Equitable Claims, the ‘burford’ Abstention Doctrine, and Shareholder Actions in Georgia

Poole Huffman, LLC

Any kind of business dispute has the potential to become contentious as business people who once collaborated transition to being adversaries. When the business in question is a family one, then the odds that business will become personal, and emotions will escalate along with it, increase exponentially. Whether or not yours is a family business, if you find yourself embroiled in a contentious shareholder action, you need the services of an experienced Atlanta business attorney.

Take, for example, the highly contentious shareholder action regarding a Toccoa-based propane gas company. In that case, a shareholder, W.D. filed an action alleging that the company president (who also happened to be W.D.’s cousin) had misappropriated company money and that the company board of directors had stood by and allowed it to take place.

Specifically, W.D. asserted that the president had used company funds to pay his personal bills.

Many of the shareholder’s claims failed because they were things that could only be brought as derivative actions, not as the sort of direct action that W.D. had pursued.

The shareholder was successful, however, in reviving three of his counts on appeal. Those counts were for judicial dissolution of the company, for an accounting, and for the appointment of an auditor.

There are several bases upon which a shareholder can bring a legal action that dissolves a corporation via judicial order. Here in Georgia, those bases are (1) directorial “deadlock in the management of corporate affairs,” (2) actions by the directors (or those in control) that are “illegal or fraudulent in connection with the operation or management of the business and affairs of the corporation, (3) a deadlock that has triggered a failure to elect successors to directors whose terms “have expired or would have expired,” or (4)company assets being “misapplied or wasted.”

No State Action Meant No Basis for Abstention by the Court

The trial judge’s order invoked something called “Burford abstention” in declining to grant relief on these three of W.D.’s counts. The law in Georgia says that a federal court should only utilize the “Burford abstention” doctrine if “by exercising its jurisdiction, a federal court would interfere with an ongoing state administrative proceeding or action.”

In this case, there was no state administrative proceeding of any kind actively ongoing against the company. There was also no “preexisting action by a Georgia state court or executive official to dissolve” the company. In the absence of any of those things, there was no basis for invoking the “Burford abstention” doctrine.

As this gas company’s case displays, even a case whose roots seem straightforward can become highly complex. An allegation that a company president was pocketing business funds to pay personal expenses yielded a shareholder action with 17 counts. The point is that, whatever the origins of your (or your business’s) shareholder lawsuit, it pays to be as fully prepared as possible. Part of that preparation involves securing the right legal team. Count on the knowledgeable Atlanta business dispute attorneys at Poole Huffman, LLC to be that kind of powerful advocate for your business. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation today.

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