Munford v. Valuation Research Corp. (In Re Munford, Inc.)

United States Court of Appeals,

Eleventh Circuit.

No. 94-9046.

Matter of MUNFORD, INC., a/k/a Majik Market, Debtor.

Danné Brokaw MUNFORD, as Executrix of the Estate of Dillard
Munford; James M. Carroll; Russell Fellows; Joseph W. Hardin;
Jay Rubel; Winston M. Blount; Herbert J. Dickson; James L.
Ferguson; Robert M. Gardiner; Richard K. Leblond; Andrall E.
Pearson; S.B. Rymer, Jr., Shearson Lehman Brothers, Inc.; DFA
Investment Dimensions Group, Inc.; State Street Bank & Trust
Company; PNC Bank, National Association; Boston Safe Deposit and
Trust Company, Plaintiffs-Appellees,

v.

VALUATION RESEARCH CORPORATION, Defendant,

Munford, Inc., Defendant-Appellant.

Oct. 28, 1996.

Appeal from the United States District Court for the Northern
District of Georgia. (No. 1:94-00348-CV-GET), G. Ernest Tidwell,
Chief Judge.

Before HATCHETT, Chief Judge, CLARK, Senior Circuit Judge, and
MILLS*, District Judge.

PER CURIAM:

As a matter of first impression in this circuit, we hold that

11 U.S.C. § 546(e) does not bar the trustee in bankruptcy from

avoiding payments the debtor corporation made to its shareholders

in a leveraged buy-out.

FACTS

In August 1987, Dillard Munford, the founder and chief

executive officer of Munford, Inc., suggested to Munford, Inc.'s

board of directors (the board) that it sell Munford, Inc. At that

*
Honorable Richard Mills, U.S. District Judge for the
Central District of Illinois, sitting by designation.
time, Munford, Inc., a public company, operated three specialty

retailer stores: Majik Market, a chain of convenience stores;

World Bazaar, a chain of stores specializing in imported goods;

and Lee Ward's Creative Crafts, an arts and crafts chain. Munford,

Inc. also owned a majority interest in United Refrigerator

Services, Inc. (URS). Based on Dillard Munford's suggestion, the

board retained Shearson Lehman Brothers (Shearson) to evaluate

Munford, Inc.'s financial viability and its fair market value.

Following this evaluation, Shearson would make recommendations

regarding how to best maximize shareholder value in the event the

board decided to sell Munford, Inc.

In September 1987, Shearson presented a written report to the

board identifying several selling options. Shearson, for example,

opined that a sale of all of Munford's common stock would afford

Munford, Inc. the most desirable means of maximizing shareholder

value while preserving its financial viability. In contrast,

Shearson disfavored a leverage buy-out (LBO) or a leverage

recapitalization opining that Munford, Inc. would need all of its

internally generated cash flow to fund growth. Consequently,

Shearson believed that Munford, Inc. could not carry the heavy debt

load associated with a leverage transaction. After reviewing

Shearson's report, the board authorized Shearson to prepare an

offering memorandum and solicit potential purchasers for Munford,

Inc. During this same period of time, Munford, Inc. executed

severance contracts with senior officers Dillard Munford, Russell

C. Fellows, and James M. Carroll agreeing to pay these officers

severance pay in yearly installments upon the closing of the sale
of Munford, Inc. In exchange, these officers promised to continue

their employment with Munford, Inc. until it secured a purchaser.

Despite Shearson's aggressive efforts to solicit potential

purchasers of Munford, Inc., no one offered to purchase all of

Munford, Inc.'s common stock. Faced with this reality, the board

began considering LBO offers.

In January 1988, Deutschman & Co. offered to purchase Munford

Inc.'s stock in an LBO. In February 1988, the board tentatively

agreed to sell Munford, Inc. to Deutschman, but Deutschman withdrew

its offer on March 3, 1988, after performing a due diligence

examination. On May 2, 1988, Munford, Inc. sold its Lee Ward's

stores to Prudential Bache because it had failed to secure a single

purchaser for Lee Ward's stock. Later that month, the board

received an offer from the Panfida Group to purchase its Majik and

World Bazaar stores for $18.50 per share. On May 23 the board met

with its lawyers and Shearson's representatives to consider the

Panfida Group's offer. At that meeting, Munford Inc.'s lawyers

advised the board that they had consulted with Citicorp and

Citicorp confirmed its willingness to work with the Panfida Group.

Shearson also advised the board that the Panfida Group had the

backing of a company with assets in excess of $60 million. In

addition, Shearson's representative stated that he was favorably

impressed with the Panfida Group's ability to obtain financing. On

June 1, 1988, Phillip Handy, the spokesperson for the Panfida

Group, met with the board to discuss the proposal. During the

meeting, Handy informed the board that the Panfida Group had

purchased 291,177 shares of Munford, Inc. stock as evidence of its
commitment to purchase Munford, Inc. Handy also noted that the

Panfida Group intended to put additional capital into the company;

however, he also advised the board that Panfida's equity

participation would only be as much as Citibank required to finance

the purchase.

On June 17, Munford, Inc. sold its stock in URS for $45.5

million and used the proceeds to pay company debt. Also during the

month of June, the Panfida Group and Citicorp began a due diligence

examination of Munford Inc.'s business records. After discovering

potential environmental liability at some of the Majik stores, the

Panfida Group decided to reduce its purchase price from $18.50 a

share to $17 a share. The board approved the Panfida Group's new

offering price and the proposed merger agreement. The proposed

merger agreement required the Panfida Group to create Alabama

Acquisition Corporation (AAC) and a subsidiary, Alabama Merger

Corporation (AMC). The merger agreement also required the Panfida

Group through AAC or AMC to deposit the funds necessary to purchase

Munford Inc.'s outstanding stock with Citizens & Southern Trust

Company, a financial institution within the securities clearance

and settlement system.

Prior to finalizing the merger plan, AAC warranted to the

board that the post-merger Munford, Inc. would remain solvent,

would have a reasonable amount of working capital, and would have

the ability to pay its debts as they came due. After receiving

this assurance, Munford, Inc.'s lawyers prepared a detailed proxy

statement for Munford, Inc.'s 3,100 shareholders outlining the
merger agreement.1 On October 18, 1988, the shareholders approved

the merger plan. As provided in the merger agreement, each share

of common stock was converted into the right to receive the merger

price of $17 per share and extinguished the shareholders' ownership

interest in Munford, Inc. The Panfida Group retired the 291,177

shares it purchased prior to the LBO merger without payment. The

sale of Munford, Inc. to the Panfida Group closed on November 29,

1988. Thirteen months after the LBO transaction, on January 2,

1990, the post-Munford Corporation filed a Chapter 11 case in

bankruptcy court.

PROCEDURAL HISTORY

On June 17, 1991, Munford, Inc. filed an adversary proceeding

in bankruptcy court in the Northern District of Georgia on behalf

of itself and unsecured creditors pursuant to 11 U.S.C. §§ 544(b)

and 1107(a) (1988), seeking to recover LBO payments made to

Munford, Inc.'s shareholders, severance payments made to Munford,

Inc.'s officers and damages against directors, officers, and

Shearson for breach of fiduciary obligations to Munford, Inc.

In Count I of Munford, Inc.'s complaint, it asserts fraudulent

conveyance claims against two of Munford, Inc.'s largest former

shareholders, the DFA Investment Dimensions Group, Inc. and

Trustees of the DFA Group Trust. In Count I, Munford, Inc. also

asserts fraudulent conveyance claims against former directors and

officers who received payments for their Munford, Inc. shares in

1
Munford, Inc.'s shareholders had no dissenter's rights of
appraisal under O.C.G.A. § 14-2-250(d)(2) (1988), because Munford
listed its shares on the New York Stock Exchange and because more
than 2,000 shareholders held the stock.
the LBO.2 In Counts II and IV, Munford, Inc. asserts breach of

fiduciary duty, negligence, mismanagement, and waste of corporate

assets claims against the officers and directors. In Count III,

Munford, Inc. asserts that the directors violated Georgia's share

repurchase and distribution statutes in approving the LBO

transaction. In Count V, Munford, Inc. asserts that the severance

payments made to Dillard Munford, Fellows, and Carroll constituted

fraudulent conveyances. In Count VI, Munford, Inc. claims that

Shearson breached its fiduciary duty. Finally, in Count IX

Munford, Inc. claims that Shearson aided and abetted the directors

and officers' alleged breaches of fiduciary duty.

The shareholders, directors, officers, and Shearson

(collectively appellees) filed motions for summary judgment

contending that each of Munford, Inc.'s claims failed as a matter

of law. On April 5, 1994, the bankruptcy court filed its proposed

findings of fact and conclusions of law recommending that the

district court grant Shearson's motion for summary judgment. In a

separate proposed findings of fact and conclusion of law, the

bankruptcy court recommended that the district court deny the

shareholders, officers, and directors' motions for summary

judgment. The district court adopted the bankruptcy court's

recommendation in part granting summary judgment in favor of

2
Count I specifically asserts claims against Dillard
Munford, chief executive officer; Russell C. Fellows, president
and chief operating officer; James M. Carroll, vice president
and secretary; Joseph W. Harden, vice president and treasurer;
and J.E. Rubel. Count I also asserts claims against directors
Dillard Munford, Fellows, Robert M. Gardiner, Richard K. LeBlond,
II, Herbert J. Dickson, Winston M. Blount, S.B. Rymer, Jr.,
Andrall E. Pearson, and James L. Ferguson.
Shearson. The district court also adopted the bankruptcy court's

recommendation with respect to Count III and denied the directors'

motion for summary judgment on the distribution statute claim. The

district court, however, rejected the bankruptcy court's

recommendation as to Munford, Inc.'s claims against the

shareholders, directors, and officers with respect to Counts I, II,

and IV, and granted summary judgment on those counts on August 4,

1994.

On August 26, 1994, the district court amended its order,

pursuant to Federal Rules of Civil Procedure 54(b), and entered

final judgment to allow this appeal to proceed. Munford, Inc. now

appeals the district court's grant of summary judgment in favor of

the shareholders, officers, and directors on Counts I, II, and IV.

Munford, Inc. also appeals the district court's granting of summary

judgment in favor of Shearson on Count IX and has abandoned its

claims under Count VI.3

CONTENTIONS

Munford, Inc. raises four contentions. First, Munford, Inc.,

contends that the district court erred in concluding that the LBO

payment shareholders received for their shares constituted a

settlement payment within the meaning of 11 U.S.C. § 546(e).

Second, Munford, Inc., contends that the district court erred in

concluding that its breach of fiduciary duties, negligence,

mismanagement, and waste of corporate asset claims against the

3
The directors also appeal the district court's denial of
their motion for summary judgment on Munford, Inc.'s share
repurchase and distribution claim (Count III) in Case No. 94-
9216.
directors and officers failed as a matter of law. Specifically,

Munford, Inc. argues that sufficient evidence supports its claim

that the directors and officers failed to fulfill their fiduciary

obligations to evaluate the proposed LBO merger agreement. Third,

Munford, Inc. contends that the severance payments made to its

officers lacked consideration; therefore, the district court erred

when it concluded that the payments did not constitute a fraudulent

conveyance under Georgia law. And finally, Munford, Inc. contends

that the district court erred in granting summary judgment in favor

of Shearson on its aiding and abetting breach of fiduciary duty

claim because Georgia courts would recognize this claim.

Appellees contend that the district court properly granted

summary judgment in their favor on each of the claims.

ISSUES

We address the following issues: (1) whether the LBO payments

received in exchange for shares constituted a settlement payment

within the meaning of section 546(e); (2) whether the district

court erred in granting summary judgment in favor of the officers

and directors on Munford, Inc.'s claims of breach of fiduciary

duty, negligence, mismanagement, and waste of corporate assets;

(3) whether Munford, Inc.'s severance payments to its officers

constituted fraudulent conveyances under Georgia law; and (4)

whether the district court erred in granting summary judgment in

favor of Shearson on Munford, Inc.'s aiding and abetting claims.

DISCUSSION

A. LBO Payments

We review the grant of summary judgment de novo. Orlando
Helicopter Airways v. United States, 75 F.3d 622, 624 (11th

Cir.1996). Summary judgment is appropriate where no genuine issues

of material fact exist and the moving party is entitled to judgment

as a matter of law. Canadyne-Georgia Corp. v. Continental Ins.

Co., 999 F.2d 1547, 1554 (11th Cir.1993).

Pursuant to 11 U.S.C. § 544(b), a trustee in bankruptcy or

the debtor acting as trustee may avoid any transfer of property of

the debtor that is voidable under the applicable state law unless

otherwise stated in the Bankruptcy Code. 11 U.S.C. § 544(b).

Section 544(b) is commonly referred to as the "strong arm" clause.

One exception to the trustee's avoidance power exists under section

546(e). Section 546(e) states in pertinent part:

Notwithstanding section 544 ... of this title, the trustee may
not avoid a transfer that is ... [a] settlement payment, as
defined in section 741(8) of this title, made by or to a
commodity broker, forward contract merchant, stockbroker,
financial institution, or securities clearing agency, that is
made before the commencement of the case, except under section
548(a)(1) of this title.

11 U.S.C. § 546(e) (1988). Congress enacted section 546(e) "to

minimize the displacement caused in the commodities and securities

market in the event of a major bankruptcy affecting those

industries." H.R.Rep. No. 97-420, 97th Cong., 2d Sess. 1 (1982),

U.S.Code Cong. & Admin.News 583. With the passage of section

546(e), "Congress [also] sought to "promote customer confidence in

commodity markets generally' via "the protection of commodity

market stability.' " Kaiser Steel Corp. v. Charles Schwab & Co.,

913 F.2d 846, 849 (10th Cir.1990) (quoting Sen. R. No. 989, 95th

Cong., 2d Sess. 8 (1978)).

In this case, the district court entered summary judgment in
favor of the shareholders on Munford, Inc.'s fraudulent conveyance

claim finding that the LBO payments Munford, Inc. made to the

shareholders constituted settlement payments within the meaning of

section 741(8). See 11 U.S.C. § 741(8). Consequently, the

district court held that 11 U.S.C. § 546(e) did not authorize a

bankruptcy trustee or a debtor in possession acting as trustee to

avoid such transfers under state law because the shareholders

received their settlement payments from Citizens & Southern Trust

Company, a financial institution. On appeal, Munford, Inc.

contends that the district court erred in concluding that the LBO

payments the shareholders received for their shares constituted

settlement payments for purposes of section 546(e).

Section 741(8) defines "settlement payment" as "a preliminary

settlement payment, a partial settlement payment, an interim

settlement payment, a settlement payment on account, a final

settlement payment, or any other similar payment commonly used in

securities trade. " 11 U.S.C. § 741(8) (1988) (emphasis added).

Munford, Inc. does not argue that LBO payments are uncommon.

Rather, it urges this court to define settlement payments in the

context of LBOs narrowly, asserting that LBO mergers are

essentially private transactions between the merging companies and

their existing shareholders and therefore do not sufficiently

involve the securities settlement and clearance system. Munford,

Inc. notes that this LBO merger did not use the clearance and

settlement system to match buyers with sellers of securities,

account for the transaction, or guarantee the transaction.

Munford, Inc. asserts that the settlement and clearance system was
simply used to convey the LBO payments to the tendering

shareholders. Munford, Inc. further argues that characterizing the

LBO payments as settlement payments does not advance the goal of

protecting the clearance and settlement system because LBO

transactions do not utilize the entire clearance and settlement

system.4 Finally, Munford asserts that construing the LBO payments

as settlement payments wholly frustrates the remedial goal of

fraudulent conveyance law and the fair treatment of unsecured

creditors. The shareholders, on the other hand, contend that

construing section 546(e) to apply to the LBO payments promotes

investor confidence in the securities market. To hold otherwise,

the shareholders argue, would undermine all mergers or acquisitions

of public companies.

The court concludes that whether the LBO payments qualify as

section 546(e) settlement payments is not dispositive of the

dispute—in fact, the court will presume that the LBO payments were

settlement payments. Although the payments were presumptively

settlement payments, section 546(e) is not applicable unless the

transfer (or settlement payment) was "made by or to a commodity

broker, forward contract merchant, stockbroker, financial

institution, or securities clearing agency." 11 U.S.C. § 546(e).

4
In support of its position, Munford, Inc. cites Wieboldt
Stores, Inc. v. Schottenstein, 131 B.R. 655 (N.D.Ill.1991). In
Wieboldt, the district court held that LBO payments do not
constitute a settlement payment within the meaning of the Code,
reasoning that permitting avoidance of LBO payments posed no
significant threat to the clearance and settlement system in the
securities industry. Wieboldt, 131 B.R. at 664-65. We reject
the reasoning of Wieboldt finding that even granting trustees
avoidance powers under limited circumstances in the LBO context
has the potential to lessen confidence in the commodity market as
a whole.
Here, the transfers/payments were made by Munford to shareholders.

None of the entities listed in section 546(e)— i.e., a commodity

broker, forward contract merchant, stockbroker, financial

institution, or a securities clearing agency—made or received a

transfer/payment. Thus, section 546(e) is not applicable.

True, a section 546(e) financial institution was presumptively

involved in this transaction. But the bank here was nothing more

than an intermediary or conduit. Funds were deposited with the

bank and when the bank received the shares from the selling

shareholders, it sent funds to them in exchange. The bank never

acquired a beneficial interest in either the funds or the shares.

Importantly, a trustee may only avoid a transfer to a

"transferee." See 11 U.S.C. § 550. Since the bank never acquired

a beneficial interest in the funds, it was not a "transferee" in

the LBO transaction. See In re Chase & Sanborn Corp., 848 F.2d

1196, 1200 (11th Cir.1988) ("When banks receive money for the sole

purpose of depositing it into a customer's account ... the bank

never has actual control of the funds and is not a § 550

transferee."). Rather, the shareholders were the only

"transferees" of the funds here. And, of course, section 546(e)

offers no protection from the trustees avoiding powers to

shareholders; rather, section 546(e) protects only commodity

brokers, forward contract merchants, stockbrokers, financial

institutions, and securities clearing agencies. Accordingly,

regardless of whether the payments qualify as settlement payments,

section 546(e) is not applicable since the LBO transaction did not
involve a transfer to one of the listed protected entities.5 We

conclude that the district court erred with respect to this issue

and reverse.

B. Breach of Fiduciary Duty and Related Claims

We next address Munford, Inc.'s contention that the district

court erred in granting summary judgment in favor of the officers

and directors on Munford, Inc.'s claims of breach of fiduciary

duty, negligence, mismanagement, and waste of corporate assets.

Section 14-2-152.1(a)(1) of the Georgia Code requires

directors and officers of companies to discharge their duties in

good faith and with the care of an ordinary prudent person.

Munford, Inc. contends that the district court erred in concluding

that no disputed material facts existed as to whether the directors

and officers discharged their duties in good faith and with the

care of an ordinary prudent person. Specifically, Munford, Inc.,

argues that substantial evidence supports its contention that the

directors and officers approved the LBO without considering the

economic effect of the transaction upon the corporation in

violation of section 14-2-152.1(a)(1). In support of this

argument, Munford, Inc. makes two assertions. First, Munford, Inc.

asserts that the officers and directors disregarded Shearson's

September 1987 written report disfavoring LBO transactions.6

5
For a discussion of this issue, see In re Healthco Int'l
Inc. v. Hicks, Muse & Co., Inc., 195 B.R. 971, 981-83
(Bankr.D.Mass.1996).
6
In that report, Shearson opined that Munford, Inc. needed
all of its internally generated cash flow to fund growth and
could not be able to finance increased leverage resulting from
financial restructuring.
Second, Munford, Inc. asserts that officers and directors

disregarded Deutschman's reasons for refusing to proceed with its

planned purchase of Munford, Inc.

In addition, Munford, Inc. argues that Article 9 of its

Articles of Incorporation creates a private right of action on

behalf of creditors independent of section 14-2-152.1(a)(1).

Munford, Inc. notes that Article 9 requires the directors and

officers to give due consideration to " "the extent to which the

assets of the corporation will be used' for financing and "the

social, legal, and economic effects of the transaction on the

employees, customers, and other constituents of the corporation.'

" Based on this language, Munford, Inc. asserts that directors and

officers have a higher duty of care than imposed under state law.

The directors and officers contend that they discharged their

duties in good faith and with the care of an ordinary prudent

person. The directors and officers also argue that they made an

informed judgment when they decided to accept Panfida's LBO

proposal. They stress that they hired Shearson to perform a

financial assessment of Munford, Inc., consulted attorneys

regarding their duties to the company, including their duties under

the Articles of Incorporation throughout their decision-making

process, and that at all times during their service to Munford,

Inc., the company was solvent. They therefore argue that in

deciding whether to sell Munford, Inc. they had an unqualified duty

to maximize shareholder value. With respect to Munford, Inc.'s

post-LBO financial stability, the directors and officers argue that

Citicorp's decision to finance the LBO merger and AAC's
warranty—that post-LBO Munford, Inc. would remain solvent, have a

reasonable amount of working capital, and have ability to pay its

debt—led them to believe that Munford, Inc. could carry the heavy

load associated with a leveraged transaction. Finally, the

directors and officers contend that Article 9 did not establish a

fiduciary duty greater than under state law or create a private

right of action on behalf of creditors. Although Article 9

provides that directors give due consideration to social, legal,

and economic effects of a transaction on employees, customers, and

other constituents of the corporation, the directors and officers

argue that this provision does not identify creditors as persons to

whom due consideration is owed. The directors and officers

therefore argue that a constituency's interest is only relevant

when the consideration of the constituency also benefits the

shareholders.

In determining whether directors and officers have satisfied

their statutory duty, Georgia courts apply the business judgment

rule. See Millsap v. American Family Corp., 208 Ga.App. 230, 430

S.E.2d 385, 388 (1993). The business judgment rule protects

directors and officers from liability when they make good faith

business decisions in an informed and deliberate manner. Cottle v.

Storer Communication, Inc., 849 F.2d 570, 575 (11th Cir.1988). In

this case, the record is replete with evidence that the directors

and officers consulted legal and financial experts throughout the

solicitation and negotiation for a purchaser for Munford, Inc.

Applying the business judgment rule, we conclude that the directors

and officers satisfied their duties under section 14-2-152.1(a)(1).
Because Munford, Inc. has failed to present any binding legal

authority to support its contention that Article 9 creates a cause

of action independent of Georgia law, we reject this argument.

Accordingly, we affirm the district court's grant of summary

judgment on this issue.

C. Severance Contracts

The district court also granted summary judgment in favor of

the officers and directors on Munford, Inc.'s fraudulent conveyance

claims. In its complaint, Munford, Inc. alleged that the severance

payments it made to Dillard Munford, Fellows and Carroll lacked

consideration, and therefore constituted fraudulent conveyances

under Georgia law.7 In order for Munford, Inc. to establish a

fraudulent conveyance claim under Georgia law, it must show: (1)

a conveyance of property; (2) valuable consideration; and (3)

that it was insolvent at the time of the conveyance or that the

conveyance rendered it insolvent. Brown, 317 S.E.2d at 183.

The district court entered summary judgment finding that

valuable consideration in the form of the officers' promises to

continue employment through the closing of the sale of Munford,

Inc. supported the severance payments. Munford, Inc. contends that

the district court erred in concluding that Munford, Inc. received

7
Section 18-2-22 of the Georgia Code provides:

The following acts by debtors shall be fraudulent in
law against creditors and others and as to them shall
be null and void ... every voluntary deed or conveyance
not for a valuable consideration made by a debtor who
is insolvent at the time of the conveyance.

Brown v. Citizens & Southern National Bank, 253 Ga. 119, 317
S.E.2d 180, 183 (1984) (quoting O.C.G.A. § 18-2-22(3))
(emphasis added).
valuable consideration in exchange for the severance contracts.

Munford, Inc. argues that Dillard Munford's testimony refutes the

finding that Dillard Munford's promise constituted valuable

consideration because he stated in his deposition testimony that he

would have remained with the company through closing in spite of

his severance contract. Based on this admission, Munford, Inc.

asserts that all of the severance payments constituted gifts

rewarding these officers for past services for which they had

already been paid.

Dillard Munford, Fellows, and Carroll respond to Munford,

Inc.'s arguments asserting that their existing severance contracts

each arose due to preexisting severance contracts executed in 1979

or earlier. They also argue that their continued services to the

company—beginning with Munford, Inc.'s search in 1987 for a single

purchaser for its outstanding stock and ending in 1988 when

Munford, Inc. closed the LBO transaction with the Panfida

Group—provided sufficient consideration for the severance payments.

Specifically, they argue that they provided general corporate

management services, advice, strategy, and guidance to Munford,

Inc. during the relevant period.

We conclude that Munford, Inc.'s argument lacks merit.

Georgia courts hold that "valuable consideration is founded on

money or something convertible into money, or having value in

money." Stokes v. McRae, 247 Ga. 658, 278 S.E.2d 393, 394 (1981).

Georgia case law also clearly states that, "[c]ontinued performance

under a terminable at-will contract furnishes sufficient

consideration for the promise of additional severance pay." Royal
Crown Companies, Inc. v. McMahon, 183 Ga.App. 543, 359 S.E.2d 379,

381 (1987). We note that this rule of law leads to a just result

in this case. If Munford, Inc. had not entered into the severance

payment contract and these officers left Munford, Inc. prior to the

closing of the LBO, Munford, Inc.'s efforts to sell its stock to a

single purchaser probably would have been frustrated. Also,

Munford, Inc. would have been without recourse against these

officers because Munford, Inc. employed these officers as employees

at-will. The severance contracts giving rise to the severance

payments, however, provided Munford, Inc. with the assurance that

the officers would not leave without providing Munford, Inc.

recourse in the event their leaving frustrated its plans to sell

its stock to a single purchaser. We therefore find that this

assurance constituted valuable consideration. Accordingly, we

affirm the district court's grant of summary judgment on this

claim.

D. The "Aiding and Abetting" Claim

The last issue we address is whether the district court erred

in concluding that Munford, Inc.'s claim of aiding and abetting a

breach of fiduciary duty against Shearson failed as a matter of

law. Munford, Inc. urges this court to recognize a cause of action

for aiding and abetting a breach of fiduciary duty under Georgia

state law, arguing that Georgia courts would recognize the tort of

aiding and abetting a breach of fiduciary duty. Such an action,

Munford, Inc. contends, would require a showing of (1) a fiduciary

duty on the part of the primary wrongdoer, (2) a breach of

fiduciary duty, (3) the knowledge of the breach by the alleged
aider and abettor, and (4) the aider and abettor's substantial

assistance or encouragement of the wrongdoing. Munford, Inc.

argues that it has satisfied this showing. Specifically, Munford,

Inc. alleges that Shearson aided and abetted the directors' and

officers' breach of fiduciary duty when it provided a fairness

opinion concerning the Panfida Group's offering price enabling the

LBO transaction to go forward. It also asserts that Shearson,

based upon its 1987 report, knew that LBO was not financially

prudent for Munford, Inc. and knew that Munford, Inc.'s financial

condition continued to deteriorate. In support of its argument

that this court should recognize an aiding and abetting action,

Munford, Inc. notes that Georgia courts have acknowledged an aiding

and abetting cause of action in torts involving violence, the sale

of unregistered securities, breaches of covenants with employment

contracts, and fraudulent conveyances. In response, Shearson

argues that the district court correctly held that the "imposition

of aider and abettor liability for breaches of fiduciary duty

essentially extends fiduciary obligations beyond the scope of the

confidential or special relationship" on which the directors' and

officers' obligations are based.

In the absence of state law, we are "obliged to resolve the

issue of law as the Georgia state court would." Imperial

Enterprises, Inc. v. Fireman's Fund Ins. Co., 535 F.2d 287, 290

(5th Cir.1976). In this case, we decline to extend aider and

abettor liability to breaches of fiduciary duty concluding that

Georgia courts would not recognize such a cause of action. To hold

otherwise, as the district court found, would enlarge the fiduciary
obligations beyond the scope of a confidential or special

relationship. It is important to note that in this case Munford,

Inc. does not claim that Shearson failed to fully advise Munford,

Inc. of the potential risk of the LBO. The board, after

considering the risk Shearson identified, decided to proceed with

the LBO despite Shearson's initial caution to them. Moreover, the

board directed Shearson to conduct a fairness report with respect

to Panfida's offer. Shearson issued this report as directed.

Munford, Inc. now seeks to hold Shearson liable for performing its

task competently and with full disclosure. Even assuming that

Georgia courts will someday recognize a cause of action for aider

and abettor liability in the context of a breach of fiduciary duty

claim, the facts in this case do not warrant its creation now.

CONCLUSION

For the foregoing reasons, we reverse the district court's

grant of summary judgment in favor of the shareholders on Munford,

Inc.'s fraudulent conveyance claim. We affirm summary judgment on

the remaining claims.

AFFIRMED in part; REVERSED in part; and REMANDED for further

proceedings.

HATCHETT, Chief Judge, concurring in part and dissenting in
part.

I agree with the majority opinion insofar as it concludes that

the district court did not err in granting the directors, officers

and Shearson summary judgment. I do not agree, however, with the

majority's holding that the district court erred in granting the

shareholders summary judgment.

Section 546(e) precludes the trustee in bankruptcy from
avoiding settlement payments made by or to a financial institution,

commodity broker, forward contract merchant, stockbroker, or

securities clearing agency unless the debtor company made such

payments with the "actual intent to hinder, delay or defraud"

creditors. 11 U.S.C. § 548(a)(1); see also 11 U.S.C. § 546(e).

In this case, Munford, Inc. deposited funds to purchase its

outstanding stock with Citizens & Southern Trust Company, a

financial institution. Citizens & Southern Trust Company then made

settlement payments to the shareholders for their stock. Munford,

Inc., acting as trustee, filed this action seeking to avoid the

payments Citizens & Southern Trust Company made to the

shareholders. The district court granted summary judgment in favor

of the shareholders concluding that section 546(e) barred the

avoidance of settlement payments "made by" a financial institution.

In reversing the grant of summary judgment, the majority holds

that whether the LBO payments qualify as settlement payments under

section 546(e) is not dispositive on the issue of whether a trustee

in bankruptcy can avoid such transfers under state law. Instead,

the majority concludes that the dispositive issue is whether the

financial institution acquired a beneficial interest in the

settlement payments. I believe the majority, rather than require

Munford, Inc. to prove "actual intent to hinder, delay or defraud"

its creditors, chose to disregard the plain language of section

546(e) in order to create a new exception to its application.

Because I believe that LBO payments made to shareholders constitute

settlement payments for purposes of section 546(e) and that section

546(e) only permits a trustee in bankruptcy to avoid settlement
payments made to shareholders by a financial institution when such

payments are made with the actual intent to hinder, delay or

defraud creditors, I respectfully dissent.