Tracy Young v. Manning M. "Chip" Goldsmith, III

• Court: Court of Appeals of Georgia
• Decided: September 12, 2019
• Docket: A19A0864
• Status: Published

Opinion

FIRST DIVISION BARNES, P. J., MCMILLIAN, P. J., AND REESE, 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. http://www.gaappeals.us/rules

September 12, 2019

In the Court of Appeals of Georgia A19A0855. TMX FINANCE, LLC et al. v. GOLDSMITH et al. A19A0864. YOUNG et al. v. GOLDSMITH et al.

BARNES, Presiding Judge.

Jason Jue and Dr. Manning M. “Chip” Goldsmith, III, filed this direct action

against Tracy Young and TY ICOT Investments, LLC (collectively, the “Young

Defendants”) and against TMX Finance LLC, TitleMax of Texas, Inc., and TitleMax

of Georgia, Inc. (collectively, the “TMX Defendants”), alleging breach of a limited

liability company’s operating agreement, breach of fiduciary duty, breach of an option

agreement, fraud, and other claims. The Young Defendants filed a motion to dismiss

the plaintiffs’ amended complaint or, in the alternative, for judgment on the

pleadings, and the TMX Defendants filed a motion to dismiss the amended complaint.

The trial court entered orders denying the defendants’ respective motions. The defendants then filed applications for interlocutory appeal, which this Court granted,

leading to the present companion appeals. For the reasons discussed more fully

below, we conclude that the plaintiffs failed to state a claim for breach of the option

agreement, and we reverse the trial court’s orders to the extent that the court declined

to dismiss that claim. We affirm the trial court’s orders in all other respects.

We review de novo a trial court’s ruling on a motion to dismiss for failure to

state a claim upon which relief may be granted and/or on a motion for judgment on

the pleadings. Northway v. Allen, 291 Ga. 227, 229 (728 SE2d 624) (2012); City of

Albany v. GA HY Imports, 348 Ga. App. 885, 887 (825 SE2d 385) (2019).

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. In deciding a motion to dismiss, all pleadings are to be construed most favorably to the party who filed them, and all doubts regarding such pleadings must be resolved in the filing party’s favor.

(Citation and punctuation omitted.) Austin v. Clark, 294 Ga. 773, 774-775 (755 SE2d

796) (2014). See OCGA § 9-11-12 (b) (6). The same standard applies to a motion for

2 judgment on the pleadings, where, as here, “the parties moving for judgment on the

pleadings do not introduce affidavits, depositions, or interrogatories in support of

their motion.” (Citation and punctuation omitted.) Southwest Health & Wellness v.

Work, 282 Ga. App. 619, 623 (2) (639 SE2d 570) (2006). Additionally, the trial court

in addressing the aforesaid motions may consider “any exhibits attached to and

incorporated into the complaint and the answer.” (Citation and punctuation omitted.)

Islam v. Wells Fargo Bank, N. A., 327 Ga. App. 197, 197 (757 SE2d 663) (2014). See

Early v. MiMedx Group, 330 Ga. App. 652, 654 (768 SE2d 823) (2015). Mindful of

these principles, we turn to the pleadings and exhibits attached thereto in the present

appeals.

The Founding of ICOT. As alleged in the amended complaint, Goldsmith, a

neurologist who specializes in complex ear procedures, started ICOT Hearing

Systems, LLC (“ICOT Hearing”) to provide low-cost hearing aides. Jue became

involved in ICOT Hearing in its early stages and assisted in building the company

into a multi-million dollar enterprise. Jue ran the day-to-day operations of ICOT

Hearing as its sole manager.

ICOT Hearing is wholly owned by ICOT Holdings, LLC (“ICOT Holdings”).

Until the incidents at issue in this case, Jue and Goldsmith together held a majority

3 interest in ICOT Holdings and controlled ICOT Holdings and ICOT Hearing

(collectively, “ICOT”).

Young Becomes Involved in ICOT. Young is the founder of the TMX

Defendants, which are a “family of companies” consisting of title pawn companies

and other businesses, and he controls their operations. In August 2015, Young began

personally lending money to ICOT. Jue, Goldsmith, and Young knew that ICOT’s

“business model required additional cash beyond the accounts receivable for ICOT

to sustain operations and continue to grow at a rapid pace,” and that the goal of this

“accelerated growth” model “was to sell ICOT to a third-party for tens of millions or

hundreds of millions of dollars in the near term.” Young “repeatedly told Jue to ‘put

his foot on the gas’ with regard to the operations of ICOT” and assured Jue and

Goldsmith that he would provide more funding.

The Restructuring of ICOT. On March 16, 2016, ICOT Hearing, ICOT

Holdings, Jue, Goldsmith, Young, and Young’s limited liability company, TY ICOT

Investments (“TY Investments”), entered into a restructuring agreement under which

Young loaned additional funds to ICOT Hearing and guaranteed two bank loans (the

“Restructuring Agreement”). As part of the restructuring, TY Investments purchased

membership units from several minority members of ICOT Holdings and from

4 Goldsmith. TY Investments also obtained exclusive one-year options to purchase

additional membership units from several minority members and from Goldsmith. TY

Investments’s purchase of some of Goldsmith’s membership units and its option to

purchase additional units from him were memorialized in a Membership Interest and

Purchase Option Agreement entered at the time of the restructuring of ICOT Holdings

(the “Goldsmith Agreement”). Following the restructuring and prior to execution of

the options, Jue and Goldsmith retained their controlling interest in ICOT Holdings.

Additionally, as part of the restructuring, ICOT Holdings, Jue, Goldsmith, TY

Investments, and the other members of ICOT Holdings executed an Amended and

Restated Operating Agreement for ICOT Holdings, which, among other things,

placed certain duties on that company’s managers, including the duties to conduct the

business in good faith, to not engage in wrongful conduct, and to act in a manner that

would not result in improper personal benefit to them (the “Operating Agreement”).

Under the terms of the Operating Agreement, TY Investments acquired the power to

appoint one of three members of the board of managers of ICOT Holdings. Pursuant

thereto, TY Investments appointed Young as a manager of ICOT Holdings, and

Young agreed to comply with the terms of the Operating Agreement while serving

in that position.

5 Young’s Alleged Takeover Scheme Targeting Jue and Goldsmith. If TY

Investments had executed all of the options it had acquired from members of ICOT

Holdings as part of the restructuring, Young, through TY Investments, would have

acquired a majority interest in ICOT Holdings. However, according to the amended

complaint, Young devised a scheme to obtain a controlling interest in ICOT Holdings

through alternative means by causing an “existential funding crisis” at an opportune

moment that could be used to divest Goldsmith and Jue of control without having to

exercise the options.

Young Allegedly Implements His Takeover Scheme. In October 2016, two

“reputable capital providers” discussed providing funds to ICOT beyond what Young

had provided. The amended complaint alleged, however, that Young derailed these

readily available sources of additional funding so that he could use ICOT’s ongoing

“cash needs” as leverage over Jue and Goldsmith when the opportunity arose to

implement his takeover scheme.

In November 2016, a prospective third-party buyer that previously offered

$8,000,000 to purchase ICOT expressed renewed interest in reaching a purchase

agreement. Because of ICOT’s growth, the parties entered into negotiations and

discussed a purchase price of “approximately $100,000,000 for a sale at the end of

6 2016 or approximately $250,000,000 for a sale at the end of 2017.” In preparation for

a potential sale, ICOT Holdings negotiated and was approved for a line of credit from

United Community Bank (“UCB”) that would provide additional funds for the

payment of ongoing and ordinary business expenses (the “UCB Line of Credit”).

Young and Jue agreed to personally guarantee the UCB Line of Credit.

According to the amended complaint, after meeting with the prospective buyer,

Young “seized the opportunity to begin his takeover” by means of a funding crisis.

Because Jue and Goldsmith held a majority of the membership units in ICOT

Holdings and “stood to profit significantly from the sale of ICOT,” Young allegedly

“did not want the sale to happen until he had wrested control and ownership from Jue

and Goldsmith” and thereby could obtain a greater personal financial benefit from the

sale. Consequently, the amended complaint alleged, Young began implementing his

plan to create a funding crisis at ICOT that he could use as leverage over Jue and

Goldsmith and as a means of delaying a sale to the third-party buyer.

Although the UCB Line of Credit had already been negotiated and approved

for the purpose of paying ICOT’s ongoing business operations and Young and Jue

had agreed to personally guarantee the loan, Young allegedly refused to sign the

guarantee necessary for releasing the funds unless Jue and Goldsmith would agree to

7 provide him with warrants entitling him to purchase additional membership units

from them at a set price. Without the UCB Line of Credit, the amended complaint

alleged, Young knew that ICOT would be “unable to make its scheduled employee

payroll, unable to meet payment deadlines with vital component suppliers for ICOT’s

products, and unable to pay its marketing vendors which would result in all ICOT

advertisements and marketing being pulled.”

According to the amended complaint, the funding crisis caused by Young’s

refusal to sign the guarantee necessary to open the UCB Line of Credit ultimately

caused the third-party buyer to cease its negotiations for purchasing ICOT. At a

dinner with Jue, Goldsmith, and the buyer’s representative, Young allegedly

“represented the company’s financial health in a poor and false light to the buyer’s

representative,” stated that he wanted Jue terminated as manager of ICOT Hearing as

a condition for providing needed funding for ICOT, maintained that he did not “want”

ICOT if he could not control it, and threatened to dilute the membership interests of

Jue and Goldsmith. Allegedly based on Young’s statements and behavior at the

dinner, the third-party buyer backed out of the negotiations. And because Young

would not sign off on any further funding for ICOT when Jue and Goldsmith refused

8 to provide the requested warrants, ICOT remained in a state of financial crisis

induced by Young.

Inspection of ICOT’s Books and Records by the TMX Defendants. The

amended complaint further alleged that as part of his takeover scheme, Young began

questioning ICOT’s books and financial records, even though a third-party accountant

had found that ICOT’s finances were within “expected and acceptable parameters”

and ICOT had undergone three outside audits by three separate groups. Young

allegedly “brought in personnel from his [TMX] web of companies to inspect ICOT’s

books and operations,” falsely claiming that “he needed to look at the company

through a ‘static pool’ analysis” to properly gauge the company’s health. According

to the amended complaint, the TMX personnel were able to enter and inspect ICOT’s

books and operations “under the false representation that they were present at

Young’s request to inspect ICOT’s books and perform a financial analysis for

purpose of the proposed sale of ICOT” to a third-party buyer. But the amended

complaint alleged that the representations of Young and the TMX personnel were

false because “the personnel brought in by Young had the real purpose of learning

ICOT’s operations so that when Young seized control of ICOT, the operations of

ICOT could be run by Young’s people who were under Young’s control through their

9 employment in the TMX web of companies.” The TMX personnel also allegedly

represented ICOT’s financial numbers in a false light to support Young’s own

representations about ICOT’s books and finances.

Young Takes Control of ICOT Holdings’ Board of Managers. Under the terms

of ICOT Holding’s Operating Agreement, the company’s board of managers was

composed of three individuals, and Young and Jue were two of the appointed

managers. Pursuant to the Operating Agreement, the third manager was to be

proposed by Jue and approved by TY Investments. According to the amended

complaint, after creating the funding crisis at ICOT, Young took steps to take control

of ICOT Holdings’ board of managers through the wrongful appointment of the third

manager. In particular, the amended complaint alleged that after a vacancy opened on

the board of managers, Young extended an offer to his friend, Robert Pirkle, to serve

as the third manager, and Pirkle accepted. Jue initially agreed to the appointment of

Pirkle based on an alleged misrepresentation by Young, communicated through his

agent and attorney, “that Pirkle’s appointment was a requirement imposed by UCB”

before it would allow the UCB Line of Credit to be drawn upon by ICOT Holdings.

Despite the representation that the appointment of Pirkle to the board was necessary

so that ICOT Holdings could begin drawing on the UCB Line of Credit, Young

10 refused to authorize the draw after Jue gave his approval to Pirkle’s appointment. Jue

later sought to rescind his approval of Pirkle’s appointment, but by that point Pirkle

had already accepted the offer to serve as the third board member.

Termination of Jue. On February 24, 2017, a meeting of ICOT Holdings’ board

of managers was held in which Pirkle attended and cast votes as one of the three

managers on the board over the objections of Jue and Goldsmith. At the meeting,

Young and Pirkle voted in favor of terminating Jue as manager of ICOT Hearing over

the objection of Jue. The vote passed as a result of Pirkle’s participation. After Jue

was terminated as manager of ICOT Hearing, he resigned from his position on the

board of managers of ICOT Holdings in March 2017.

Dilution of Jue and Goldsmith. During the February 24, 2017 board meeting,

Young and Pirkle, over Jue’s objection, also voted in favor of issuing a capital call

in the amount of $6,000,000 to the members of ICOT Holdings. The capital call

would result in increased membership interest percentages for those members who

contributed their pro rata contributions to the capital call, and a corresponding

dilution of the interests of those members who were unable to contribute. According

to the amended complaint, at the time of the proposed capital call, the UCB Line of

Credit was available to provide funding to ICOT without need of the capital call.

11 However, rather than permit ICOT Holdings to draw upon the UCB Line of Credit,

Young allegedly sought the capital call for the specific purpose of diluting the

membership interests of Jue and Goldsmith, whom he knew could not contribute to

the capital call, and of increasing his own membership interest, after Jue and

Goldsmith had refused to provide him with the warrants he requested. Young also

allegedly contacted several minority members of ICOT Holdings and encouraged

them to make their pro rata contributions to the capital call so as to “build an alliance”

against Jue and Goldsmith.

The capital call was issued to the members of ICOT Holdings and required that

their pro rate contributions be made in March 2017. According to the amended

complaint, “Young singled out Goldsmith and Jue with respect to the capital call and

for the purpose of ensuring that neither would meet the capital call,” and to that end,

“[w]hen a second notice of the capital call was sent out to the members of ICOT

Holdings, it was not sent to Goldsmith and Jue.” After the capital call was issued,

some of the members of ICOT Holdings were able to contribute their pro rata shares

and thus not suffer dilution. However, as allegedly foreseen by Young, neither Jue

nor Goldsmith was able to make his pro rata contribution in response to the call,

leading to the dilution of both their membership interests in ICOT Holdings. Because

12 of the capital call and resulting dilution, as of March 2017, Jue and Goldsmith had

their membership interests reduced to “little or nothing,” and Young obtained a

majority, controlling interest in ICOT Holdings. After Young obtained control from

Jue and Goldsmith, he allegedly brought in the same TMX personnel who had

previously inspected ICOT Holdings’ books and operations to run ICOT for him.

Young’s Proposed Sale of ICOT. The amended complaint alleged that after Jue

and Goldsmith had their membership interests diluted and Young had taken control

of ICOT Holdings from them, Young contacted the same third-party buyer on March

15, 2017 and proposed the sale of ICOT at the “significant discount[ed]” price of

$40,000,000. According to the amended complaint, in light of the dilution that

occurred and the discounted sale price, Jue and Goldsmith would receive no money

from the sale to the third-party buyer, in contrast to Young, who would profit from

the sale.

The Direct Action. In March 2017, Jue and Goldsmith filed this direct action

against the Young Defendants and the TMX Defendants.1 In their complaint, as

1 In February 2017, ICOT Holdings, at the direction of Jue and Goldsmith, filed a derivative action against the Young Defendants. The derivative action was later dismissed without prejudice. The Young Defendants sought to reinstate the derivative action, but the trial court denied their motion, and this Court affirmed the trial court in an unpublished opinion. See ICOT Holdings, LLC v. Young, __ Ga. App. __ (Case

13 subsequently amended, the plaintiffs alleged that they had suffered injuries separate

and distinct from other ICOT members and asserted claims for breach of ICOT

Holdings’ Operating Agreement, breach of fiduciary duties, breach of the Goldsmith

Agreement, and fraud. The plaintiffs also sought to recover under the theories of civil

conspiracy and aiding and abetting liability, to pierce the corporate veils of the TMX

Defendants, and to obtain compensatory damages, attorney fees and expenses, and

punitive damages. Attached to the amended complaint as exhibits were, among other

documents, ICOT Holdings’ Restructuring Agreement, the Goldsmith Agreement,

and the Operating Agreement.

The defendants answered, denying liability, and the Young Defendants

attached multiple documents as exhibits to their answer, including the capital call

documents. In later moving to dismiss the plaintiffs’ amended complaint or, in the

alternative, for judgment on the pleadings, the Young Defendants contended that the

plaintiffs had failed to plead special injuries entitling them to pursue a direct rather

than a derivative action on behalf of ICOT Holdings and had failed to state any claims

upon which relief could be granted. In their motion to dismiss the amended

complaint, the TMX Defendants maintained that the plaintiffs were not entitled to

No. A18A1427, November 29, 2018) (unpublished), cert. denied (Aug. 5, 2019).

14 bring a direct action and had failed to state any viable claims against them. The trial

court denied the defendants’ respective motions.

Case No. A19A0864

1. The Young Defendants contend that the trial court erred by holding that the

plaintiffs, Jue and Goldsmith, pled special injuries permitting them to pursue their

claims in a direct action rather than a derivative action on behalf of ICOT Holdings.

According to the Young Defendants, the plaintiffs failed to allege any injuries they

sustained that were different from other members of ICOT Holdings, and thus they

were required to adhere to the procedural requirements for filing a derivative action

under the Georgia Limited Liability Company Act, OCGA § 14-11-100 et seq., which

the plaintiffs failed to allege that they had done. See Pinnacle Benning v. Clark Realty

Capital, 314 Ga. App. 609, 615 (2) (a) (724 SE2d 894) (2012) (discussing the

conditions that must be met for filing a corporate derivative action). We disagree.

A derivative suit is brought on behalf of a corporation for harm done to it, and any damages recovered are paid to the corporation. And although plaintiffs may bring direct actions for injuries done to them in their individual capacities by corporate fiduciaries, our Supreme Court has held that 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. In fact, to set

15 out an individual action, the plaintiff must allege either an injury which is separate and distinct from that suffered by other members, or a wrong involving a contractual right of a member which exists independently of any right of the corporation. Thus, for a plaintiff to have standing to bring an individual action, he must be injured directly or independently of the corporation. Furthermore, the determination of whether a claim is derivative or direct is made by looking to what the pleader alleged, and it is the nature of the wrong alleged and not the pleader’s designation or stated intention that controls the court’s decision.

(Punctuation and footnotes omitted.) Crittenton v. Southland Owners Assn., 312 Ga.

App. 521, 524 (2) (718 SE2d 839) (2011). See Grace Bros. v. Farley Indus., 264 Ga.

817, 819 (2) (450 SE2d 814) (1994); Phoenix Airline Svcs. v. Metro Airlines, 260 Ga.

584, 586 (1) (397 SE2d 699) (1990).

Among other things, the plaintiffs alleged in their amended complaint that they

held a controlling interest in ICOT Holdings, but that Young then ousted them from

control by orchestrating an unnecessary funding crisis in breach of his fiduciary

duties as a manager of ICOT Holdings and through false representations and

omissions about funding and other matters. The general rule is that the dilution of

shares and voting power does not constitute a separate and distinct injury different

from that suffered by the corporation and other shareholders, but that rule applies in

16 the circumstance “where the interests of all the shareholders were diminished in

proportion to their ownership.” (Emphasis supplied.) Southwest Health & Wellness

v. Work, 282 Ga. App. 619, 626 (2) (b) (639 SE2d 570) (2006). In contrast, as another

court has explained:

Stockholders may maintain an action on an individual basis, as distinguished from a derivative action, against directors, officers, or others for the redress of wrongs constituting a direct fraud upon them, as in the case where wrongdoers by fraud have seized control of the corporation from the complaining stockholders.

(Emphasis supplied.) Gieselmann v. Stegeman, 443 SW2d 127, 131 (Mo. 1969). See

19 Am. Jur. 2d Corporations § 1943 (database updated May 2019) (“A stockholder

may maintain an individual, as distinguished from a derivative, action against

directors, officers, or others for wrongs constituting a direct fraud on him or her, such

as losing control of the corporation as a result of fraud.”) (footnotes omitted). That

is the situation alleged here. Accordingly, because of the plaintiffs’ loss of control

resulting from the alleged breach of fiduciary duties and fraud specifically targeted

at them by Young, the alleged harm to the plaintiffs was different from that

experienced by ICOT Holdings and its minority members, and the plaintiffs thus

sufficiently pled a special injury. See Argentum Intl. v. Woods, 280 Ga. App. 440, 447

17 (2) (e) (634 SE2d 195) (2006) (special injury shown because plaintiff-shareholders’

“claims for fraud and conspiracy [were] personal to them”).2

Additionally, the amended complaint alleged that the Young Defendants

breached the Goldsmith Agreement, and Goldsmith was entitled to bring a direct

action for the alleged breach of a contractual right owed specifically to him. See

Bobick v. Community & Southern Bank, 321 Ga. App. 855, 869 (4) (b) (743 SE2d

518) (2013) (claim of breach of fiduciary duty predicated on allegation that company

breached agreement to renew loan “clearly was not a shareholder derivative claim”);

2 See also Horwitz v. Balaban, 112 F. Supp. 99, 101-102 (S. D. N. Y. 1949) (“A stockholder has a personal right of action to attack and avoid a fraudulent increase of stock made and issued to another which results in depriving him of his relative position as a stockholder. A suit to protect this personal, primary right is not derivative because it is not maintained in the right of the corporation or brought on its behalf.”); Gatz v. Ponsoldt, 925 A2d 1265, 1281 (III) (B) (2) (Del. 2007) (noting allowance of direct actions in cases where “the fiduciary exercises its control over the corporate machinery to cause an expropriation of economic value and voting power from [certain] shareholders”); Kollman v. Cell Tech Intl., 279 P3d 324, 336 (Or. 2012) (applying Delaware law and concluding that direct action authorized where “the series of events culminating in the breach of fiduciary duty were not intended to – and did not – equally harm all shareholders. Rather, that breach advanced [the defendant’s] goal of eliminating [the plaintiff’s] participation in every aspect of corporate management and affairs.”); 12B Fletcher Cyc. Corp. § 5915 (database updated Sept. 2018) (noting that direct action can be pursued based on “acts depriving one of the advantage of majority control” or “where an unlawful increase of stock ousts the complaining shareholders from their position as controlling shareholders”).

18 Crittenton, 312 Ga. App. at 524 (2) (plaintiff can bring direct claim for breach of

contractual right owed to plaintiff rather than to corporation). Furthermore, Jue was

entitled to bring a direct action based on his alleged wrongful termination from his

position as manager of ICOT Hearing. See Kollman, 279 P3d at 333-336 (plaintiff

who had been a director, officer, and manager of corporation suffered “a unique

harm” where, among other things, “his employment was terminated” as result of

deceptive scheme by defendants).

For these reasons, the “allegations in the amended complaint, construed in the

light most favorable to [the plaintiffs], and with all doubts resolved in [their] favor,

do not disclose with certainty that [the plaintiffs] would not be entitled to relief under

the ‘special injury’ exception.” Practice Benefits v. Entera Holdings, 340 Ga. App.

378, 381 (2) (797 SE2d 250) (2017).3 Accordingly, the trial court committed no error

3 The Young Defendants also contend that the plaintiffs made an admission in judicio in the trial court that ICOT Holdings and all of its members were harmed by the Young Defendants’ alleged misconduct, and, therefore, have admitted that they did not sustain a special injury. However, “alleged admissions in judicio may be read in context to determine [their] meaning.” (Citation omitted.) Meinhardt v. Christianson, 314 Ga. App. 705, 709 (2) (b) (725 SE2d 828) (2012), citing Morgan v. Howard, 285 Ga. 512, 513 (3) (678 SE2d 882) (2009). The plaintiffs’ purported admission was made in the context of their response to a motion filed by ICOT Holding to disqualify plaintiffs’ counsel in this case because the same counsel had represented ICOT Holdings in the prior derivative action that was voluntarily dismissed. See supra footnote 1. When read in context, the plaintiffs response to that

19 in concluding that the plaintiffs could pursue their causes of action against the Young

Defendants in a direct rather than derivative action.

2. The Young Defendants next argue that the trial court erred by holding that

the plaintiffs stated a claim for breach of ICOT Holdings’ Operating Agreement

and/or breach of fiduciary duty. Again, we disagree.

“Under OCGA § 14-11-305 (1), the managing members of a limited liability

company owe fiduciary duties to the company and its member investors.” Practice

Benefits, 340 Ga. App. at 380 (2). But “any fiduciary duties that a member of an LLC

has may be modified or eliminated (with a few exceptions) by the operating

agreement” pursuant to OCGA § 14-11-305 (4). Ledford v. Smith, 274 Ga. App. 714,

724 (2) (a) (618 SE2d 627) (2005). Here, Section 4.3 of ICOT Holdings’ Operating

Agreement set out the following duties of managers:

(d) Duties. Each Manager shall conduct the business and affairs of the Company: (i) in good faith; (ii) in accordance with this Agreement; and (iii) in a manner that does not (x) constitute gross negligence or any intentional misconduct, (y) involve unlawful acts or omissions that the

motion clearly aimed to show that the interests of ICOT Holdings in the prior derivative action and of the plaintiffs in the present direct action were not materially adverse and that the disqualification of plaintiffs’ counsel thus was not warranted. Nowhere in their response to the motion did the plaintiffs state that they suffered no special injuries compared to ICOT Holdings and its other members.

20 Manager knows or has reasonable cause to know are clearly unlawful, or (z) result in any improper personal benefit to the Manager (which, consequently, excludes any benefit derived by the Manager from any activity or investment permitted under this Agreement or otherwise approved by a Majority in Interest). . . .

According to the Young Defendants, the plaintiffs’ amended complaint

essentially alleged that Young, while serving as a manager of ICOT Holdings,

violated his fiduciary duties as set out in Section 4.3 of the Operating Agreement by

declining to provide additional funding for ICOT Holdings beyond the amounts he

loaned and guaranteed under the Restructuring Agreement. The Young Defendants

maintain that Young’s failure to provide such increased funding did not violate any

duties imposed upon ICOT Holdings’ managers by the Operating Agreement and thus

could not support a claim for breach of that agreement and/or for breach of fiduciary

duty. The Young Defendants also argue that Young did not breach any fiduciary

duties by voting for a capital call that led to the dilution of the plaintiffs’ membership

interests because the Operating Agreement allowed the board of managers of ICOT

Holdings to approve calls for additional capital contributions.

We are unpersuaded. Contrary to the Young Defendants’ contention, the

plaintiffs’ amended complaint did not simply allege that Young violated his fiduciary

21 duties under Section 4.3 of the Operating Agreement by failing to provide additional

funding to ICOT Holdings beyond the loan and guarantees set out in the

Restructuring Agreement and by voting for a capital call that led to dilution. Rather,

as previously noted, the amended complaint alleged that to carry out his scheme to

oust the plaintiffs from their position of control over ICOT Holdings, Young refused

to sign the necessary documents for opening the UCB Line of Credit, which had

already been negotiated and approved for the purpose of paying the company’s

ongoing business operations and which Jue and Young had already agreed to

personally guarantee, solely because he wanted to create a funding crisis for ICOT

Holdings that would provide him with leverage over the plaintiffs. The amended

complaint further alleged that solely for the purpose of implementing his takeover

scheme, Young derailed additional funding from two other “reputable capital

providers” that was needed to meet ICOT Holdings ongoing cash needs, and he made

false representations about ICOT Holdings’ financial condition to the prospective

third-party buyer so as to delay any sale and further increase his leverage over the

plaintiffs. Additionally, the amended complaint alleged that Young, through his agent

and attorney, made false representations to Jue about UCB requiring that Pirkle be

appointed to ICOT Holdings’ board of managers so that Pirkle would be appointed

22 to the board and Jue would be terminated, and then orchestrated a capital call for the

sole purpose of ousting the plaintiffs from control even though the UCB Line of

Credit had been approved and was available to provide funding to ICOT without need

for such a call. Based on these allegations, the amended complaint asserted, among

other things, that Young had acted in bad faith, had engaged in intentional wrongful

conduct, and had acted for the purpose of obtaining an improper personal benefit.

Viewed in the light most favorable to the plaintiffs and with all doubts

construed in their favor, the amended complaint does not disclose with certainty that

the plaintiffs would not be entitled to relief under any state of provable facts. See,

e.g., McCabe v. Rainey, 343 Ga. App. 480, 488 (2) (c) (806 SE2d 867) (2017) (trial

court erred in granting summary judgment to defendant manager, where there was

evidence that he “intentionally mismanaged the business” in violation of settlement

agreement and/or in breach of his fiduciary duties); ULQ, LLC v. Meder, 293 Ga.

App. 176, 178-180 (1) (666 SE2d 713) (2008) (summary judgment properly denied

where there was evidence that manager acted unreasonably and in bad faith in

violation of operating agreement by terminating officer “for the purpose of indirect

personal pecuniary gain”). Consequently, the trial court committed no error in

23 denying the Young Defendants’ motion to dismiss the plaintiffs’ claim for breach of

the Operating Agreement / breach of fiduciary duty.

3. The Young Defendants further contend that the trial court erred by holding

that the plaintiffs’ amended complaint stated a claim for breach of the Goldsmith

Agreement. We agree.

The plaintiffs’ amended complaint did not allege that Young, through TY

Investments, violated the Goldsmith Agreement by failing to pay for Goldsmith’s

membership units that he promised to purchase or failing to pay for the option to

purchase additional units from Goldsmith. Rather, the amended complaint alleged

that Goldsmith agreed to give TY Investments an exclusive one-year option to

purchase additional membership units from him “in exchange for Young comporting

with the terms of the Operating Agreement.” The amended complaint further alleged

that as a result, when Young violated his fiduciary duties as manager of ICOT

Holdings that were set out in Section 4.3 of the Operating Agreement (as discussed

supra in Division 2), he failed to carry out what he had promised to do in return for

the grant of the one-year exclusive option.

However, the Goldsmith Agreement, which was attached to the amended

complaint, provided the following with respect to the grant of the option:

24 A. Grant of Option. For and in consideration of the Young Line of Credit as set forth in the Restructuring Agreement, together with one hundred and 00/100 dollars ($100.00), the receipt and sufficiency of which are hereby acknowledged (the “Consideration”), upon and subject to the terms and conditions set forth below, Seller hereby grants to Buyer the option to purchase 291,928 Units of the Company . . . .

(Emphasis supplied.) As made clear by this specific contractual provision,

Goldsmith’s grant of the option to Young was in exchange for the receipt of $100 and

Young’s agreement to the “Young Line of Credit as set forth in the Restructuring

Agreement,” not in exchange for Young’s promise to comply with all of his duties as

a manager as set forth in Section 4.3 of the Operating Agreement.While the amended

complaint alleged otherwise, “[t]o the extent that there is any discrepancy between

the allegations in the complaint and the exhibits attached to it, the exhibits control.”

Racette v. Bank of America, N. A., 318 Ga. App. 171, 172 (733 SE2d 457) (2012).

It is true that an introductory paragraph of the Goldsmith Agreement provided:

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, including, but not limited to those transactions set forth in that certain Restructuring Agreement . . . , the parties hereto agree as follows . . . .

25 The Goldsmith Agreement then went on to include more specific provisions,

including provisions about Goldsmith’s agreement to sell some of his membership

units to Young at a set price, about his agreement to grant an option to Young to

purchase additional units at a certain price, and about the various representations and

warranties being made by the parties.

Even if the introductory paragraph could be construed as including the parties’

compliance with the Operating Agreement as part of the consideration for the

Goldsmith Agreement, “under general rules of contract construction, a limited or

specific provision will prevail over one that is more broadly inclusive.” (Punctuation

and footnote omitted.) Swisshelm v. Dept. of Human Resources, 253 Ga. App. 816,

817 (560 SE2d 722) (2002). Hence, the specific provision of the Goldsmith

Agreement addressing the particular consideration for Goldsmith’s grant of the

exclusive, one-year option prevails over the introductory paragraph.

For these reasons, the trial court erred in failing to grant the Young Defendants’

motion to dismiss the plaintiffs’ claim for breach of the Goldsmith Option Agreement

for failure to state a claim upon which relief could be granted.

4. The Young Defendants maintain that the trial court erred by holding that the

plaintiffs stated a claim for fraud. We do not agree.

26 “The tort of fraud has five elements: a false representation by a defendant,

scienter, intention to induce the plaintiff to act or refrain from acting, justifiable

reliance by plaintiff, and damage to plaintiff.” (Citation and punctuation omitted.)

Insight Technology v. FreightCheck, 280 Ga. App. 19, 28 (5) (633 SE2d 373) (2006).

“Although fraud must be pled with particularity under OCGA § 9-11-9 (b), a

complaint alleging fraud should not be dismissed for failure to state a claim unless

it appears beyond a doubt that the pleader can prove no set of facts in support of his

claim which would entitle him to relief.” (Citation and punctuation omitted). Roberts

v. Nessim, 297 Ga. App 278, 284-285 (2) (676 SE2d 734) (2009).

Here, the amended complaint alleged that as part of his scheme to oust the

plaintiffs from their position of control over ICOT Holdings, Young “made several

misrepresentations of material fact.” More specifically, the amended complaint

alleged that Young, individually and through TY Investments, failed to disclose his

scheme to “to use the funding of ICOT as a means to extract more equity in ICOT

Holdings from [the plaintiffs],” and instead assured the plaintiffs that ICOT Holdings’

funding “was secure,” even though he knew that his representation was false and

made the representation only to induce the plaintiffs to forego any effort to obtain

alternative sources of financing so that he could orchestrate a funding crisis. The

27 amended complaint further alleged that the plaintiffs relied on Young’s assurances

about the availability of funding and that if they had “known Young was making false

representations and would ultimately seek to use his financial leverage to remove

them from ICOT, [they] could have lined up other sources of financing. However,

given the timing of Young’s actions, [the plaintiffs] were left with no options.”

Additionally, the amended complaint alleged that Young, individually and

through TY Investments, “falsely represented that discrepancies in ICOT’s books

required analysis by persons from [the TMX Defendants],” and falsely claimed that

he needed to have ICOT evaluated through a “static pool” analysis to properly

evaluate its financial health. The amended complaint further alleged that Young’s

representations about the financial condition of ICOT and the need for an inspection

of the company’s books and records were pretextual because his “real purpose” was

to have the TMX personnel learn ICOT’s operations so that Young and TY

Investments “could immediately take operational control of ICOT from [p]laintiffs

and replace . . . Jue once he was terminated by the vote of Young and Pirkle,” and so

that Young could have the same TMX personnel immediately begin running the

company once the takeover occurred. According to the amended complaint, the TMX

personnel were able to enter ICOT and inspect its records based on “the false

28 representation that they were present at Young’s request to inspect ICOT’s books and

perform a financial analysis for [the] purpose of the proposed sale of ICOT” to a

third-party buyer.

Furthermore, the amended complaint alleged that Young’s agent and attorney,

acting at his behest, conveyed to Jue the false representation that Pirkle’s appointment

to the board of managers of ICOT Holdings “was a condition imposed by [UCB]

before ICOT could draw on the line of credit for funds it needed to continue its

operations.” According to the amended complaint, in reliance upon the

representation, “Jue initially consented to Pirkle’s appointment under the belief that

it was necessary for ICOT to draw upon the line of credit needed for operating

expenses,” which resulted in Pirkle’s appointment to the board and the termination

of Jue from his position as manager of ICOT Hearing.

The amended complaint alleged that when Young made these representations,

“he knew they were false,” that the plaintiffs justifiably relied on the false

representations and omissions made by the Young and TY Investments, and that the

plaintiffs suffered “substantial economic harm” as a result of the misrepresentations

and omissions.

29 Given these allegations, we cannot say that it appears beyond a doubt that the

plaintiffs can prove no set of facts in support of their claim for fraud that would

entitled them to relief. See Siavage v. Gandy, __ Ga. App. at __ (2) (829 SE2d 787)

(2019); Hedquist v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 284 Ga. App. 387,

394 (2) (b) (643 SE2d 864) (2007). To the extent that the Young Defendants maintain

that the amended complaint failed to allege each of the elements of fraud with

sufficient particularity under OCGA § 9-11-9 (b), “the proper remedy for seeking

more particularity is by motion for a more definite statement at the pleading stage or

by the rules of discovery thereafter,” not by filing a motion to dismiss. (Citation and

punctuation omitted.) Odom v. Hughes, 293 Ga. 447, 455 (3), n. 6 (748 SE2d 839)

(2013). See Pampattiwar v. Hinson, 326 Ga. App. 163, 170 (1), n. 3 (756 SE2d 246)

(2014).

The Young Defendants, however, contend that each of the plaintiffs’

allegations of fraud had fatal flaws. First, according to the Young Defendants, the

plaintiffs’ allegation that Young failed to disclose his scheme “to use the funding of

ICOT as a means to extract more equity in ICOT Holdings from [the plaintiffs]” was

“proven incorrect by the agreements attached to the Amended Complaint and [thus

could not] serve as the basis for any fraud claim.” Specifically, the Young Defendants

30 contend that the failure-to-disclose claim was contradicted by the plain terms of the

Restructuring Agreement, which provided “on its face” that TY Investments was

acquiring options to purchase additional equity in ICOT Holdings. The Young

Defendants also argue that Operating Agreement made clear that the board of

managers of ICOT Holdings could call for additional capital contributions with the

result that members’ shares could be diluted. However, it is plain from the amended

complaint that the plaintiffs were alleging that what Young failed to disclose was his

scheme to obtain a controlling interest in ICOT Holdings by causing an unnecessary

“existential funding crisis” at an opportune moment that could be used as leverage to

divest Goldsmith and Jue of control. Such a scheme clearly was not disclosed by the

terms of the Restructuring Agreement or the Operating Agreement, and thus the

Young Defendants’ arguments based on those agreements is misplaced.

The Young Defendants also contend that the plaintiffs’ allegations that Young

made false representations about additional funding were barred by the merger clause

contained in the Restructuring Agreement, which provided:

This Agreement, the Loan Documents, the Option Agreement and the Membership Sale Documents constitute the entire agreement between the parties hereto and supercedes all prior agreements, if any,

31 understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof.

We agree that the merger clause would bar claims based on Young’s alleged

misrepresentations about funding that were made prior to or contemporaneous with

the execution of the March 2016 Restructuring Agreement that contradicted the terms

of that contract. See First Data POS v. Willis, 273 Ga. 792, 794-795 (2) (546 SE2d

781) (2001) (“In written contracts containing a merger clause, prior or

contemporaneous representations that contradict the written contract cannot be used

to vary the terms of a valid written agreement purporting to contain the entire

agreement of the parties, nor would the violation of any such alleged oral agreement

amount to actionable fraud.”) (punctuation and footnote omitted). But the merger

clause would not apply to new misrepresentations about additional funding sources

made by Young after execution of the Restructuring Agreement, such as a

representation by Young that additional funding “was secure” when in fact he

allegedly had no intention of signing off on funding from other sources, such as the

UCB Line of Credit, without first obtaining additional equity from the plaintiffs. See

Northwest Plaza v. Northeast Enterprises, 305 Ga. App. 182, 192 (3) (b), n. 4 (699

SE2d 410) (2010) (merger clause did not bar fraud claim, where “[t]he

32 representations at issue in this case occurred after the Agreement was signed”).4

Accordingly, we cannot say that within the framework of the amended complaint, the

plaintiffs would be unable to come forward with evidence of fraudulent

representations about additional funding that fell outside the scope of the merger

clause in the Restructuring Agreement.5

Additionally, the Young Defendants argue that the plaintiffs could not have

reasonably relied on Young’s alleged misrepresentations about additional funding

having been secured, about Pirkle’s appointment to the board of managers being

required by UCB for the UCB Line of Credit, and about the need for an inspection of

ICOT Holdings’ books by the TMX Defendants. We are unpersuaded. Because

Young was a manager of ICOT Holdings and thus owed fiduciary duties to its

members, including the plaintiffs, as set out in the Operating Agreement,6 “we cannot

4 A merger clause also “does not prevent a claim of fraud arising from representations in the contract itself.” Conway v. Romarion, 252 Ga. App. 528, 532 (2) (557 SE2d 54) (2001). 5 The Young Defendants further maintain that the plaintiffs’ allegations that Young made false representations and omissions are barred by the economic loss rule, but “[t]he economic loss rule is inapplicable in the presence of passive concealment or fraud.” Holloman v. D.R. Horton, Inc., 241 Ga. App. 141, 148 (4) (524 SE2d 790) (1999). 6 See supra Division 2.

33 say beyond a doubt that [the plaintiffs] could present no evidence showing that [they]

justifiably relied on any representations by [Young].” Stafford v. Gareleck, 330 Ga.

App. 757, 762-763 (2) (769 SE2d 169) (2015). See Northwest Plaza v. Northeast

Enterprises, 305 Ga. App. 182, 191 (3) (a) (699 SE2d 410) (2010) (“Issues of

justifiable reliance and proper due diligence are generally for the jury.”); Paul v.

Destito, 250 Ga. App. 631, 635-636 (1) (550 SE2d 739) (2001) (plaintiff shareholder

was entitled to reasonably rely on defendants’ assurances about compensation, given

that defendants were directors who had fiduciary relationship with the company and

its shareholders and were required to act in good faith).

The Young Defendants also maintain that the plaintiffs’ fraud claim predicated

on the inspection of ICOT’s books by the TMX personnel fails as a matter of law

because Young had a contractual right to conduct such an inspection, and thus the

plaintiffs could not have prevented the inspection from going forward even if they

had known of Young’s true motivations.7 It is true that the Goldsmith Agreement

7 The Young Defendants further assert that the transcript of a dinner meeting between the parties and the potential third-party buyer, which was attached as an exhibit to the amended complaint, reflects that the plaintiffs did not actually rely on any misrepresentations by Young about the need for an inspection of ICOT’s books by the TMX personnel. However, the transcribed conversation occurred after the inspection was already underway and reflects that the plaintiffs disagreed with Young’s statements about discrepancies in the financial figures allegedly revealed

34 gave Young the right to conduct a “due diligence investigation” of ICOT prior to the

exercise of the option to purchase additional membership units from Goldsmith.

However, the amended complaint alleges that the inspection of ICOT’s records was

not done for the purpose of due diligence, but rather for the purpose of allowing the

TMX personnel to learn the company’s internal operations to facilitate a smooth

takeover once Young ousted the plaintiffs from control by orchestrating the

unnecessary funding crisis. Hence, the contractual provision allowing for a due

diligence inspection did not preclude the plaintiffs from pursuing a fraud claim based

on the inspection that allegedly occurred here.

Based on the aforementioned allegations of false representations and omissions

contained in the plaintiffs’ amended complaint, the trial court committed no error in

denying the Young Defendants’ motion to dismiss the fraud count.

Case No. A19A0855

5. The TMX Defendants contend that the trial court erred in denying their

motion to dismiss the amended complaint because the plaintiffs failed to sufficiently

through the inspection. As the plaintiffs argued in the trial court, the cited portion of the transcribed conversation does not contradict their assertion that if they had “known the real reason behind the audit was to learn the operations to facilitate a quick and seamless takeover” using TMX personnel, they “would never have allowed the audit to go forward.”

35 plead that the TMX Defendants could be held vicariously liable for the actions of

their personnel whom Young brought to Georgia to inspect ICOT’s books and

operations.8 According to the TMX Defendants, the amended complaint fails to

sufficiently allege that their personnel were acting within the scope of and in

furtherance of the TMX Defendants’ businesses and instead reflects that they were

acting at the personal behest of Young. We are unpersuaded.

“When an employee causes an injury to another, the test to determine if the

employer is liable is whether the employee was acting within the scope of the

employee’s employment and on the business of the employer at the time of the

injury.” (Punctuation and footnote omitted.) Thompson v. Club Group, 251 Ga. App.

356, 358 (2) (553 SE2d 842) (2001). See Chorey, Taylor & Feil v. Clark, 273 Ga.

143, 144 (539 SE2d 139) (2000). “The employer is not liable for the employee’s tort

if the tort was committed, not by reason of the employment, but because of matters

disconnected therewith.” (Citation and punctuation omitted.) Id. However, “an

employer may be held responsible for the tortious act of an employee where the act

8 The TMX Defendants also contend that the trial court should have granted their motion to dismiss the amended complaint because the plaintiffs were not entitled to bring their claims in a direct action. This contention fails for the reasons discussed supra in Division 1.

36 was authorized by the employer prior to its commission.” (Citation and punctuation

omitted.) Modern Woodmen of America v. Crumpton, 226 Ga. App. 567, 568 (487

SE2d 47) (1997). See OCGA § 51-2-2 (“Every person shall be liable for torts

committed by . . . his servant by his command or in the prosecution and within the

scope of his business, whether the same are committed by negligence or

voluntarily.”); Chorey, Taylor & Feil, 273 Ga. at 144 (employer may be held liable

“if the employee was authorized to accomplish the purpose in pursuance of which the

tort was committed”).

Here, the amended complaint alleged that “Young is the sole member of TMX

and controls the operations and activities of both TMX and its subsidiaries, including

TitleMax Texas and TitleMax Georgia”; that “[t]hrough his control of TMX,

TitleMax Texas and TitleMax Georgia, Young flew individuals employed by

TitleMax Texas and working out of Dallas, Texas to Savannah,” including the “Chief

Accounting Officer of the ‘TMX Finance Family of Companies,’” to inspect ICOT’s

books and learn its operations; and that “Young’s people . . . were under Young’s

control through their employment in the TMX web of companies, namely TitleMax

Texas.” And the amended complaint clearly sought to hold the TMX Defendants

liable for the alleged tortious conduct of their personnel sent to Savannah.

37 In light of these allegations, the TMX Defendants have failed to demonstrate

that the plaintiffs could not possibly introduce evidence within the framework of the

amended complaint sufficient to hold the TMX Defendants vicariously liable for the

allegedly tortious actions of their employees associated with the inspection of ICOT’s

books and records. See Sumter Milling & Peanut Co. v. Singletary, 79 Ga. App. 111,

114-115 (1) (53 SE2d 181) (1949) (corporation could be held vicariously liable for

negligent driving of truck by its employee, even though truck was transporting Boy

Scout group at the time of the accident, where managing officer of corporation

specifically “instructed and commanded” the employee to transport the group in the

truck, and the managing officer essentially functioned as the corporation’s “alter

ego,” had been granted authority to “control and command the servants and

employees of said corporation,” and had unrestricted authority over use of the truck).

See also Alta Anesthesia Assoc. of Ga. v. Gibbons, 245 Ga. App. 79, 86 (3) (537 SE2d

388) (2000) (“[E]very . . . business entity is responsible for torts committed by its

servants by its command or in the prosecution and within the scope of its business.”)

(emphasis supplied). The trial court therefore committed no error in concluding that

the amended complaint sufficiently pled allegations of vicarious liability.

38 6. The TMX Defendants further contend that the trial court erred in concluding

that the amended complaint stated a claim for piercing the corporate veil. According

to the TMX Defendants, the plaintiffs seek to hold the TMX Defendants liable for the

misconduct of Young under an outsider reverse veil-piercing theory of liability that

is not recognized in Georgia. We agree with the TMX Defendants that Georgia does

not recognize outsider reverse veil-piercing, but we conclude that the amended

complaint nevertheless stated a claim for piercing the corporate veils of the TMX

Defendants.

Under the alter ego doctrine, equitable principles are used to disregard the separate and distinct legal existence possessed by a corporation where it is established that the corporation served as a mere alter ego or business conduit of another. The concept of piercing the corporate veil is applied in Georgia to remedy injustices which arise where a party has over extended his privilege in the use of a corporate entity in order to defeat justice, perpetuate fraud or to evade contractual or tort responsibility. Plaintiff must show that the defendant disregarded the separateness of legal entities by commingling on an interchangeable or joint basis or confusing the otherwise separate properties, records or control.

(Citations and punctuation omitted.) Renee Unlimited v. City of Atlanta, 301 Ga. App.

254, 259-260 (2) (b) (687 SE2d 233) (2009).

39 The doctrine of piercing the corporate veil “is generally used for the purpose

of piercing the corporate veil to hold an individual stockholder liable for debts

incurred by the corporation.” Gwinnett Property, N.V. v. G+H Montage GmbH, 215

Ga. App. 889, 893 (2) (453 SE2d 52) (1994). However, when the elements of the

doctrine are satisfied, the doctrine of piercing the corporate veil also can be used to

hold a parent company liable for debts incurred by its wholly owned subsidiary, see

Kissum v. Humana, 267 Ga. 419, 419-421 (479 SE2d 751) (1997); Mark Six Realty

Assoc. v. Drake, 219 Ga. App. 57, 61-62 (2) (b) (463 SE2d 917) (1995), or to hold a

“family of corporations” liable for the debts of each other. See Derbyshire v. United

Builders Supplies, 194 Ga. App. 840, 845 (2) (a) (392 SE2d 37) (1990).

In contrast, a reverse veil-piercing claim seeks to hold a corporation liable for

the debts incurred by an individual shareholder. See Gwinnett Property, N.V., 215 Ga.

App. at 893 (2).

There are two types of reverse piercing claims–“insider” and “outsider” claims. See Acree v. McMahan, 276 Ga. 880, 881 (585 SE2d 873) (2003). . . . Outsider reverse veil-piercing extends the traditional veil-piercing doctrine to permit a third-party creditor to pierce the veil to satisfy the debts of an individual out of the corporation’s assets. . . . [The] Supreme Court of Georgia in Acree refused to recognize outsider reverse veil-piercing as a viable claim. Id. at 881-883[.]

40 Corrugated Replacements v. Johnson, 340 Ga. App. 364, 369 (3) (797 SE2d 238)

(2017). See Holiday Hospitality Franchising v. Noons, 324 Ga. App. 70, 70-71 (749

SE2d 380) (2013).

Here, the amended complaint alleged that “[t]he different TitleMax entities,

including TitleMax Texas and TitleMax Georgia, operate under the umbrella of

TMX, all described by TMX as the TMX ‘family of companies,’” and that Young

controls all of the activities and operations of TMX Finance and its subsidiaries,

TitleMax Texas and TitleMax Georgia. The amended complaint further alleged that

“Young is [the] sole shareholder and/or manager and/or employee and/or officer or

director of TMX [Finance], TitleMax Texas and TitleMax Georgia”; that Young has

“disregarded the corporate forms so as to authorize piercing of the corporate veils of

these entities”; and that “Young has used, directed, and controlled TMX [Finance],

TitleMax Texas and/or TitleMax Georgia for his personal aims of causing harm to

Plaintiffs through the acts specified herein.” The amended complaint alleged that

“[t]he corporate veils of TMX [Finance], TitleMax Texas and TitleMax Georgia

should be pierced because Young has overextended his privileges in the use of these

corporate entities to defeat justice, perpetuate fraud, and evade contractual and tort

responsibilities.”

41 We cannot say that the plaintiffs could not possibly introduce evidence within

the framework of the amended complaint to support a claim for piercing the corporate

veils of the TMX Defendants. The TMX Defendants are correct that to the extent the

plaintiffs seek to reach the assets of the TMX Defendants for any judgment debt

personally incurred by Young under the theory of outsider reverse veil-piercing, such

a claim is foreclosed by Georgia law. See Acree, 276 Ga. at 881-883; Holiday

Hospitality Franchising, 324 Ga. App. at 70-71; Corrugated Replacements, 340 Ga.

App. at 369 (3). However, construed in the light most favorable to the plaintiffs with

all doubts resolved in their favor, the amended complaint stated a claim for holding

TMX Finance liable for any judgment debt incurred by its subsidiaries, TitleMax

Texas and TitleMax Georgia, under a veil-piercing theory, and for holding the TMX

“family of companies” liable for any judgment debt incurred by each other under such

a theory. See Kissum, 267 Ga. at 419-421; Mark Six Realty Assoc., 219 Ga. App. at

61-62 (2) (b); Derbyshire, 194 Ga. App. at 845 (2) (a). Consequently, the trial court

did not err in finding that the plaintiffs stated a claim for piercing the corporate veil.

7. The TMX Defendants further contend that the trial court erred in concluding

that the plaintiffs stated a claim against them for fraud because the amended

complaint failed to plead fraud with particularity. For the reasons discussed supra in

42 Division 4, the TMX Defendants have failed to show that the plaintiffs could not

possibly introduce evidence within the framework of the amended complaint

sufficient to support a claim of fraud. See Siavage, __ Ga. App. at __ (2); Hedquist,

284 Ga. App. at 394 (2) (b). The proper remedy for seeking more particularity, as

previously noted, is to file a motion for a more definite statement or seek greater

details through the rules of discovery. See Odom, 293 Ga. at 455 (3), n. 6;

Pampattiwar, 326 Ga. App. at 170 (1), n. 3.

8. The TMX Defendants contend that the trial court erred in concluding that

the plaintiffs sufficiently pled a claim for civil conspiracy. We disagree.

To recover damages based on a civil conspiracy, a plaintiff must show that two or more persons combined either to do some act which is a tort, or else to do some lawful act by methods which constitute a tort. The conspiracy of itself furnishes no cause of action. The gist of the action is not the conspiracy alleged, but the tort committed against the plaintiff and the resulting damage. The essential element of the alleged conspiracy is proof of a common design establishing that two or more persons in any manner, either positively or tacitly, arrive at a mutual understanding as to how they will accomplish an unlawful design. After the conspiracy is formed, members of the conspiracy are jointly and severally liable for acts of co-conspirators done in furtherance of the conspiracy.

43 (Punctuation and footnotes omitted.) McIntee v. Deramus, 313 Ga. App. 653, 656

(722 SE2d 377) (2012).

As explained supra in Divisions 2 and 4, the plaintiffs stated claims against the

Young Defendants for breach of ICOT Holdings’ Operating Agreement, breach of

fiduciary duty, and fraud arising out of Young’s alleged scheme to oust the plaintiffs

from control of ICOT Holdings by orchestrating an unnecessary funding crisis. And

the amended complaint alleged that the TMX Defendants, positively or tacitly,

arrived at a mutual understanding with the Young Defendants as to how to

accomplish those wrongful acts and acted in concert with the Young Defendants to

carry out that common design. The amended complaint also contained allegations

setting forth how the personnel of the TMX Defendants acted to assist in carrying out

the conspiracy, namely, by learning ICOT’s operations under the false pretense of

conducting an inspection of the books so as to facilitate a smooth takeover of the

company, and then by actually running the company once Young wrongfully ousted

the plaintiffs from control.

Given these allegations, we cannot say that it appears beyond a doubt that the

plaintiffs would be unable to introduce evidence within the framework of the

amended complaint sufficient to support a civil conspiracy claim. See Perry Golf

44 Course Dev. v. Housing Auth. of City of Atlanta, 294 Ga. App. 387, 398 (8) (d) (670

SE2d 171) (2008) (plaintiff stated claim for conspiracy to breach fiduciary duty based

on allegations that defendant and entities he controlled conspired to have the

defendant breach his fiduciary duty by “siphoning off” company resources for his

own benefit) (punctuation omitted); Argentum Intl., 280 Ga. App. at 444-445 (2) (a)

(discussing claim for conspiracy to defraud); Gaines v. Crompton & Knowles Corp.,

190 Ga. App. 863, 867 (5) (380 SE2d 498) (1989) (recognizing claim for conspiracy

to breach contract).

9. The TMX Defendants also contend that the plaintiffs failed to sufficiently

plead an aiding and abetting claim against them. We do not agree.

To establish a claim for aiding and abetting a breach of fiduciary duty,9 a

plaintiff must establish four elements:

(1) through improper action or wrongful conduct and without privilege, the defendant acted to procure a breach of the primary wrongdoer’s fiduciary duty to the plaintiff; (2) with knowledge that the primary wrongdoer owed the plaintiff a fiduciary duty, the defendant acted

9 “[T]he tort of aiding and abetting fraud does not exist as a basis for liability under Georgia law. Instead, one who knowingly participates in a fraud may be held liable for the fraud.” (Punctuation and footnotes omitted.) Siavage, __ Ga. App. at __ (1). As discussed supra in Division 7, the plaintiffs stated a fraud claim against the TMX Defendants.

45 purposely and with malice and the intent to injure; (3) the defendant’s wrongful conduct procured a breach of the primary wrongdoer’s fiduciary duty; and (4) the defendant’s tortious conduct proximately caused damage to the plaintiff.

(Citation and punctuation omitted.) Cottrell v. Smith, 299 Ga. 517, 532 (II) (B) (788

SE2d 772) (2016). See City of Hawkinsville v. Wilson & Wilson, Inc., 231 Ga. 110,

111 (3) (200 SE2d 262) (1973) (noting that “one who procures or assists in the

commission of an actionable wrong is equally liable with the actual perpetrator for

the damages”); White v. Shamrock Bldg. Systems, 294 Ga. App. 340, 347-349 (5)

(669 SE2d 168) (2008) (holding that defendant corporation, which did not itself owe

a fiduciary duty to the plaintiff, could be held liable for assisting its employee in

violating a fiduciary duty that the employee owed to the plaintiff, where the

corporation knew that the employee owed the duty and acted with the requisite

intent). Even where the defendant does not “lend [ ] . . . assistance in the actual

perpetration of the wrong done by another,” he “procures” a breach of fiduciary duty

where he succeeds in causing another person to breach his fiduciary duty “through

advice, counsel, persuasion, or command.” (Citation and punctuation omitted.) White,

294 Ga. App. at 348 (5), n. 23.

46 Here, the amended complaint alleged that the TMX Defendants “aided and

abetted” the Young Defendants in their wrongful takeover scheme, and based on the

allegations in the amended complaint previously discussed and the fact that the

“Georgia Civil Practice Act requires only notice pleading,”10 we cannot say that it

would be impossible for the plaintiffs to come forward with evidence within the

framework of the amended complaint that would support a claim for aiding and

abetting Young in the breach of his fiduciary duties owed to the plaintiffs. See White,

294 Ga. App. at 347-349 (5). Consequently, the trial court committed no error in

denying the TMX Defendants’ motion to dismiss the aiding and abetting claim.

10. Lastly, the TMX Defendants argue that the trial court erred in concluding

that the plaintiffs stated claims against them for breach of fiduciary duty as set out in

ICOT Holdings’ Operating Agreement and for breach of the Goldsmith Agreement.

For the reasons discussed supra in Division 3, the plaintiffs failed to state a claim for

breach of the Goldsmith Agreement, and thus the trial court erred by not dismissing

this claim against the TMX Defendants. However, the plaintiffs stated a claim against

the TMX Defendants for breach of fiduciary duty as set out in ICOT Holdings’

10 (Citation and punctuation omitted.) Racette, 318 Ga. App. at 180 (4).

47 Operating Agreement based on theories of civil conspiracy and aider-and-abetter

liability, as discussed supra in Divisions 8-9.

Judgments affirmed in part and reversed in part. McMillian, P. J., and Reese,

J., concur.