TMX FINANCE, LLC et al.
GOLDSMITH et al.YOUNG et al.
GOLDSMITH et al.
BARNES, P. J., MCMILLIAN, P. J., AND REESE, J.
BARNES, PRESIDING JUDGE.
Jue and Dr. Manning M. "Chip" Goldsmith, III, filed
this direct action against Tracy Young and TY ICOT
Investments, LLC (collectively, the "Young
Defendants") and against TMX Finance LLC, TitleMax of
Texas, Inc., and TitleMax of Georgia, Inc. (collectively, the
"TMX Defendants"), alleging breach of a limited
liability company's operating agreement, breach of
fiduciary duty, breach of an option agreement, fraud, and
other claims. The Young Defendants filed a motion to dismiss
the plaintiffs' amended complaint or, in the alternative,
for judgment on the pleadings, and the TMX Defendants filed a
motion to dismiss the amended complaint. The trial court
entered orders denying the defendants' respective
motions. The defendants then filed applications for
interlocutory appeal, which this Court granted, leading to
the present companion appeals. For the reasons discussed more
fully below, we conclude that the plaintiffs failed to state
a claim for breach of the option agreement, and we reverse
the trial court's orders to the extent that the court
declined to dismiss that claim. We affirm the trial
court's orders in all other respects.
review de novo a trial court's ruling on a motion to
dismiss for failure to state a claim upon which relief may be
granted and/or on a motion for judgment on the pleadings.
Northway v. Allen, 291 Ga. 227, 229 (728 S.E.2d 624)
(2012); City of Albany v. GA HY Imports,
348 Ga.App. 885, 887 (825 S.E.2d 385) (2019).
A motion to dismiss for failure to state a claim upon which
relief may be granted should not be sustained unless (1) the
allegations of the complaint disclose with certainty that the
claimant would not be entitled to relief under any state of
provable facts asserted in support thereof; and (2) the
movant establishes that the claimant could not possibly
introduce evidence within the framework of the complaint
sufficient to warrant a grant of the relief sought. In
deciding a motion to dismiss, all pleadings are to be
construed most favorably to the party who filed them, and all
doubts regarding such pleadings must be resolved in the
filing party's favor.
(Citation and punctuation omitted.) Austin v. Clark,
294 Ga. 773, 774-775 (755 S.E.2d 796) (2014). See OCGA §
9-11-12 (b) (6). The same standard applies to a motion for
judgment on the pleadings, where, as here, "the parties
moving for judgment on the pleadings do not introduce
affidavits, depositions, or interrogatories in support of
their motion." (Citation and punctuation omitted.)
Southwest Health & Wellness v. Work, 282 Ga.App.
619, 623 (2) (639 S.E.2d 570) (2006). Additionally, the trial
court in addressing the aforesaid motions may consider
"any exhibits attached to and incorporated into the
complaint and the answer." (Citation and punctuation
omitted.) Islam v. Wells Fargo Bank, N. A., 327
Ga.App. 197, 197 (757 S.E.2d 663) (2014). See Early v.
MiMedx Group, 330 Ga.App. 652, 654 (768 S.E.2d 823)
(2015). Mindful of these principles, we turn to the pleadings
and exhibits attached thereto in the present appeals.
Founding of ICOT.
alleged in the amended complaint, Goldsmith, a neurologist
who specializes in complex ear procedures, started ICOT
Hearing Systems, LLC ("ICOT Hearing") to provide
low-cost hearing aides. Jue became involved in ICOT Hearing
in its early stages and assisted in building the company into
a multi-million dollar enterprise. Jue ran the day-to-day
operations of ICOT Hearing as its sole manager.
Hearing is wholly owned by ICOT Holdings, LLC ("ICOT
Holdings"). Until the incidents at issue in this case,
Jue and Goldsmith together held a majority interest in ICOT
Holdings and controlled ICOT Holdings and ICOT Hearing
Becomes Involved in ICOT.
is the founder of the TMX Defendants, which are a
"family of companies" consisting of title pawn
companies and other businesses, and he controls their
operations. In August 2015, Young began personally lending
money to ICOT. Jue, Goldsmith, and Young knew that ICOT's
"business model required additional cash beyond the
accounts receivable for ICOT to sustain operations and
continue to grow at a rapid pace," and that the goal of
this "accelerated growth" model "was to sell
ICOT to a third-party for tens of millions or hundreds of
millions of dollars in the near term." Young
"repeatedly told Jue to 'put his foot on the
gas' with regard to the operations of ICOT" and
assured Jue and Goldsmith that he would provide more funding.
Restructuring of ICOT.
March 16, 2016, ICOT Hearing, ICOT Holdings, Jue, Goldsmith,
Young, and Young's limited liability company, TY ICOT
Investments ("TY Investments"), entered into a
restructuring agreement under which Young loaned additional
funds to ICOT Hearing and guaranteed two bank loans (the
"Restructuring Agreement"). As part of the
restructuring, TY Investments purchased membership units from
several minority members of ICOT Holdings and from Goldsmith.
TY Investments also obtained exclusive one-year options to
purchase additional membership units from several minority
members and from Goldsmith. TY Investments's purchase of
some of Goldsmith's membership units and its option to
purchase additional units from him were memorialized in a
Membership Interest and Purchase Option Agreement entered at
the time of the restructuring of ICOT Holdings (the
"Goldsmith Agreement"). Following the restructuring
and prior to execution of the options, Jue and Goldsmith
retained their controlling interest in ICOT Holdings.
as part of the restructuring, ICOT Holdings, Jue, Goldsmith,
TY Investments, and the other members of ICOT Holdings
executed an Amended and Restated Operating Agreement for ICOT
Holdings, which, among other things, placed certain duties on
that company's managers, including the duties to conduct
the business in good faith, to not engage in wrongful
conduct, and to act in a manner that would not result in
improper personal benefit to them (the "Operating
Agreement"). Under the terms of the Operating Agreement,
TY Investments acquired the power to appoint one of three
members of the board of managers of ICOT Holdings. Pursuant
thereto, TY Investments appointed Young as a manager of ICOT
Holdings, and Young agreed to comply with the terms of the
Operating Agreement while serving in that position.
Alleged Takeover Scheme Targeting Jue and Goldsmith.
Investments had executed all of the options it had acquired
from members of ICOT Holdings as part of the restructuring,
Young, through TY Investments, would have acquired a majority
interest in ICOT Holdings. However, according to the amended
complaint, Young devised a scheme to obtain a controlling
interest in ICOT Holdings through alternative means by
causing an "existential funding crisis" at an
opportune moment that could be used to divest Goldsmith and
Jue of control without having to exercise the options.
Allegedly Implements His Takeover Scheme.
October 2016, two "reputable capital providers"
discussed providing funds to ICOT beyond what Young had
provided. The amended complaint alleged, however, that Young
derailed these readily available sources of additional
funding so that he could use ICOT's ongoing "cash
needs" as leverage over Jue and Goldsmith when the
opportunity arose to implement his takeover scheme.
November 2016, a prospective third-party buyer that
previously offered $8, 000, 000 to purchase ICOT expressed
renewed interest in reaching a purchase agreement. Because of
ICOT's growth, the parties entered into negotiations and
discussed a purchase price of "approximately $100, 000,
000 for a sale at the end of 2016 or approximately $250, 000,
000 for a sale at the end of 2017." In preparation for a
potential sale, ICOT Holdings negotiated and was approved for
a line of credit from United Community Bank ("UCB")
that would provide additional funds for the payment of
ongoing and ordinary business expenses (the "UCB Line of
Credit"). Young and Jue agreed to personally guarantee
the UCB Line of Credit.
to the amended complaint, after meeting with the prospective
buyer, Young "seized the opportunity to begin his
takeover" by means of a funding crisis. Because Jue and
Goldsmith held a majority of the membership units in ICOT
Holdings and "stood to profit significantly from the
sale of ICOT," Young allegedly "did not want the
sale to happen until he had wrested control and ownership
from Jue and Goldsmith" and thereby could obtain a
greater personal financial benefit from the sale.
Consequently, the amended complaint alleged, Young began
implementing his plan to create a funding crisis at ICOT that
he could use as leverage over Jue and Goldsmith and as a
means of delaying a sale to the third-party buyer.
the UCB Line of Credit had already been negotiated and
approved for the purpose of paying ICOT's ongoing
business operations and Young and Jue had agreed to
personally guarantee the loan, Young allegedly refused to
sign the guarantee necessary for releasing the funds unless
Jue and Goldsmith would agree to provide him with warrants
entitling him to purchase additional membership units from
them at a set price. Without the UCB Line of Credit, the
amended complaint alleged, Young knew that ICOT would be
"unable to make its scheduled employee payroll, unable
to meet payment deadlines with vital component suppliers for
ICOT's products, and unable to pay its marketing vendors
which would result in all ICOT advertisements and marketing
to the amended complaint, the funding crisis caused by
Young's refusal to sign the guarantee necessary to open
the UCB Line of Credit ultimately caused the third-party
buyer to cease its negotiations for purchasing ICOT. At a
dinner with Jue, Goldsmith, and the buyer's
representative, Young allegedly "represented the
company's financial health in a poor and false light to
the buyer's representative," stated that he wanted
Jue terminated as manager of ICOT Hearing as a condition for
providing needed funding for ICOT, maintained that he did not
"want" ICOT if he could not control it, and
threatened to dilute the membership interests of Jue and
Goldsmith. Allegedly based on Young's statements and
behavior at the dinner, the third-party buyer backed out of
the negotiations. And because Young would not sign off on any
further funding for ICOT when Jue and Goldsmith refused to
provide the requested warrants, ICOT remained in a state of
financial crisis induced by Young.
of ICOT's Books and Records by the TMX Defendants.
amended complaint further alleged that as part of his
takeover scheme, Young began questioning ICOT's books and
financial records, even though a third-party accountant had
found that ICOT's finances were within "expected and
acceptable parameters" and ICOT had undergone three
outside audits by three separate groups. Young allegedly
"brought in personnel from his [TMX] web of companies to
inspect ICOT's books and operations," falsely
claiming that "he needed to look at the company through
a 'static pool' analysis" to properly gauge the
company's health. According to the amended complaint, the
TMX personnel were able to enter and inspect ICOT's books
and operations "under the false representation that they
were present at Young's request to inspect ICOT's
books and perform a financial analysis for purpose of the
proposed sale of ICOT" to a third-party buyer. But the
amended complaint alleged that the representations of Young
and the TMX personnel were false because "the personnel
brought in by Young had the real purpose of learning
ICOT's operations so that when Young seized control of
ICOT, the operations of ICOT could be run by Young's
people who were under Young's control through their
employment in the TMX web of companies." The TMX
personnel also allegedly represented ICOT's financial
numbers in a false light to support Young's own
representations about ICOT's books and finances.
Takes Control of ICOT Holdings' Board of Managers.
the terms of ICOT Holding's Operating Agreement, the
company's board of managers was composed of three
individuals, and Young and Jue were two of the appointed
managers. Pursuant to the Operating Agreement, the third
manager was to be proposed by Jue and approved by TY
Investments. According to the amended complaint, after
creating the funding crisis at ICOT, Young took steps to take
control of ICOT Holdings' board of managers through the
wrongful appointment of the third manager. In particular, the
amended complaint alleged that after a vacancy opened on the
board of managers, Young extended an offer to his friend,
Robert Pirkle, to serve as the third manager, and Pirkle
accepted. Jue initially agreed to the appointment of Pirkle
based on an alleged misrepresentation by Young, communicated
through his agent and attorney, "that Pirkle's
appointment was a requirement imposed by UCB" before it
would allow the UCB Line of Credit to be drawn upon by ICOT
Holdings. Despite the representation that the appointment of
Pirkle to the board was necessary so that ICOT Holdings could
begin drawing on the UCB Line of Credit, Young refused to
authorize the draw after Jue gave his approval to
Pirkle's appointment. Jue later sought to rescind his
approval of Pirkle's appointment, but by that point
Pirkle had already accepted the offer to serve as the third
February 24, 2017, a meeting of ICOT Holdings' board of
managers was held in which Pirkle attended and cast votes as
one of the three managers on the board over the objections of
Jue and Goldsmith. At the meeting, Young and Pirkle voted in
favor of terminating Jue as manager of ICOT Hearing over the
objection of Jue. The vote passed as a result of Pirkle's
participation. After Jue was terminated as manager of ICOT
Hearing, he resigned from his position on the board of
managers of ICOT Holdings in March 2017.
of Jue and Goldsmith.
the February 24, 2017 board meeting, Young and Pirkle, over
Jue's objection, also voted in favor of issuing a capital
call in the amount of $6, 000, 000 to the members of ICOT
Holdings. The capital call would result in increased
membership interest percentages for those members who
contributed their pro rata contributions to the capital call,
and a corresponding dilution of the interests of those
members who were unable to contribute. According to the
amended complaint, at the time of the proposed capital call,
the UCB Line of Credit was available to provide funding to
ICOT without need of the capital call.
rather than permit ICOT Holdings to draw upon the UCB Line of
Credit, Young allegedly sought the capital call for the
specific purpose of diluting the membership interests of Jue
and Goldsmith, whom he knew could not contribute to the
capital call, and of increasing his own membership interest,
after Jue and Goldsmith had refused to provide him with the
warrants he requested. Young also allegedly contacted several
minority members of ICOT Holdings and encouraged them to make
their pro rata contributions to the capital call so as to
"build an alliance" against Jue and Goldsmith.
capital call was issued to the members of ICOT Holdings and
required that their pro rate contributions be made in March
2017. According to the amended complaint, "Young singled
out Goldsmith and Jue with respect to the capital call and
for the purpose of ensuring that neither would meet the
capital call," and to that end, "[w]hen a second
notice of the capital call was sent out to the members of
ICOT Holdings, it was not sent to Goldsmith and Jue."
After the capital call was issued, some of the members of
ICOT Holdings were able to contribute their pro rata shares
and thus not suffer dilution. However, as allegedly foreseen
by Young, neither Jue nor Goldsmith was able to make his pro
rata contribution in response to the call, leading to the
dilution of both their membership interests in ICOT Holdings.
Because of the capital call and resulting dilution, as of
March 2017, Jue and Goldsmith had their membership interests
reduced to "little or nothing," and Young obtained
a majority, controlling interest in ICOT Holdings. After
Young obtained control from Jue and Goldsmith, he allegedly
brought in the same TMX personnel who had previously
inspected ICOT Holdings' books and operations to run ICOT
Proposed Sale of ICOT.
amended complaint alleged that after Jue and Goldsmith had
their membership interests diluted and Young had taken
control of ICOT Holdings from them, Young contacted the same
third-party buyer on March 15, 2017 and proposed the sale of
ICOT at the "significant discount[ed]" price of
$40, 000, 000. According to the amended complaint, in light
of the dilution that occurred and the discounted sale price,
Jue and Goldsmith would ...