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Call Now: 904-383-7448A shareholder may not commence or maintain a derivative proceeding unless the shareholder:
(Code 1981, §14-2-741, enacted by Ga. L. 1988, p. 1070, § 1; Ga. L. 1989, p. 946, § 29.)
- For article, "Some Distinctive Features of the Georgia Business Corporation Code," 28 Ga. St. B. J. 101 (1991).
Source: Model Act, § 7.41 (under consideration, 1987). This replaces provisions formerly found in § 14-2-123(b). It eliminates the rule of former § 14-2-153(b), that permitted such actions to be brought by a receiver, trustee in bankruptcy, officer, director, or judgment creditor. There was no counterpart in former law to subsection (b).
Former Georgia law, § 14-2-123(b), the Model Act, and the statutes of many states have long imposed a "contemporaneous ownership" rule, i.e., the plaintiff must have been an owner of shares at the time of the transaction in question. The decision to retain the contemporaneous ownership rule in Section14-2-741(1) was based primarily on the view that it was just, in that it prevents the purchase of litigation. It is also simple, clear, and easy to apply. Section14-2-741 requires the plaintiff to be a shareholder and therefore does not permit creditors or holders of options, warrants, or conversion rights to commence a derivative proceeding.
Section 14-2-741(2) follows the requirement of Federal Rule of Civil Procedure 23.1 with the exception that the plaintiff must fairly and adequately represent the interests of the corporation rather than shareholders similarly situated as provided in the Rule. The reference to the corporation in Section 14-2-741(2) more properly reflects the nature of the derivative suit. If a plaintiff no longer has standing, courts have in a number of instances provided an opportunity for one or more other shareholders to intervene.
The introductory language of Section14-2-741 refers both to the commencement and maintenance of the proceeding to make it clear that the proceeding should be dismissed if, after commencement, the plaintiff ceases to be a fair and adequate representative. This would occur, for example, if the plaintiff should sell all of the shares owned during the litigation with the result that the plaintiff would no longer have any economic interest in the suit. The requirement of ownership at commencement of the action preserves existing Georgia law, set out in § 14-2-123(b). Haldi v. Continental Inv. Corp., 50 F.R.D. 275 (N.D.Ga. 1970). Former law did not address the issue of continuing ownership. It did, however, require class plaintiffs to be fair and adequate representatives of the class, under § 9-11-23(a).
The reference in former § 14-2-123(b)(1) to "the transaction of which he complains" has been changed to "act or omission" since the grounds for a derivative proceeding may not be the result of a transaction as such.
Note to 1989 Amendment The 1989 amendment changed the introductory clause to substitute "shareholder" for "person" in order to clarify the limited group of claimants with standing to bring derivative actions, and to refer to the definition in section 14-2-740.
Cross-References Class actions generally, see § 9-11-23. Procedures for derivative actions, see § 9-11-23(b). "Shareholder" defined, see § 14-2-740.
- In light of the similarity of the statutory provisions, decisions under former Code 1933, §§ 22-615 and 22-711 and former Code Section 14-2-123, which were repealed by Ga. L. 1988, p. 1070, § 1, effective July 1, 1989, are included in the annotations for this Code section.
- In a derivative action brought by shareholders, the complaint as originally filed contained an allegation that plaintiff was a shareholder of the corporation at the time of the complained of transactions, but that allegation was deleted when the amended complaint was filed so that it alleged merely that plaintiff was a shareholder at the time the amended complaint was filed. This does not meet the requirements of Georgia law. Absent a substantial allegation that plaintiff was a shareholder at the time the alleged transgressions occurred, plaintiff cannot maintain such an action. Haldi v. Continental Inv. Corp., 50 F.R.D. 275 (N.D. Ga. 1970) (decided under former Code 1933, § 22-615).
- Outside the context of a close corporation, a shareholder must be injured in a way which is different from the other shareholders or independently of the corporation to have standing to assert a direct action. Grace Bros. v. Farley Indus., Inc., 264 Ga. 817, 450 S.E.2d 814 (1994).
- In an action for fraud, conspiracy, and conversion, a group of debenture-holding plaintiffs who did not seek rescission, but sought only monetary damages at trial, were held to have affirmed the debentures, and despite this, could still affirm the contract and sue for damages resulting from the fraud; moreover, considering that claims for fraud and conspiracy made by the equity-holding plaintiffs were personal, the fraud claims were not dependent on the character of the investments as either debt or equity. Argentum Int'l, LLC v. Woods, 280 Ga. App. 440, 634 S.E.2d 195 (2006).
Owner of equitable title to stock was not prevented by former Code 1933, § 22-711 (see now O.C.G.A. § 14-2-741) from maintaining suit which sought to protect stock in which that person had such an ownership or interest from impairment or loss. Hurt v. Cotton States Fertilizer Co., 145 F.2d 293 (5th Cir. 1944), cert. denied, 324 U.S. 844, 65 S. Ct. 679, 89 L. Ed. 1406 (1945) (decided under former Code 1933, § 22-711).
- In a derivative action suit, a trial court abused its discretion by denying a minority shareholder's motion to intervene since the motion was timely and the minority shareholder established that the minority shareholder's interests were not adequately represented by the suing shareholder based on the large investment the minority shareholder had in the corporation and the fact that the settlement reached in the action would impact the minority shareholder's direct claims against the corporation. Further, the minority shareholder was entitled to a determination that the suing shareholder had adequately represented the corporation's interests up to and including the reaching of the settlement. Stephens v. McGarrity, 290 Ga. App. 755, 660 S.E.2d 770 (2008).
- A pledgee of corporate stock has an interest which the pledgee may protect and preserve, and the rights of a pledgee are essentially the same as those of the owner of stock. Hurt v. Cotton States Fertilizer Co., 145 F.2d 293 (5th Cir. 1944), cert. denied, 324 U.S. 844, 65 S. Ct. 679, 89 L. Ed. 1406 (1945) (decided under former Code 1933, § 22-711).
A former shareholder in a merged corporation has no standing to maintain a shareholder's derivative action. Grace Bros. v. Farley Indus., Inc., 264 Ga. 817, 450 S.E.2d 814 (1994).
- Except for costs and attorney fees, complaining shareholder will not be allowed to recover directly in an action for misappropriation and waste of corporate assets by a director or officer of a corporation. Pickett v. Paine, 230 Ga. 786, 199 S.E.2d 223 (1973) (decided under former Code 1933, § 22-615).
Shareholder may only bring a derivative suit when seeking to recover misappropriated corporate funds. Thomas v. Dickson, 250 Ga. 772, 301 S.E.2d 49 (1983) (decided under former § 14-2-123).
- Plaintiff who was sole injured shareholder, and who had no existing reasons underlying general rule limiting shareholders to derivative suits, was properly allowed to bring direct action. Thomas v. Dickson, 250 Ga. 772, 301 S.E.2d 49 (1983) (decided under former § 14-2-123).
Former subsection (d) of this section is a statute to which O.C.G.A. § 9-11-41(a) is subject; thus, plaintiff's attempt to dismiss shareholder's derivative suit will be ineffective when no approval of trial court was sought prior to attempted dismissal. Reese v. Frazier, 158 Ga. App. 237, 279 S.E.2d 529 (1981) (decided under former Code 1933, § 22-615).
- The standing of a corporate shareholder as an adequate representative of the interests of the corporation to bring derivative claims against an accounting firm that handled the corporation's business affairs was not affected merely because it filed both a direct and derivative claim against the defendants. Williams v. Service Corp. Int'l, 218 Ga. App. 10, 459 S.E.2d 621 (1995).
- Since a stockholder had redeemed the shares in a corporation, the shareholder lacked standing to maintain a derivative action against the corporation seeking damages arising from a reverse stock split. Haskins v. Haskins, 278 Ga. App. 514, 629 S.E.2d 504 (2006).
Cited in Dunn v. Ceccarelli, 239 Ga. App. 687, 521 S.E.2d 237 (1999).
- 19 Am. Jur. 2d, Corporations, § 1996 et seq.
- 18 C.J.S., Corporations, § 491 et seq.
- Laches as affecting right of corporation or its stockholders to relief against directors for violations of trust, 10 A.L.R. 370.
Right of stockholder to maintain derivative action based upon mismanagement or misfeasance by officers or directors prior to his acquisition of stock, 148 A.L.R. 1090.
Rights of stockholder of one corporation to maintain derivative action in right of another corporation stock of which is owned by the former corporation ("double derivative suit"), 154 A.L.R. 1295.
Right of former stockholder to maintain stockholder's suit, 168 A.L.R. 906.
Ownership of stock at time cause of action arose as condition of stockholder's right to maintain nonderivative action, 172 A.L.R. 512.
What law governs as to shareholder's right to maintain derivative action, 93 A.L.R.2d 1354.
Total Results: 1
Court: Supreme Court of Georgia | Date Filed: 1994-10-31
Citation: 264 Ga. 817, 450 S.E.2d 814, 94 Fulton County D. Rep. 3576, 1994 Ga. LEXIS 869
Snippet: in the shareholders’ derivative statute, OCGA § 14-2-741, requires a continuation of shareholder status