HealthPrime, Inc., HP/Holdings, Inc. v. Smith/Packett/MED/COM, LLC, Smith-More Company, L.C.

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
No. 11-10028 ELEVENTH CIRCUIT
Non-Argument Calendar JUNE 3, 2011
________________________ JOHN LEY
CLERK
D.C. Docket No. 1:10-cv-01181-CAP
HEALTHPRIME, INC.,
HP/HOLDINGS, INC.,
llllllllllllllllllllllllllllllllllllllll Plaintiffs - Appellants,
versus
SMITH/PACKETT/MED/COM, LLC,
SMITH-MOORE COMPANY, L.C.,
llllllllllllllllllllllllllllllllllllllll Defendants - Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(June 3, 2011)
Before BARKETT, HULL and MARCUS, Circuit Judges.
PER CURIAM:
In this diversity jurisdiction case, Plaintiffs HealthPrime, Inc. and
HP/Holdings, Inc. appeal the district court’s dismissal of their First Amended
Complaint. The district court concluded that the Georgia statutes of limitations
had run on Plaintiffs’ claims for breach of contract, conversion, misappropriation
of corporate funds, and fraud. After review, we affirm.
I. BACKGROUND
On March 15, 2010, Plaintiffs HealthPrime and HP/Holdings filed suit
against Defendants Smith/Packett Med-Com, LLC (“Smith/Packett”) and Smith-
Moore Company, L.C. (“Smith-Moore”), alleging four claims under Georgia law
in relation to certain sales proceeds: (1) misappropriation, (2) conversion, (3)
fraud, and (4) breach of contract.1 Plaintiffs later filed a First Amended Complaint
containing the same four claims. We recount the allegations in the First Amended
Complaint.
A. First Amended Complaint
HP/North Carolina IV, Inc. (“HPNC”) is a North Carolina corporation with
two shareholders: (1) Plaintiff HealthPrime, a 50% shareholder, and (2) Defendant
Smith-Moore, also a 50% shareholder.
Plaintiffs HealthPrime and HP/Holdings are Georgia corporations. Douglas
1
Plaintiffs initially filed this case in state court, and Defendants later removed the case to
federal court under diversity jurisdiction. See 28 U.S.C. §§ 1332, 1441.
2
Mittleider is the CEO of both HealthPrime and HP/Holdings.
Defendants Smith-Moore and Smith/Packett are Virginia limited liability
companies. James R. Smith is the Vice President of HPNC and a “Member” of
Smith/Packett.
HPNC and its two shareholders (Plaintiff HealthPrime and Defendant
Smith-Moore) owned a piece of real estate property known as the “Carthage
Facility.” In the fall of 2005, HPNC, through Defendants Smith/Packett and
Smith/Moore,2 sold the Carthage Facility.
“Prior to the sale of the property, Douglas Mittleider, on behalf of
HealthPrime, Inc., and James R. Smith, on behalf of Smith-Moore, met in Atlanta,
Georgia on May 11, 2005 to discuss time lines and parameters of the sale of the
Carthage Property. During the meeting, Douglas Mittleider and James R. Smith
agreed that when the property was sold, the proceeds from the sale would be
distributed proportionally to the shareholders of [HPNC].”
According to Plaintiffs, “Defendants intentionally induced Plaintiffs to
agree to the sale of the Carthage Facility by assuring Plaintiffs that the sale
proceeds would be distributed equally among [HPNC]’s two shareholders,” when
in fact “Defendants always intended to use the sale proceeds for their own
2
It is unclear exactly what role Smith/Packett played in the sale of the Carthage Facility.
3
purposes and did not ever intend to fully compensate the Plaintiffs for their share
of the sale proceeds through a corporate distribution, as agreed prior to the sale of
the Carthage Facility and confirmed during the May 11, 2005 meeting in Atlanta.”
Plaintiffs allege that once the sale of the Carthage Facility occurred, rather
than disbursing the cash proceeds from the sale of the Carthage Facility property
proportionally to HPNC’s two shareholders (Plaintiff HealthPrime and Defendant
Smith-Moore), Defendants deliberately allocated some of the sales proceeds to
cover the alleged debts of Plaintiffs’ entity Cross City in other unrelated business
transactions. Plaintiffs allege that they “did not consent to the use of the sale
proceeds for any other purpose than a pure shareholder distribution between
[HPNC]’s two shareholders.”
Plaintiffs allege that: (1) they are owed at least $503,250.00 from the sale of
the Carthage Facility property; (2) Defendants misappropriated corporate funds
and breached their shareholders’ agreement with Plaintiffs by refusing to
distribute the sales proceeds “proportionally to [HPNC]’s shareholders, as agreed
prior to the sale of the Carthage Facility property”; and (3) Plaintiffs demanded
their monies but “Defendants have refused to hand over the proportional
amounts.”
Plaintiffs also alleged that “Defendants committed the acts of breach of
4
contract, misappropriation of funds, fraud, and conversion during [the] May 11,
2005 meeting” in Georgia.
B. Defendants’ Motions to Dismiss
Defendants Smith/Packett and Smith-Moore filed separate motions to
dismiss the First Amended Complaint under Federal Rules of Civil Procedure
12(b)(2) and 12(b)(3), arguing, inter alia, that the statute of limitations had run on
Plaintiffs’ claims.3
Both Defendants attached exhibits to their motions to dismiss. Defendants
attached the “Supplemental Affidavit of James R. Smith,”4 in which Smith stated
that he met with Mittleider on May 11, 2005, and that “[t]he discussion of the
Carthage Property [during that meeting] was a very preliminary discussion, and
there was no mention of how any proceeds from any sale would be shared.”
One of the exhibits to Smith’s affidavit is a November 3, 2005 letter from
Plaintiffs’ Mittleider to Defendants’ Smith, directing Defendants not to disburse
3
Rule 12(b)(2) provides that a party may assert, by motion, a defense of lack of personal
jurisdiction. Rule 12(b)(3) provides that a party may assert, by motion, a defense of improper
venue. However, both the district court in its order, and the parties in their briefs on appeal, refer
to Defendants’ motions as motions under Rule 12(b)(6) for failure to state a claim, and we
therefore treat them as such.
4
Smith’s original affidavit was filed as an exhibit to Smith-Packett’s motion to dismiss
the original complaint, which was dismissed as moot when Plaintiffs were granted leave to file
the First Amended Complaint.
5
HealthPrime’s share of the sales proceeds to any entity other than HealthPrime:
Dear Jim:
I have been advised by your office that you are contemplating
distributing some of the Carthage proceeds to Cross City for some of its
obligations.
Please be advised that you do not have my permission to allocate any of
HealthPrimes’s proceeds from the sale of the Carthage facility to any
entity other tha[n] HealthPrime (1/2 of the net proceeds of the sale).
There is not a commonality of interest in the ownership of the two
projects, and it would be a fiduciary breach for either of us to allow the
proceeds of the sale of the Carthage facility to be used in any fashion
other than distributing 1/2 of the proceeds to each shareholder. Based
on the e-mail received from Bruce McKibbon late yesterday there
appeared to be several avenues to solve Charlie’s cash crunch. I would
not be adverse to [HPNC] loaning him sufficient proceeds to cover his
immediate payroll shortfall (presuming that it is $50,000 or less).
I would appreciate your acknowledging that you will not utilize any of
the proceeds from the Carthage sale for any purpose other than a
stockholder distribution, except for the small loan mentioned above. I
will give you a call to confirm.
Sincerely,
Douglas K. Mittleider, President
Also attached as an exhibit to Smith’s affidavit was a December 30, 2005
letter from Plaintiffs’ Mittleider to Michael Meeks of Smith/Packett, objecting to
how Defendants proposed to disburse the Carthage Facility sales proceeds:
Dear Michael:
6
I have received your checks dated December 28, 2005 in the amounts of:
• $260,000 - Check # 1434 payable to Doug Mittleider
• $120,000 - Check # 1435 payable to Health Prime
• $75,000 - Check # 1436 payable to Health Prime
• $120,000 - Check # 1443 payable to Health Prime
As you know, we disagree with the distribution amounts, and continue
to believe that the amounts should be substantially higher. Accordingly,
while we will deposit these monies, we waive no rights to seek full
payment of any and all monies due to Health Prime, Inc. and will insist
on full payment of those monies as set forth in my letter to Jim Smith of
December 22, 2005 (as corrected). Please advise at your earliest
convenience if you disagree with my characterization.
Sincerely,
Douglas K. Mittleider
President
In their response to Defendants’ motions, Plaintiffs attached the affidavit of
Douglas K. Mittleider, the CEO of HealthPrime and HP/Holdings. Among the
exhibits to Mittleider’s affidavit is a March 15, 2006 memo to Plaintiffs’
Mittleider from Michael Meeks at Defendant Smith/Packett, notifying Mittleider
that a final payment and accounting of the sales proceeds are attached:
Mr. Mittleider,
I am enclosing a check for $33,732.49 from [HPNC] along with an
attached final accounting of funds.
Should you have questions, please feel free to call.
7
Thank you.
Attached to the memo is a spreadsheet showing HPNC’s cash on hand, checks cut
on March 10, 2006, and expenses yet to pay.
C. District Court’s Order
The district court granted Defendants’ motions to dismiss, concluding that
the four-year statutes of limitations had run on all of Plaintiffs’ claims. The
district court concluded that HealthPrime knew or should have known of the
alleged injury no later than December 30, 2005, when HealthPrime’s Mittleider
sent his letter acknowledging receipt of certain funds from the sale of the Carthage
Facility property but claiming more was owed. The district court rejected
Plaintiffs’ argument that the “confidential and trusting relationship” between
Mittleider and Smith delayed the statute of limitations, noting that Plaintiffs and
Defendants are sophisticated business entities transacting business and that the
November and December 2005 letters written by Mittleider indicated an
awareness of how the proceeds from the property sale were to be distributed.
Plaintiffs appeal the district court’s dismissal of their claims for conversion,
misappropriation of corporate funds, and fraud.5
5
On appeal, Plaintiffs have made no argument regarding their breach of contract claim,
and thus, that claim is deemed abandoned. See United States v. Jernigan, 341 F.3d 1273, 1283
n.8 (11th Cir. 2003) (party abandons an issue if not raised in initial brief).
8
II. STANDARD OF REVIEW
We review de novo a district court’s dismissal of a complaint under Rule
12(b)(6) for failure to state a claim. Speaker v. U.S. Dep’t of Health and Human
Servs. Ctrs. For Disease Control and Prevention, 623 F.3d 1371, 1379 (11th Cir.
2010). We accept the factual allegations in the complaint as true and construe
them in the light most favorable to the plaintiff. Id. Moreover, we review a
district court’s application of the statute of limitations de novo, “according
deference in a diversity case to a district court’s interpretation of the law of the
state in which it sits.” Therrell v. Ga. Marble Holdings Corp., 960 F.2d 1555,
1561 (11th Cir. 1992).
III. DISCUSSION
A. Statute of Limitations for Conversion and Misappropriation6
Plaintiffs argue that there was no conversion under Georgia law until they
made a demand for the return of their property and Defendants refused to return
the property. Thus, they claim that the statute of limitations began to run only on
No party challenges the authenticity or the district court’s consideration of the November
and December 2005 letters.
6
Plaintiffs’ brief on appeal treats their claims for conversion and misappropriation of
funds as the same for the purposes of the statute of frauds analysis, as misappropriation of funds
is one species of conversion and both torts are governed by the same statute of limitations. See
O.C.G.A. § 9-3-32. Therefore, our analysis of conversion applies also to Plaintiffs’ claim for
misappropriation of funds.
9
March 15, 2006, when Defendants refused to comply with their demand for
additional funds.
Conversion is defined in Georgia as “an unauthorized assumption and
exercise of the right of ownership over personal property belonging to another, in
hostility to his rights; an act of dominion over the personal property of another
inconsistent with his rights; or an unauthorized appropriation.” Tidwell v.
Tidwell, 251 Ga. App. 863, 864, 554 S.E.2d 822, 824 (2001) (citations omitted).
A plaintiff establishes a cause of action for conversion by showing “(1) title to the
property or the right of possession, (2) actual possession in the other party, (3)
demand for return of the property, and (4) refusal by the other party to return the
property.” Johnson v. First Union Nat’l Bank, 255 Ga. App. 819, 823, 567 S.E.2d
44, 48 (2002).
Under Georgia law, “Actions for the recovery of personal property, or for
damages for the conversion or destruction of the same, shall be brought within
four years after the right of action accrues.” O.C.G.A. § 9-3-32. “As a general
rule, a right of action for wrongful conversion accrues on the date of the
conversion.” Logan v. Tucker, 224 Ga. App. 404, 406, 480 S.E.2d 860, 862
(1997); see Therrell, 960 F.2d at 1560 (“In a conversion action, the cause of action
accrues on the date of the conversion.” (citing Harper v. Jones, 103 Ga. App. 40,
10
41, 118 S.E.2d 279, 280 (1961))).
“The true test to determine when a cause of action accrues is to ascertain the
time when the plaintiff could first have maintained her action to a successful
result.” Travis Pruitt & Assocs., P.C. v. Bowling, 238 Ga. App. 225, 226, 518
S.E.2d 453, 454 (1999); Wood v. Garner, 156 Ga. App. 351, 352, 274 S.E.3d 737,
738 (1980) (in a case where plaintiff surrendered possession voluntarily for an
indefinite time, “[t]he statute began to run from the date of demand and refusal”);
Harper, 103 Ga. App. at 41, 118 S.E.2d at 280 (holding, in a conversion case for
timber cut and removed from plaintiff’s land, that “right of action accrued in 1951
when the timber was cut and removed”).
“Mere ignorance of the facts constituting a cause of action does not prevent
the running of the statute of limitations, for a plaintiff must exercise reasonable
diligence to learn of the existence of a cause of action.” Macomber v. First Union
Nat’l Bank of Ga., 212 Ga. App. 57, 59, 441 S.E.2d 276, 278-79 (1994) (quotation
marks omitted); see id. (holding that causes of action for fraud and conversion
against bank began running when plaintiff was given the files for his loan account
and should have known that credits were not being made to the account).
We conclude that the district court did not err in concluding that the four-
year statute of limitations on Plaintiffs’ conversion and misappropriation claims
11
began to run no later than December 30, 2005, and that those claims were time-
barred when Plaintiffs filed this case on March 15, 2010. As an initial matter, we
note that Plaintiffs’ First Amended Complaint alleges that “Defendants committed
the acts of breach of contract, misappropriation of funds, fraud, and conversion
during a May 11, 2005 meeting within DeKalb County, Georgia.” On its face,
therefore, the First Amended Complaint’s allegations and claims of conversion
and misappropriation are time-barred.
Second, even absent this allegation in the First Amended Complaint, the
exhibits attached to Defendants’ motion to dismiss show that Plaintiffs’ Mittleider
made a demand on November 3, 2005 that all of HealthPrime’s share of the
proceeds from the sale be distributed to HealthPrime, rather than be credited to
other debts. Mittleider’s December 30, 2005 letter shows that this demand was
refused and that Defendants had paid Plaintiffs less than the distribution to which
they felt they were entitled. We agree with the district court that under these
circumstances, Plaintiffs’ right of action for conversion and misappropriation
accrued no later than December 30, 2005, and that their claims for conversion and
misappropriation were therefore time barred as of December 30, 2009.
B. Statute of Limitations for Fraud
Plaintiffs argue that the district court erred in dismissing their claim of fraud
12
because the existence of a “confidential relationship” under Georgia law tolled the
statute of limitations until they discovered the fraud.7 See O.C.G.A. § 23-2-58
(“Any relationship shall be deemed confidential, whether arising from nature,
created by law, or resulting from contracts, where one party is so situated as to
exercise a controlling influence over the will, conduct, and interest of another or
where, from a similar relationship of mutual confidence, the law requires the
utmost good faith, such as the relationship between partners, principal and agent,
etc.”). Because they did not discover Defendants’ fraudulent acts until March 15,
2006, Plaintiffs argue, the statute of limitations on their fraud claims did not begin
to run until that date.
Under Georgia law, “If the defendant or those under whom he claims are
guilty of a fraud by which the plaintiff has been debarred or deterred from
bringing an action, the period of limitation shall run only from the time of the
plaintiff’s discovery of the fraud.” O.C.G.A. § 9-3-96. The Georgia Supreme
Court has held that only actual fraud can toll the statute of limitations. Shipman v.
Horizon Corp., 245 Ga. 808, 808, 267 S.E.2d 244, 246 (1980). “[W]here . . .
actual fraud is the gravamen of the action[,] . . . [T]he statute of limitations is
7
Under Georgia law, the statute of limitations for claims of fraud is four years. See
O.C.G.A. § 9-3-31.
13
tolled until the fraud is discovered or by reasonable diligence should have been
discovered.” Id. “Failure to exercise reasonable diligence to discover the fraud
may be excused where a relationship of trust and confidence exists between the
parties.” Id. at 808-09, 267 S.E.2d at 246.
Even assuming, as Plaintiffs argue, that a confidential relationship existed
between the parties in this case, it would not toll the statute of limitations on
Plaintiffs’ claims under Georgia law, because Plaintiffs were already aware as of
at least November 2005 that Defendants did not plan to distribute the proceeds of
the sale of the Carthage Facility equally to Plaintiffs and Defendants, but instead
planned to apply them to the pre-existing debts of one of Plaintiffs’ entities (Cross
City). In his November 2005 letter, Plaintiffs’ Mittleider expressed his
disagreement with Defendants’ intended distribution plan, and stated that he
would call Smith to confirm the proper distribution of funds. Given Plaintiffs’
awareness of the fact, in November 2005, that Defendants were distributing less
proceeds to Plaintiffs than Plaintiffs felt they were entitled to receive, they cannot
invoke their relationship with Defendants to toll the statute of limitations, as they
did not exercise reasonable diligence in discovering the fraud.
For all of these reasons, we conclude that Plaintiffs’ claims for conversion,
misappropriation of funds, and fraud are barred by the statute of limitations, and
14
the district court properly dismissed the First Amended Complaint.
AFFIRMED.
15