Inspection of LLC's Books Limited To Undisputed Members

The Limited Liability Company Act provides that

A member may: (A) At the member's own expense, inspect and copy any limited liability company record upon reasonable request during ordinary business hours; (B) Obtain from time to time upon reasonable demand: (i) True and complete information regarding the state of the business and financial condition of the limited liability company; (ii) Promptly after becoming available, a copy of the limited liability company's federal, state, and local income tax returns, if any, for each year; and (iii) Other information regarding the affairs of the limited liability company as is just and reasonable.

O.C.G.A. § 14-11-313(2). The code section further provides a judicial remedy for when the LLC refuses to cooperate with a request to inspect records and books:

If the limited liability company refuses to permit the inspection authorized by paragraph (2) of this Code section, the member demanding inspection may apply to the superior court for the county in which the registered office of the limited liability company is located, upon such notice as the court may require, for an order directing the limited liability company to show cause why an order permitting such inspection by the applicant should not be granted.

O.C.G.A. § 14-11-313(3).

The Court of Appeals reiterated this past week that a "member" means a "person who has been admitted to a limited liability company as a member as provided in Code Section 14-11-505 and who has not ceased to be a member as provided in Code Section 14-11-601 or 14-11-601.1." Ridgewalk Holdings, LLC v. Atlanta Apartment Investment Corp., A20A1968, A20A1969, 2021 WL 824710 at *3 (Ga. Ct. App. 2021). This ruling clarifies that only a member in good standing may request an inspection of the books and records of the LLC. If there is any question of fact as to whether or not a person is a member then the inspection under that code section is not permissible. In Ridgewalk Holdings, the Court affirmed the trial court's rejection of a request where there was a question of fact as to whether the member had assigned away its interest in the LLC. However, the request for inspection had to be denied because this very fact had not been decided in the same litigation.

Public Policy in Favor of Arbitration Prevails Over Public Policy Against Unlicensed Contractors

The Georgia Court of Appeals decided on Tuesday, March 2, 2021, that the public policy favoring arbitration provisions prevails over Georgia's public policy to render agreements entered into by unlicensed contractors unenforceable. See Jhun v. Imagine Castle, LLC, A20A1724, 2021 WL 790162 (Ga. Ct. App. Mar. 2, 2021).

In Jhun, the two parties entered into an agreement for a remodel of a residential dwelling. Id. at *1. The agreement was later amended to include an arbitration agreement governed by the Federal Arbitration Act ("FAA"). Id. The homeowners later discovered the contractors were not licensed and they brought suit for negligence, fraud, conversion, and requested the court declare the contract unenforceable as a matter of public policy pursuant to O.C.G.A. § 43-41-17. Id. After the defendants moved to compel arbitration between the parties, the Court stayed the proceeding and ordered the parties to arbitration. Id. at *2.

The Court of Appeals affirmed the trail court and stated where there is a specific challenge attacking the validity of an arbitration agreement, the court and not the arbitrator should decide whether the arbitration provision is enforceable. Id.; citing Crawford v. Great American Cash Advance, Inc., 284 Ga. App. 690, 692-693 (Ga. Ct. App. 2007). However, a challenge to the validity of the contract as a whole, and not to the arbitration clause specifically, must go to the arbitrator. Id.

Even where the judge could make a determination on the pleadings whether a contract is per se unenforceable pursuant to the legislative public policy, the determination of the unenforceable nature of an agreement is left for an arbitrator. Jhun, 2021 WL 790162 at *2.

While this case related to the public policy against unlicensed contractors and the Crawford case related to unenforceable contracts under the Georgia Payday Loan Act, the expansive view that the Court of Appeals takes in Jhun will likely apply to any public policy legislation so long as the enforceability of the entire agreement is in question. In furtherance of this expansive view, the Court also stated that the Supreme Court case Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440 (2006) applies to all cases involving the Federal Arbitration Act, regardless of whether it is in federal or state court. Id. at *3. Under Buckeye Check Cashing, Inc., any arbitration clause under the Federal Arbitration Act is severable from the remainder of the contract and unless the arbitration clause itself is under attack the question is always for an arbitrator and not a court regardless of whether it is state or federal courts.

Accepting Partial or No Payment Under Agreement Term Can Be Waiver and Create Quasi-New Agreement

The Georgia Court of Appeals held on Monday, March 1, 2021, that repeated late, irregular payments accepted by the party receiving payment creates a factual dispute as to whether a quasi-new agreement was created. See The Hatchett Firm, P.C. v. Atlanta Life Financial Group, Inc., A20A1723, 2021 WL 774596 (Ga. Ct. App. Mar., 1, 2021).

In Atlanta Life Financial Group, Inc., two entities were subleasing office space from a lessee that was in a Master Lease with the landlord. See Atlanta Life Financial Group, Inc., 2021 WL 774596 at *1. The subleasing began with one entity in 2014 and with the second entity in 2016. Id. In January 2018, both subtenants failed to pay the full amount of rent under the sublease. Id. In November 2018, both subtenants completely stopped paying rent. Id. On April 12, 2019 -- 16 months after the initial failure to pay full rent and 5 months after the complete failure to pay full rent -- the lessee objected to partial payment or nonpayment. Id. at *2. Approximately one month later the lessee brought suit against the subtenants for past rent due. Id. at 1.

The Court relied on a 2012 case, Circle K Stores v. T. O. H. Assoc., 318 Ga. App. 753, 654 (Ga. Ct. App. 2012), for the proposition that an affirmative notice is required to return to the original terms of a contract once a mutual departure from the terms of an agreement occur. Specifically, Circle K Stores, states:

A mutual departure from the terms of an agreement results in a quasi-new agreement suspending the original terms of the agreement until one party has given the other reasonable notice of its intent to rely on the original terms. The question whether the parties’ mutual conduct caused a waiver and effected a quasi-new agreement ordinarily is a question for the jury.

Turning to Supreme Court of Georgia precedent from 1979, the Court of Appeals ruled that evidence of repeated late, irregular payments accepted by the seller can be such a mutual departure. Id. at *2; See Smith v. Gen. Finance Corp. of Ga., 243 Ga. 500 (1979). Therefore, the Court reversed its summary judgment finding in favor of the lessee and stated a question of fact remains because the lessee did not object to the partial payment or nonpayment until 16 months after the first failure to pay in full.

The Court of Appeals also emphasized that a no-waiver or anti-waiver provision in a contract may itself be waived under Georgia law by performance such as the acceptance of irregular payments. Id. at *2; See Yash Solutions v. New York Global Consultants, 352 Ga. App. 127, 136 (Ga. Ct. App. 2019).

Lastly, looking forward, the Court of Appeals stated in dicta that the outcome may have been different had the lessee not accepted the partial rent payments without identifying to the tenant that he was underpaying the rent or had the lessee expressed its displeasure as a result of the partial or late payments. Id. at *2; citing Circle K Stores, 318 Ga. App. at 755; Duncan v. Lagunas, 253 Ga. 61, 62-63 (1984).

This case should remind businesses to send prompt notice anytime a breach of an agreement occurs.