West v. West (825 F. Supp. 1033, 1992)

ORDER

FORRESTER, District .Judge.

This matter is before the court on plaintiffs motion for leave to file a third amended complaint; plaintiff Arthur Davidson West’s motion for partial summary judgment concerning the affirmative defenses of set-off, estoppel and unclean hands; Defendants West Equipment Company, West Enterprises, Inc., West Lumber Company, and Charles B. West’s cross motion for summary judgment concerning affirmative defenses; defendants’ motion for summary judgment as to counts one and two, direct recovery claims; and defendants’ partial motion for summary judgment as to counts three and four, derivative recovery claims.

I. BACKGROUND

This shareholder action resulted from the falling out of a father and son. The father, Charles B. West, Sr., reorganized the family assets and now runs and controls the family businesses and has established a complex corporate and trust structure in order to provide for his five children upon his retirement. As part of this close corporation system, each sibling has a primary interest in one of the five principal West family corporations. ; The son, Arthur Davidson West, was a favored member of the family, receiving support from the father and the family corporations which he controlled. Eventually, due to the son’s serious 'financial difficulties resulting from the failure of various business ventures, the father cut the son off from receiving the use, support and benefits from the assets of the family corporations which his other siblings received. After a failed attempt at reconciliation, this suit followed.

The primary issues involved in this dispute require the court to determine whether the plaintiff comes into court with unclean hands due to his past participation in , the same types of acts which he relies on in support of his complaint; whether Georgia law permits a direct recovery to the shareholder on the facts present; whether federal or state law governs the bringing of a derivative action pursuant to Federal Rule of Civil Procedure 23.1; -and whether under Georgia law plaintiff has standing to sue on behalf of various of the West family corporations, where plaintiff is not a direct shareholder of record.

The purpose for these reorganizations, which began in 1974, allegedly was to ensure Charles, Sr.’s control of the West family corporations, allow him to name all directors and to appoint the' officers for each West family corporation. Charles, Sr. is the chairman of the board of each West family corporation. Plaintiff argues that Charles, Sr. has acted to squeeze out or oppress plaintiff as a minority shareholder. The alleged purpose of this squeeze-out “is to deny the minority shareholder a fair return on his ownership interest in the corporation or force the minority shareholder to sell his stock to the controlling shareholder for less than its true value or both.”

Defendants argue that they have never denied plaintiff a fair return on his ownership interests in the West family corporations, and, in fact, plaintiff has used his West ownership interests on numerous occasions for personal gain. Defendants note that there are no buy-sell agreements, shareholder agreements, by-law provisions or other arrangements which would restrict the sale or transfer of plaintiffs stock interest in the various West family corporations. “Each stockholder of these corporations is free to sell or otherwise transfer his or her shares without restraint to any person for any price or consideration.” Plaintiff has on previous occasions freely transferred shares of his West family corporations stock to other persons and on two occasions has transferred and assigned to lending institutions shares of West Lumber Company stock owned by the plaintiff as security for loans. These loans totaled several hundred thousand dollars and were used in connection with plaintiffs personal business ventures, allegedly unrelated to any West corporation activity. Other than the aforementioned transactions, it appears that plaintiff has made no effort to sell his ownership interest in the West family corporation.

Three motions for summary judgment are currently pending before the court. Plaintiff has. moved for summary judgment concerning the affirmative defenses of set-off, estoppel and unclean hands asserted by the defendants. Defendants have also moved for summary judgment concerning the affirmative defenses of set-off, estoppel and unclean hands. The defendants have also filed a motion seeking partial judgment as to counts one and two of plaintiffs complaint based on a judgment on the merits concerning a number of transactions which plaintiff alleges represent fraudulent conveyances of corporate assets in his complaint.

Subsequent to the filing of the parties’ original motion for summary judgment concerning affirmative defenses, the parties agreed as to plaintiffs liabilities regarding the issue of set-off. As of January 31,1989, plaintiff acknowledges owing the various defendants approximately a total of $597,781, including principal and interest, for various transactions taken on plaintiffs behalf by various West corporate entities. The parties have agreed that no other transactions requiring set-off would be considered or raised. Thus, the court considers the issue of the set-off affirmative defense settled..

The court finds that the interests of equity dictate that plaintiff be barred from seeking a direct recovery from defendants because he has received significant personal benefit to the detriment of various West family corporations from his participation in substantially similar transactions and, therefore, comes into court with unclean hands. Nonetheless, the- -interests of fairness also dictate that plaintiff, who has acknowledged the personal benefits he has received from the West corporate entities in the past, be permitted to pursue derivative relief on behalf of the corporations in which he has an interest. Should the underlying transactions at issue be found to be fraudulent transfers or a wasting of corporate assets, this remedy permits the corporations to be made whole and all shareholders to receive their pro rata share of these benefits, without affecting the organization, operation or structure of the corporate entities.' Because the court has found that plaintiff is barred from seeking a direct recovery, the court need not address the issue of the permissibility of direct recovery-relief on the facts present under Georgia law. . .

Concerning the applicability of federal'or state law to the issue of standing in a shareholder derivative suit, the court finds that where the claims are based on state substantive law, as is the case here, state law applies. Therefore, plaintiff must be a shareholder of record to pursue his derivative claims.- Nonetheless, the court finds that the existing law in this circuit and for the State of Georgia permits shareholders to initiate multiple derivative actions. This outcome is particularly appropriate where, as here, the ownership and control of the various corporations at issue are centrally held by the same entity. Therefore, plaintiff may sue on behalf of all West family corporations where he is a direct or derivative shareholder of record.

A. Summary of Contentions

Plaintiff Arthur Davidson West brings a shareholder derivative suit pursuant to the 1982 Georgia Business Corporation Code, O.C.G.A. § 14-2-101, et seq. , seeking both direct and derivative monetary relief along with equitable relief for alleged breach of fiduciary duties on the part of three corporations in which the plaintiff owns stock — West Lumber Company, West Enterprises, Inc., and West Equipment Company — as a result of the waste, fraud, mismanagement, and misappropriation of the corporation’s assets.

Pursuant to plaintiffs amended complaint and subsequent letter amendments, plaintiff has alleged approximately fifty-two specific transactions or events representing the alleged misuse and waste of corporate assets. Defendants, as part of their affirmative defense, have cited fifteen similar transactions in which plaintiff was a participant. All the transactions in question can essentially be grouped into three types: transactions involving real property, loan transactions, and personal or employee services or expenses transactions. The time frame for the transactions discussed in plaintiffs complaint runs from January 1, 1985 to July 25, 1988, the date plaintiffs complaint was filed. The time frame for the transactions referred to by the defendants in support of their affirmative defenses runs from 1972 to May 1987.

In count one of plaintiffs amended complaint, plaintiff seeks an accounting of the books' and records for the West family corporations and, a direct recovery of money damages against Charles B. West, Sr., for his alleged breach of duty in exercising his position as chairman of the West family corporations. In count two plaintiff seeks the forced liquidation of the appropriate West fámily corporations or in the alternative to have the court direct the West family corporations or Charles B. West, Sr., to purchase ■all outstanding stock owned by plaintiff in the West family corporations for a fair and reasonable price. In counts three and four plaintiff brings a minority shareholder’s derivative action on behalf of each of the named West family corporations against Charles B. West, Sr., for his alleged wasting and misal-location of corporate assets. Plaintiff relies upon the same fifty-two transactions and events in seeking direct or derivative relief pursuant to counts one through four. In count five plaintiff seeks punitive damages and in count six seeks expenses, costs and attorney’s fees for this action.

Plaintiff argues that he has no control over and no way of benefiting from substantial assets that he rightfully owns. Therefore, plaintiff argues that the key issue is whether or not plaintiff has been fairly treated as a minority shareholder in the West family corporations since 1984, and not whether plaintiff has benefited as a result of being a member of the West family. As a shareholder plaintiff asserts that he has been locked out of the West family corporations as a result of the improper and fraudulent acts of the defendants. Plaintiff seeks, first, to recover the full value of his ownership interests in the West family corporations through either the forced liquidation of said corporation or by the forced sale of plaintiffs stock ownership interest in those corporations. Second, plaintiff seeks a recovery on behalf of the corporations of all improperly or fraudulently transferred assets through various shareholder derivative claims.

Defendants argue that' what is really at issue in this case is a shareholder derivative action to recover, for the benefit of the West family corporations in which plaintiff has a direct interest, any amounts found to represent waste and mismanagement .of corporate assets in connection with certain transactions and arrangements between the West family corporations and the West family shareholders. Defendants argue that plaintiff has not been excluded from benefiting as a shareholder in the West family corporations. Nor is plaintiff precluded from exercising control over any corporate assets which he directly owns. In fact, defendants cite instances where plaintiff used and transferred certain of his West family corporation interests for his personal benefit. Defendants contend that plaintiffs father and the West family corporations have repeatedly used corporate assets to promote, rescue or attempt to rescue plaintiffs business enterprises and plaintiff directly from his poor judgment and extravagance which has resulted in financially disastrous consequences to plaintiff and his endeavors. Thus, defendants argue, only after plaintiffs father has refused to support freely plaintiffs endeavors does plaintiff come into court and.' attempt to force his father and the West family corporations to distribute the full value of plaintiffs ownership interest, which plaintiff believes is being improperly withheld and controlled.

B. Statement of Facts

The West family corporations are a closely held corporate group. The vast majority of the stock in the various West corporations is held by West family members. Nonetheless, there are non-West family members who are stockholders in the West corporations. ■ The family patriarch is Charles B. West, Sr. (hereinafter “Charles, Sr.”). Charles, Sr. and his wife, Marjorie B. West (hereinafter “Marjorie West”), have five children. These children include Plaintiff Arthur Davidson West (hereinafter “plaintiff’ or “David”), Charles B. West, Jr. (“Charles, Jr.”), Marjorie West Wynne (hereinafter “Marjorie Wynne”), George Vincent West (hereinafter “Vincent”), and Mark Christopher West (hereinafter “Mark”).

The West children have principally obtained stock in the West family corporations through inheritance and gifts from other family members. The majority of the West children’s stock came from their grandfather, George B. West, and their uncle, George B. West, Jr. The stock from their grandfather was the result of a bequest tó them in his will. Additionally, the West children purchased the stock from their uncle with money given to them by their grandmother, Elma B. West, either before • or' after her death, through a trust established for the children’s benefit. Charles, Sr. has also established trusts for the children’s benefit and provided various gifts of West corporation stock in support of these trusts. Specifically, on December 31, 1976, Charles, Sr. created fifteen trusts on behalf of his children. Each of the five children, including plaintiff, is the beneficiary of three of these trusts. The trusts provide for liquidation and distribution of the assets contained therein at ages fifty, fifty-five and sixty, respectively. Charles, Sr.’s wife, Marjorie West, is the trustee for all fifteen of these trusts (hereinafter the “West family trusts”).

The aegis of the West family corporations is the West Lumber Company (hereinafter “West Lumber”). West Lumber was founded in 1892 and incorporated in 1929. In 1963 Charles, Sr. succeeded his father as president of West Lumber and in 1971, upon the death of his father, became chairman of the board of directors of West Lumber. In 1974 Charles, Sr. formed West Enterprises, Inc. (hereinafter ‘West Enterprises”). In forming West Enterprises, West. .Lumber transferred a significant part of its assets to West Enterprises. In exchange shares of West Enterprises stock were issued to the shareholders of West Lumber. Each shareholder received West Enterprises stock in accordance with their respective percentage ownership interest in West Lumber.

In 1980 three additional West family corporations were founded: West Equipment Company (hereinafter “West Equipment”), First Republic Company (hereinafter “First Republic”), and West Real Estate company, which was subsequently renamed West Corporation (hereinafter “Westcorp”). West Lumber and West Enterprises acquired a majority interest in the three new corporations by exchanging a substantial portion of them assets for stock in the new corporations. On December 31, 1986, West Investment Company (hereinafter “West Investment”) was formed. West Investment is a partnership with West Lumber, West Enterprises, West Equipment, First Republic, Westcorp, and Marjorie B. West, as trustee of the West family trusts, as partners. Each corporation became a partner in West Investment in exchange for all stock holdings the individual West family corporation held in the other corporate partners. The West family trust obtained its partnership interest by contributing real estate into the partnership. Charles, Sr. was elected partnership manager. As a result, Charles, Sr. is authorized to vote the partnership’s stock in each of the West family corporations. Charles, Sr. has also obtained permanent proxies from each of the five West family corporations, which permit him to vote the shares of stock which each corporation owns in the other West family corporations or partnerships.

Charles, Sr. and Marjorie B. West, who acts as trustee of the West family trusts established on behalf of the five children, and which contain and control the majority of West family corporation stock owned by the children, have' created a corporate system with five principal corporations, one for each child. David’s West family corporations ownership interests have been concentrated in West Equipment Company. Charles, Jr. has a concentrated minority interest inWest-corp. Marjorie Wynne has a concentrated minority interest in First. Republic Company. Vincent has a concentrated minority interest in West Lumber Company. Mark has á concentrated minority interest in West Enterprises, Inc.

1. The West Corporations Businesses

The West family corporations are primarily engaged in the retail building materials business. West Lumber continues as an active ongoing business enterprise. Most of the retail activities are conducted through West Lumber’s principal operating subsidiary, Associated Distributors, Inc. (hereinafter “Associated Distributors”). Associated Distributors essentially handles all of the management, accounting and payroll functions for the West family corporations’ building materials, business and, through its own subsidiaries, operates various retail home-building supply stores located throughout the Southeast. West Lumber and Associated Distributors employ approximately 1,700 people. Sales volume for the last four fiscal years for West Lumber and Associated Distributors has ranged anywhere between approximately $256 million and $290 million. West Lumber, as part of its ongoing business, maintains outstanding debt through various banking relationships totaling approximately $20 million. In addition, West Lumber owes outstanding trade creditors approximately $20 million.

West Enterprises, Inc., owns subsidiaries which manufacture both doors and windows for commercial use. These products are in turn sold through a subsidiary of West Enterprises, Associated Distributors, Inc. Associated Distributors operates retail facilities through which West Enterprises products are sold. West Equipment Company leases various equipment and other assets to West Lumber and Associated Distributors. This equipment includes such things as trucks, automobiles, forklifts, and fixtures. Long-term equipment leases between West Equipment and other West corporations, primarily Associated Distributors, have generated gross revenues for West Equipment over the period 1984 to 1988 of somewhere between $1.68 million and $2.2 million. West Equipment also owns substantial real estate interests in and around the metropolitan Atlanta area. Total West Equipment assets and investments for the period from 1984 through 1988 range between $16 and $18 million. First Republic Company owns various pieces of real estate, a few West retail stores, and has occasionally engaged in factoring the accounts of the other West family corporations. West Corporation, through its subsidiary corporations, engages primarily in construction and real estate development activities. These activities include building several of the West retail stores. In addition, West-eorp owns various pieces of real property. West Investment Company acts as a holding company for the various West family corporations’ stock. West Investment provides no independent business function within the West family corporations organization.

Essentially, the West family 'corporations operate as one fully integrated business enterprise, sharing common ownership, management, offices, and in many cases employees.

2. Plaintiffs Ownership Interests in . the West Family Corporations

David’s direct interest in the West family corporations at the time the complaint was filed on July 25, 1988, included one share of West Lumber Company stock, 4,098 shares of West Enterprises, Inc., stock, and 22,540.5 shares of West Equipment Company stock. In addition, David owned two shares of West Lumber Company, one share of West Enterprises, Inc., directly, although the transfers of these shares of stock have not been recorded on the records of the various corporations. Thus, at the time the complaint was filed, David owned three shares' of West Lumber, 4,999 shares of West .Enterprises, 22,541.5 shares .of West Equipment, no shares of First Republic, ánd no shares of Westcorp. This represents 0.18% (West Lumber), 4.20% (West Enterprises), 22.56% (West Equipment), 0.00% (First Republic), and 0.00% (Westcorp), respectively, of the outstanding shares of the principal West family corporations.

David also owns indirect interest in the West family corporations as a result of the cross or reciprocal ownership of stock among the five principal West family corporations, either directly or through West Investment Company. Prior to the formation of West Investment, each of the five principal West family corporations held stock in one or more of the other corporations and in turn had its stock held by one or more of those other principal corporations. The creation of West Investment merely changed the organizational structure of the West family corporations, not the substance of the reciprocal or cross-ownership between the corporations. The five principal corporations simply transferred their cross-ownership in the other corporations to West Investment in return for a partnership interest in West Investment. Thus, David has an indirect interest in the five principal West family corporations through their reciprocal or cross-ownership of each other that occurs indirectly through each corporation’s partnership interest in West Investment. David also has indirect interest through his status as beneficiary to three trusts established for- his benefit. Out of the fifteen West family trusts established in 1976, David is the beneficiary of trusts four, five and six. Each of the fifteen West family trusts holds approximately a two percent partnership interest in the West Investment Company. West Investment’s assets include certain real estate and varying percentages of outstanding stock of the five principal West family corporations. Each of the five corporations also has a minority partnership interest in West Investment. Plaintiff has no direct partnership interest in West Investment. David owns a total 24.-12% beneficial interest in the 1976 West family trusts (8.04% for each of the three trusts to which he is a beneficiary). A second trust established for David on December 21, 1984, holds 2,196 shares of West Equipment Company stock, or 2.20% of all outstanding shares. A third trust was established for David on August 14, 1972. This trust owns two shares of West Lumber Company and 200 shares of West Enterprises, Inc., or 0.18% and 0.20% of all outstanding shares, respectively. Thus, according to plaintiffs Exhibit 5 developed by James N. Bearden, David’s total beneficial interests as a result of the trusts established in his name are 2.99% -of West Lumber, 2.67% of West Enterprises, 5.66% of West Equipment, 4.40% of First Republic, and 3.66% of Westcorp.

Defendants did not acknowledge plaintiffs indirect stock ownership interest, nor do they directly contest these indirect ownership interests. However, defendants’ expert CPA, Jerry C. Gering, who was directed to ánalyze and determine David’s ownership in the various West family corporations, essentially admitted that these indirect stock interests exist. Mr. Gering only, determined David’s direct stock ownership interest and his beneficial trust ownership interest. Mr. Gering stated in his deposition testimony that his calculations did not account for David’s indirect ownership interest as a result of the cross-ownership among the five principal West family corporations. Mr. Gering further stated, that the method of analysis used by plaintiffs expert accountant, James N. Bearden, was valid and should have accurately determined David’s indirect stock ownership interest. Thus, because defendants agree with the analysis used by the plaintiffs expert and have provided no other analysis of David’s stock ownership interest including direct, indirect, and beneficial trust interest, the court will accept plaintiffs figures as to David’s total stock ownership interest. According to'Mr. Bearden’s analysis, David’s direct and indirect stock interests in the five principal West family corporations, respectively, on July 25, 1988, the date the complaint was filed, were: 3.28% in West Lumber; 7.19% in West Enterprises; 25.88% in West Equipment; 3.84% in First Republic; and 3.82% in Westcorp.' David’s total stock ownership interests, including direct, .indirect and beneficial trust ownership interests, on July 25, 1988, were: 4.05% in West Lumber; 7.66% in West Enterprises; 28.80% in West Equipment; 4.15% in First I~epublic; and 4.12% in Westcorp.

II. DISCUSSION

A. Unclean Hands

Defendanth raise the affirmative defenses of unclean hands and estoppel as grounds for preventing a judgment in favor of plaintiff in this case. These equitable defenses are based on fifteen (15) transactions between plaintiff and various of the defendants occurring between 1972 and 1987. Defendants allege that through these transactions plaintiff has engaged in the same type of activities as those relied on in plaintiff's complaint. As a result of these transactions, plaintiff has received the same types of benefits involving the use of West family corporation assets which plaintiff alleges to be wasteful or fraudulent when other shareholders engage in these types of activities and receive similar benefits. Defendants argue that by asserting the unclean hands and estoppel defenses, they are not attempting to recover the benefits received by plaintiff through his transactions with the various West family corporations,! but are merely attempting to prove that plaintiff has received benefits from the defendants of the types alleged to have been provided to other family member sharehold-

Plaintiff acknowledges that the transactions in question took plac~, and accepts liability of certain of those obligations in which plaintiff agrees to off-set with any awards ultimately received from this case. However, plaintiff contests much of the factual bases and motivations behind the transactions in question as asserted by the defendants. Plaintiff argues that the record evidence shows that plaintiff never engaged in any misconduct in the nature of fraud, misappropriation, or waste of corporate assets, nor were any of the transactions cited by defendants in support of their affirmative defense directly related to the transactions forming the basis of plaintiff's complaint.

The court finds that the transactions which follow represent substaatially similar activities to those relied on by plaintiff in his complaint as fraudulent transfers of West corporate assets for the personal benefit of the participating West family member. In these transactions David received substantial personal benefit which would not have occurred but for his status as a member of the West family. These transactions were made for the purpose of providing David with increased inconie or more often in an attempt. to bail David's business ventures out of severe financial trouble or simply to cover David’s unpaid' debts.

1. Underlying Transactions

In discussing the underlying transactions raised by defendants in support of their affirmative defense for unclean hands and estop-pel, the court will only address certain of the listed transactions which it finds amply illustrate the personal benefit received by plaintiff from the West family corporations as a direct result of his membership in the West family. Further, the court wishes to stress that in reaching'its determination that plaintiff comes into court with unclean hands, that the transactions relied on by' the court in reaching this determination were only those where plaintiff received benefits from the West family corporations, and not any direct benefits received solely from Charles B. West, Sr.

The fifty-two transactions relied on by plaintiff in support of his complaint can essentially be broken down into three categories or types of transactions: (1) real property sale and lease transáctions; (2) loan transactions; and (3) salaries, savings account and personal service transactions. The court finds that plaintiff has personally benefited from substantially similar transactions with various of the West family 'corporations in each of these three categories.

(a) Real Property Sale and Lease Transactions

Under this category plaintiff alleges that various West family members received favorable treatment involving the sale or leasing of real property in transactions with various of the West family corporations. In addition, plaintiff alleges that in many of these transactions, there was an appropriation of corporate credit in addition to the appropriation of corporate assets because the leases or rents obtained by the family member, which were guaranteed by the various West entities, were then used as.collateral for loans from outside lending institutions. Through these real estate transactions, the West family members personally benefited at the expense of the West family corporations.

The court finds that the transactions involving the 'Gordon Road and Gainesville property leases, as well as the sale of the Gainesville property cited by defendants in support of their unclean hands affirmative defense contention are substantially similar to the transactions cited by plaintiff in support of his claims. Plaintiff attempts to distinguish the lease-back arrangements entered into with Associated Distributors concerning the Gordon .Road and Gainesville properties by correctly noting that plaintiff attained'these.properties by way of a trust established on his behalf, whereas the properties and leasing arrangements noted in plaintiffs complaint permitted West family members to obtain the property through financing supported by a West entity through the leasing of the property owned by the West family member .from the West entity. Nonetheless, the court notes that the lease arrangement with a West entity to the Gordon Road and Gainesville properties was originally established at the time the trust bestowed these properties to plaintiff, just as the lease arrangement to these new properties was established at the time they were created. The point of these transactions, and the reason the court finds these transactions to be substantially similar, is to establish a vehicle, in this case favorable lease arrangements, whereby Charles B. West, Sr., may provide the West family member with income to be used for his or her personal benefit. Through these transactions the West family corporations maintained control and use of the properties in question, while the West family member owning the property received a substantial income to use as he or she saw fit.

(b) Loan Transactions

Plaintiff alleges that various of the West corporate entities made loans to West family members at favorable interest rates which have never been repaid. Nor have the West family corporations attempted to obtain repayment of these loans.

The court finds that Plaintiff David West has received substantially similar loans of significant value which have personally benefited plaintiff to the detriment of the various West family corporations involved in the loan transactions. The purpose of the vast majority of these loans' was to provide David with additional financial resources in order to permit David to attempt to rescue failing and deteriorating business ventures, as well as to pay off personal 'debts. These loan transactions in no way resembled normal financial arrangements between independent entities conducted at arms’ length in the market. In reality, these transactions were a father’s attempt to help his son salvage dying busi-J ness endeavors which the son had been unable to manage and maintain. In fact, most of these loans were instigated by the son when his debts had accumulated to the point that he was unable to obtain financing through any normal lending institution but nonetheless needed immediate infusions of cash.

(1) Davidson Land One Partnership

■ At some point during the early 1970’s, David West created and became the sole shareholder of Davidson Land Company, which was engaged in the business of building residential homes. By 1975 Davidson Land Company was experiencing financial difficulties. Charles, Sr. and David discussed the Davidson Land Company’s difficulties and agreed to enter into a partnership. This partnership was created between David and West Enterprises. The partnership was known as Davidson Land One. Davidson Land Company transferred real property and partially completed homes to Davidson Land One as part of the partnership formation. West Enterprises provided immediate cash contribution of approximately $58,017.00 and subsequently provided a series of loans totaling several hundred thousand dollars. Davidson Land One was also provided at no cost the assistance of one of the West corporate employees in order to help plaintiff organize and manage this residential construction business. Under the terms of the partnership agreement, David West and West Enterprises were to share equally in the profits, losses, obligations and expenses of the partnership.

The Davidson Land One partnership continued for approximately three years until 1978. During this period plaintiffs home construction business never prospered, and the partnership was unilaterally dissolved by Charles, Sr. Father and son never came to an agreement on the dissolution of this partnership, and no accounting of the partnership dissolution was ever made. West Enterprises. absorbed losses as a result of this partner; ship by virtue of the loans it made to the partnership. Plaintiff has never attempted to pay off his share of the losses resulting from the dissolution of the Davidson Land One partnership, nor has West Enterprises ever sought to collect this debt from plaintiff.

Plaintiff contends that these transactions in no way support defendants’ contentions that the doctrine of unclean hands bars plaintiffs recovery in this action. Plaintiff argues that the Davidson Land One partnership transactions are not directly related to the transactions forming the basis of plaintiffs complaint, and that because defendants would have no legal remedy against plaintiff relating to these transactions, either under the doctrine of laches or appropriate statute of limitations or the lack of a financial accounting during the dissolution, that, therefore, these transactions should not form the basis of a defense in equity. Plaintiff misses the point. The court finds these transactions support a finding of unclean hands, not because plaintiff can ultimately be held accountable for the debts resulting from these transactions, but rather, because these transactions represent the same' type of financially beneficial arrangements involving the use of corporate assets which plaintiff relies on to support his claims in his complaint. See, e.g., Plaintiffs Third Amended Complaint at 30-32, ¶¶ 39-45 (particularly the transactions between First Republic and Joe B. Dod,d creating the corporation known as Joe B. Dodd Construction Company). The facts show that plaintiffs company materially benefited from a favorable transaction with a West corporate entity involving a personal business venture which would not have occurred but for plaintiffs status as a member of. the West family.

(2) Paces Ferry Development Company

In 1982 David West created a corporation' known as Paces Ferry Development Company (hereinafter “PFDC”). PFDC was created for the purpose of building and developing a strip shopping center known as Paces Ferry Place in the Buckhead area of Atlanta, Georgia. Construction of Paces Ferry Place was substantially completed in 1985. The construction was principally, financed by First City Federal Savings and Loan Association of Bradenton, Florida, which later became CrossLand Savings Bank. First City provided $2,400,000.00 in funding for the construction of the project. Plaintiff never obtained permanent mortgage financing for the project. In late 1984 Charles B.-West, Jr., David’s brother, discussed the potential of David using Westcorp Mortgage, a subsidiary of Westcorp specifically created for the purpose of providing commercial loans, to assist David in securing, permanent financing for Paces Ferry Place. In order to secure permanent financing for the project, David was required to provide certain financial information including a current appraisal and rent rolls so that a loan package could be prepared. The financial information provided was insufficient to obtain a loan approval for the permanent financing of Paces Ferry Place. •

At some point in early to mid-1985, Paces Ferry Development Company and the Paces Ferry Place project began to run into serious financial troubles. In mid-1985 plaintiff borrowed significant sums of capital from C & S National Bank, First Atlanta and National Bank of Georgia. This capital was used to support the Paces Ferry Place project ahd for various retail businesses which plaintiff had an ownership interest in and which were located at the Paces Ferry Place shopping center. As collateral for the C & S and First Atlanta bank loans, plaintiff pledged West Lumber Company stock which he owned.

In late August of 1985, David contacted Charles, Jr., expressing concern about the Paces Ferry Place financial situation and his inability to secure permanent mortgage financing for the project. By this time the Paces Ferry Place project was generating negative cash flow with revenues insufficient to cover debt service and operating expenses. The PFDC construction loan had been placed on a $28,000 per month amortization schedule. The C & S and First Atlanta loans had gone into default, and these banks had placed liens against the shopping center property to secure the outstanding debt. One of the principal reasons for the project’s financial difficulties was plaintiffs inability to obtain a sufficient number of paying tenants for the shopping center (only eleven of seventeen available sites in the mall had been filled, and only six of these were providing rental income).

In order to alleviate the immediate serious financial problems which the project was experiencing, and in order to continue efforts to obtain permanent mortgage financing for the project, Westcorp loaned PFDC significant capital to cover operating costs and debt financing. Specifically, Westcorp advanced to PFDC $150,000 in August of 1985, $150,-000 in September of 1985, and $75,000 in October of 1985. These loans were executed by David and PFDC through unsecured promissory notes made out in favor of West-corp. Westcorp made these advances per the direction of Charles B. West, Jr., who had previously consulted with and obtained the approval of the loans from Charles B. West, Sr.

During this same period the West .family became increasingly concerned about David and PFDC’s financial soundness. A summary of David’s debts compiled by Westcorp personnel indicated that as of September 30, 1985 his debts totaled $4,050,000. David requested additional' advances on behalf of PFDC, but these requests were denied by the West family because David failed to account and show that the prior advances were being used to defray existing obligations.

At this point David retained counsel to represent him on behalf of PFDC and left Atlanta and moved to Florida and, subsequently, to the Bahamas. At this time the financial condition of PFDC had not improved, David had ceased efforts to obtain permanent mortgage financing, and the existing loan defaults had not been resolved. Nonetheless, on January 6, 1986 Westcorp made a final loan to David and PFDC of $219,000. As part of this loan agreement, this final disbursement and all of the three previous advances with interest accrued to date were consolidated into one new promissory note totaling $601,375.00, which was executed in favor of Westcorp. This note contained an exculpatory clause in which plaintiffs personal liability was limited to the security given. The note was secured by two deeds to property owned by PFDC and plaintiff. Specifically, Westcorp took a sixth lien position on the shopping center property owned by PFDC and a fourth or fifth lien position on an adjacent property owned by plaintiff. The loan was never repaid, and PFDC filed a bankruptcy petition in October of 1986. Westcorp filed a proof of claim against PFDC in bankruptcy court but determined that the various debt interests ahead of Westcorp’s position were in excess of the real value of the property, and, therefore, no further action was' taken. Plaintiff has never attempted to repay this note prior to the filing of this action, nor have defendants attempted to recover their losses from these' loans.

In addition, on July 31, 1987, West -Equipment paid the State of Georgia $9,896.00 to cover unpaid and delinquent payroll taxes owed by three retail businesses located in the Paces Ferry Place shopping center and for which David was president and personally liable. Plaintiff acknowledges this debt and admits that he is liable for it although he contests the way interest on the debt has been calculated.

Contrary to plaintiffs contentions that these loans represented arms’ length transactions meant to benefit both parties mutually, the court finds that these loans represented nothing more than -a father’s attempt to rescue a son’s failed business enterprise. The original loans were unsecured and were executed without any of the normal evaluation into the debtor’s finances prior to the execution of the loans. Nor does the court agree with plaintiffs contention that these were merely business transactions conducted for the purpose of providing financial gain to Westcorp Mortgage. However, even assuming these loans were made for valid business reasons, there simply is no justification, other than to support a West family member, for the final loan and consolidation of all advances Westcorp made to PFDC. Plaintiff had- defaulted on all of his financial obligations, plaintiff had run from these financial obligations, and there was absolutely no reasonable prospect, given the knowledge of PFDC’s financial state and plaintiffs previous actions, that these loans would ever be repaid to Westcorp. The fact that plaintiff may not be held personally liable for these loans because of the exculpatory clause contained in the note, does nothing to change the fact that these transactions never would have occurred if David were not a member of the West family. Thus the court finds that these loans represent fraudulent transfers of West family corporation assets executed for the personal benefit of plaintiff and substantially similar to the loan transactions cited by plaintiff in support of his complaint. See Plaintiffs Third Amended Complaint at 30-34, ¶¶ 39-52.

(3) 1987 West Equipment Company Loans

In the spring of 1987, and as a result of the debt accumulated from his previous failed business ventures, David called Charles, Sr. and requested immediate financial assistance. David had been unemployed since leaving Atlanta in November of 1985 and needed money to pay living expenses. Charles, Sr. immediately traveled to the Bahamas and met with David to discuss his financial situation. Apparently David’s outstanding debt still exceeded two million dollars, even after PFDC’s bankruptcy and the foreclosure on various of David’s loans.

The plan discussed was for Charles, Sr. to find buyers within the West family to purchase an unspecified amount of David’s West stock holdings, which would then be used to pay off David’s debt and satisfy his creditors. According to Charles, Sr., David’s stock holdings were more than sufficient to pay off the debt. In the meantime, Charles, Sr. offered to have West Equipment Company advance David $150,000 to pay off some of his immediate expenses and debt. In addition, Charles, Sr. offered to make David the President of West Equipment with a $5,000 a month salary. David accepted both of these “loans” and acknowledges that he is indebted for them. However, plaintiff contends that both of these loans were made as part of the “deal” to sell David’s stock and extinguish his outstanding debt.

On May 8, 1987, West Enterprises wire transferred $150,000 to David’s bank account in the Bahamas. West Enterprises was later reimbursed by West Equipment. During this period David also received four months worth of salary, or $20,000, as West Equipment’s President. David never performed any work on behalf of West Equipment during the period he was receiving a salary. Shortly after receiving the $150,000 advance, David contacted Charles, Sr. to request an additional $50,000 advance. This request was turned down because Charles, Sr. did not feel that David had adequately accounted for how the original $150,000 was spent. At this point the “deal” began to break down. Charles, Sr. wanted , David to produce his stock.certificates before he found a buyer for them. David refused to produce the shares until the sale was completed.’ Ultimately, the sale disintegrated. After four months, Charles, Sr.. terminated the payment of David’s salary. David has never repaid any on these outstanding debts to West Equipment.

'.In addition, as part of the “deal” to get David out from under his accumulated debt, Westcorp purchased, on June 30, 1987, an outstanding note from the National Bank of Georgia for $70,394.08. West Equipment then purchased the note from Westcorp on July 15, 1987. David acknowledges the debt and agrees that he is liable for it, although he contests the way in which interest has been calculated on the note.

Plaintiff argues that these loans or payments are not similar to the transactions contained in plaintiffs complaint because they were part of a “deal” to sell his West stock interests in order to pay off his debt. Further, plaintiff implies that the true motivation of Charles, Sr. in arranging the stock sale was to “freeze” David out of the West family businesses while David was down and financially strapped. Because David planned on repaying West Equipment with his stock sale proceeds, there was no fraud or misappropriation of corporate assets as occurred in the other cited transactions. Therefore, plaintiff contends these transactions have no relevancy and provide no support to defendants’ unclean hands affirmative defense.

The court disagrees. Even assuming this advance and salary were part of a “deal” to sell David’s stock in order to satisfy his debts, they also are beneficial payments made by a West corporate entity per the direction of Charles, Sr. to a sibling for his or her personal benefit. Yes, these payments were meant to be repaid, if the sale went through, but this does not change the fact that they never would have been made in the first place had David not been a member of the West family. Yes, because David was in financial trouble, Charles, Sr. had leverage to specify the terms of any sale of David’s stock. However, there is no indication-that David was going to get anything less than fair market value for his stock and based on prior history, likely would have received a premium price. Nor is there any evidence indicating that David was unable to, let alone tried to, sell his shares in the open market. Further, there is no indication in the record that had the sale gone through, David would have forfeited his job as President of West Equipment.

In reality these actions were an attempt at a father and son reconciliation which ultimately failed. This was not an attempt'to force a minority shareholder out of the business. This was an attempt to solve David’s financial problems with the only assets he had available to cover the massive debt he had accumulated. Nor is there any evidence indicating that had Charles, Sr. declared regular dividends for the West family corporations that this would have alleviated or prevented the financial difficulties which David created for himself. An explanation closer to the truth for the actions which occurred might be that after calling father for help and receiving enough money to alleviate his immediate financial needs, the son backed out of the “deal” because he did not like the requirements, limitations and responsibilities that the father was placing on him in return for essentially supporting the son.

The court finds that David did personally benefit from these transactions to the detriment of West Equipment and, notwithstanding the intent to repay the loans, that these payments are substantially similar to the alleged transactions representing a misappropriation of assets in plaintiffs complaint.

(c) Salaries and Personal Service Transactions

The court has already discussed the salary David received as President of West Equipment. The court will only further note that David was permitted to and did receive personal services, such as free work on his cars, during the periods where he was interacting with the other West family members. Nonetheless, the court finds most of defendants’ claims in support of their unclean hands affirmative defense under this heading to be meritless. -In any case the court does not rely on any claims cited by defendants under this heading, except as previously discussed, in reaching its decision on the applicability of the unclean hands doctrine.

(1) Legal Standard

The Georgia courts havé long considered the unclean hands maxim as a fundamental' doctrine to be applied by courts in equity. The unclean hands maxim simply states that he who seeks equity must do equity. See O.C.G.A. § 23-1-10; 30 C.J.S. Equity § 90 at 983; Dixon v. Murphy, 259 Ga. 643, 644 n. 2, 385 S.E.2d 408 (1989) (quoting O.C.G.A. § 23-1-10). This doctrine has been described as “one of the oldest and best settled and most familiar maxims in equity. It is applicable in every type of case.” Eastman Kodak Co. v. Fotomat Corp., 317 F.Supp. 304, 311 (N.D.Ga.1970), appeal dismissed, Eastman Kodak Co. v. Fotomat Corp., 441 F.2d 1079 (5th Cir.1971): The fundamental policy foundation underlying the unclean hands doctrine is maintaining the integrity of the court; As then-Judge Learned Hand stated,

The doctrine [of unclean 'hands] is confessedly derived from the unwillingness of a court, originally and still nominally one of conscience, to give its peculiar relief to a suitor who in the very controversy has so conducted himself as to shock the moral sensibilities of the judge. It has nothing to do with the rights or liabilities of the parties; indeed, the defendant who invokes it need not be damaged, and the court may even raise it sua sponte.

Art Metal Works v. Abraham & Straus, 70 F.2d 641, 646 (2d Cir.1934) (Hand, J., dissenting).

The unclean-hands maxim does not normally permit any recovery on the part of the plaintiff. “[T]he maxim, if applicable, require[s] the district court to halt petitioner at the threshold and refuse it any relief whatsoever — not to compromise with it.” Manufacturers Co. v. McKey, 294 U.S. 442, 451, 55 S.Ct. 444, 448, 79 L.Ed. 982 (1934). This same general principle is equally applied by the courts of Georgia. Dixon, 259 Ga. at 644, 385 S.E.2d 408 (“we are aware of no authority that vests in a trial court the power to make equitable distribution in a' case of unclean hands”). Unclean hands generally prevents the court from even considering the merits of plaintiffs claims. Claire v. Rue de Paris, Inc., 239 Ga. 191, 194, 236 S.E.2d 272 (1977) (quoting Smith v. Nix, 206 Ga. 403, 407-08, 57 S.E.2d 275 (1950)). The fact that defendant may be liable • for. all claims alleged is simply irrelevant. Art Metal Works, 70 F.2d at 646. The key, however, is that there could be no equitable distribution to the unclean plaintiff. As long as the plaintiff admits and accepts the equitable claims against him, then he may proceed in court against the defendants. Charleston Railway Co. v. Hughes, 105 Ga. 1, 21, 30 S.E. 972 (1898). Thus a plaintiff with unclean hands who has proper standing may still bring an action to enforce the rights of others and secure relief on their behalf, even though doing so may result in an indirect benefit to the unclean plaintiff.

Furthermore, the unclean hands doctrine does not attach to all prior bad acts made by the plaintiff bringing suit. Keystone Co. v. Excavator Co., 290 U.S. 240, 245, 54 S.Ct. 146, 147, 78 L.Ed. 293 (1933). There must be a direct relationship between the allegations comprising the complaint and the acts giving rise to the unclean hands. Keystone, 290 U.S. at 245, 54 S.Ct. at 147 (held that courts 'of equity should only apply the unclean hands doctrine where there is an “immediate and necessary relation” between the unconscionable acts and the relief sought); Dixon v. Murphy, 259 Ga. at 644 n. 2, 385 S.E.2d 408; Sparks v. Sparks, 256 Ga. 788, 789, 353 S.E.2d 508 (1987).

Thus, the court must determine if the prior acts of plaintiff are of such an “immediate and necessary” relation to the equity sought that the “advancement of [ ] justice” bar him from pursuing his claims. In making this determination, the court has great discretion to fashion a ruling which promotes a just and right outcome. Johnson v. Yellow Cab Co., 321 U.S. 383, 387, 64 S.Ct. 622, 624, 88 L.Ed. 814 (1943) (citing Keystone, 290 U.S. at 245-46, 54 S.Ct. at 147-48).

(2) Legal Analysis

Equity -is about fairness. In reaching the court’s conclusions concerning the defendants’ equitable affirmative defenses, the court has sought to reach an outcome based on a realistic interpretation of the facts present, which promotes the right of all parties in this complex family dispute which takes the form of a shareholder derivative action, taking into account the interest of non-family stockholders.

In the case sub judice, the court finds that the transactions cited by defendants and admitted to by plaintiff from which plaintiff received substantial material benefit from defendants are sufficiently similar to the transactions in plaintiffs complaint that,are alleged to represent the fraudulent use or wasting of corporate assets such that plaintiff comes into court with unclean hands. Plaintiffs unclean hands prohibit any direct recovery or personal reward as a result of this action. However, because plaintiff admits these acts and seeks to make restitution for any benefits derived from said acts, the court finds that plaintiff is not precluded from bringing a shareholder derivative suit on behalf of the West family corporation. Although the court believes it is within its discretionary power to enter complete summary judgment for the defendants pursuant to the aforementioned case law because the court finds that plaintiff comes into court with unclean hands, the court finds that the interests in justice weigh heavily in favor of permitting the plaintiff to continue his derivative claims. This is particularly true given the close corporation structure in question, which thereby leads the court to believe that no other shareholder would pursue these derivative 'claims even though they well may ultimately be found to be fraudulent transfers and. a wasting of corporate assets.

Should the transactions in question be found to be fraudulent transfers or wasting of corporate assets, equity does not preclude a party with unclean hands from bringing an action which will directly benefit the corporation and not the party with unclean hands. To hold otherwise would preclude anyone who at one time participated in a fraudulent scheme or improper activities and then for whatever reason is excluded from said activities from filing suit in order to prevent any future fraudulent activities or correct any past improper conduct. Equity does not preclude those with unclean hands from doing what is right. However, equity does preclude a person with unclean hands from using the powers of the court for personal benefit.

Here, a son and shareholder accepted and personally benefited from assets provided by his father and the corporations that he controlled as chairman. Subsequently, there was a falling out between the father and son, and ultimately the son was precluded from receiving the benefits which he was privy to in the past. Now the son comes into court, seeking to stop essentially the same types of transactions- from which he once benefited from being, provided to his-siblings. In so doing, the son seeks either bo liquidate the corporations in question, force the defendants to buy out his interests in the corporations, or force a dividend for the pro rata amount of the alleged fraudulent transfers. Thus, notwithstanding the debts acknowledged, the son seeks to use the powers of the court to benefit himself directly for actions essentially identical in nature to acts in which he participated. The unclean hands doctrine was established to prevent just this type of scenario.

However, the son also brings this complaint on behalf of various corporations for which he is a valid shareholder. In so doing, the son acknowledges that he is also indebted to various of these corporations for the same types of transactions that he now seeks to stop. Thus, the equitable doctrine of unclean hands need not prevent the son from acting in his role as shareholder on behalf of the corporation in this shareholder derivative suit seeking to recover fraudulently transferred or wasted corporate assets. Any indirect benefit to the son is permissible because the true beneficiaries are the corporations.

Plaintiffs attempt to distinguish the transactions on the facts or negate their preclusive effect by acknowledging their existence and pledging their repayment upon recovery is unavailing. The son wants the court to discount any benefits he received as a member of' the West family and focus on his treatment as a shareholder in the West family corporations. These benefits should be discounted because there was either a valid business or other justification supporting them or the plaintiff acknowledges the benefits as a debt owed to the defendants. Yet, plaintiffs contentions omit the key point in the argument that but for his membership in the West family, these benefits never would have been passed on to him, regardless of the underlying reasoning supporting the acts.

It is for this reason that plaintiffs argument that any finding of unclean hands, must relate directly to the acts alleged in his complaint is also unavailing. The acts themselves are merely the end result of the true basis for this action, that Charles, Sr., .as controlling head of the- West family corporations, gave preferential treatment to his other children in the form of corporate assets while excluding plaintiff from receiving those same benefits. Plaintiff never argues that his brothers and sisters ever had any bad intent or committed any wrong by participating in the transactions at issue. If plaintiff had been permitted to continue receiving the same types of benefits, this action would never have, been brought. Therefore, the court cannot simply focus on the acts in plaintiffs complaint and find that plaintiffs hands are clean with regard to those acts.

The question is whether or not plaintiff has clean hands in attempting to bring an action to recover his pro rata Share of distributions of corporate assets made by the West family corporations in preferential transfers resulting from the beneficiary status as a West family member. The court finds that plaintiff does not have clean hands. The very fact that plaintiff knowingly accepted and received preferential treatment from the West f