North Walhalla Properties, LLC v. Kennestone Gates Condominium Association, Inc. ( 2021 )

FOURTH DIVISION
DILLARD, P. J.,
RICKMAN, P. J., and BROWN, 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.
https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS
COURT. ALL FILINGS MUST BE SUBMITTED WITHIN
THE TIMES SET BY OUR COURT RULES.
February 2, 2021
In the Court of Appeals of Georgia
A20A1838. NORTH WALHALLA PROPERTIES, LLC v.
KENNESTONE GATES CONDOMINIUM ASSOCIATION,
INC et al.
BROWN, Judge.
North Walhalla Properties, LLC (“Walhalla”) appeals from the trial court’s
order granting summary judgment in favor of Kennestone Gates Condominium
Association (“Kennestone”) and Robert E. Smith on its complaint against them, as
well as in favor of Kennestone’s counterclaim against Walhalla for past due
assessments, interest, late fees, and attorney fees. Walhalla contends that the trial
court erred by (1) concluding that it lacked standing to bring all of the claims asserted
in its complaint because they could only be brought in a derivative action; (2) failing
to find that Kennestone did not mitigate its damages; (3) failing to set off amounts
Walhalla overpaid to Kennestone; and (4) failing to award attorney fees to Walhalla
for “the stubborn litigiousness” of the defendants. For the reasons explained below,
we affirm the trial court’s grant of summary judgment to Kennestone on its
counterclaim against Walhalla, vacate its grant of summary judgment to Kennestone
and Smith on Walhalla’s complaint, and remand this case to the trial court for entry
of an order of dismissal.
On appeal from a trial court’s grant of summary judgment, we
conduct a de novo review, construing all reasonable inferences in the
light most favorable to the nonmoving party. We also review de novo a
trial court’s grant of a motion to dismiss. We construe the pleadings in
the light most favorable to the nonmoving party with any doubts
resolved in that party’s favor.
(Citations and punctuation omitted.) Bobick v. Community & Savings Bank, 321 Ga.
App. 855, 856 (743 SE2d 518) (2013). So viewed, the record shows that Kennestone
is a Georgia non-profit corporation tasked with the administation, operation, and
maintenance of a condominium complex in which Walhalla has owned two units
since 2000. In April 2015, Kennestone notified Walhalla that it “owe[d] a total of
$1,400 in past-due assessments and other charges, which includes attorneys’ fees of
$250.” In September 2015, Ira McKee, who is a managing member of Walhalla and
its attorney in this case, wrote a letter to Kennestone explaining that it did not have
2
to pay assessments because annual meetings and elections were not held. According
to McKee, Walhalla did not receive “reports of affairs, finances and budge[ted]
projections of [Kennestone],” and a “written accounting of income and
disbursements.” McKee demanded a refund of special assessments paid by Walhalla
in 2007 and 2009. Kennestone’s counsel provided a detailed letter in response that
concluded by stating, “[t]o sum up, the various allegations you have raised in your
letters do not legally excuse your client from paying the condominium assessments
leveled against its Units.”
In October 2016, Walhalla filed the instant action against Kennestone, which
was later amended to name Smith, Kennestone’s director, treasurer, and secretary, as
a defendant. Walhalla’s complaint, as amended, asserts claims for breach of contract,
“breach of duty,” negligence, and declaratory judgment. It sought damages for
“excess billing” of Walhalla, a refund or set-off of any amounts owed Walhalla, as
well as appointment of a third-party management company to give direct reports to
member/owners, punitive damages, interest, attorney fees, and costs. In its complaint,
Walhalla alleges that the defendants: engaged in “ultra vires actions by the Board and
officers not authorized under the Declaration, Bylaws, or law”; failed to make various
disclosures to membership prior to called meetings; failed to call and have meetings
3
in violation of its Declaration and Bylaws; failed to provide a budget and profit and
loss statements 30 days in advance of meetings; failed to disclose identities of
vendors or provide copies of contracts between third parties or evidence of payment;
maintained and managed escrow accounts without authority; charged for services not
rendered or made available to Walhalla; failed to properly maintain common areas;
assessed “attorney fees and expenses not related to the collection of fees, rather for
advice received by them in their continuing efforts to disguise and to deny breaches
of contract or fiduciary duty”; assessed Walhalla’s units for work and improvements
to limited common areas and individual units owned by others; assessed excessive
fees and ignored a right of set-off for previous assessments paid, but not owed; and
failed to provide to members minutes of annual and special meetings. With regard to
Smith, Walhalla alleged that Smith breached his duty to Walhalla “and other similarly
situated owner members” by engaging in self-dealing and excess billing, failing to
prepare annual budget reports and call annual meetings, and violating the Declaration
and Bylaws by receiving compensation. With regard to its claim for declaratory
judgment, Walhalla sought an order requiring Kennestone to comply with its
Declaration and Bylaws regarding budgets, notices, and annual meetings.
4
Kennestone filed a counterclaim for past due assessments, late charges, interest,
costs, and attorney fees. Kennestone and Smith then filed a joint motion for summary
judgment on Walhalla’s complaint, asserting, in part, that it lacked standing to assert
claims as an individual that were not separate and distinct from other members and
that no private duty was owed to Walhalla. Kennestone also sought summary
judgment in its favor on its counterclaim. After holding a hearing, the trial court
granted Kennestone and Smith’s motion for summary judgment on Walhalla’s
complaint, as well as Kennestone’s counterclaim. It ordered Walhalla “to pay
$26,167.38 to Kennestone, inclusive of past due assessments, interest at 10% per
annum, late fees, and attorney[] fees incurred by Kennestone for purposes of
collecting [Walhalla]’s past due assessments.” It also ordered the clerk of court to
issue a check to Kennestone from funds paid by Walhalla into the court registry.
1. In related enumerations of error, Walhalla asserts that the trial court erred
by concluding that it could not recover against the defendants based upon its lack of
standing. As set forth above, Kennestone is a Georgia non-profit corporation. See
OCGA § 14-3-101 et seq. “[M]embers of a nonprofit corporation may, under certain
circumstances, file derivative proceedings. See OCGA §§ 14-3-740 through
14-3-747.” Ga. Appreciation Property v. Enclave at Riverwalk Townhome Assn., 345
5
Ga. App. 413, 419 (1) (812 SE2d 157) (2018) (physical precedent only). “The
purpose of a derivative action is to protect the corporation and its assets.” Hacienda
Corp. v. White, 260 Ga. 879, 880 (1) (400 SE2d 323) (1991). It also “allow[s] a
means by which the rights of a corporation may be protected.” Ragsdale v. New
England Land & Dev. Corp., 250 Ga. 233, 234 (1) (297 SE2d 31) (1982). “A
derivative proceeding may be brought either by any director or by any member or
members having 5 percent or more of the voting power or by 50 members, whichever
is less.” OCGA § 14-3-741. In this case, it is undisputed that Walhalla does not own
the minimum percentage of ownership necessary to bring a derivative suit.
Accordingly, we must decide whether Walhalla has standing to sue individually, as
it lacks standing to sue derivatively. Id.
In order
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. . . . To set out an individual action, the
plaintiff must allege either an injury which is separate and distinct from
that suffered by other shareholders, or a wrong involving a contractual
right of a shareholder which exists independently of any right of the
corporation. For a plaintiff to have standing to bring an individual
action, he must be injured directly or independently of the corporation.
6
(Citations and punctuation omitted.) Ga. Appreciation Property, 345 Ga. App. at 420.
This rule applies to claims brought against both the corporation and individual
defendants such as members of a board of directors. See, e.g., id.; Crittenton v.
Southland Owners Assn., 312 Ga. App. 521, 524-525 (2) (718 SE2d 839) (2011).
Georgia decisions addressing this issue have concluded that claims related to election
procedures, breach of fiduciary duties, negligent misuse of corporate funds,
usurpation of corporate opportunities, personal use of assets without sufficient
compensation, mismanagement, and corporate-waste are not separate and distinct
causes of action creating a right of direct action in an individual member. Phoenix
Airline Svcs. v. Metro Airlines, 260 Ga. 584, 585 (1) (397 SE2d 699) (1990) (breach
of fiduciary duty); Rollins v. LOR, Inc., 345 Ga. App. 832, 854-855 (4) (815 SE2d
169) (2018) (personal use of assets, mismanagement, corporate-waste); Ga.
Appreciation Property, 345 Ga. App. at 420 (1) (a) (election procedures); Crittenton,
312 Ga. App. at 524-525 (2) (breach of fiduciary duties, negligent misuse of
corporate funds, and election procedures). See also SDM Investments Group v. HBN
Media, 353 Ga. App. 281, 284 (2) (836 SE2d 193) (2019) (breach of contract claim
did not allege specific individual injuries and “should have been brought via a
derivative suit”). Based upon our review of Walhalla’s complaint, as amended, the
7
trial court properly concluded that Walhalla lacked standing to bring its claims
against Kennestone and Smith because its allegations are devoid of any separate and
distinct injury that would allow it to sue individually. Rather than granting a motion
for summary judgment, however, the trial court should have entered an order
dismissing Walhalla’s complaint. See GeorgiaCarry.Org, Inc. v. James, 298 Ga. 420,
424 (2) (782 SE2d 284) (2016); Ga. Appreciation Property, 345 Ga. App. at 424 (c);
Crittenton, 312 Ga. App. at 525 (2). We therefore vacate the trial court’s order
granting summary judgment to the defendants and remand this case to the trial court
with direction to enter a dismissal.
2. Walhalla asserts that the trial court erred “since the evidence on record
clearly shows that . . . Kennestone failed to mitigate its damages by drawing down the
monthly assessments paid into the Registry of the Court.” In support of this
allegation, Walhalla contends that it paid monthly assessments for May 2018 through
February 2020 into the court registry and Kennestone made no effort to withdraw any
of these funds “to mitigate its claims or damages.” Based on this general assertion,
Walhalla argues that the trial court’s “[o]rder should be reversed and the matter be
remanded to the lower court for a trial by jury.” Other than alleging, without citation
to the record, that Kennestone “assessed a late charge on each and every payment
8
made into the Registry of the Court,” Walhalla fails to specify how Kennestone was
“the author of its own loss or damage” or the “claims or damages” that would have
been mitigated by a withdrawal of funds in the court registry. The trial court’s order
contains no ruling on Kennestone’s alleged failure to mitigate its damages, which is
an affirmative defense. Alston & Bird v. Mellon Ventures II, LP, 307 Ga. App. 640,
644 (3) (b) (706 SE2d 652) (2010). Walhalla did not raise failure to mitigate damages
as a defense in any of its pleadings before the trial court. While McKee’s rendition
of facts in the summary judgment hearing included the statement, “I don’t believe
they have tried to draw down any of the money from the registry of the Court, even
though they have been given notice that it’s there,” and Walhalla stated in a brief that
“Defendant Kennestone, rather than file a Motion to Withdraw the funds has chosen
in bad faith to continue to declare to this Court that the assessments for 2018 have
been unpaid,” Walhalla never asserted below that Kennestone was charging late fees
on the amounts paid into the registry and did not assert that the legal effect of
Kennestone’s failure to seek withdrawal of the funds should amount to a failure to
mitigate damages. As Kennestone’s breach of a duty to mitigate its damages and its
purported assessment of late fees on funds paid into the court registry “were not
raised and ruled on by the court below[,] . . . these issues present nothing for this
9
Court to review.” Houston v. Flory, 329 Ga. App. 882, 890 (3) (766 SE2d 227)
(2014).
3. Walhalla asserts that the trial court erred by failing “to setoff amounts
overbilled to and paid by the Appellant.” As Walhalla’s overbilling claims are based
entirely upon derivative claims for which it has no standing, it was not entitled to a
set-off. Cf. Charles S. Martin Distrib. Co. v. Bernhardt Furniture Co., 213 Ga. App.
481, 484 (5) (445 SE2d 297) (1994) (“The assertion of a set-off against the amount
owed is not a defense, but is a claim for affirmative relief.”).
4. In its remaining claim of error, Walhalla appears to assert that the trial court
erred because it did not reduce the amount of the damages based upon the “stubborn
litigiousness” of the defendants. It asserts that “[e]ven though [the defendants]
willfully violated the governing documents, they caused [Walhalla] to retain an[]
attorney and to incur legal expenses defending the indefensible actions and inaction
of the [defendants].” Although Walhalla does not cite to any cases or statutes in
support of this claim on appeal, it cited to OCGA § 13-6-11 to support this claim in
its pleadings before the trial court. “A prerequisite to any award of attorney fees under
OCGA § 13-6-11 is the award of damages or other relief on the underlying claim.”
(Citations and punctuation omitted.) Rigby v. Flue-Cured Tobacco Cooperative
10
Stabilization Corp., 339 Ga. App. 558, 563 (2) (794 SE2d 413) (2016). As Walhalla
lacked standing to assert the claims for damages alleged in its complaint, it was not
entitled to attorney fees and costs under OCGA § 13-6-11, much less an offset or
reduction in the amount owed to Kennestone on its counterclaim. Id. See also Charles
S. Martin Distrib. Co., 213 Ga. App. at 484 (5).
For the reasons explained above, we affirm the trial court’s grant of summary
judgment to Kennestone on its counterclaim, vacate the trial court’s grant of summary
judgment to Kennestone and Smith on Walhalla’s complaint, and remand this case
to the trial court with direction to dismiss Walhalla’s complaint.
Judgment affirmed in part, vacated in part and remanded with direction.
Dillard, P. J., and Rickman, P. J., concur.
11