2020 Georgia Code
Title 14 - Corporations, Partnerships, and Associations
Chapter 2 - Business Corporations
Article 8 - Directors and Officers
Part 3 - Standards of Conduct
§ 14-2-831. Derivative Actions Against Directors and Officers

1. Subject to Code Sections 14-2-830 and 14-2-842, a derivative proceeding, as defined in paragraph (1) of Code Section 14-2-740, may be brought by a shareholder, or an action may be brought by the corporation, against one or more directors or officers of the corporation to procure for the benefit of the corporation a judgment for the following relief:
   1. Subject to any provision of the articles of incorporation authorized pursuant to paragraph (4) of subsection (b) of Code Section 14-2-202, to compel the defendant to account for official conduct or to decree any other relief called for by his or her official conduct in the following cases:
      1. The neglect of, failure to perform, or other violation of his or her duties in the management of the corporation or in the disposition of corporate assets;
      2. The acquisition, transfer to others, loss, or waste of corporate assets due to any neglect of, failure to perform, or other violation of duties; or
      3. The appropriation, in violation of his or her duties, of any business opportunity of the corporation;
   2. To enjoin a proposed unlawful conveyance, assignment, or transfer of corporate assets or other unlawful transaction where there is sufficient evidence that it will be made; and
   3. To set aside an unlawful conveyance, assignment, or transfer of corporate assets where the transferee knew of its unlawfulness and is made a party to the action.
2. No action shall be brought for the relief provided in subsection (a) of this Code section more than four years from the time the cause of action accrued.
3. This Code section shall not limit any liability otherwise imposed by law upon any director or officer or any third party.

(Code 1981, §14-2-831, enacted by Ga. L. 1989, p. 946, § 34; Ga. L. 2016, p. 225, § 1-6/SB 128.)

The 2016 amendment, effective July 1, 2016, inserted "or her" throughout subsection (a); substituted "Subject to Code Sections 14-2-830 and 14-2-842, a derivative proceeding, as defined in paragraph (1)" for "A derivative proceeding, as defined in subsection (a)" in subsection (a); and substituted "Subject to any provision of the articles of incorporation authorized pursuant to paragraph (4) of subsection (b) of Code Section 14-2-202, to" for "To" in paragraph (a)(1).

- Ga. L. 1989, p. 946, § 33, effective July 1, 1989, renumbered former Code Section 14-2-831 as present Code Section 14-2-832.

- For article, "Litigation Discovery and Corporate Governance: The Missing Story About the 'Genius of American Corporate Law,"' see 63 Emory L.J. 1383 (2014).

Source: Former § 14-2-153; N.Y.B.C.L. § 720.

The 1989 amendments added this section, and renumbered former section14-2-831 as section14-2-832. Subsection (a) restored the general approach of former § 14-2-153(a), and expressly authorizes actions against officers and directors. Unlike former law, it authorizes derivative actions only for "shareholders" as defined in § 14-2-740, and for the corporation itself. While former law granted standing to receivers, trustees in bankruptcy, officers, directors, and judgment creditors, the general rule is to limit standing to shareholders. W. Fletcher, 13 CYCLOPEDIA CORPORATIONS (1984 Rev. Vol.) §§ 5972-5972.2. Common law courts have generally denied standing to creditors to bring derivative actions; other forms of action are available to creditors and their representatives. DeMott, SHAREHOLDER DERIVATIVE ACTIONS: LAW AND PRACTICE, § 4.03 (1987). While derivative actions are a judicial development, and are authorized without statutory expression, this subsection was added out of concern that repeal of the express grant of former law might imply a denial of the right to bring such actions. Former § 14-2-153 was based on N.Y. Bus. Corp. Law § 720, and was added in 1968.

Subsection (a) makes clear that any derivative proceeding brought under Code Section 14-2-831 is subject to the provisions of Code Section 14-2-830 and Code Section 14-2-842. In addition, clause (1) of subsection (a) clarifies that the ability to commence a derivative proceeding may be limited or prohibited to the extent a director is entitled to exculpation for such conduct under Code Section 14-2-202(b)(4).

Subsection (b) preserves the four year statute of limitations of former § 14-2-153(c).

Subsection (c) preserves former § 14-2-153(d), and was intended to make it clear that this section is not to be construed as limiting any liability otherwise imposed by law upon any officer or director.

Note to 2016 Amendment This Note to 2016 Amendment supersedes and replaces the Comment to Code Section 14-2-831. The 2016 amendments to Code Section 14-2-831 include revisions to subsection (a) that add cross references to Code Section 14-2-830 and Code Section 14-842 to clarify application of any limitations set forth in such Code Sections on the ability to commence a derivative proceeding. The 2016 amendments also include revisions to subsection (a)(1) that were drawn from amendments to N.Y.B.C.L. § 720 made subsequent to the initial enactment of Code Section 14-2-831, and clarify that the ability to commence a derivative proceeding may be limited or prohibited to the extent a director is entitled to exculpation for such conduct under Code Section 14-2-202(b)(4).

JUDICIAL DECISIONS

Shareholder selling stock could not require accounting.

- Shareholder who sold personal stock to the corporation under an installment agreement lacked standing to bring an action for an accounting of profits from a sale of the corporation's real estate made prior to payment in full under the installment contract. McNeil v. Southern Golf Invests. of Ga., Inc., 228 Ga. App. 512, 492 S.E.2d 283 (1997).

- If a corporate officer or director is presented with a business opportunity which: (1) the corporation is financially able to undertake; (2) is in the line of the corporation's business; (3) is of practical advantage to the corporation; (4) is an opportunity in which the corporation has an interest or reasonable expectancy; and (5) is one in which the self-interest of the officer or director, by embracing the opportunity, would be brought into conflict with the corporation's interests, then the law will not permit that officer or director to personally seize the opportunity. Parks v. Multimedia Techs., Inc., 239 Ga. App. 282, 520 S.E.2d 517 (1999).

- Trial court did not err in denying a former president's motion for directed verdict in a corporation's action alleging breach of fiduciary duty and misappropriation of corporate opportunity because the jury was authorized to find that the corporation had an interest or reasonable expectancy in a business prior to its formation by the president and the owner of a competing company, but the president and owner created the business to the exclusion of the corporation; the evidence supported the jury's finding that when the president became a co-owner of the business while remaining an officer of the corporation, the president engaged in competition, in breach of fiduciary duties to the corporation. Brewer v. Insight Tech., Inc., 301 Ga. App. 694, 689 S.E.2d 330 (2009), cert. denied, No. S10C0678, 2010 Ga. LEXIS 455 (Ga. 2010).

Court denied the debtor's motion for summary judgment with respect to usurpation of corporate opportunities in connection with certain of the debtor's pre-resignation activities as the debtor did not show that the corporation could not take advantage of opportunities outside Georgia. Hot Shot Kids Inc. v. Pervis (In re Pervis), 497 Bankr. 612 (Bankr. N.D. Ga. 2013).

- In a suit brought under O.C.G.A. § 14-2-831(a)(1) alleging a breach of fiduciary duty and conversion, the record contained sufficient evidence that a father's son and the son's wife converted over $144,000 of corporate funds for their own use while employed, that the son retained the company telephone number and address book, copied the company's client list for use in a new venture apart from the company, and participated in the taking of company funds months before resigning; however, because the wife was not a corporate officer, the breach of fiduciary duty claim asserted against the wife lacked merit. Lou Robustelli Mktg. Servs. v. Robustelli, 286 Ga. App. 816, 650 S.E.2d 326 (2007).

- After an officer in a professional corporation withdrew from the firm, the officer's continued operation of a law practice, including closing real estate loans for a broker's office, which the officer had done while associated with the firm, did not constitute misappropriation of a corporate opportunity in the absence of evidence that a contractual relationship existed between the broker and the firm, or that the broker gave the firm all of its business. Jenkins v. Smith, 244 Ga. App. 541, 535 S.E.2d 521 (2000).

Trial court properly granted summary judgment to a former vice president in a breach of the duty of loyalty claim by a former employer, as there was no proof that there was a business opportunity for the employer in a client that the vice president's new competing company thereafter solicited; accordingly, the employer did not have a "beachhead" or reasonable interest or expectancy in the client's accounts, pursuant to O.C.G.A. § 14-2-831(a)(1)(C). MAU, Inc. v. Human Techs., Inc., 274 Ga. App. 891, 619 S.E.2d 394 (2005).

- Local government provisions applicable to municipal corporations do not provide for derivative actions by taxpayers in the name of a municipality. Taxpayers may bring direct actions in mandamus to compel or enjoin city officials to perform a public duty or sue city officials for damages in connection with the unlawful expenditure of public funds with any recovery to be paid to the city. Common Cause/Ga. v. Campbell, 268 Ga. App. 599, 602 S.E.2d 333 (2004), aff'd, 279 Ga. 480, 614 S.E.2d 761 (2005).

- O.C.G.A. § 14-2-831(a)(1)(C) provides that a corporation may sue an officer or director for the misappropriation of any business opportunity of the corporation. However, because the defendants were not officers or directors of the plaintiff corporation, the plaintiff's claim for misappropriation of corporate opportunity was properly dismissed under the "right for any reason" rule. Prof'l Energy Mgmt. v. Necaise, 300 Ga. App. 223, 684 S.E.2d 374 (2009).

- Trial court did not abuse the court's discretion in dismissing a shareholder's derivative action suit because the challenging shareholder failed to provide evidence to refute the evidence of the board and executives that the demand review committee members were independent. Benfield v. Wells, 324 Ga. App. 85, 749 S.E.2d 384 (2013).

Cited in Bob Davidson & Assocs. v. Norm Webster & Assocs., 251 Ga. App. 56, 553 S.E.2d 365 (2001); Fisher v. State Mut. Ins. Co., 290 F.3d 1256 (11th Cir. 2002); KEG Techs., Inc. v. Laimer, 436 F. Supp. 2d 1364 (N.D. Ga. 2006); Lubin v. Skow, F.3d (11th Cir. June 14, 2010) (Unpublished).

RESEARCH REFERENCES

Am. Jur. 2d.

- 18B Am. Jur. 2d, Corporations, § 1932 et seq.

- 19 C.J.S., Corporations, §§ 571, 575, 576, 586.

- Right or duty of corporation to pay dividends, and liability for wrongful payment, 55 A.L.R. 8; 76 A.L.R. 885; 109 A.L.R. 1381.

Criminal liability of corporate officer who issues worthless checks in corporate name, 68 A.L.R.2d 1269.