Artson, LLC v. David K. Hudson

• Court: Court of Appeals of Georgia
• Decided: July 12, 2013
• Docket: A13A0435
• Status: Published

Opinion

SECOND DIVISION BARNES, P. J., MILLER and RAY, JJ.

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/

July 12, 2013

In the Court of Appeals of Georgia A13A0435. ARTSON, LLC v. HUDSON.

MILLER, Judge.

Artson, LLC appeals the dismissal of its lawsuit against David K. Hudson for

failure to join indispensable parties to the action. Artson contends that the trial court

erred in (1) finding that certain individuals were indispensable parties; (2) dismissing

the complaint for failure to join indispensable parties because David Hudson did not

move to dismiss the complaint on that ground and waived that defense; and (3)

denying Artson’s motion for attorney fees pursuant to OCGA § 9-11-37. For the

reasons set forth below, we affirm.

When, as here, a question of law is at issue we owe no deference to the trial

court’s ruling and apply a de novo standard of review. See Suarez v. Halbert, 246 Ga.

App. 822, 824 (1) (543 SE2d 733) (2000). The record shows that Artson is a Virginia limited liability corporation

established in November 2003. Artson has four members—Lawyer and Doris Artis,

their daughter, Denise Hudson, and their son-in-law, David Hudson—each of whom

owns a twenty-five percent interest in the corporation. Artson was established for the

purpose of owning, selling, managing and trading real estate, stocks, securities and

other investments. Lawyer and David were the initial managing members of Artson

with authority to conduct business on Artson’s behalf, including the authority to

manage the corporation’s bank accounts and write checks therefrom.

At some point after 2003, Denise and David moved from Virginia to Marietta,

Georgia. In September 2008, Denise and David initiated divorce proceedings.

Thereafter, in January 2009, Lawyer, Doris and Denise signed a resolution removing

David as a managing member of Artson and revoking his authority to act on behalf

of the corporation.

Artson, by and through its managing member Lawyer, subsequently filed suit

against David in Cobb County Superior Court for conversion, an accounting and

attorney fees. David filed an answer and counterclaim, raising the defense of unclean

hands, and asserting a counterclaim for conversion, an accounting and attorney fees.

2 Thereafter, David filed a third-party complaint against Denise and a motion for

leave to add her as a third-party defendant. The third-party complaint alleged that

Lawyer owned and operated a separate business known as Artis Contracting and that

David and Denise owned and operated another separate business known as Acropolis

Management, LLC. The third-party complaint also alleged that Artson and Artis

Contracting shared business matters and finances with the knowledge of all of the

parties involved and that Artson funds were used to pay for Acropolis Management’s

cellular telephone bills and office supplies. Finally, the complaint alleged that Denise

should be jointly liable for any award against David because she received the same

benefit from the use of Artson’s funds as David and Lawyer. The trial court

subsequently entered a consent order adding Denise as a third-party defendant.

The parties subsequently engaged in contentious discovery, which culminated

in David filing a motion to compel the production of additional documents related to

Artson. The trial court denied David’s motion to compel and entered a consent order

resolving the parties’ discovery disputes.

Thereafter, David filed a motion for leave of court to add Doris as a party

defendant. David also filed a petition to pierce the corporate veil and to construe

3 Artson as Lawyer’s alter ego. Artson filed a motion for partial summary judgment or,

in the alternative, to strike or dismiss David’s counterclaim.

On January 31, 2011, the trial court held a hearing on David’s motion to add

Doris as a party defendant and Artson’s motion for partial summary judgment. At the

hearing, the trial court denied Artson’s motion for partial summary judgment and its

alternative motion to strike or dismiss David’s counterclaim. The trial court also ruled

that Lawyer and Doris were indispensable parties and that it lacked personal

jurisdiction over them. Thereafter, the trial court dismissed the case pursuant to

OCGA § 9-11-19. This appeal ensued.

1. Artson contends that the trial court erred in finding that Doris and Lawyer

were indispensable parties pursuant to OCGA § 9-11-19. We disagree.

OCGA § 9-11-19, which governs the joinder of necessary parties, provides that

persons subject to service of process shall be joined if complete relief cannot be

afforded in their absence, or they have an interest relating to the subject matter of the

action such that disposition in their absence may impair their ability to protect that

interest or may subject any parties to the action to a substantial risk of incurring

multiple or inconsistent obligations by reason of such interest. See OCGA § 9-11-19

(a). Where joinder of necessary parties is not feasable, the trial court shall determine

4 whether the parties are indispensable and the action should be dismissed. See OCGA

§ 9-11-19 (b).

Artson cites to no authority supporting its contention that Doris and Lawyer are

not indispensable parties. Accordingly, Artson’s argument in this enumeration is

deemed abandoned pursuant to Court of Appeals Rule 25 (c) (2). Nevertheless, as

more fully set forth in Division 2 below, Artson cannot show error because the trial

court properly dismissed this action after determining that Doris and Lawyer are

indispensable parties over which the trial court cannot exercise personal jurisdiction,

and after considering all five factors set forth in OCGA § 9-11-19 (b) for determining

whether this action should proceed. See Dixon v. Cole, 277 Ga. 353, 355 (1) (589

SE2d 94) (2003).

2. Artson contends that the trial court erred in dismissing the complaint

pursuant to OCGA § 9-11-19 because David did not file a motion to dismiss on that

ground and he waived the defense of indispensable parties. Again, we disagree.

The issue of failure to join an indispensable party must be asserted prior to

judgment or it is waived. See Adams v. Wright, 162 Ga. App. 550, 551 (1) (293 SE2d

446) (1982). The issue may be asserted, however, “in any pleading permitted or

ordered under subsection (a) of Code Section 9-11-7, or by motion for judgment on

5 the pleadings, or at the trial on the merits.” OCGA § 9-11-12 (h) (2).1 Furthermore,

the defense need not be asserted in writing. See Lee v. Collins, 249 Ga. App. 674, 676

(2) (547 SE2d 583) (2001) (holding that the trial court may consider a motion made

pursuant to OCGA § 9-11-12 (h) (2), even if the motion is not made in writing).

Moreover, a complaint may be dismissed for failure to join indispensable parties

when the trial court lacks jurisdiction over them. See Dixon, supra, 277 Ga. at 354

(1); Wright v. Safari Club Intl., 307 Ga. App. 136, 137 (706 SE2d 84) (2010).

The Civil Practice Act requires that pleadings be liberally construed in favor

of the pleader. See Glisson v. Hosp. Auth., 224 Ga. App. 649, 654 (1) (481 SE2d 612)

(1997). So construed, we find that David effectively, albeit inartfully, asserted the

1 Artson relies on this Court’s decision in Wiepert v. Stover, 298 Ga. App. 683 (680 SE2d 707) (2009), citing Klorer-Willhardt, Inc. v. Martz, 166 Ga. App. 446 (304SE2d 442) (1983), in support of its argument that David waived the issue of indispensable parties by not raising it in a motion to dismiss pursuant to OCGA § 9- 11-12. That statute plainly does not require the issue of indispensable parties to be raised in a motion to dismiss. See OCGA § 9-11-12 (h) (2). Moreover, Supreme Court authority indicates that the issue may be raised in a motion to dismiss, but does not require it. See Dixon, supra, 277 Ga. at 354-355 (1); see also Mathis v. Hammond, 268 Ga. 158 (486 SE2d 356) (1997). Accordingly, Wiepert, supra, 298 Ga. App. at 685 (2), Klorer-Willhardt, supra, 166 Ga. App. at 446 (1), Caswell v. Jordan, 184 Ga. App. 755, 759 (2) (362 SE2d 769) (1987), Jones v. Dykes, 231 Ga. App. 110, 111 (4) (497 SE2d 828) (1998), Kammerer Real Estate Holdings, LLC v. PLH Sandy Springs, LLC, 319 Ga. App. 393, 398 (3) (740 SE2d 635) (2012), and their progeny are disapproved to the extent they hold otherwise.

6 issue of indispensable parties in his pleadings. Notably, David asserted in his

amended answer, counterclaim and third-party complaint that all of Artson’s

shareholders used corporate funds for their respective personal uses and Doris and

Lawyer received the largest personal benefit from misappropriation of Artson’s

corporate funds. David also filed a motion to add Denise as a third-party defendant;

he filed a third-party complaint against Denise, alleging that she should be held

equally liable for any sum awarded to Artson; and he filed a petition to pierce the

corporate veil, alleging that Artson is a shell corporation and asking the trial court to

hold Lawyer and Denise personally liable. Moreover, David filed a motion to add

Doris as a party defendant, alleging that she committed the tort of conversion and

acted jointly with Denise. Based on the foregoing, the record shows that Artson was

well aware of David’s contention that Lawyer and Doris were necessary parties and

should have known that without their joinder its suit might not be able to proceed in

Georgia. Accordingly, we address the issue of whether the trial court properly

dismissed this action pursuant to OCGA § 9-11-19.

(a) Necessary Parties

OCGA § 9-11-19 (a) mandates joinder of persons where complete relief cannot

be afforded among those who are already parties. “When the presence of parties other

7 than those to the original action is required for the granting of complete relief in the

determination of a counterclaim[,] the court shall order them to be brought in as

defendants as provided in this chapter, if jurisdiction of them can be obtained.”

(Citation and punctuation omitted.) Gardner v. Gardner, 276 Ga. 189, 190 (576 SE2d

857) (2003); OCGA § 9-11-13 (h). The concept of complete relief as set forth in

OCGA § 9-11-13 and § 9-11-19 (a) (1) “embraces the desirability of avoiding

repetitive lawsuits on essentially the same facts or subject matter, as well as the

desirability of joining those in whose absence there might be a grant of hollow or

partial relief to the parties before the court.” (Citations and punctuation omitted.) Id.

Here, David alleged in his amended answer, counterclaim and third-party

complaint that all of Artson’s shareholders used corporate funds for their respective

personal use and Doris and Lawyer garnered the largest personal benefit from

misappropriation of corporate funds. In dismissing the case, the trial court specifically

found that the case essentially involves a dispute between all of the shareholders of

Artson and complete relief cannot be afforded to the parties in the absence of Doris

and Lawyer. Artson does not challenge these findings on appeal. Accordingly, Artson

failed to show that the trial court abused its discretion in determining that complete

relief cannot be afforded in Doris and Lawyer’s absence. See Gardner, supra, 276 Ga.

8 at 190-191 (1) (holding that trial court did not abuse its discretion in finding that

joinder of wholly-owned corporations was necessary to ensure just division of marital

assets in divorce action).

(b) Personal Jurisdiction

OCGA § 9-11-19 (a) limits joinder of persons as parties to those persons who

are subject to service of process. See Dixon, supra, 277 Ga. at 354 (1). At the hearing

on David’s motion to join Doris as a necessary party, Artson specifically argued and

the record shows that Doris and Lawyer, who are Virginia residents, are not subject

to jurisdiction under Georgia’s long-arm statute, OCGA § 9-10-91, because they meet

none of the requirements for personal jurisdiction set forth therein.2 Moreover, Artson

2 Georgia’s long-arm statute pertinently provides:

A court of this state may exercise personal jurisdiction over any nonresident or his or her executor or administrator, as to a cause of action arising from any of the acts, omissions, ownership, use, or possession enumerated in this Code section, in the same manner as if he or she were a resident of this state, if in person or through an agent, he or she: (1) Transacts any business within this state; (2) Commits a tortious act or omission within this state, except as to a cause of action for defamation of character arising from the act; (3) Commits a tortious injury in this state caused by an act or omission outside this state if the

9 acknowledges on appeal that Doris and Lawyer are not subject to service of process

in Georgia.

OCGA § 9-10-91 controls the scope of personal jurisdiction that Georgia

courts may exercise over nonresidents by requiring out-of-state defendants to own,

use or possess real property in Georgia or commit certain delineated acts within the

State before they can be subjected to personal jurisdiction in Georgia. See Innovative

Clinical, supra, 279 Ga. at 673; Oglesby v. Deal, 311 Ga. App. 622, 625 (1) (716

SE2d 749) (2011). There is no evidence showing that Doris and Lawyer own property

in Georgia or committed acts within the State that would subject them to long-arm

jurisdiction, consequently the trial court did not err in finding that it lacked personal

jurisdiction over them.

(c) Dismissal where joinder of a necessary party is not feasible.

tort-feasor regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this state; (4) Owns, uses, or possesses any real property situated within this state[.]

OCGA § 9-10-91. See also Innovative Clinical & Consulting Servs. v. First Nat. Bank, 279 Ga. 672, 675 (620 SE2d 352) (2005) (holding that long-arm jurisdiction over non-residents who transact business within the State reaches only to the maximum extent permitted by procedural due process).

10 Where, as here, “a person or entity described in OCGA § 9-11-19 (a) cannot

be made a party, OCGA § 9-11-19 (b) states [that] the court shall determine whether

in equity and good conscience the action should proceed among the parties before it

or should be dismissed, the absent person being thus regarded as indispensable.”

(Punctuation omitted.) Dixon, supra, 277 Ga. at 355 (1).

In determining if a party is indispensable, it is essential to consider whether relief can be afforded the [named parties] without the presence of the other party, and whether the case can be decided on its merits without prejudicing the rights of the other party. If there are no compelling reasons for joinder of the third parties, then they are not indispensable to the action[.]

(Citation and punctuation omitted.) Wilcher v. Way Acceptance Co., 316 Ga. App.

862, 867 (1) (730 SE2d 577) (2012); see also Sherman v. Dev. Auth., 317 Ga. App.

345, 348-349 (3) (730 SE2d 113) (2012).

OCGA § 9-11-19 (b) lists five factors to be considered by the trial court in

deciding whether a person who is not subject to the trial court’s jurisdiction is in fact

indispensable:

(1) To what extent a judgment rendered in the person’s absence might be prejudicial to him or to those already parties; (2) The extent to which, by protective provisions in the judgment, by the shaping of relief, or by

11 other measures, the prejudice can be lessened or avoided; (3) Whether a judgment rendered in the person’s absence will be adequate; (4) Whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder; and (5) Whether and by whom prejudice might have been avoided or may, in the future, be avoided.

Although a trial court generally should allow a reasonable time for joinder of an

indispensable party, immediate dismissal of a complaint is appropriate where the trial

court lacks personal jurisdiction over an indispensable party. See Dixon, supra, 277

Ga. at 355 (2).

Here, David had a pending motion to add Doris as a party to this action. At the

hearing on David’s motion, the trial court specifically noted that adding both Doris

and Lawyer to this action was necessary in order to provide complete relief.

Moreover, in determining that Doris and Lawyer were indispensable parties, the trial

court addressed each of the five factors set forth in OCGA § 9-11-19 (b). The trial

court specifically found that a judgment rendered in the absence of Doris and Lawyer

would be prejudicial to David; no available measures would lessen or avoid such

prejudice; a judgment rendered in Doris and Lawyer’s absence would be inadequate;

Artson has an adequate remedy because it can refile this action in Virginia where all

of its shareholders are subject to jurisdiction; and, in the absence of Doris and

12 Lawyer, David could not avoid prejudice because the fact-finder could not possibly

determine the rights, obligations and liabilities of the parties and David could not

adequately present his defenses. The trial court also found that complete relief could

not be afforded to the parties in the absence of Doris and Lawyer because this case

essentially involves a dispute between all four of Artson’s shareholders and David’s

counterclaim alleged that all of the shareholders used corporate funds for their

personal uses. Accordingly, the trial court did not err in dismissing Artson’s

complaint due to the absence of indispensable parties over which it lacked personal

jurisdiction. See Dixon, supra, 277 Ga. at 355 (1).

3. Artson contends that the trial court erred in denying its motion for attorney

fees pursuant to OCGA § 9-11-37 (a) (4) (B). We discern no error.

OCGA § 9-11-37 (a) (4) (B) provides for an award of expenses for a motion

for an order compelling discovery:

If the motion is denied, the court shall, after opportunity for hearing, require the moving party or the attorney advising the motion or both of them to pay to the party or deponent who opposed the motion the reasonable expenses incurred in opposing the motion, including attorney’s fees, unless the court finds that the making of the motion was substantially justified or that other circumstances make an award of expenses unjust.

13 (Emphasis supplied.) “A trial court has broad discretion to control discovery,

including the imposition of sanctions, and this Court will not reverse the trial court’s

ruling on such matters absent the showing of a clear abuse of discretion.” (Footnote

omitted.) Alexander v. A. Atlanta Autosave, Inc., 272 Ga. App. 73, 78 (5) (611 SE2d

754) (2005). Here, although the trial court denied David’s motion to compel, the

parties entered into a consent order resolving their discovery disputes. Moreover, in

denying Artson’s motion for attorney fees, the trial court specifically found that the

making of David’s motion to compel discovery was substantially justified and an

award of expenses would be unjust. Accordingly, we find no abuse of discretion in

the trial court’s denial of Artson’s motion for attorney fees pursuant to OCGA § 9-11-

37.

Judgment affirmed. Phipps, C.J., Andrews, P.J., Barnes, P.J., Ellington, P.J.,

Doyle, P.J., Dillard, McFadden, Boggs, Ray, Branch, and McMillian, JJ., concur..