Sm Corrigan, LLC v. 6428 Church Street, LLC ( 2019 )

FIRST DIVISION
BARNES, P. J.,
MERCIER and BROWN, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules
September 24, 2019
In the Court of Appeals of Georgia
A19A0930. 6428 CHURCH STREET, LLC et al. v. SM
CORRIGAN, LLC et al.
A19A0931. JAMES J. CORRIGAN, AS TRUSTEE OF THE
JAMES J. CORRIGAN 1989 TRUST v. 6428 CHURCH
STREET, LLC et al.
A19A0963. SM CORRIGAN, LLC et al. v. 6428 CHURCH
STREET, LLC et al.
MERCIER, Judge.
These related appeals arise from a business dispute involving James Corrigan
(“James”), Shannon Corrigan (“Shannon”), Kenneth Downing (“Downing”), and their
corporations. In 2011, James, as the Trustee of the James J. Corrigan 1989 Trust, sued
Downing, 6428 Church Street, LLC (“6428 Church”), and C&S 1, LLC (“C&S”)
(collectively, “the defendants”) for numerous claims, including breach of contract and
fraud. The next year, Shannon and her company, SM Corrigan, LLC (“SMC”),
brought a separate suit against Downing and 6428 Church, alleging claims for, among
other things, breach of contract and fraud. In response to the second suit, Downing
and 6428 Church filed counterclaims for breach of contract and litigation expenses.
The two lawsuits were consolidated in 2013, and the various parties moved for
summary judgment. In a single order, the trial court granted summary judgment to the
defendants on the fraud claims brought by James, Shannon, and SMC.1 It also granted
Shannon and SMC summary judgment on Downing and 6428 Church’s
counterclaims.
In Case No. A19A0930, the defendants appeal the trial court’s order granting
Shannon and SMC summary judgment on their counterclaims.2 In Case No.
A19A0931, James (as Trustee of the James J. Corrigan 1989 Trust) challenges the
trial court’s grant of summary judgment to the defendants on his fraud claim. Finally,
in Case No. A19A0963, Shannon and SMC appeal the trial court’s fraud
determination as to them. For reasons that follow, we affirm in part and reverse in
1
Other claims alleged by James, Shannon, and SMC – including for breach of
contract – remain pending below.
2
Although it appears that only Downing and 6428 Church are impacted by the
trial court’s ruling in Case No. A19A0930, all three defendants are included in the
notice of appeal, so we will refer to them as “the defendants.”
2
part the trial court’s ruling in Case No. A19A0930, and we affirm the rulings in Case
No. A19A0931 and Case No. A19A0963.
Summary judgment is appropriate when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law.” OCGA § 9-11-56 (c). We review the grant
of summary judgment de novo, construing the evidence and all reasonable inferences
in favor of the non-moving party. See Pacrim Assoc. v. Turner Home Entertainment,
235 Ga. App. 761, 762 (510 SE2d 52) (1998).
So viewed, the evidence shows that James and Downing began working
together in the 1980s, brokering and investing in real estate. In 2006, the two entered
into a joint venture to purchase, refurbish, and refinance and/or sell Riverdale Villas,
an apartment complex located in Riverdale, Georgia.3 The property was acquired
using money loaned by James, and ownership was placed within 6428 Church, a
limited liability corporation of which Downing was the manager and sole member.
3
James alleges that his actions in the various business deals at issue here were
undertaken on behalf of the James J. Corrigan 1989 Trust.
3
James subsequently informed Downing that his sister, Shannon, wanted to
participate in the Riverdale Villas venture, and they negotiated her participation, with
James acting as her agent throughout the transaction. On June 21, 2006, Shannon
purchased a 70 percent ownership interest in the property for approximately $1.2
million. As part of the acquisition, she made an immediate capital investment of
$590,000 that was to be used to refurbish the property and to repay James a portion
of the money he had loaned to the venture. She also signed notes and guarantees for
the remainder of the purchase price. Shannon and 6428 Church executed a co-tenancy
agreement that governed their ownership interests and established 6428 Church as the
manager of the property. Shannon then transferred her 70 percent interest to SMC, her
limited liability corporation.
According to Downing, “it[] [was] always . . . my understanding that this was
a buy and refi, or buy-and-sell situation with the property, that it would be a one to
two-year type of investment.” Shannon also expected a maximum two-year
investment that would provide her a guaranteed rate of return and tax benefits. After
renovating Riverdale Villas, however, the joint venture continued to own and operate
the property well beyond this two-year time frame. No refinancing ever occurred, and
Downing testified that the property did not generate any profit and declined in value.
4
Shortly after the Riverdale Villas venture commenced, James took part in
another venture with Downing and several others to purchase the Sheraton House
Apartments, an apartment complex located in Forest Park, Georgia. On September 14,
2006, James wired Downing $400,000 for the down payment on Sheraton House.
Although a portion of the money was later repaid to James, the venture retained
$100,000, giving James a stake in the Sheraton House profits and losses. Downing
testified that James was not a party to the co-tenancy agreement governing the
Sheraton House venture, but the partnership “worked out some sort of creative deal
where he would share in the profits and losses.” Title to Sheraton House was placed
in C&S, another limited liability corporation of which Downing was the manager and
sole member.
Within a few months, James began asking Downing questions about the
parties’ respective financial stakes in the Sheraton House venture. He posed further
questions to all of the partners regarding finances and the day-to-day operation of the
business. In reply, Downing asked James to direct all questions to him, rather than to
the other Sheraton House partners, since James was not a party to the co-tenancy
agreement.
5
Eventually, James became frustrated with what he viewed as a lack of response
to his inquiries. James demanded return of the funds he had invested in the Sheraton
House venture, plus interest. No funds were returned. At the time of Downing’s
deposition, C&S still owned Sheraton House, but the property was on the verge of
foreclosure. Although the property had a positive cash flow, two of the venture’s
other partners had removed $60,000 from the operating account without consulting
Downing or James.
With both ventures struggling financially, James, Shannon, and SMC sued the
defendants for breach of contract, fraud, and other claims. 6428 Church filed a
counterclaim against Shannon for breach of the co-tenancy agreement. Downing and
6428 Church also alleged a counterclaim against Shannon and SMC for litigation
expenses. The defendants moved for summary judgment on the fraud allegations, and
Shannon and SMC filed a cross-motion for summary judgment on the counterclaims.
The trial court granted each motion. These appeals followed.
Case No. A19A0963
1. For ease of discussion, we will first address Case No. A19A0963, in which
Shannon and SMC challenge the trial court’s order granting Downing and 6428
Church summary judgment on their fraud claim. With respect to this claim, Shannon
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and SMC alleged that before Shannon invested in the Riverdale Villas venture,
Downing and 6428 Church falsely promised that her investment would be repaid
within two years, that she would gain certain tax advantages from the investment, and
that she would receive a specified rate of return on her investment. Shannon and SMC
further alleged that she relied upon these misrepresentations in deciding to invest.
Generally, a false representation is actionable in fraud only if it relates to an
existing fact or past event. See Infrasource v. Hahn Yalena Corp., 272 Ga. App. 703,
707 (2) (613 SE2d 144) (2005). Opinions, predictions, and conjecture regarding
future events do not give rise to a fraud claim. See id. As we have explained, “[f]raud
cannot consist of mere broken promises, unfilled predictions or erroneous conjecture
as to future events. Representations concerning expectations and hopes are not
actionable.” Id. (citation and punctuation omitted). See also Hamilton v. Advance
Leasing & Rent-A-Car, 208 Ga. App. 848, 850 (2) (432 SE2d 559) (1993)
(“[A]ctionable fraud [does not] result from a mere failure to perform promises made.
Otherwise any breach of a contract would amount to fraud.”) (citations and
punctuation omitted).
The alleged misrepresentations in this case involve promises as to future
events, specifically, the eventual repayment of Shannon’s investment and the benefits
7
she and her company would ultimately reap from participating in the venture.
Nevertheless, Shannon and SMC argue that the promises are actionable because
Downing and 6428 Church made them with a present intention not to perform. It is
true that “promises with no present intent to perform are actionable.” Infrasource,
supra. A misrepresentation regarding future events may give rise to a fraud claim
“where the promisor knows, at the time of the misrepresentation, that the future event
will not take place.” Pacrim, supra at 767 (3). The issue, therefore, is whether these
defendants made promises about repayment of and return on Shannon’s investment
without any intention of performing as promised. See id.
The record contains no evidence of such fraudulent intent. Downing testified
that he always viewed the Riverdale Villas venture as a “one to two-year type of
investment.” Although the venture did not end within the time frame expected by the
parties, Shannon and SMC have not pointed to any proof that Downing and 6428
Church intended for the venture to extend beyond the anticipated period. Rather, the
record shows that in May 2008 – less than two years after Shannon invested in
Riverdale Villas – Downing suggested to James, who was acting as Shannon’s
representative, that the property “should be listed for sale and sold right away.” James
8
agreed that the property should be sold, but indicated that delaying the sale “for at
least three months” would be best for the venture.
Similarly, nothing in the record supports the conclusion that, at the time
Shannon joined the venture in 2006, Downing and 6428 Church intended or knew
that she would not receive her promised benefit or return from the investment.
Downing asserted that he did not expect the project to fail, but the venture had
difficulty finding “quality” tenants for the property and “getting the . . . occupancy
up to where it should be.” Moreover, James testified that the value of Riverdale Villas
“trend[ed] down quite rapidly” in 2008, as financial markets began collapsing.
Ultimately, Riverdale Villas performed poorly and often did not generate sufficient
funds to pay property expenses, requiring Downing to make contributions to the
venture’s account just to “keep the property operative.”
On appeal, Shannon and SMC note that “[f]raudulent intent at the time of
contracting can be inferred based on subsequent conduct of the defendant that is
unusual, suspicious, or inconsistent with what would be expected from a contracting
party who had been acting in good faith.” BTL COM Ltd. v. Vachon, 278 Ga. App.
256, 261 (1) (628 SE2d 690) (2006). They further argue, based on vague deposition
testimony from Downing, that the defendants admittedly misappropriated Shannon’s
9
capital contribution for their own benefit, raising a question of fact as to fraudulent
intent. We disagree.
Downing testified that Shannon’s capital investment was to be used to repay
James for money he had loaned to the Riverdale Villas venture and to finance
renovations at the property. To this end, Downing sent approximately one-half of the
capital investment to James. As to the remaining investment, Downing stated,
“[t]hose funds most likely went into the property,” but he could not be more certain
in his testimony because he did not “have an accounting in front of [him] of those
funds” at the deposition. Upon further questioning, Downing testified that the
remaining funds were spent on the “rehabilitation effort” at Riverdale Villas, although
he could not specifically recall if all was used for the renovations. He admitted that
there was “a possibility” some of the funds had been used to finance another
investment. Asked why the money might have been used for a different investment,
Downing responded: “We would have to look at the context of the emails [between
the parties] and the way the whole deal was structured to answer that question.” He
later clarified that he did not think Shannon’s investment funds were “used for any
purpose other than Riverdale Villas[.]”
10
Such testimony does not demonstrate that Downing and/or 6428 Church
misappropriated Shannon’s invested funds for their own personal use. At most,
Downing conceded that the venture participants (which included James and Shannon)
may have decided to use some of the money for an outside purpose. But he did not
believe that this had occurred, and Shannon and SMC have put forth no evidence that
it did.
Shannon and SMC have not pointed to any testimony, financial records, or
other evidence from which a jury could reasonably find fraudulent intent. We
recognize that the venture was not successful, and James testified that Downing failed
to fulfill his agreed-upon obligations to Shannon and SMC. But the evidence does not
support any conclusion that Downing and/or 6248 Church intended not to perform
at the time they allegedly made promises regarding Shannon’s investment. The trial
court, therefore, properly granted summary judgment to Downing and 6428 Church
on Shannon and SMC’s fraud claim. See Pacrim, supra at 767 (3) (trial court properly
granted summary judgment to defendant on fraud claim involving alleged
misrepresentation of future events; the evidence, which might have supported a claim
for breach of contract, did not demonstrate a present intention not to perform at the
time the promise was made); Compare Gunnin v. Dement, 205 Ga. App. 631, 634 (2)
11
(422 SE2d 893) (1992) (affirming denial of motion for directed verdict where jury
authorized to find fraud based on unfulfilled promises regarding business investment;
although promises related to future events, evidence that defendants made no serious
effort to expand business as promised and utilized invested money for personal
expenditures raised question of fact as to intent to deceive or not perform).
Case No. A19A0931
2. We reach the same conclusion in Case No. A19A0931, which challenges the
trial court’s grant of summary judgment to the defendants on James’s fraud claim.
With respect to fraud, James asserted that Downing promised to transfer to him an
ownership interest in the profits and losses on the Sheraton House venture, but failed
to do so. He further alleged that Downing made this promise to fraudulently induce
his investment in the project. At deposition, James clarified Downing’s promise as
follows:
[F]or my hundred thousand dollars, I was supposed to get a 15th percent
share of the profits and losses . . . related to Sheraton House. When I say
supposed to, it was all verbal and nothing was written down. And I was
supposed to get – it was essentially 15 percent of the profits and losses
of Sheraton House.
12
This alleged promise related to a future event – the eventual allocation of
profits and losses generated by Sheraton House. And once again, the evidence does
not support the conclusion that Downing made the promise with a present intention
not to perform. In fact, James has not pointed to any evidence that the defendants
deprived him of his “share in the profits and losses” of Sheraton House. The venture
still owned and operated Sheraton House at the time James filed his complaint.
Although James asserted at his deposition that Downing “hasn’t paid me anything,”
he cited no proof that the Sheraton House property had generated any profits that
should have been distributed to him. Moreover, he presented no evidence that the
defendants appropriated Sheraton House funds for their own personal benefit.4
On appeal, James complains that Downing failed to include him in the written
co-tenancy agreement governing the Sheraton House venture and did not otherwise
provide him with requested documentation or a written agreement outlining his
interest. Downing’s alleged promise, however, did not require James’s inclusion in
the co-tenancy agreement, and it did not compel written documentation of his
4
At some point, two other investors who managed the property removed
$60,000 from the Sheraton House account for their own use. Downing testified that
this withdrawal was unauthorized and that he took steps to preclude further improper
withdrawals, such as by placing certain Sheraton House funds into an escrow account.
James offered no contrary evidence.
13
participation in the venture. On the contrary, James admitted that everything relating
to his investment was “verbal.”
Undoubtedly, James is dissatisfied with the manner in which Downing operated
the Sheraton Homes venture, and his complaint asserts other claims relating to that
conduct. But he has presented no evidence from which a jury could reasonably
conclude that the defendants promised him a share of the Sheraton House profits and
losses without intending to perform as promised. The trial court, therefore, properly
granted summary judgment to the defendants on James’s fraud claim. See Pacrim,
supra.
Case No. A19A0930
3. In Case No. A19A0930, the defendants argue that the trial court erred in
granting Shannon summary judgment on 6428 Church’s counterclaim for breach of
the Riverdale Villas co-tenancy agreement.5 We agree.
5
6428 Church alleged its breach of contract counterclaim solely against
Shannon. The counterclaim does not include SMC, presumably because SMC was not
a party to the co-tenancy agreement. Both in the trial court and on appeal, however,
the parties often failed to specify which claims and arguments apply to which party.
As a result, it appears that the trial court may have inadvertently included SMC in its
grant of summary judgment on this counterclaim. 6428 Church has not argued that
it asserted a breach of contract claim against SMC or that such claim has merit.
Accordingly, to the extent the trial court granted summary judgment to SMC on this
14
6428 Church asserted that Shannon breached the co-tenancy agreement by not
paying her share of the Riverdale Villas operating expenses, thereby saddling 6428
Church with more than its share of the expenses. Shannon admittedly never made any
payments to the Riverdale Villas venture other than those associated with acquiring
a 70 percent interest in the property. And 6428 Church offered evidence that
Downing, its sole member, deposited significant sums into the venture’s operating
account to pay the property’s expenses. Nevertheless, Shannon moved for summary
judgment on this counterclaim, arguing that 6428 Church had “adduced absolutely
no evidence supporting a calculation or itemization of damages[.]” The trial court
granted the motion.
“Damages recoverable for a breach of contract are such as arise naturally and
according to the usual course of things from such breach and such as the parties
contemplated, when the contract was made, as the probable result of its breach.”
OCGA § 13-6-2. The evidence in this case raises a jury question as to whether
Shannon’s alleged breach of the co-tenancy agreement forced 6428 Church to fully
fund operating expenses that should have been shared by Shannon. Although
Shannon complains that 6428 Church failed to sufficiently prove the specific
claim, we find no error.
15
expenses it incurred, “the lack of evidence regarding the actual amount of damages
is not dispositive on a motion for summary judgment in a breach of contract case.”
Eastview Healthcare v. Synertx, 296 Ga. App. 393, 398 (4) (674 SE2d 641) (2009).
“This is because . . . in every case of breach of contract, the injured party has a right
to damages, but, if there has been no actual damage, the injured party may recover
nominal damages sufficient to cover the costs of bringing the action.” Id. at 399 (4)
(citations and punctuation omitted).
The record contains evidence from which a jury could award 6428 Church
damages (either actual or nominal) from Shannon’s alleged breach of the co-tenancy
agreement. The trial court, therefore, erred in granting Shannon summary judgment
on this counterclaim. See Eastview Healthcare, supra.
4. The defendants further argue that the trial court erred in granting Shannon
and SMC summary judgment on the litigation expense counterclaim asserted by
Downing and 6428 Church. As pled, the counterclaim has two facets. First, 6428
Church alleged that Shannon is liable for litigation expenses under Paragraph 18 (g)
of the co-tenancy agreement, which provides for recovery of such expenses by the
prevailing party in any litigation involving the agreement. Second, Downing and
6428 Church asserted that Shannon and SMC have acted in bad faith and been
16
stubbornly litigious, entitling them to an award of litigation expenses pursuant to
OCGA § 13-6-11.6 The trial court granted Shannon and SMC summary judgment on
both facets of this counterclaim, concluding that “[a]s [d]efendants’ underlying claim
for breach of the [c]o-[t]enancy agreement fails, so does their derivative claim for
attorney’s fees.”
(a) This ruling was error and must be reversed as to 6428 Church’s
counterclaim for litigation expenses against Shannon. As found in Division 3,
Shannon was not entitled to summary judgment on the counterclaim for breach of
contract. And questions of fact remain with respect to 6428 Church’s derivative
counterclaim for litigation expenses, particularly regarding paragraph 18 (g) of the
co-tenancy agreement. Summary judgment, therefore, was improper as to this
counterclaim.
(b) The trial court, however, correctly granted summary judgment to SMC on
6428 Church’s counterclaim for litigation expenses, which is based solely on OCGA
§ 13-6-11. As we have noted, this code section “does not permit the recovery of
6
“The expenses of litigation generally shall not be allowed as a part of the
damages; but where the plaintiff has specially pleaded and has made prayer therefor
and where the defendant has acted in bad faith, has been stubbornly litigious, or has
caused the plaintiff unnecessary trouble and expense, the jury may allow them.”
OCGA § 13-6-11.
17
expenses incurred in defending a lawsuit.” Dennis-Smith v. Freeman, 277 Ga. App.
822, 825 (3) (627 SE2d 872) (2006) (citations omitted; emphasis in original). The
record shows that 6428 Church did not assert a substantive counterclaim against
SMC. Accordingly, because 6428 Church is merely a defendant as to SMC, its claim
for litigation expenses against the company fails as a matter of law. See Dennis-
Smith, supra; Langley v. Nat. Labor Group, 262 Ga. App. 749, 754 (3) (586 SE2d
418) (2003) (“[A] defendant may only assert a counterclaim under OCGA § 13-6-11
if it has a viable independent counterclaim[.]”).
(c) The same fatal flaw undermines Downing’s counterclaim against Shannon
and SMC for litigation expenses under OCGA § 13-6-11. Downing is not a party to
6428 Church’s counterclaim for breach of contract or any other substantive
counterclaim. He is merely a defendant. Shannon and SMC, therefore, were entitled
to summary judgment on his litigation expense counterclaim. See Dennis-Smith,
supra; Langley, supra.
Judgments in Case Nos. A19A0931 and A19A0963 affirmed. Case No.
A19A0930 affirmed in part and reversed in part. Barnes, P. J., and Brown, J.,
concur.
18