Corporate – Records Inspection – Georgia Corporation – First Impression – Civil Practice – Personal Jurisdiction – Corporate Officer

When a shareholder wishes to inspect and copy corporate records, statutes in both South Carolina and Georgia direct plaintiffs to apply to the state court in the county where the corporation has its corporate office, or is registered. Nevertheless, if a court may exercise jurisdiction over a corporation because it is authorized to do business and has substantial business activities in a certain state, then the plaintiff should be able to fully litigate his grievances regarding the corporation before this court, including the ability to inspect corporate records.

The court grants in part and denies in part the defendant-corporation’s motion to dismiss for failure to state a claim. The court grants defendant Thacher’s motion to dismiss for lack of personal jurisdiction.

The plaintiff-minority shareholder complains that defendants engaged in self-dealing that depleted the corporation’s assets, thereby decreasing the value of his 10 percent ownership interest in the corporation. Georgia law applies to plaintiff’s claims.

Personal Jurisdiction

Defendant Thacher, a Georgia resident, is the president and majority shareholder of the defendant Georgia corporation, which operates a dealership in South Carolina. Under the fiduciary shield doctrine, the acts of a corporate officer taken in her corporate capacity within the jurisdiction generally do not form the predicate for jurisdiction over her in her individual capacity.

Plaintiff’s main grievance is that defendants diverted funds from the corporation to other businesses of the Vaden family.

Plaintiff claims that the corporation guaranteed debts incurred by other Vaden entities. This is a decision that would have been made at the corporation’s Georgia headquarters.

Plaintiff alleges that “Thacher took purposeful and calculated actions to transfer funds from the Corporation in South Carolina to herself and other entities in which she had or has an interest.” He refers to the “Corporation in South Carolina,” but there is no separate corporation in South Carolina; it is headquartered in Georgia, where all agreements are made. Plaintiff may be referring to the physical dealership in South Carolina, but this is merely an asset of the Georgia corporation.

Plaintiff asserts that “Funds were transferred from the Beaufort store at Thacher’s direction for the use of other Vaden Entities.” Even presuming plaintiff’s claims to be true, Thacher, as an individual, did not have sufficient minimum contacts with South Carolina simply because she, as an officer of the corporation, chose to move around money made in South Carolina within the corporation.

Plaintiff also complains about other corporate actions, all of which would have been the result of decisions made at corporate headquarters in Georgia. Plaintiff has not alleged that Thacher personally had any contacts in South Carolina in regards to these actions.

The court lacks personal jurisdiction over Thacher.

Inspection of Corporate Records

Under S.C. Code Ann. § 33-16-104, if a shareholder wishes to inspect corporate records, he “may apply to the circuit court in the county where the corporation’s principal office (or, if none in this State, its registered office) is located for an order to permit inspection and copying of the records demanded.”

Georgia likewise provides for shareholders of domestic corporations to apply to the superior court in the county where the corporation is registered to request an order to permit inspection of the records. O.C.G.A.§§ 14-2-1604, 14-3-140.

Although the court has not found any South Carolina case law about this, it agrees with plaintiff and the other courts he cites. If a court may exercise jurisdiction over a corporation because it is authorized to do business and has substantial business activities in a certain state, then it is logical to assume that the plaintiff would be able to fully litigate his grievances regarding the corporation before this court, including the ability to inspect the corporation’s records. Thus, the court denies the motion to dismiss plaintiff’s demand to inspect the corporation’s records.

Breach of Fiduciary Duty

Under Georgia law, a corporation’s officers, directors, and even sometimes majority shareholders owe a fiduciary duty to shareholders, but the corporation itself does not have a fiduciary relationship with shareholders.

It is true that Frye v. Commonwealth Inv. Co., 131 S.E.2d 569, aff’d, 134 S.E.2d 39 (Ga. App. 1963), found a fiduciary relationship between the corporation and its shareholders. However, that case was limited to preventing the fraudulent transfer of shares.

Since the only officer in this suit has been dismissed for lack of personal jurisdiction, plaintiff cannot sustain his breach of fiduciary duty claim against the corporation alone.

Other Issues

Defendants have not provided the court with sufficient reasons for dismissing plaintiff’s breach of contract claim. Because that claim survives, plaintiff has an adequate remedy at law and is not entitled to the equitable relief of an accounting.

Where plaintiff has not demonstrated in his complaint that defendants’ actions have adversely affected the public interest or that they will in the future, the court dismisses his claim of unfair trade practices.

Although the shareholders’ agreement between plaintiff and the corporation says that plaintiff’s stock value shall be calculated based on the certified financial statement of the corporation for the last year in which plaintiff was employed, the agreement does not offer to provide a copy of this statement to plaintiff. The court declines to order defendants to produce a copy of a certified financial statement for 2017.

Motions granted in part and denied in part.

Gault v. Thacher (Lawyers Weekly No. 02-010-19, 27 pp.) (David Norton, J.) 9:18-cv-03157. Bradford Neal Martin and Laura Teer for plaintiff; William James Flynn, William Harvey and Peter Deppish Muller for defendants. D.S.C.