Levy v. Reiner - Corporate breach of fiduciary duty

Posted: March 24th, 2008 by Gaslowitz Frankel LLC

A minority shareholder filed suit against two officers of the company claiming that they had breached their fiduciary duty by paying themselves excessive salaries. The trial court granted summary judgment to the directors (a ruling that there are no issues of fact to be decided and so that party must prevail), and the shareholder appealed. The Court of Appeals cited1 the general rule that a shareholder seeking to recover misappropriated corporate funds may only bring a “derivative suit” (a suit brought by a shareholder on the corporation’s behalf, so that any recovery goes to the corporation, not the individual shareholder bringing the suit).

Here, the shareholder had filed a direct action against the officers. One exception to the general rule, however, is that a direct action may be brought when there are no other shareholders involved. Though the minority shareholder argued that suits from other shareholders were unlikely, the court found that he failed to prove that assertion, and thus the rule prohibiting direct actions applied in this case.

1 2008 WL 756112 (Ga. App. 2008)

Related News   Breach of Duties, Business Litigation, Shareholder/Partnership Disputes

In re: Accounting by Fleet Bank - Adopted child cannot share in a class gift to biological parent’s descendants (NY)

Posted: March 13th, 2008 by Gaslowitz Frankel LLC

In this case, a woman’s biological mother was part of a family that had struck it rich by marketing Jell-O. The woman, however, had been born out of wedlock and adopted by strangers within days of her birth. The mother subsequently married and had two more daughters, and she created two trusts, one paying income to “her descendants” and the other paying out principal to “each . . . child of hers.” After the mother’s death, when the trustee bank initiated judicial proceedings to settle the trusts, the woman intervened, seeking a one-third share of the trust assets.

The New York Court of Appeals ruled1 that a child who is adopted out of a family cannot share in a class gift (a gift to a group of persons, such as “my children,” uncertain in number at the time of the gift but to be ascertained at a future time, who take in equal shares depending on the number of persons in the group). The court cited New York’s Domestic Relations law that terminates an adopted child’s right to inherit in this manner from the biological family (although preserving the right of an adopted child to inherit if he or she is specifically named in a biological family member’s will).

The court cited three policy reasons for its holding: (1) promoting the adopted child’s assimilation into the adoptive family, (2) keeping adoption records confidential, and (3) assuring the finality of judicial decrees by foreclosing the possibility that a secret out-of-wedlock child could materialize, years later, to intervene in the distribution of an estate or trust.

1 2008 WL 656471 (Ct. App. N.Y. 2008)

Related News   Civil Appeals, Trust Disputes

Dudley v. Wachovia Bank - Medallion guarantee of signatures in stock transfers

Posted: March 10th, 2008 by Gaslowitz Frankel LLC

A man executed his will in 1998, leaving his wife their home, his vehicles, and some cash. He left the remainder of his estate—including stock in AFLAC, Regions Financial, and Southern Company—to two adult children from his first marriage, who were also his executors. In June, 2003, the man, already suffering from dementia, had a stroke. In August, his wife took him to an AFLAC office and had him sign a form assigning the stock to her at his death. An AFLAC employee signed the stock assignment form as a Medallion guarantee of the man’s signature. On the same day, the wife took him to Wachovia Bank and directed that his Southern Company stock be put into a joint account in their names. A Wachovia employee signed the transfer request as a Medallion guarantee of the man’s signature. Similarly, in November, a Regions Bank employee signed a stock transfer request as a Medallion guarantee of the man’s signature when his wife arranged for Regions Financial stock to be put into a joint account.

After the man died, the executors claimed that he did not have legal capacity at the time he signed the stock transfer requests, and they brought an action against the corporate entities that guaranteed his signature. The Court of Appeals ruled1 that the Commercial Code in Georgia makes a signature guarantor liable only to persons taking or dealing with a security for losses due to the breach of warranty; it does not allow recovery by the stock owner himself (or his legal representatives after his death). Thus, Wachovia and Regions Bank were not liable to the executors.

However, AFLAC, Regions Financial, and Southern Company had a different role, since they issued the stock that was the subject of the transfers and signature guarantees. The court ruled that a stock issuer is liable for wrongful registration of a stock, and a signature guarantee does not absolve the issuer from the liability, though it shifts the financial risk to the guarantor. In making their case, the corporate defendants had argued that the man was not harmed by the change in ownership status, since he owned the stock until his death. The court disagreed, ruling that the issuer’s conduct deprived the man of the right to decide who should have his property after his death.

1 2008 WL 624957 (Ga. App. 2008)

Related News   Civil Appeals, Will and Estate Disputes

In re: Estate of Miraglia - Conservator Fees

Posted: March 4th, 2008 by Gaslowitz Frankel LLC

A man was appointed conservator (formerly called “guardian of the property”) over the assets of another person (generally called the “ward”). When the ward died a year later, the conservator turned over the ward’s assets to the co-executors of the ward’s estate, but he retained $376,398 as compensation for his conservatorship services. The co-executors filed suit for the repayment of excess fees, claiming that the conservator had calculated his fees as 2.5% of stocks, bonds, and real property in addition to 2.5% of the “sums of money,” which is allowed by statute.

The Court of Appeals agreed1.

While there were no previous Georgia cases interpreting the phrase “sums of money” with regard to conservators, the Georgia Supreme Court had interpreted an almost identically-worded statute governing executor fees. In that case, the Supreme Court found that “sums of money” meant currency or a medium of exchange. Stocks, bonds, and real property are not sums of money because they have to be converted to cash. Additionally, the Court of Appeals ruled that the conservator was required to pay prejudgment interest (interest accruing from the time the dispute arose, rather than from the time the court issued its judgment) on the excess commissions.

1 2008 WL 565702 (Ga. Ct. App. 2008)

Related News   Civil Appeals, Conservator, Guardianships/Conservatorships