When A Business Divorce and Facebook Page Go Bad…

This week, we look at the Georgia Supreme Court’s ruling in Davis v. VCP South, LLC et al., 297 Ga. 616, 774 S.E.2d 606 (2015), reconsideration denied (July 27, 2015).  But I want to focus on two things – how to value a LLC when it’s owned 50/50 and the evolving role that Facebook and social media can play in business divorces.

FirstDavis demonstrates the need to have a solid operating agreement that establishes a dedicated means to calculate a member’s interest in the LLC.  This is especially important when the LLC is 50/50 or when one member dies, leaving the sole remaining member to deal with an Estate.  In this case, the Operating Agreement specifically established that “the purchase price for the membership units shall be their fair market value as determined in a commercially reasonable manner by or under the certified public accountant regularly representing the Company, whose decision in this matter shall be conclusive.”  Davis v. VCP S., LLC, 321 Ga. App. 503, 504, 740 S.E.2d 410, 411 (2013).  While the Estate disputed having the LLC’s CPA fill this role as being a conflict of interest, Georgia Courts rejected it, and found the Operating Agreement controlled.

I see this all too often.  People enter into a LLC without a clear Operating Agreement and then something happens leading to a desire to separate.  But then they are left to fight over the value of the LLC: the departing person says their interest is very expensive, while the remaining person says the value is worthless so they don’t need to pay a lot for it.  The method used in Davis is a common sense middle ground, where a CPA with knowledge of the business determines the LLC’s value based on objective financial data.

And relying solely on Georgia’s LLC Code may not provide the same clarity or simplistic process as a concise and clearly stated Operating Agreement.

Second, the business – a well-known plastic surgery venture known as “the Vein Guys” – had invested significant resources in its social media presence, including a Facebook page.  These effort had significant value to the LLC, as Facebook is an evolving and growing source of business origination.

But the Estate interfered with this effort and contacted Facebook to shut the page down during the litigation.  I’m not sure what legal advice the Estate got, or if it listened, but messing with social media during active litigation rarely turns out well.  The risks often outweigh any potential gain: parties tend to have a visceral response to such efforts and this response will most likely far exceeds their actual level of interest in the item at issue.

In this case, the trial court noted that business suffered “a significant drop in the number of new patients contacting the practice following the deactivation of the Facebook page when compared to the number of new patient contacts received by the practice in the preceding two months.”  So the trial court ordered the Estate to re-activate the Facebook page through an interlocutory injunction while it considered ownership rights of the Facebook page and other trademarks in the underlying case.  The Supreme Court affirmed this mandatory instruction.

But when the Estate failed to comply – and the Facebook page remained deactivated for a few weeks – the trial court found the Estate in both criminal and civil contempt.  Again, the Supreme Court affirmed, noting:

the record shows that appellant failed to follow the trial court’s instructions in its March 7, 2014 order to immediately take action to have The Vein Guys Facebook page reactivated. Subsequently, appellant failed to comply with the court’s more detailed instructions in its April 1, 2014 order until the evening before the hearing on the plaintiffs’ motion for contempt. Finally, the record reveals that once appellant fully complied with the instructions set forth in the trial court’s order, the Facebook page was reactivated. As there is evidence to support the trial court’s findings of contempt, these findings will not be disturbed.

Davis, 297 Ga. at 623-24, 774 S.E.2d at 613 (bold added).

In other words, always comply with Court Orders!  Especially ones that can be done easily.

Talk about being so vein.

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