FIFTH DIVISION MCFADDEN, P. J., BRANCH and BETHEL, 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
March 15, 2018
In the Court of Appeals of Georgia A17A2097. GEORGIA APPRECIATION PROPERTY, INC. v. ENCLAVE AT RIVERWALK TOWNHOME ASSOCIATION, INC.
BRANCH, Judge.
Georgia Appreciation Property, Inc. (“GAP”) filed a declaratory judgment
action against Enclave at Riverwalk Townhome Association, Inc., challenging an
amendment to Enclave’s governing documents that increased restrictions on owners
who choose to lease out their townhome within the development. Enclave moved to
dismiss the action on the ground that GAP lacked standing to file what Enclave
contended was a derivative action. The parties also filed cross motions for summary
judgment on the merits of GAP’s claims. The trial court granted Enclave’s motion to
dismiss for lack of standing and further held that Enclave was entitled to summary
judgment on the merits. GAP appeals. For the reasons that follow, we hold that the
trial court correctly dismissed the action for lack of standing but that the portion of the trial court’s order that purports to enter judgment in favor of Enclave is void and
must be vacated.1
Normally a motion to dismiss for failure to state a claim turns on the allegations
of the complaint:
[a] motion to dismiss for failure to state a claim upon which relief may be granted should not be sustained unless (1) the allegations of the complaint disclose with certainty that the claimant would not be entitled to relief under any state of provable facts asserted in support thereof; and (2) the movant establishes that the claimant could not possibly introduce evidence within the framework of the complaint sufficient to warrant a grant of the relief sought. If, within the framework of the complaint, evidence may be introduced which will sustain a grant of the relief sought by the claimant, the complaint is sufficient and a motion to dismiss should be denied.
GeorgiaCarry.Org v. Atlanta Botanical Garden, 299 Ga. 26, 28 (1) (785 SE2d 874)
(2016) (citation omitted). And “[i]n deciding a motion to dismiss, all pleadings[2] are
to be construed most favorably to the party who filed them, and all doubts regarding
1 We have circulated this decision among all non-disqualified judges of the Court to consider whether this case should be passed upon by all members of the Court. Fewer than the required number of judges, however, voted in favor of considering the case en banc. 2 Courts are authorized to consider documents attached to pleadings when ruling on a motion to dismiss without converting the motion into one for summary judgment. See OCGA § 9-11-10 (c) (“A copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes.”); Lord v. Lowe, 318 Ga. App. 222, 223 (741 SE2d 155) (2012).
2 such pleadings must be resolved in the filing party’s favor.” Id. (citation and
punctuation omitted).
Nevertheless, a dismissal for failure to meet a procedural prerequisite to filing
suit, such as for a failure to make a demand in connection with a derivative suit, is a
dismissal due to a lack of subject-matter jurisdiction, which is a matter in abatement.
Pinnacle Benning, LLC v. Clark Realty Capital, LLC, 314 Ga. App. 609, 617-618 (2)
(a), n. 36 (724 SE2d 894) (2012); see also First Christ Holiness Church v. Owens
Temple First Christ Holiness Church, 282 Ga. 883, 885, n. 11 (655 SE2d 605) (2008)
(a challenge to the trial court’s subject matter jurisdiction is a matter in abatement).
And in considering a matter in abatement “a trial court is not confined to the
allegations of the complaint.” Equity Trust Co. v. Jones, 339 Ga. App. 11, 14 (792
SE2d 458) (2016) (citation and punctuation omitted).
Construed in favor of GAP, the record shows that at the time of the complaint,
GAP owned two of thirty-two townhomes of Enclave at Riverwalk, a real estate
development governed in part by a “Declaration of Protective Covenants, Conditions,
Restrictions and Easements.” With certain restrictions, the Declaration allowed a unit
owner to lease his or her unit for residential purposes. As of February 2016, GAP
leased out its two units as allowed by the Declaration.3
3 It is undisputed that corporations were authorized to own townhomes at Enclave.
3 After an unchallenged February 2016 amendment to the Declaration,4 the
Declaration provided that it could be amended by a vote of two thirds of the “Total
Association Vote” except where a higher vote is required by the Enclave bylaws or
by the Georgia Property Owners’ Association Act (the “POA Act”):
Except where a higher vote is required for action under any other provision[s] of this Declaration, the Bylaws or by the [POA] Act, this Declaration may be amended with the affirmative vote, written consent, or any combination thereof of Owners holding 2/3 of the Total Association Vote.
And “Total Association Vote” is defined in the Declaration to mean that unit owners
whose voting rights have been suspended are not counted as a part of the “Total
Association Vote”:
“Total Association Vote” means the votes attributable to the entire membership of the Association (including votes of Declarant) as of the record date for such action, but specifically excluding the votes of any Owners whose voting rights have been suspended as provided herein, whether or not such members are present or represented at the meeting, if any, where such votes are to be cast.
The February 2016 amendment to the Declaration also submitted the property and
Declaration to the provisions of the POA Act, OCGA § 44-3-220 et seq. As noted
above, the provision of the Declaration that allows amendments thereto is expressly
4 There is no indication that GAP objected to the February 2016 amendment.
4 subject to the terms of the POA Act. The POA Act has its own provision regarding
amendment of an instrument, such as a declaration,5 which provides:
Except to the extent expressly permitted or required by other provisions of this article, the instrument shall be amended only by the agreement of lot owners of lots to which two-thirds of the votes in the association pertain or such larger majority as the instrument may specify[.]
See OCGA § 44-3-226 (a) (emphasis supplied).
On May 17, 2016, Enclave proposed 17 amendments to the Declaration and the
bylaws of the Association and sought to obtain written consent to the amendments
from the unit owners. Consents were returned to Enclave, and on July 8, 2016,
Enclave published a notice to its members that it considered only 31 of 32 units
eligible to vote on the amendments because one owner’s right to vote had been
suspended based on a delinquent account.6 Enclave also announced that although
5 The POA Act defines “instrument” as “the declaration, plats, and plans recorded pursuant to this article,” and further provides that “[a]ny amendment . . . of any instrument shall, from the time of the recordation of such amendment or certification, be deemed an integral part of the affected instrument so long as such amendment . . . was made in accordance with this article.” OCGA § 44-3-221 (17). 6 Section 4. 7 of the Declaration provides: The Association may also suspend the membership rights of the delinquent Owner, including the right to vote, the right of enjoyment in and to the Common Property (other than access to such Owner’s Unit), the right of enjoyment in and to use the recreational amenities serving the Community pursuant to the Easement and Cost Sharing Agreement
5 some of the other amendments passed by a higher margin, proposed amendments 8,
11 and 12 had been approved with 21 affirmative votes. On October 5, 2016, Enclave
recorded an amendment to the Declaration on the county deed records (the “October
2016 Amendment”) based on the specific amendments that were deemed as having
the required number of votes; this amendment thereby went into effect on that day.
Proposed amendments 8, 11, and 12 are incorporated into and included in the October
2016 Amendment as sections 5, 8, and 9. And section 5 of the October 2016
Amendment imposed numerous additional restrictions on the ability of a lot owner
to lease its townhome in the development.
Of concern to GAP, prior to the October 2016 Amendment, GAP could lease
each of its townhomes unless title was “conveyed or transferred to another person or
entity” or the unit was “not subject to a lease for ninety (90) or more consecutive
days.” In its appellate brief (but nowhere in the trial court, as shown below), GAP
contends that the October 2016 Amendment stripped its right to continue to lease its
units so long as neither of these two conditions occurred. Instead, under the
amendment, GAP cannot continue leasing its units after the current tenants leave
because a required future leasing permit is only available to owners who have
“occupied the Unit as his or her principal and primary residence for more than thirty
and the right to receive and enjoy such servicing and other benefits as may then be provided by the Association.
6 (months), or satisfactorily demonstrate[d] to the Board that the Unit was purchased
by the Owner to be used as a place of residence of the Owner and/or Owner’s family.”
GAP argues on appeal that as a corporate owner, it could never qualify for a future
leasing permit and that, as the only corporate owner, it therefore was targeted by the
October 2016 Amendment.
In response to the October 2016 Amendment, GAP filed the present declaratory
judgment action on October 24, 2016. In Count I, GAP asserted that the POA Act
requires that all 32 members of the association must be counted for purposes of
amending the Declaration; that, accordingly, 22 votes were required to pass all
aspects of the October 2016 Amendment; that the amendment therefore is void in its
entirety; and that GAP was entitled to a declaration to that effect. In Count II, GAP
asserted that even if there were sufficient votes to pass the October 2016 Amendment,
various sections of the amendment “directly violate provisions of the [POA] Act,
other provisions of law [including the Constitutions of the State of Georgia and the
United States], or extend beyond provisions authorized by the Act.” GAP asserted
that it was therefore entitled to an order voiding certain provisions of the amendment.
In Count III, GAP asserted that the unlawful aspects of the October 2016 Amendment
as described in Counts I and II “could affect the substantive property rights of [GAP]
and the contractual relations between [GAP] and its tenants” and “could materially
damage [GAP] and other owners, monetarily and otherwise.” (Emphasis supplied.)
7 GAP asserted that it was entitled therefore to temporary and interlocutory injunctions
restraining Enclave from enforcing the October 2016 Amendment. In Count IV, GAP
averred that the amendment imposed additional leasing restrictions on its units
without GAP’s consent; that “the common law of Georgia requires a property owner’s
consent before a private party may impose substantive restrictions on the use of an
owner’s real property”; and that therefore, “[s]hould the [October] 2016 Amendment
not be found void under Count I,” GAP was entitled to an order invalidating “the
additional substantive use restrictions purported to be imposed” on its property under
the amendment. Finally, in Count V, GAP sought attorney fees allowed by the
Declaration for actions against the association for “[f]ailure to comply with this
Declaration, the Bylaws or the rules and regulations.”
Enclave moved to dismiss on multiple grounds: (1) that GAP did not have
standing to make the claims found in Counts I through IV because those claims were
derivative in nature and GAP had not satisfied the necessary prerequisites for
asserting such a claim; (2) that Count II seeks a mere advisory opinion; (3) that
Counts I through IV fail because the October 2016 Amendment was valid under the
POA Act; and (4) that GAP’s claim for attorney fees fails with these other claims. The
parties then filed cross-motions for summary judgment on the merits of GAP’s
claims.
8 GAP also moved for an interlocutory injunction against enforcement of the
October 2016 Amendment during the pendency of the litigation. GAP acknowledged
that other members were also leasing out their townhomes and argued that the an
injunction was necessary to avoid irreparable harm to all affected lot owners:
If the Association is not enjoined from enforcing the Disputed Amendments while this case proceeds in orderly fashion, significant irreparable harm will occur to the affected lot owners. The Association will continue to use threats of legal action and fines under the Disputed Amendments to force lot owners to dispose of their property or leave their properties vacant if the lot owner cannot occupy the unit. It would be inequitable to allow the Association to force irreparable harm on the affected lot owners based on the Disputed Amendments that are unlikely to survive challenge.
In support of its motion, GAP attached the affidavit of Scott Song, the spouse of a
non-plaintiff member who also leased out her property prior to the October 2016
Amendment; the affidavit details how the new leasing restrictions had affected that
member.
Ultimately, the trial court granted Enclave’s motion to dismiss on the ground
that GAP’s claims were derivative in nature and not properly before the court. The
court then held that “even if [GAP’s] claims were properly before the Court, the
Association would be entitled to summary judgment” because only 21 votes were
required under the POA Act and other reasons. The court also held that GAP’s claim
9 for fees failed. In its conclusion, the court granted Enclave’s motion to dismiss and
its motion for summary judgment and ruled that “Judgment shall be entered in favor
of Defendant and against Plaintiff.” GAP appeals.
1. In its first enumeration of error, GAP contends the trial court erred by
dismissing Count I of its complaint for lack of standing to pursue a derivative action.
We disagree.
Enclave was organized as a Georgia non-profit corporation pursuant to the
Georgia Nonprofit Corporation Code. See OCGA § 14-3-101 et seq.; see also OCGA
§ 44-3-227 (a). Under that Code, members of a non-profit corporation may, under
certain circumstances, file derivative proceedings. See OCGA §§ 14-3-740 through
14-3-747. In a nonprofit derivative suit,
a member asserts for the corporation’s benefit rights or remedies belonging to the corporation, not to the member. The wrong which the action seeks to redress is one which the corporation, not the individual, has sustained. Id. The member is a mere nominal party, having no right, title or interest in the claim itself. Id. One of the primary underlying reasons for the derivative action-especially applicable to nonprofits-is to avoid a multiplicity of lawsuits.
Dunn v. Ceccarelli, 227 Ga. App. 505, 507 (1) (a) (489 SE2d 563) (1997) (citations
and punctuation omitted) (physical precedent only), quoted with approval in Shorter
College v. Baptist Convention of Ga., 279 Ga. 466, 469 (1) (614 SE2d 37) (2005)
10 (“unless otherwise specifically noted, the fundamental rules and principles of law of
profit and business corporations are equally applicable to nonprofit corporations”)
(citation and punctuation omitted); see, e.g., Crittenton v. Southland Owners Assoc.,
312 Ga. App. 521, 524 (2) (718 SE2d 839) (2011) (applying derivative suit analysis
to a homeowners’ association case).
But derivative proceedings are not authorized unless certain requirements are
met, including that:
(1) A written demand has been made upon the corporation to take suitable action; and (2) Ninety days have expired from the date the demand was made unless the complainant has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the 90 day period.
OCGA § 14-3-742 (a).7 No such demand was made in this case.8
7 To bring such a suit, a member must also “[f]airly and adequately represent[ ] the interests of the corporation in enforcing the right of the corporation. OCGA § 14-2-741. 8 GAP’s complaint does not allege any such demand, and the only document offered as evidence of such a demand fails in that regard. The May 12, 2016 letter predates the vote on the amendments at issue and, obviously, the letter does not demand that Enclave take action to remedy the alleged improper vote, which was announced in July 2016.
11 Members or directors of nonprofit corporations may also bring direct actions
against the corporation, but “only if [the member] suffered a special injury as a result
of the [corporate wrong].” Dunn, 227 Ga. App. at 508 (1) (a). More specifically,
[T]o 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. . . . [T]o 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.
Phoenix Airline Svcs. v. Metro Airlines, 260 Ga. 584, 586 (1) (397 SE2d 699) (1990)
(citations and punctuation omitted.); see also Grace Bros. v. Farley Indus., 264 Ga.
817, 819 (2) (450 SE2d 814) (1994) (“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”).
(a) The determination of whether a claim is derivative or direct “is made by
looking to what the pleader alleged. It is the nature of the wrong alleged and not the
pleader’s designation or stated intention that controls the court’s decision.” Phoenix
Airline, 260 Ga. at 585 (1) (citations omitted). Here, GAP asserted in Count I that the
12 POA Act requires that all 32 members of the association must be counted for
purposes of amending the Declaration; that, accordingly, 22 votes were required to
pass all aspects of the October 2016 Amendment; that the October 2016 Amendment
therefore is void in its entirety; and that GAP was entitled to a declaration to that
effect.
First, as explained in Dunn, “[t]he right to fair and reasonable election
procedures inures to the benefit of all members, and absent [deprivation of an
individual member’s vote], a director’s interference with elections does not constitute
a separate and distinct injury creating a right of direct action in an individual
member.” Dunn, 227 Ga. App. at 508-509 (1) (a) (footnote omitted); see also Practice
Benefits, LLC v. Entera Holdings, LLC, 340 Ga. App. 378, 381 (2) (797 SE2d 250)
(2017) (“the right to proper election procedures inures to the benefit of all members”)
(footnote omitted). “Indeed, election procedures properly conducted in accordance
with the bylaws benefit all members; just as election irregularities harm all the
members of a corporation.” Crittenton, 312 Ga. App. at 524 (2) (footnote omitted).
In Crittenton, association members sought declaratory judgment as to whether
the defendant homeowners association and several board members had employed
proper election/voting procedures under the association’s bylaws. Id. at 524 (2). This
Court held that the plaintiffs essentially claimed “that defendants breached their
13 fiduciary duties owed to [the association] and all of its members.” Id. Therefore the
claims did not constitute claims for special injuries and were therefore derivative in
nature. Id. Accordingly, the individual plaintiff members of the association did not
have standing to bring a declaratory judgment action based on the assertion that
proper election/voting procedures had not been followed. Id. at 525.
The present case is similar. GAP seeks a ruling that Enclave failed to count the
votes that led to the October 2016 Amendment in accordance with the law.
Essentially, Count I alleges that Enclave, which is operated through its board,
violated the requirements of the POA Act when it counted the votes that led to the
adoption of an amendment. Thus, valid or invalid, the October 2016 Amendment
plainly affected all of the members of the association whether they were then leasing
out their townhomes or simply had a right to do so. The Song affidavit and GAP’s
motion for an interlocutory injunction confirm that one or more other members were
affected by the amendment. Further, any relief would come in the form of an order
from the trial court declaring that the amendment was void, which would affect every
members’ ability to lease out their townhome. Thus, in Count I GAP has not alleged
a “special injury,” i.e., one that is separate and distinct from that suffered by other
members. For the above reasons, we hold that GAPs claims in Count I are derivative
and not direct. Id. Compare Grace Bros., 264 Ga. at 820 (2) (where it is alleged “that
14 the effect of the controlling stockholders self-serving manipulation of corporate
affairs causes a singular economic injury to minority interests alone, the minority
have stated a cause of action for ‘special’ injury.”); Barnett v. Fullard, 306 Ga. App.
148 154 (4) (701 SE2d 608) (2010) (direct action authorized where minority
shareholder alleged that other shareholders caused corporation to forego distributing
a portion of corporate income to the minority shareholder to whom it was owed).
GAP’s reliance on Practice Benefits, 340 Ga. App. 378, is misplaced.9 In that
case, Practice Benefits, LLC, one of three members of a limited liability company
named Entera, alleged that (1) under an operating agreement to form Entera, it was
entitled to two votes regarding Entera’s affairs but that Entera’s manager refused to
allow Practice Benefits to cast two votes; (2) Entera later returned the entire initial
capital contributions of the other original members but failed to return Practice
Benefits’ share, to which it was entitled; and (3) Entera also made distributions to all
members except for Practice Benefits, in violation of the operating agreement. Id. at
378. Thus, as this Court held, Practice Benefits’s allegations showed that it was the
only owner affected by these alleged wrongdoings and therefore it had alleged a
separate and distinct injury. Id. at 381 (2).
9 Another recent case relied upon by GAP is inapposite. See SAWS at Seven Hills, LLC v. Forestar Realty, Inc., 342 Ga. App. 780 (805 SE2d 270) (2017) (does not address issue of whether claim is direct or derivative).
15 In sum, Count I of GAP’s complaint raised claims that were derivative in
nature but GAP failed to make a proper demand necessary to bring such a claim. The
trial court therefore did not err in dismissing Count I.
(b) As stated above, the trial court held that GAP lacked standing for Counts
I through IV because they were all derivative in nature. Yet on appeal, GAP failed to
include any argument or citation of authority to show that the trial court erred by
holding that GAP lacked standing on Counts II through IV. Accordingly, we deem
those arguments abandoned. Court of Appeals Rule 25 (c) (2) (“Any enumeration of
error that is not supported in the brief by citation of authority or argument may be
deemed abandoned.”). But even if we were to consider whether Counts II through IV
were also derivative in nature, we would come to the same conclusion with regard to
those counts. Those counts also raise wrongs that would affect every member in the
association. In fact, in Count III, GAP alleged that Enclave’s actions as described in
Counts I and II “could materially damage [GAP] and other owners.” The Song
affidavit and request for an interlocutory injunction support this conclusion, as well.
Thus, the trial court correctly dismissed Counts II and III because they were
derivative in nature.
In Count IV, GAP averred that the October 2016 Amendment imposed
additional leasing restrictions on its units without GAP’s consent; that “the common
16 law of Georgia requires a property owner’s consent before a private party may impose
substantive restrictions on the use of an owner’s real property”; and that therefore,
“[s]hould the [October] 2016 Amendment not be found void under Count I,” GAP
was entitled to an order invalidating “the additional substantive use restrictions
purported to be imposed” on its property under the amendment. As plead, this claim
fails as well for the same reason as Counts I through III. If Georgia law required the
consent of the owners of the townhomes at Enclave before the October 2016
Amendment could be effective, such a law would apply equally to all owners at
Enclave. Thus, again, GAP has not alleged a “special injury,” i.e., one that is separate
and distinct from that suffered by other members. Accordingly, the trial court did not
err by dismissing Count IV because it was derivative in nature.
(c) On appeal, GAP raises a new argument. It argues that it was uniquely
affected by Enclave’s alleged wrongdoing because it was the only corporate member
of Enclave at the time of the amendment and the amendment had a unique affect on
corporate members. We find no reference to this argument in the trial court. The
specific argument was not raised in the complaint, in GAP’s motion and brief for
summary judgment or theory of recovery and statement of material undisputed facts
filed in support thereof, in GAP’s response to Enclave’s motion to dismiss, in GAP’s
motion and brief in support of a motion for interlocutory injunction, in GAP’s brief
17 in response to Enclave’s motion for summary judgment, or during oral argument in
the trial court on these motions. Thus, the trial court never heard this claim before
ruling on the motion to dismiss.
In a background allegation in its complaint, GAP did allege the following:
The 2016 Amendment made changes in the recorded declaration that materially affect the property rights of Plaintiff to continue renting its units, which damage to property rights of Plaintiff are separate and independent from any rights belonging to Defendant.
But even if we were to conclude that this allegation was sufficient to raise GAP’s
“uniquely affected” argument in the trial court, we still conclude that GAP has not
alleged a “special injury,” i.e., one that is separate and distinct from that suffered by
other members of the association. Any member of the association was equally
affected by the changes to the declaration that affected corporate owners because any
member had the right under the declaration to own their property as a corporation and
to lease out their property as such; the rights and property value of each member
therefore was affected by the increased leasing restrictions.
In sum, the trial court correctly held that GAP’s claims should be dismissed on
the ground that GAP did not have standing to pursue a derivative claim against
18 Enclave and that the attorney fee claim accordingly fails as well. For this reason, we
hold that the trial court did not err in dismissing GAP’s claims. Nevertheless, we must
vacate the order below and remand for entry of an order dismissing GAP’s claims
without prejudice. “When a trial court is without jurisdiction over a declaratory
judgment claim because of a lack of justiciability, the proper disposition is for the
trial court to dismiss the claim without prejudice.” Strong v. JWM Holdings, LLC, 341
Ga. App. 309, 315 (2) (800 SE2d 380) (2017), citing Pinnacle, 314 Ga. App. at 614
(1). Second, the portion of the trial court’s order that purports to enter summary
judgment in favor of Enclave on the merits is void. “A judgment rendered by a court
without jurisdiction of the subject matter is absolutely void.” Williams v. Fuller, 244
Ga. 846, 848 (2) (262 SE2d 135) (1979) (citations omitted); see also OCGA § 9-12-
16 (“The judgment of a court having no jurisdiction of the person or the subject
matter or which is void for any other cause is a mere nullity and may be so held in any
court when it becomes material to the interest of the parties to consider it.”). We
19 therefore vacate the trial court order and remand the case with direction to enter a
dismissal without prejudice.10
Judgment vacated and case remanded with direction. Bethel, J., concurs.
McFadden, P. J., dissents.*
*THIS OPINION IS PHYSICAL PRECEDENT ONLY, COURT OF APPEALS
RULE 33.2 (a).
10 Practitioners should take note that the Court of Appeals of Georgia significantly amended its procedures on how dissenting opinions are treated as of December 4, 2017. Prior to that date, when a judge of the assigned division dissented to the majority opinion, the nondisqualified judges from the next two divisions participated in the decision for a total of nine judges. See former OCGA § 15-3-1 (e) (2015). See also former OCGA § 15-3-1 (c) (1996) (prior to 2015, judges from the next division plus the presiding judge of the following division were required to participate in the decision for a total of seven judges). The Appellate Jurisdiction Reform Act of 2016 permitted the Court of Appeals to establish new procedures by rule. Ga. L. 2016, p. 883. See also OCGA § 15-3-1 (c) (2) (authorizing the Court of Appeals to provide by rule for certain cases to be heard and determined by more than a single division). Effective December 4, 2017, Court of Appeals Rule 33.1 provides that a case will be heard and determined by a single division of the Court, except when the case is approved to receive en banc consideration by the entire Court. Any judge in the division may request that a poll be taken of the non-disqualified judges on the Court on the question of whether the case should be considered en banc. If the case is not taken en banc and there is a dissenting opinion, the majority opinion or portion thereof which is subject to the dissent is physical precedent only, that is, citable as persuasive but not binding authority. See Court of Appeals Rule 33.2 (a) (2).
20 A17A2097. GEORGIA APPRECIATION PROPERTY, INC. v. ENCLAVE AT RIVERWALK TOWNHOME ASSOCIATION, INC.
MCFADDEN, Presiding Judge, dissenting.
This is not a derivative proceeding. A derivative proceeding is “a civil suit in
the right of a . . . corporation[.]” OCGA § 14-3-740 (1). This proceeding is in the
right of the plaintiff, GAP, as the owner of real property. So I respectfully dissent.
The rights enjoyed by the owner of real property include the “unconditional
power of disposition[.]” OCGA § 44-6-20. That power can, of course, be abridged in
a variety of ways. GAP’s contention here is that, when Enclave attempted to abridge
that power over GAP’s objection, Enclave overstepped its authority.
Property owners’ associations like Enclave are creatures of statute, empowered
to administer developments. See OCGA § 44-3-221 et seq. A “development” is “real
property which contains lots” and is “subject to a declaration[.]” OCGA § 44-3-221
(18). A declaration is a “recordable instrument creating covenants upon property[.]”
OCGA § 44-3-221 (6). Property owners’s associations have the power to amend those
declarations and thereby impose new covenants upon property — but “only by the agreement of lot owners of lots to which two-thirds of the votes in the association
pertain or such larger majority as the instrument may specify[.]” OCGA § 44-3-226
(a).
Here Enclave undertook to amend the declaration so that GAP would be
prevented from leasing out its townhouses. GAP contends that the amendment is void
because Enclave attempted, by disqualifying a delinquent member, to specify a
smaller majority than the two-thirds required by statute.
There is no general rule that suits brought by members or shareholders against
corporations must be brought as derivative suits. “The general rule is that actions for
breach of fiduciary duties are to be brought in derivative suits.” Phoenix Airline
Servs. v. Metro Airlines, 260 Ga. 584, 585 (1) (397 SE2d 699) (1990) (citation
omitted). In a derivative suit, “the shareholder [or member] sues on behalf of the
corporation for harm done to it.” Phoenix Airline, 260 Ga. at 586 (1) (citation
omitted). “The [shareholder or] member is a mere nominal party, having no right, title
or interest in the claim itself.” Dunn v. Ceccarelli, 227 Ga. App. 505, 507 (1) (a) (489
SE2d 563) (1997) (citation omitted).
GAP is not complaining about harm done to Enclave. Nor is GAP attempting
to assert a right as a member of Enclave. Compare Dunn v. Ceccarelli, 227 Ga. App.
2 505 (“case involv[ing] challenges to the voting procedures in an election to a seat on
the board of a timeshare owners’ association.”). Rather, GAP complains of an
unauthorized abridgment of its own property rights.
So an inquiry into whether GAP falls into the “special injury exception,”
Phoenix Airline, 260 Ga. at 585, is misplaced. And it is irrelevant that other
townhouse owners who want to rent their units might be able to rely on a decision in
favor or GAP.
The complaint before us is a proper direct action, not a derivative action. The
trial court’s finding to the contrary should be reversed.