19:03:36.585692+00
Date Added: 2024-06-11T09:01:46.111391
License: Public Domain

FOURTH DIVISION
                              DILLARD, P. J.,
                        RICKMAN, P. J., and BROWN, 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.
                               https://www.gaappeals.us/rules

                    DEADLINES ARE NO LONGER TOLLED IN THIS
                    COURT. ALL FILINGS MUST BE SUBMITTED WITHIN
                    THE TIMES SET BY OUR COURT RULES.

                                                                    February 2, 2021

In the Court of Appeals of Georgia
 A20A1838. NORTH WALHALLA PROPERTIES, LLC v.
     KENNESTONE GATES CONDOMINIUM ASSOCIATION,
     INC et al.

      BROWN, Judge.

      North Walhalla Properties, LLC (“Walhalla”) appeals from the trial court’s

order granting summary judgment in favor of Kennestone Gates Condominium

Association (“Kennestone”) and Robert E. Smith on its complaint against them, as

well as in favor of Kennestone’s counterclaim against Walhalla for past due

assessments, interest, late fees, and attorney fees. Walhalla contends that the trial

court erred by (1) concluding that it lacked standing to bring all of the claims asserted

in its complaint because they could only be brought in a derivative action; (2) failing

to find that Kennestone did not mitigate its damages; (3) failing to set off amounts

Walhalla overpaid to Kennestone; and (4) failing to award attorney fees to Walhalla
for “the stubborn litigiousness” of the defendants. For the reasons explained below,

we affirm the trial court’s grant of summary judgment to Kennestone on its

counterclaim against Walhalla, vacate its grant of summary judgment to Kennestone

and Smith on Walhalla’s complaint, and remand this case to the trial court for entry

of an order of dismissal.

             On appeal from a trial court’s grant of summary judgment, we
      conduct a de novo review, construing all reasonable inferences in the
      light most favorable to the nonmoving party. We also review de novo a
      trial court’s grant of a motion to dismiss. We construe the pleadings in
      the light most favorable to the nonmoving party with any doubts
      resolved in that party’s favor.

(Citations and punctuation omitted.) Bobick v. Community & Savings Bank, 321 Ga.

App. 855, 856 (743 SE2d 518) (2013). So viewed, the record shows that Kennestone

is a Georgia non-profit corporation tasked with the administation, operation, and

maintenance of a condominium complex in which Walhalla has owned two units

since 2000. In April 2015, Kennestone notified Walhalla that it “owe[d] a total of

$1,400 in past-due assessments and other charges, which includes attorneys’ fees of

$250.” In September 2015, Ira McKee, who is a managing member of Walhalla and

its attorney in this case, wrote a letter to Kennestone explaining that it did not have

                                          2
to pay assessments because annual meetings and elections were not held. According

to McKee, Walhalla did not receive “reports of affairs, finances and budge[ted]

projections of [Kennestone],” and a “written accounting of income and

disbursements.” McKee demanded a refund of special assessments paid by Walhalla

in 2007 and 2009. Kennestone’s counsel provided a detailed letter in response that

concluded by stating, “[t]o sum up, the various allegations you have raised in your

letters do not legally excuse your client from paying the condominium assessments

leveled against its Units.”

      In October 2016, Walhalla filed the instant action against Kennestone, which

was later amended to name Smith, Kennestone’s director, treasurer, and secretary, as

a defendant. Walhalla’s complaint, as amended, asserts claims for breach of contract,

“breach of duty,” negligence, and declaratory judgment. It sought damages for

“excess billing” of Walhalla, a refund or set-off of any amounts owed Walhalla, as

well as appointment of a third-party management company to give direct reports to

member/owners, punitive damages, interest, attorney fees, and costs. In its complaint,

Walhalla alleges that the defendants: engaged in “ultra vires actions by the Board and

officers not authorized under the Declaration, Bylaws, or law”; failed to make various

disclosures to membership prior to called meetings; failed to call and have meetings

                                          3
in violation of its Declaration and Bylaws; failed to provide a budget and profit and

loss statements 30 days in advance of meetings; failed to disclose identities of

vendors or provide copies of contracts between third parties or evidence of payment;

maintained and managed escrow accounts without authority; charged for services not

rendered or made available to Walhalla; failed to properly maintain common areas;

assessed “attorney fees and expenses not related to the collection of fees, rather for

advice received by them in their continuing efforts to disguise and to deny breaches

of contract or fiduciary duty”; assessed Walhalla’s units for work and improvements

to limited common areas and individual units owned by others; assessed excessive

fees and ignored a right of set-off for previous assessments paid, but not owed; and

failed to provide to members minutes of annual and special meetings. With regard to

Smith, Walhalla alleged that Smith breached his duty to Walhalla “and other similarly

situated owner members” by engaging in self-dealing and excess billing, failing to

prepare annual budget reports and call annual meetings, and violating the Declaration

and Bylaws by receiving compensation. With regard to its claim for declaratory

judgment, Walhalla sought an order requiring Kennestone to comply with its

Declaration and Bylaws regarding budgets, notices, and annual meetings.

                                          4
      Kennestone filed a counterclaim for past due assessments, late charges, interest,

costs, and attorney fees. Kennestone and Smith then filed a joint motion for summary

judgment on Walhalla’s complaint, asserting, in part, that it lacked standing to assert

claims as an individual that were not separate and distinct from other members and

that no private duty was owed to Walhalla. Kennestone also sought summary

judgment in its favor on its counterclaim. After holding a hearing, the trial court

granted Kennestone and Smith’s motion for summary judgment on Walhalla’s

complaint, as well as Kennestone’s counterclaim. It ordered Walhalla “to pay

$26,167.38 to Kennestone, inclusive of past due assessments, interest at 10% per

annum, late fees, and attorney[] fees incurred by Kennestone for purposes of

collecting [Walhalla]’s past due assessments.” It also ordered the clerk of court to

issue a check to Kennestone from funds paid by Walhalla into the court registry.

      1. In related enumerations of error, Walhalla asserts that the trial court erred

by concluding that it could not recover against the defendants based upon its lack of

standing. As set forth above, Kennestone is a Georgia non-profit corporation. See

OCGA § 14-3-101 et seq. “[M]embers of a nonprofit corporation may, under certain

circumstances, file derivative proceedings. See OCGA §§ 14-3-740 through

14-3-747.” Ga. Appreciation Property v. Enclave at Riverwalk Townhome Assn., 345

                                          5
Ga. App. 413, 419 (1) (812 SE2d 157) (2018) (physical precedent only). “The

purpose of a derivative action is to protect the corporation and its assets.” Hacienda

Corp. v. White, 260 Ga. 879, 880 (1) (400 SE2d 323) (1991). It also “allow[s] a

means by which the rights of a corporation may be protected.” Ragsdale v. New

England Land & Dev. Corp., 250 Ga. 233, 234 (1) (297 SE2d 31) (1982). “A

derivative proceeding may be brought either by any director or by any member or

members having 5 percent or more of the voting power or by 50 members, whichever

is less.” OCGA § 14-3-741. In this case, it is undisputed that Walhalla does not own

the minimum percentage of ownership necessary to bring a derivative suit.

Accordingly, we must decide whether Walhalla has standing to sue individually, as

it lacks standing to sue derivatively. Id.

      In order

      to have standing to sue individually, rather than derivatively on behalf
      of the corporation, the plaintiff must allege more than an injury resulting
      from a wrong to the corporation. . . . To set out an individual action, the
      plaintiff must allege either an injury which is separate and distinct from
      that suffered by other shareholders, or a wrong involving a contractual
      right of a shareholder which exists independently of any right of the
      corporation. For a plaintiff to have standing to bring an individual
      action, he must be injured directly or independently of the corporation.

                                             6
(Citations and punctuation omitted.) Ga. Appreciation Property, 345 Ga. App. at 420.

This rule applies to claims brought against both the corporation and individual

defendants such as members of a board of directors. See, e.g., id.; Crittenton v.

Southland Owners Assn., 312 Ga. App. 521, 524-525 (2) (718 SE2d 839) (2011).

Georgia decisions addressing this issue have concluded that claims related to election

procedures, breach of fiduciary duties, negligent misuse of corporate funds,

usurpation of corporate opportunities, personal use of assets without sufficient

compensation, mismanagement, and corporate-waste are not separate and distinct

causes of action creating a right of direct action in an individual member. Phoenix

Airline Svcs. v. Metro Airlines, 260 Ga. 584, 585 (1) (397 SE2d 699) (1990) (breach

of fiduciary duty); Rollins v. LOR, Inc., 345 Ga. App. 832, 854-855 (4) (815 SE2d

169) (2018) (personal use of assets, mismanagement, corporate-waste); Ga.

Appreciation Property, 345 Ga. App. at 420 (1) (a) (election procedures); Crittenton,

312 Ga. App. at 524-525 (2) (breach of fiduciary duties, negligent misuse of

corporate funds, and election procedures). See also SDM Investments Group v. HBN

Media, 353 Ga. App. 281, 284 (2) (836 SE2d 193) (2019) (breach of contract claim

did not allege specific individual injuries and “should have been brought via a

derivative suit”). Based upon our review of Walhalla’s complaint, as amended, the

                                          7
trial court properly concluded that Walhalla lacked standing to bring its claims

against Kennestone and Smith because its allegations are devoid of any separate and

distinct injury that would allow it to sue individually. Rather than granting a motion

for summary judgment, however, the trial court should have entered an order

dismissing Walhalla’s complaint. See GeorgiaCarry.Org, Inc. v. James, 298 Ga. 420,

424 (2) (782 SE2d 284) (2016); Ga. Appreciation Property, 345 Ga. App. at 424 (c);

Crittenton, 312 Ga. App. at 525 (2). We therefore vacate the trial court’s order

granting summary judgment to the defendants and remand this case to the trial court

with direction to enter a dismissal.

      2. Walhalla asserts that the trial court erred “since the evidence on record

clearly shows that . . . Kennestone failed to mitigate its damages by drawing down the

monthly assessments paid into the Registry of the Court.” In support of this

allegation, Walhalla contends that it paid monthly assessments for May 2018 through

February 2020 into the court registry and Kennestone made no effort to withdraw any

of these funds “to mitigate its claims or damages.” Based on this general assertion,

Walhalla argues that the trial court’s “[o]rder should be reversed and the matter be

remanded to the lower court for a trial by jury.” Other than alleging, without citation

to the record, that Kennestone “assessed a late charge on each and every payment

                                          8
made into the Registry of the Court,” Walhalla fails to specify how Kennestone was

“the author of its own loss or damage” or the “claims or damages” that would have

been mitigated by a withdrawal of funds in the court registry. The trial court’s order

contains no ruling on Kennestone’s alleged failure to mitigate its damages, which is

an affirmative defense. Alston & Bird v. Mellon Ventures II, LP, 307 Ga. App. 640,

644 (3) (b) (706 SE2d 652) (2010). Walhalla did not raise failure to mitigate damages

as a defense in any of its pleadings before the trial court. While McKee’s rendition

of facts in the summary judgment hearing included the statement, “I don’t believe

they have tried to draw down any of the money from the registry of the Court, even

though they have been given notice that it’s there,” and Walhalla stated in a brief that

“Defendant Kennestone, rather than file a Motion to Withdraw the funds has chosen

in bad faith to continue to declare to this Court that the assessments for 2018 have

been unpaid,” Walhalla never asserted below that Kennestone was charging late fees

on the amounts paid into the registry and did not assert that the legal effect of

Kennestone’s failure to seek withdrawal of the funds should amount to a failure to

mitigate damages. As Kennestone’s breach of a duty to mitigate its damages and its

purported assessment of late fees on funds paid into the court registry “were not

raised and ruled on by the court below[,] . . . these issues present nothing for this

                                           9
Court to review.” Houston v. Flory, 329 Ga. App. 882, 890 (3) (766 SE2d 227)

(2014).

      3. Walhalla asserts that the trial court erred by failing “to setoff amounts

overbilled to and paid by the Appellant.” As Walhalla’s overbilling claims are based

entirely upon derivative claims for which it has no standing, it was not entitled to a

set-off. Cf. Charles S. Martin Distrib. Co. v. Bernhardt Furniture Co., 213 Ga. App.

481, 484 (5) (445 SE2d 297) (1994) (“The assertion of a set-off against the amount

owed is not a defense, but is a claim for affirmative relief.”).

      4. In its remaining claim of error, Walhalla appears to assert that the trial court

erred because it did not reduce the amount of the damages based upon the “stubborn

litigiousness” of the defendants. It asserts that “[e]ven though [the defendants]

willfully violated the governing documents, they caused [Walhalla] to retain an[]

attorney and to incur legal expenses defending the indefensible actions and inaction

of the [defendants].” Although Walhalla does not cite to any cases or statutes in

support of this claim on appeal, it cited to OCGA § 13-6-11 to support this claim in

its pleadings before the trial court. “A prerequisite to any award of attorney fees under

OCGA § 13-6-11 is the award of damages or other relief on the underlying claim.”

(Citations and punctuation omitted.) Rigby v. Flue-Cured Tobacco Cooperative

                                           10
Stabilization Corp., 339 Ga. App. 558, 563 (2) (794 SE2d 413) (2016). As Walhalla

lacked standing to assert the claims for damages alleged in its complaint, it was not

entitled to attorney fees and costs under OCGA § 13-6-11, much less an offset or

reduction in the amount owed to Kennestone on its counterclaim. Id. See also Charles

S. Martin Distrib. Co., 213 Ga. App. at 484 (5).

      For the reasons explained above, we affirm the trial court’s grant of summary

judgment to Kennestone on its counterclaim, vacate the trial court’s grant of summary

judgment to Kennestone and Smith on Walhalla’s complaint, and remand this case

to the trial court with direction to dismiss Walhalla’s complaint.

      Judgment affirmed in part, vacated in part and remanded with direction.

Dillard, P. J., and Rickman, P. J., concur.

                                         11