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TMX Finance, LLC v. Goldsmith

Court of Appeals of Georgia, First Division

September 12, 2019

TMX FINANCE, LLC et al.
v.
GOLDSMITH et al.YOUNG et al.
v.
GOLDSMITH et al.

          BARNES, P. J., MCMILLIAN, P. J., AND REESE, J.

          BARNES, PRESIDING JUDGE.

         Jason 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.

         We 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.

         The Founding of ICOT.

         As 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.

         ICOT 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 (collectively, "ICOT").

         Young Becomes Involved in ICOT.

         Young 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.

         The Restructuring of ICOT.

         On 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.

         Additionally, 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.

         Young's Alleged Takeover Scheme Targeting Jue and Goldsmith.

         If TY 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.

         Young Allegedly Implements His Takeover Scheme.

         In 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.

         In 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.

         According 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.

         Although 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 being pulled."

         According 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.

         Inspection of ICOT's Books and Records by the TMX Defendants.

         The 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.

         Young Takes Control of ICOT Holdings' Board of Managers.

         Under 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 board member.

         Termination of Jue.

         On 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.

         Dilution of Jue and Goldsmith.

         During 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.

         However, 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.

         The 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 for him.

         Young's Proposed Sale of ICOT.

         The 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 ...


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