GS CLEANTECH CORPORATION v. CANTOR COLBURN, LLP ( 2022 )

THIRD DIVISION
DOYLE, P. J.,
REESE, J., and SENIOR APPELLATE JUDGE PHIPPS
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.
https://www.gaappeals.us/rules
June 16, 2022
In the Court of Appeals of Georgia
A22A0387. GS CLEANTECH CORPORATION et al. v. CANTOR
COLBURN, LLP.
DOYLE, Presiding Judge.
After GS CleanTech Corporation and GreenShift Corporation (collectively,
“the Client”) threatened to seek arbitration in Georgia of legal malpractice claims
against their former lawyers, Cantor Colburn (“the Firm”), the Firm filed in the
Superior Court of Fulton County a petition for declaratory judgment and
accompanying motion to stay arbitration under OCGA §§ 9-9-5 and 9-9-6 on statute
of limitation grounds. The Client moved to dismiss the Firm’s petition. Following a
hearing, the trial court entered a final order denying the Client’s motion to dismiss,
declining to rule on a statute of limitation issue, and referring the case to arbitration
in Georgia. The Client appeals, arguing that (1) the trial court erred by holding that
the parties’ engagement letter requiring arbitration in Atlanta controls because a
subsequent fee agreement, which “supersedes all prior agreements,” includes an
arbitration provision requiring arbitration in Connecticut; (2) the trial court lacked
subject matter jurisdiction; and (3) the trial court erred by referring the parties to
arbitration in Atlanta because neither party sought a Georgia arbitration, and the
claims were pending before an arbitration forum in Connecticut. For the reasons that
follow, we reverse.
The record shows that in 2008, the Client engaged the Firm for representation
in certain intellectual property matters. The parties memorialized their agreement in
a 2008 Engagement Letter, which required them to submit any dispute arising out of
the agreement to binding arbitration in Atlanta before a retired Georgia superior court
judge. In August 2011, the parties executed a Fee Agreement, which amended the
payment provisions of the Engagement Letter and required that all disputes between
the parties relating to the Engagement Letter be resolved by binding arbitration in
Hartford, Connecticut.
In 2009, the Firm commenced patent infringement litigation against various
defendants on behalf of the Client. In 2014, the United States District Court for the
2
Southern District of Indiana issued an order invalidating the patents.1 In September
15, 2016, the district court held that the patents were unenforceable based on the
Client’s deceptive practices, finding that the Client actively withheld pertinent
information from the Firm during prosecution of the patents and that the Firm ignored
“red flags” about the veracity of the story provided by the Client’s inventors.2
On July 26, 2017, the Client sent a letter to the Firm’s attorneys indicating for
the first time that it intended to bring legal malpractice claims against the Firm arising
out of its representation of the Client in the patent prosecutions. The Client did not
mention arbitration in the letter, but instead requested that the Firm consent to tolling
the statute of limitation on the claims.3 On July 2, 2020, the Client sent an email to
the Firm confirming a telephone conversation and stating that the Client “wanted to
proceed with the arbitration of the legal malpractice claims of [the Client] against the
Firm,” reiterating that the parties’ Engagement Letter included a provision requiring
1
See In re: Method of Processing Ethanol Byproducts & Related Subsystems
(‘858) Patent Litigation, 303 FSupp3d 791 (S.D. Ind. 2014).
2
See In re Method of Processing Ethanol Byproducts & Related Subsystems
(858) Patent Litigation., No. 1:10-ml-02181-LJM-DML at *157 (II) (2016 U.S. Dist.
LEXIS 147886; 2016 WL 4919980) (S.D. Ind. Sept. 15, 2016).
3
The Firm did not agree to toll the statute of limitation.
3
mandatory arbitration in Atlanta. On December 24, 2020, the Client sent another
email to the Firm stating that it wanted to set a tentative schedule for the arbitration
in Atlanta for March or April 2021 and requesting a response regarding the Firm’s
availability, again invoking the Engagement Letter.
On January 26, 2021, the Firm filed the instant petition under OCGA §§ 9-9-5
and 9-9-6 and an accompanying motion to stay arbitration, seeking an order staying
the Client’s threatened arbitration on statute of limitation grounds. The Client filed
a verified answer in which it admitted that venue was proper (specifically admitting
that “personal jurisdiction and venue are proper as set forth in Paragraph 11 of the
Petition, but expressly deny[ing] any implication that Georgia law applies to their
claims against Petitioner, or to the procedure for arbitrating those claims”), admitted
that the parties executed the Engagement Letter to govern their relationship, and
admitted that it sought to arbitrate claims against the Firm.
On February 24, 2021, the Client served a demand letter seeking arbitration of
its malpractice claims with JAMS in Atlanta, noting that it brought its claims under
the Engagement Letter. At a July 19, 2021 status hearing, however, the Client argued
that the arbitration provision in the Engagement Letter was superceded by the 2011
Fee Agreement, claiming therefore that any arbitration of its claims must be
4
conducted in Connecticut. On April 30, 2021, the Client moved to withdraw its
admission that venue was proper in Georgia,4 moved to dismiss the petition for lack
of subject matter jurisdiction, and noted that it had withdrawn its Georgia arbitration
petition and instituted an arbitration in Connecticut to adjudicate its legal malpractice
claims against the Firm.
On May 7, 2021, pursuant to order of the trial court, the parties submitted a
stipulated list of legal issues, which included: whether the court had subject matter
jurisdiction; whether venue was proper; whether the court had authority to grant the
relief sought in the petition; which agreement applied – the Engagement Letter or the
Fee Agreement; whether the Client’s claims were time-barred; and whether the court
should exercise its discretion to find that the claims were time-barred.5
On August 31, 2021, the trial court issued its “Final Order Denying the
Respondents’ Motion to Dismiss Verified Petition for Lack of Subject Matter
4
The Client explained in the motion that it previously admitted that venue was
proper in Atlanta under OCGA § 9-9-4 (b) (1) because it believed the 2008
Engagement Letter controlled the location of the arbitration. According to the Client,
it later determined that the 2008 Engagement Letter had been superceded by the 2011
Fee Agreement, which requires arbitration in Hartford, Connecticut.
5
Issues regarding the Firm’s statute of limitation defense included: whether
Georgia or Connecticut law controls; whether the limitation period was tolled; and
whether the Client timely demanded arbitration.
5
Jurisdiction,” finding that the Client had waived venue and that the Engagement
Letter governed the parties’ dispute. The court also declined to exercise its discretion
to rule on the issue of the timeliness of the Client’s malpractice claims, instead
deferring the issue to the arbitrator and referring the case to arbitration in Atlanta.
This appeal followed.
1. Appellate jurisdiction. In its brief, the Firm argues that this appeal should be
dismissed because the trial court’s order was interlocutory, and the Client filed a
direct appeal instead of filing an application under OCGA § 5-6-34 (b). We disagree.
First, we note that the Firm did not file a separate motion to dismiss as required
by Court of Appeals Rule 41 (b).6 Nevertheless,
it is the duty of this Court to inquire into its jurisdiction in any case in
which there may be a doubt about the existence of such jurisdiction. We
must consider, then, whether we have jurisdiction to consider [this case
as a] direct appeal[] or whether [an] application[] for discretionary
appeal [was] necessary. And in doing so, we conclude [this] case[] [was]
properly brought as [a] direct appeal[].7
6
Court of Appeals Rule 41 (b) states in relevant part that “[a]ll motions . . .
shall be filed as separate documents,” and “[n]o motions . . . shall be filed in the body
of briefs. . . .”
7
(Citations and punctuation omitted.) Sons of Confederate Veterans v. Newton
County Bd. of Commrs., 360 Ga. App. 798, 800-801 (1) (c) (861 SE2d 653) (2021),
6
The Firm argues that an order denying a motion to dismiss is interlocutory, as
is an order compelling parties to arbitration. Pretermitting the validity of this
contention as applied to this case, OCGA § 5-6-34 (a) (1) authorizes direct appeals
from “[a]ll final judgments, that is to say, where the case is no longer pending in the
court below. . . .”
In this case, the order appealed is styled “Final Order Denying Respondents’
Motion to Dismiss Verified Petition for Lack of Subject Matter Jurisdiction.” But
“‘[u]nder our rules of pleading, it is substance and not mere nomenclature that
controls.’”8 “An order is considered a final judgment within the meaning of OCGA
§ 5-6-34 (a) (1) where it leaves no issues remaining to be resolved, constitutes the
court’s final ruling on the merits of the action, and leaves the parties with no further
recourse in the trial court.”9
cert. granted Sons of Confederate Veterans v. Newton County Bd. of Commrs., Case
No. S22G0045 (Mar. 8, 2022).
8
Cobb Center Pawn & Jewelry Brokers v. Gordon, 242 Ga. App. 73, 74 (1)
(529 SE2d 138) (2000).
9
(Punctuation omitted.) CitiFinancial Svcs., Inc. v. Holland, 310 Ga. App. 480,
481 (713 SE2d 678) (2011), quoting Standridge v. Spillers, 263 Ga. App. 401, 403
(1) (587 SE2d 862) (2003).
7
Here, “us[ing] the [m]otion to [d]ismiss as the vehicle by which to resolve all
of the outstanding issues in [the] case,” the trial court denied the Client’s motion to
dismiss, declined to rule on the timeliness of the Client’s claims and stay arbitration
under OCGA § 9-9-5, and referred the matter for arbitration in Georgia. The trial
court decided all of the matters raised in the petition and the parties’ stipulated list of
issues, leaving no other issues to be resolved in the trial court, and therefore, the order
was final as to the proceeding in the superior court. Accordingly, this case was
properly brought as a direct appeal, and the Firm’s request for dismissal is denied.10
2. Which agreement controls. The Client argues that the trial court erred by
finding that the parties’ Engagement Letter arbitration provision controls the
resolution of its legal malpractice claims because the entire Engagement Letter was
superseded by the Fee Agreement. We agree.
10
See Extremity Healthcare, Inc. v. Access to Care America, LLC, 339 Ga.
App. 246, 251 n. 3 (793 SE2d 529) (2016) (holding that the appeal of an order
compelling arbitration and staying proceedings was directly appealable because the
order was final and dismissed the entire case), citing Torres v. Piedmont Builders,
300 Ga. App. 872 (1) (686 SE2d 464) (2009) (holding that the appeal of an order
compelling arbitration was from a final judgment directly appealable under OCGA
§ 5-6-34 (a) (1) because the trial court’s arbitration order “dismiss[ed] the original
action in its entirety, and the case [was] no longer pending in the superior court”).
8
“Arbitration in Georgia is a matter of contract. As such, the construction of an
arbitration clause in a contract is subject to the ordinary rules of contract
construction.”11 We review the trial court’s construction of the parties’ agreements
de novo.12 Contract construction involves three steps:
First, the trial court must decide whether the language is clear and
unambiguous. If it is, the court simply enforces the contract according
to its clear terms; the contract alone is looked to for its meaning. Next,
if the contract is ambiguous in some respect, the court must apply the
rules of contract construction to resolve the ambiguity. Finally, if the
ambiguity remains after applying the rules of construction, the issue of
what the ambiguous language means and what the parties intended must
be resolved by a jury.13
The cardinal rule of contract construction is to ascertain the
intention of the parties. When the terms of a contract are clear and
unambiguous, the reviewing court looks only to the contract itself to
determine the parties’ intent. In the face of ambiguity, we must look to
the entirety of the agreement to determine the intent of the parties.
Indeed, it is axiomatic that contracts must be construed in their entirety
11
(Citations and punctuation omitted.) SCSJ Enterprises v. Hansen & Hansen
Enterprises, Inc., 319 Ga. App. 210, 212 (1) (734 SE2d 214) (2012).
12
See Borders v. City of Atlanta, 298 Ga. 188, 197 (II) (779 SE2d 279) (2015).
13
(Citation omitted.) City of Baldwin v. Woodard & Curran, Inc., 293 Ga. 19,
30 (3) (743 SE2d 381) (2013).
9
and in a manner that permits all of the terms contained therein to be
consistent with one another. Further, where there is ambiguity, the
agreement will be construed against the drafter and in favor of the
non-drafter.14
The Client’s argument is based upon the merger rule. “[T]he rational basis for
merger clauses is that where parties enter into a final contract[,] all prior negotiations,
understandings, and agreements on the same subject are merged into the final
contract, and are accordingly extinguished.”15 “In order for the merger rule to apply,
however, the parties of the merging contracts must be the same and the terms of those
contracts must completely cover the same subject matter and be inconsistent.”16
In this case, the parties’ 2008 Engagement Letter “sets forth the terms of the
[the parties’] engagement” and states that the Client was engaging the firm “in
connection with . . . intellectual property matters.” The Engagement Letter sets forth
the terms and conditions upon which the Firm provided legal representation to the
14
(Citation and punctuation omitted.) Langley v. MP Spring Lake, LLC, 307
Ga. 321, 324 (834 SE2d 800) (2019).
15
First Data POS, Inc. v. Willis, 273 Ga. 792, 795 (2) (546 SE2d 781) (2001),
quoting Health Svc. Centers v. Boddy, 257 Ga. 378, 380 (2) (359 SE2d 659) (1987).
16
Atlanta Integrity Mtg., Inc. v. Ben Hill United Methodist Church, Inc., 286
Ga. App. 795, 797 (650 SE2d 359) (2007), citing Wallace v. Bock, 279 Ga. 744, 745-
746 (1) (620 SE2d 820) (2005).
10
Client, including fees, payment of costs, timing of billing statements, termination of
the Firm’s services, a statement that the Firm carried errors and omissions insurance,
a conflict provision, and a section disclaiming any guarantee of success. The Letter
also includes the following arbitration provision:
ARBITRATION AND WAIVER OF JURY TRIAL. ANY DISPUTE
BASED UPON OR ARISING OUT OF OUR ENGAGEMENT, THIS
LETTER AGREEMENT AND/OR THE PERFORMANCE OR
FAILURE TO PERFORM SERVICES (INCLUDING, WITHOUT
LIMIT, CLAIMS OF PROFESSIONAL NEGLIGENCE) SHALL BE
SUBJECT TO BINDING ARBITRATION TO BE HELD IN
ATLANTA, GEORGIA[,] BEFORE A RETIRED GEORGIA
SUPERIOR COURT JUDGE. JUDG[]MENT ON THE
ARBITRATOR’S AWARD SHALL BE FINAL AND BINDING, AND
MAY BE ENTERED IN ANY COMPETENT COURT. AS A
PRACTICAL MATTER, BY AGREEING TO ARBITRATE[,] ALL
PARTIES ARE WAIVING JURY TRIAL.
In August 2011, the parties executed the Fee Agreement, which contains two
WHEREAS recitals; the first indicates that the Client “has retained [the Firm] to
perform [s]ervices,” and the second memorializes the parties’ intent to “agree upon
a process through which [the Firm] will be compensated for the provision of
11
[s]ervices. . . .”17 In the Fee Agreement, the Client acknowledges that it owed the
Firm $1,003,264 for services previously rendered. The Fee Agreement contains
detailed provisions for payment of future and past due amounts through monthly
payments and, at the Firm’s discretion, by converting the debt into stock in the
Client’s parent company. The Fee Agreement also contains an arbitration provision
providing that
[a]ll disputes between the parties relating to this Agreement shall be
finally settled by binding arbitration in accordance with the then
prevailing procedure of the American Arbitration Association (“AAA”).
. . . The arbitration shall be held in Hartford, Connecticut. . . . The
arbitrator shall not have the authority to render any award or make any
ruling inconsistent with or beyond the scope of the terms of this
Agreement or inconsistent with the law of the state of Connecticut. . . .
Most importantly, however, the Fee Agreement also contains a merger, or “final
agreement,” clause: “Final Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof, and
17
The Fee Agreement indicates that the term “Agreement” refers to “This FEE
AGREEMENT.” It also defined, among other items, “[s]ervices” provided by the
Firm to the Client , including “patent prosecution activities,” and “[c]urrent [m]atters”
and [f]uture [m]atters,” including the patents and the “multi-district litigation” out of
which the legal malpractice claims in this case arose.
12
supersedes all prior agreements, understandings, commitments, negotiations, and
discussions, whether oral or written.”
The Firm argues that the Fee Agreement serves the limited purpose of
amending the compensation process between the parties for both past due and future
payments by the Client, and that unlike the Engagement Letter, the Fee Agreement
does not address the Firm’s billing rates, errors and omissions insurance, conflicts,
or guaranties of success by the Firm. Thus, the Firm contends, the Fee Agreement
does not modify the parties’ entire agreement, but instead memorializes the parties’
new agreement about the subject matter of the Fee Agreement, which is compensation
by the Client to the Firm. The Firm further emphasizes that the Engagement Letter’s
arbitration provision requires mandatory arbitration of any dispute based on or arising
out of the parties’ engagement, specifically including claims of professional
negligence; in contrast, the Fee Agreement dispute resolution provision is limited to
“all disputes between the parties relating to this Agreement.”
Nonetheless, the Fee Agreement contains an unambiguous statement that it
“supersedes all prior agreements, understandings, commitments, negotiations, and
discussions, whether oral or written.”18 The Supreme Court of Georgia has applied
18
(Emphasis supplied.)
13
the merger rule in a case with an almost identical merger clause.19 Furthermore, “[t]he
differing . . . obligations contained in the two agreements do not create any ambiguity
in the application of the merger clause.”20 Accordingly, the Fee Agreement
supersedes the Engagement Letter in its entirety as to the matters therein.21
The Firm also argues that even if the Engagement Letter was superseded by the
Fee Agreement, the original arbitration agreement nonetheless survives the
19
See First Data POS, Inc., 273 Ga. at 794-795 (2) (holding that based on an
almost identical “unambiguous,” “standard” merger clause in the parties’ second
agreement, the second agreement superceded their first agreement).
20
Belt Power, LLC v. Reed, 354 Ga. App. 289, 292 (1) (840 SE2d 765) (2020)
(holding that the parties’ first agreement was superseded and replaced by the parties’
subsequent agreement, which contained an unambiguous merger clause).
21
See First Data POS, 273 Ga. at 794-795 (2); Legacy Academy, Inc. v.
Mamilove, LLC, 297 Ga. 15, 19-20 (2) (771 SE2d 868) (2015) (holding that
agreement with a “comprehensive” merger clause almost identical to the instant case
supercedes parties’ prior agreement); Belt Power, LLC, 354 Ga. App at 292 (1). We
note that the Firm has not cited any case rejecting the application of the merger
doctrine in which the parties’ subsequent agreement contains an unambiguous merger
clause between the same parties. Compare Wallace, 279 Ga. at 745-746 (1) (holding
that a purchase agreement and subsequent escrow agreement did not merge because
the purchase agreement included an obligation that the escrow agreement did not; the
escrow agreement did not, however, contain a merger clause); Atlanta Integrity Mtg.,
286 Ga. App. at 799 (“Because the contracts at issue did not involve the same parties
or subject matter, and because the merger clause by its express terms did not
supersede any prior agreements or contracts between [the parties], the trial court erred
[by] holding that the [contracts] merged. . . .”).
14
extinguishment of the Engagement Letter under the doctrine of severability.22 None
of the cases cited by the Firm apply the doctrine of severability to a superseding
contract that contains both an entire agreement/merger clause and a new arbitration
clause. And we decline to do so here.
Accordingly, the trial court erred by finding that the arbitration clause in the
Engagement letter mandating arbitration in Atlanta governs the resolution of the
Client’s legal malpractice claims against the Firm.
3. Subject matter jurisdiction. The Client argues that the trial court erred by
finding “that it had subject matter jurisdiction to determine the timeliness of its
claims, which are contractually required to be arbitrated in Connecticut.”
22
In support of this argument, the Firm relies on Buckeye Check Cashing, Inc.
v. Cardegna, 546 U. S. 440, 445-446 (II) (B) (126 SC 1204, 163 LE2d 1038) (2006)
(“[A]s a matter of substantive federal arbitration law, an arbitration provision is
severable from the remainder of the contract[, and] . . . this arbitration law applies in
state as well as federal courts.”); Jhun v. Imagine Castle, LLC, 358 Ga. App. 627,
630-631 (1) (856 SE2d 24) (2021) (applying doctrine of severability and affirming
order compelling arbitration based on arbitration provision in the parties’ contract
notwithstanding challenge to the enforceability of the contract); Perry Golf Course
Dev., LLC v. Columbia Residential LLC, 337 Ga. App. 525, 529 (1) (786 SE2d 565)
(2016) (enforcing arbitration clause based on “unambiguous severability clause” even
though the parties’ agreement regarding certain obligations was unenforceable due
to lack of mutuality).
15
The phrase jurisdiction of the subject matter refers to subject
matter alone, i.e., conferring jurisdiction in specified kinds of cases. It
is the power to deal with the general abstract question, to hear the
particular facts in any case relating to this question. Jurisdiction of the
subject matter does not mean simply jurisdiction of the particular case
then occupying the attention of the court, but jurisdiction of the class of
cases to which that particular case belongs. It is the sine qua non to a
valid judgment, and may not be waived by consent of the parties.23
Under OCGA § 9-9-3:
A written agreement to submit any existing controversy to arbitration or
a provision in a written contract to submit any controversy thereafter
arising to arbitration is enforceable without regard to the justiciable
character of the controversy and confers jurisdiction on the courts of the
state to enforce it and to enter judgment on an award.24
The Firm filed its petition seeking relief under the Engagement Letter
(requiring arbitration in Georgia) and arguing that, as we concluded in Division 2, the
Engagement Letter was superseded by the Fee Agreement (requiring arbitration in
Connecticut). Therefore, the Client argues, the trial court did not have subject matter
23
(Citations and punctuation omitted.) Crutchfield v. Lawson, 294 Ga. 407, 409
(754 SE2d 50) (2014), quoting Hopkins v. Hopkins, 237 Ga. 845, 846 (1) (229 SE2d
751) (1976).
24
(Emphasis supplied.)
16
jurisdiction, as conferred by the Georgia Arbitration Code (“GAC”), when the
petition was filed. This argument is without merit.
“[S]ubject matter jurisdiction is assessed at the time of the filing of a suit and
is not lost by the occurrence of subsequent developments.”25 The Firm filed its
petition under OCGA § 9-9-5 (a), which confers jurisdiction on the superior court
when a party brings “a claim sought to be arbitrated” that it argues “would be barred
by the limitation of time had the claim sought to be arbitrated been asserted in
court.”26 At the time the Firm filed the petition, the Client was seeking to arbitrate
claims against the Firm. Accordingly, the trial court had subject matter jurisdiction
as to that question.
4. Finally, the Client contends that the trial court “decided a moot issue” by
referring the parties to arbitration in Atlanta because neither party sought a Georgia
arbitration at that point, and the claims were pending before an arbitration forum in
Connecticut. The complaint belies this argument, and in any event, our holding in
25
Bobick v. Community & Southern Bank, 321 Ga. App. 855, 866 (3) (d) (743
SE2d 518) (2013).
26
OCGA § 9-9-5.
17
Division 1 controls this issue. Arbitration is proper in Hartford, Connecticut, and
therefore, the trial court erred by referring the parties to arbitrate in Atlanta.
Judgment reversed. Reese, J., and Senior Appellate Judge Herbert E. Phipps
concur.
18