O.C.G.A. § 14-2-842 (2019)

Annotations

Editor’s notes. - Ga. L. 2017, p. 693, § 4/HB 192, not codified by the General Assembly, provides that: ‘‘This Act shall apply only to causes of action arising on or after July 1, 2017.’’

Law reviews. - For survey article on business associations law, see 59 Mercer L. Rev. 35 (2007). For survey article on trial practice and procedure, see 59 Mercer L. Rev. 423 (2007). For article, ‘‘2014 Georgia Corporation and Business Organization Case Law Developments,’’ see 20 Ga. St. B. J. 26 (April 2015).

COMMENT Source: Model Act, § 8.42. This section provides that a nondirector officer with discretionary authority must meet the same standards of conduct required of directors under Section 14-2-830. This preserves the identity of treatment that formerly existed in Georgia, under § 14-2-152.1. But an officer’s ability to rely on information, reports, or statements, may, depending upon the circumstances of the particular case, be more limited than in the case of a director in view of the greater obligation he may have to be familiar with the affairs of the corporation. See Section 14-2-842(b). This preserves their treatment in former § 14-2-152.1(b)(2). Nondirector officers with more

CORPORATIONS & PARTNERSHIPS

limited discretionary authority may be judged by a narrower standard, though every corporate officer or agent owes duties of fidelity, honesty, good faith, and fair dealing to the corporation. The Comment to Section 14-2-830 is generally applicable to nondirector officers as well as to directors. Subsection (a)(3) of the Model Act, which required officers to act in a manner they reasonably believe to be in the best interests of the corporation, was deleted from the Code. This is consistent with the provisions relating to directors, and preserves the existing standards of Georgia law. See Section 14-2-830(a). Subsection (b)(2) of the Model Act was amended to specifically mention investment bankers as experts upon whom officers may rely. This preserves former law under § 14-2-152.1(2)(B). This is consistent with the treatment of directors. See Section 14-2-830(b)(2). Subsection (d) of the Model Act was amended to limit its protection to claims brought on behalf of the corporation or its shareholders, in the same manner as Section 14-2-830(d). Cross-References Appointment of officers, see § 14-2-840. Director conflict of interest, see § 14-2-860 et seq. Director standards of conduct, see § 14-2-830. Duties of officers, see § 14-2-841. Indemnification, see § 14-2-850 et seq. Resignation and removal of officers, see § 14-2-843. JUDICIAL DECISIONS Business judgment rule applied. - In an action against directors and officers of a corporation for breach of fiduciary obligations, when there was evidence that the directors and officers consulted legal and financial experts throughout the solicitation and negotiation for a purchaser for the corporation, applying the business judgment rule, the directors and officers satisfied their statutory duties. Munford v. Valuation Research Corp., 98 F.3d 604 (11th Cir. 1996), cert. denied, 522 U.S. 1068, 118 S. Ct. 738, 139 L. Ed. 2d 675 (1998). In an action by non-rehired anesthesiologists against other anesthesiologists in their former group that were rehired by a hospital, the non-hired doctors failed to demonstrate a breach of fiduciary duty or fraud on the part of the doctors who were hired; they made a business judgment with advice of counsel and were free to prepare to compete prior to the group’s shareholders’ decision to terminate the group’s contract with the hospital. Sewell v. Cancel, 331 Ga. App. 687, 771 S.E.2d 388 (2015). Tortious interference with fiduciary relationship. - A claim against a

third party for tortious interference with the fiduciary relationship between a corporation and its officer is one for tortious interference with contractual rights, and states a claim under Georgia law sufficient to withstand summary judgment. Rome Indus., Inc. v. Jonsson, 202 Ga. App. 682, 415 S.E.2d 651, cert. denied, 202 Ga. App. 903, 415 S.E.2d 651 (1992). Fiduciary duty in corporate bankruptcy. - In a bankruptcy proceeding, revesting of corporate governance to the directors and officers carries with it a fiduciary obligation to creditors under both state law and the Bankruptcy Code. In re Concrete Prods., Inc., 208 Bankr. 1000 (Bankr. S.D. Ga. 1996). There is no meaningful difference between the two standards set forth in O.C.G.A. §§ 14-2-842(a)(2) and 51-1-2. Rosenfeld v. Rosenfeld, 286 Ga. App. 61, 648 S.E.2d 399 (2007), cert. denied, 2007 Ga. LEXIS 613 (Ga. 2007). Application in adversary proceeding in officer’s bankruptcy. - Duties of a debtor, as an officer and director of a corporation, as outlined in O.C.G.A. §§ 14-2-830 and 14-2-842, did not create any statutory fiduciary duties that, if

breached, would provide grounds for non-dischargeability under 11 U.S.C. § 523(a)(4). Omega Cotton Co. v. Sutton (In re Sutton), No. 07-06006, 2008 Bankr. LEXIS 2593 (Bankr. M.D. Ga. Oct. 2, 2008). Jury question as to whether duty of good faith breached. - To the extent that trust beneficiaries claimed that trustees, in their roles as corporate officers and directors of entities in which the trusts held shares, reduced the pro rata dividends paid through the entities or had retained earnings, there was no breach of fiduciary duty; but a jury question remained as to whether the trustees’ subjecting pro rata distributions to a code of conduct (for which there was no provision in the corporate documents) was in bad faith. Rollins v. Rollins, 338 Ga. App. 308, 790 S.E.2d 157 (2016).

Jury instructions. - The trial court properly charged the jury that a corporate officer’s fiduciary duty required the officer to exercise ‘‘all due care and diligence,’’ as there was no meaningful difference between this and the ‘‘ordinarily prudent person’’ standard of O.C.G.A. § 14-2-842(a)(2); furthermore, the trial court had first charged the standard as worded in the statute, then simply explained this standard as referring to ‘‘all due care and diligence.’’ Rosenfeld v. Rosenfeld, 286 Ga. App. 61, 648 S.E.2d 399 (2007), cert. denied, 2007 Ga. LEXIS 613 (Ga. 2007). Cited in Parks v. Multimedia Techs., Inc., 239 Ga. App. 282, 520 S.E.2d 517 (1999); Lubin v. Skow, No. 10-10011, 2010 U.S. App. LEXIS 12140 (11th Cir. June 14, 2010) (Unpublished).

RESEARCH REFERENCES Am. Jur. 2d. - 18B Am. Jur. 2d, Corporations, § 1426 et seq. C.J.S. - 19 C.J.S., Corporations, §§ 558 et seq., 575, 576. ALR. - Liability of corporation for fraud of officer for his own benefit but within his apparent authority, 43 ALR 615. Provision of constitution or statute making directors or officers of corporation liable for money embezzled or misappropriated, 46 ALR 1164. Right of creditor of corporation to maintain personal action against directors or officers for mismanagement, 50 ALR 462. Responsibility of corporation for misstatements by officer or employee to induce or influence purchase of stock, 66 ALR 1450. Assignability of claim against officers or directors of corporation for breach of duty, 80 ALR 875. Validity, construction, and effect of clause in obligation of corporation that it is issued without recourse against officers or directors, 97 ALR 1157. Sole actor doctrine where officer or agent of corporation acting adversely to it is its sole representative in the transaction, 111 ALR 665. Recovery against corporate directors or

officers for fraud or mismanagement as affected by releases, ratification, waiver, or consent by some, but not all, of the stockholders, 120 ALR 238. Construction and application of statutes making corporate officers or directors liable in respect of loans or advances to stockholders or officers, 129 ALR 1258. Personal liability of corporate directors or officers under statute imposing liability in respect of excessive indebtedness, as affected by payment by the corporation (or its receiver, assignee in insolvency, or trustee in bankruptcy) of all or part of the excessive indebtedness, 130 ALR 824. Personal liability of corporate directors or officers to third persons for restitution, or for damages for conversion, under circumstances rendering the corporation itself liable, 152 ALR 696. Accountability of corporate directors or officers for profit from activities beyond the corporate powers, but involving the use of information or opportunities available to them by reason of their position in the corporation, 153 ALR 663. Right of corporate officer to purchase corporate assets from corporation, 24 ALR2d 71. Liability of corporate directors or officers for negligence in permitting conver-

CORPORATIONS & PARTNERSHIPS

sion of property of third persons by corporation, 29 ALR3d 660. Liability of corporate officer or director for commission or compensation received from third person in connection with that person’s transaction with corporation, 47 ALR3d 373. What business opportunities are in ‘‘line of business’’ of corporation for purposes of determining whether a corporate opportunity was presented, 77 ALR3d 961. Personal civil liability of officer or director of corporation for negligence of subordinate corporate employee causing personal injury or death of third person, 90 ALR3d 916. Propriety of attorney who has repre-

sented corporation acting for corporation in controversy with officer, director, or stockholder, 1 ALR4th 1124. Financial inability of corporation to take advantage of business opportunity as affecting determination whether ‘‘corporate opportunity’’ was presented, 16 ALR4th 185. Purchase of shares of corporation by director or officer as usurpation of ‘‘corporate opportunity,’’ 16 ALR4th 784. Fairness to corporation where ‘‘corporate opportunity’’ is allegedly usurped by officer or director, 17 ALR4th 479. Liability of corporate director, officer, or employee for tortious interference with corporation’s contract with another, 72 ALR4th 492.