Darius Naffis v. George A. Tzavaras

FIRST DIVISION
BARNES, P. J.,
GOBEIL and PIPKIN, 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.
https://www.gaappeals.us/rules
DEADLINES ARE NO LONGER TOLLED IN THIS
COURT. ALL FILINGS MUST BE SUBMITTED WITHIN
THE TIMES SET BY OUR COURT RULES.
February 24, 2021
In the Court of Appeals of Georgia
A20A1970. NAFFIS v. TZAVARAS.
GOBEIL, Judge.
Darius Naffis, M.D., appeals from the trial court’s order granting George
Tzavaras’s motion for partial summary judgment, in Naffis’s lawsuit seeking to
collect damages from Tzavaras based on the terms of a promissory note representing
a debt between the parties.1 The trial court ultimately found that the consideration for
the promissory note was at least partially illegal, based on Naffis’s alleged extortion,
and thus the note was unenforceable. On appeal, Naffis argues that the trial court
erred in granting summary judgment to Tzavaras because genuine issues of material
fact remain concerning (1) whether extortion actually occurred in the execution of the
1
Naffis amended his complaint to add claims against Tzavaras for fraud,
misrepresentation, and defalcation. Those claims were not the subject of Tzavaras’s
motion for summary judgment and remain pending in the trial court.
promissory note and, if so, (2) whether an exception applied to render Naffis’s
conduct legal. For the reasons set forth below, we reverse the trial court’s judgment.
On appeal, we review the trial court’s summary judgment ruling de novo and
“construe the evidence and all reasonable inferences therefrom in the light most
favorable to [Naffis as] . . . the nonmovant.” Hindmon v. Virgil’s Food Mart, Inc.,
252 Ga. App. 732, 732 (556 SE2d 135) (2001). Summary judgment is appropriate
only if no genuine issues of material fact remain concerning the nonmovant’s claims.
See id. at 732-733.
So viewed, the record shows that Tzavaras was married to Naffis’s daughter
from November 2004 until February 2019. During the marriage, Naffis entrusted
Tzavaras with at least $1.5 million to invest. Naffis expected the arrangement to
produce “income and modest growth” for himself, as well as provide Tzavaras with
a source of income, in the form of commissions, as a way to support Naffis’s daughter
and grandchildren. Naffis received “some distributions” from Tzavaras, but never
received tax forms to document any supposed gains from the investments despite
repeated requests.
In August 2014, Tzavaras and Naffis’s daughter moved to Atlanta. Tzavaras
wished to purchase a house in Fulton County, and asked Naffis to buy the house and
2
later sell it to Tzavaras after Tzavaras was able to arrange financing. Naffis spent
$310,000 on the house, and another $60,000-$70,000 in repairs and improvements
at Tzavaras’s request. Tzavaras never purchased the house from Naffis as promised.
In October 2016, following Naffis’s “growing suspicions” about Tzavaras’s
behavior with respect to Naffis’s money, Tzavaras voluntarily delivered to Naffis an
“Acknowledgment of Debt” document, confirming that Tzavaras was indebted to
Naffis in the amount of $1,934,000. Tzavaras acknowledged that Naffis “shall be
authorized to enter an uncontested, default judgment” against him, should the debt
not be paid in full by May 1, 2017.
Naffis delivered the debt acknowledgment to his attorney, who drafted a
promissory note (the “Note”) formally embodying Tzavaras’s obligation. The Note,
which was signed by Tzavaras in the presence of an attorney on January 5, 2017,
repeats that Tzavaras had agreed to pay Naffis the principal balance of $1,934,000,
with six and one half percent interest per annum, until maturity on May 1, 2017, and
then twelve percent interest per annum thereafter. According to Naffis, as of the
timing of the filing of the lawsuit, Tzavaras had not paid any of the debt owed.
In December 2018, Naffis filed suit against Tzavaras on the Note. The
complaint explains the existence of the Note, then states:
3
Among other things, the consideration for the Note was the forbearance
of Dr. Naffis in filing criminal charges, and initiating a civil suit against
Tzavaras, arising out of Tzavaras’[s] embezzlement, misappropriation,
fraud and defalcation in receiving and misusing or misappropriating
funds for Dr. Naffis which Tzavaras as a fiduciary was entrusted to
invest for Dr. Naffis.
The complaint alleges that Tzavaras embezzled or misappropriated the money
entrusted to him and that Tzavaras failed to return to Naffis “any of the funds
entrusted to him, despite numerous requests by Dr. Naffis.” Based on Tzavaras’s
failure to pay the debt by May 1, 2017, Naffis calculated that, in addition to the
principal amount, Tzavaras owed him $391,489.41 in interest as of the day of filing
the complaint, and $635.84 per day thereafter based on the 12 percent interest rate set
froth in the promissory note. Naffis also sought attorney fees as laid out in the Note,
and pursuant to OCGA § 13-6-11.
Tzavaras answered the complaint, asserting among other things that the
consideration for the Note was illegal, in that Naffis threatened to criminally
prosecute Tzavaras if he refused to sign the Note. Such threat, Tzavaras asserted,
amounted to extortion, which would render the Note unenforceable. In his answer,
Tzavaras set forth his own version of events, claiming that he ran a successful
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investment coaching business, yet had modest personal success in investing. Tzavaras
asserted that he warned Naffis of the risks of investing, yet Naffis was insistent.
Tzavaras stated that he generated approximately $230,000 for Naffis in the first
several years of the arrangement, but he then began to lose money. He claimed that
Naffis threatened to file criminal charges against him, and has defamed him in a way
that was damaging to Tzavaras’s business. Tzavaras filed a counterclaim against
Naffis alleging extortion and defamation, which he later withdrew without prejudice.
The parties engaged in discovery, and, in May 2019, Tzavaras filed a motion
for partial summary judgment. As in his answer, Tzavaras argued that the
consideration for the Note was based on extortion, and thus the Note was
unenforceable. Naffis responded in June 2019, arguing Tzavaras delivered the
Acknowledgment of Debt to him voluntarily and without threat. Additionally, the
Georgia statute governing extortion, OCGA § 16-8-16 (c), provides an exception if
the party agreeing to forgo criminal prosecution in exchange for a promise to pay
money has an honest belief that the money is owed to him as restitution for harm
done. Because Naffis has an honest claim2 to the principal balance set forth in the
2
In addition to stating his argument in his filings, Naffis swore via affidavit
that he has “an earnest and honest, unwavering belief” that he “was and [is] entitled
to be paid the debt embodied and evidenced by the Note.”
5
Note, he argued, the consideration for the Note, which included a promise to forgo
criminal prosecution of Tzavaras, was not illegal and the Note was enforceable.
On July 30, 2019, over a month after filing his summary judgment motion,
Tzavaras filed a “Notice of Filing Affidavit of Cary Ichter.” The attached affidavit
stated that Ichter was Tzavaras’s attorney, and he had received two documents from
Naffis in discovery that he wished to submit. The affidavit did not attempt to explain
any other context for the documents. The first document purports to be a business
document from “Tzar Capital Inc.” and shows that on October 15, 2010, Tzavaras and
Naffis executed an “Addendum to the Agreement for the Management of Capital on
behalf of Darius Naffis M.D. dated 3/20/10.” The document then states that
$22,785.52 in distributions have been paid through October 15, 2010; new capital in
the amount of $1,200,000 was being invested; and the “Total Capital Invested” was
$1,500,000. This document is signed by Tzavaras and Naffis. The second document
has no date and is titled simply “Distribution(s).” It shows a list of figures purporting
to be distributions on various dates between October 15, 2010, and June 10, 2012.
There are handwritten notes adding up the distributions for each year, totaling
$237,287.14.
6
On February 3, 2020, Tzavaras filed a reply in support of his motion for
summary judgment. Relying on the two documents described above that were
attached to Ichter’s affidavit, and on Naffis’s own affidavit, Tzavaras argued that
Naffis could not have an honest claim to the $1,934,000 principal set forth in the Note
because he had admitted to receiving some of the initial $1.5 million investment back,
and the distribution document showed that the amount of distributions totaled more
than $230,000. Additionally, the principal amount of the Note included more than
$350,000 owed to Naffis based on his purchase of the Fulton County house for
Tzavaras, yet Naffis still owned the house and could sell it at any time to recoup the
money spent. Thus, Naffis could not have an honest claim to both title in the house
and money from Tzavaras for repayment of the house. Accordingly, Tzavaras argued
that no reasonable factfinder could conclude that Naffis honestly believed the Note
was restitution or indemnification, rendering the consideration illegal.
The hearing took place four days later on February 7, 2020. Naffis objected to
the Ichter affidavit and the inclusion of the documents attached thereto in the court’s
consideration of Tzavaras’s motion for summary judgment, because Tzavaras’s had
failed to attach the affidavit to the motion for summary judgement as required by
7
OCGA § 9-11-6 (d). Additionally, although Tzavaras could have asked the court to
consider a late-filed affidavit, he had not done so.
After taking the issues under consideration, the trial court issued an order
granting summary judgment to Tzavaras. The court ultimately concluded that the
consideration for the Note was based on extortion, as Naffis admitted in the complaint
that the consideration for the Note included a promise to forgo criminal prosecution
of Tzavaras. Additionally, the trial court concluded that no reasonable factfinder
could conclude that Naffis had an honest, good faith claim to all of the debt laid out
in the Note, so the exception argued by Naffis did not apply. The court pointed to
three categories of damages sought by Naffis which exceeded his actual damages.
First, the court found that Naffis’s claim to the approximately $370,000 to
$380,000 spent to purchase and renovate the Fulton house in his own name exceeded
Naffis’s actual damages because Naffis still owned title to the house, and he could not
claim entitlement to both the title and the money used to purchase it. Second, the
court found that Tzavaras had distributed “certain profits” to Naffis out of the $1.5
million investment, which, according to Naffis’s own records provided to Tzavaras
8
in discovery, totaled $237,287.14.3 Thus, Naffis could not honestly claim entitlement
to the full $1.5 million investment when he had received some of the money back
from Tzavaras. Third, the court found that the amount due in the Note included at
least $662,993.09 in interest, when Naffis was not entitled to a guaranteed return on
his investment at all, much less at 12 percent. Additionally, the court found that the
loss of interest was not an out-of-pocket loss. Accordingly, the court ruled that there
were no genuine issues of material fact that Naffis obtained the Note via extortion,
and its consideration was at least partly illegal, rendering it unenforceable. This
appeal followed.
1. On appeal, Naffis asserts that the trial court drew improper inferences from
the evidence when it found that the consideration for the Note was illegal because it
was based on Naffis’s alleged extortion of Tzavaras in its execution. Naffis argues
that there is no evidence that he made any threats towards Tzavaras to get him to draft
the Acknowledgment of Debt or execute the Note. We find that a question of material
fact remains.
3
The trial court used its “broad discretion” to consider the late-filed Ichter
affidavit in making this finding, stating Naffis “can hardly claim surprise from his
own business records . . . .”
9
Georgia law states that if the consideration for a promise “is illegal in whole
or in part, the whole promise fails.” OCGA § 13-3-45; Starr v. Robinson, 181 Ga.
App. 9, 10 (351 SE2d 238) (1986). “A person commits the offense of theft by
extortion when he unlawfully obtains property of or from another person by
threatening to . . . [a]ccuse anyone of a criminal offense[.]” OCGA § 16-8-16 (a) (2).
The trial court found that the complaint, which stated that the consideration for the
Note included “the forbearance of Dr. Naffis in filing criminal charges” against
Tzavaras for alleged criminal behavior, was a conclusive admission by Naffis of
extortion. Thus, because the Note’s consideration was based at least in part on illegal
activity, the trial court concluded that the Note was unenforceable. However, we
agree with Naffis that, in order to reach this conclusion, the court made a finding of
fact that Naffis threatened Tzavaras with criminal prosecution, where such a fact was
disputed in the limited record before the trial court.
According to Naffis’s affidavit, Tzavaras delivered the Acknowledgment of
Debt to him unsolicited, in response to Naffis’s “growing suspicions” about
Tzavaras’s use of the investment funds. Naffis then had the Note drafted by an
attorney, in which Tzavares “[f]or value received” promised to pay Naffis the
principal and interest as outlined above. According to Naffis, his attorney sent the
10
Note to Tzavaras by mail, and there were no further discussions before Tzavaras
executed the Note. Indeed, in neither the Acknowledgment of Debt nor the Note are
there mentions of any threats or promises made by Naffis in exchange for Tzavaras’s
confirmation of the debt and promise to repay. In the complaint, Naffis stated that
consideration for the Note included a promise to forgo pursing Tzavaras criminally
or civilly for certain activities, in exchange for Tzavaras agreeing to pay back the
money. In Naffis’s version of events, even if Naffis admitted a promise to forgo
criminal prosecution, no threats were made in the exchange.
By contrast, according to Tzavaras, who did not file an affidavit, but who made
factual allegations in his counterclaim that was later dismissed, Naffis did threaten
him, including a specific threat to file criminal charges against him if Tzavaras did
not sign the Note. Based on these competing allegations, there is a disputed question
of fact as to whether Naffis threatened Tzavaras in order to get Tzavaras to sign the
Note, or whether Tzavaras voluntarily offered the Acknowledgment of Debt and Note
as a way to allay Naffis’s concerns.
At the summary judgment stage, the trial court cannot weigh the evidence or
the credibility of the parties. Dover v. Mathis, 249 Ga. App. 753, 754 (549 SE2d 541)
(2001). “Where the facts as testified to by the parties create a conflict in the evidence
11
as to a material issue, summary judgment is precluded.” Dills v. Bohannon, 208 Ga.
App. 531, 533 (1) (431 SE2d 123) (1993). Naffis, as the nonmovant is to be “given
the benefit of all reasonable doubts in determining whether a genuine issue exists.
The evidence must be construed most favorably to [Naffis], and the trial court must
give him the benefit of all favorable inferences that may be drawn from the evidence.”
Smith v. Sandersville Production Credit Assn., 229 Ga. 65, 66 (189 SE2d 432)
(1972). Accordingly, we find that the trial court improperly weighed the evidence
and/or the credibility of the parties and failed to give Naffis the benefit of the doubt
in determining that no genuine issues existed, and we reverse the judgment of the trial
court for this reason.
2. Naffis also asserts that the trial court “erroneously usurped the role of the
jury” in finding that he did not have an honest claim to the debt reflected in the Note.
We agree.
Even assuming for purposes of this Division that Naffis did threaten Tzavaras
with criminal prosecution in order to get Tzavaras to sign the Note, there is an
affirmative defense to the crime of extortion where the property demanded “was
honestly claimed as restitution or indemnification for harm done in the circumstance
12
to which such accusation, exposure, legal action, or other official action relates[.]”
OCGA § 16-8-16 (c).
The trial court reasoned that no factfinder could find that Naffis honestly
claimed as restitution the full amount of the debt stated in the Note because: (1) he
received some money back from Tzavaras in the form of distributions; (2) he could
not honestly claim entitlement to the full amount spent on the Fulton County home
when he still held title to the home; and (3) the interest contemplated in the Note was
neither guaranteed to him, nor was actually taken from him. Thus, the amount of
restitution Naffis honestly could claim a right to based on Tvazaras’s alleged
wrongdoing was much lower than the amount Naffis demanded of Tzavaras in the
Note. See OCGA § 17-14-9 (“The amount of restitution ordered shall not exceed the
victim’s damages.”) Accordingly, the trial court reasoned that any reasonable
factfinder would find that Naffis committed extortion by demanding more than he
was owed in exchange for promising not to file criminal charges against Tzavaras.
At the outset, we note the limited precedent on the application of OCGA § 16-
8-16 (c) and what constitutes an honest claim that would excuse a threat to criminally
prosecute a person one believed had stolen from them, making the issue before us one
of first impression. Naffis argues that we should apply a subjective standard to his
13
honest claim, which would be a fact for the jury to decide. Tzavaras suggests that we
look to the application of OCGA § 16-8-10 (2) for guidance. OCGA § 16-8-10 (2)
provides an affirmative defense to various criminal theft statutes not involving the use
of force, where the accused “[a]cted under an honest claim of right to the property or
service involved[.]” In applying OCGA § 16-8-10 (2), the Supreme Court has found
at least some objective component to an accused’s “honest claim” defense. See
Dorsey v. State, 279 Ga. 534, 543 (4) (b) (615 SE2d 512) (2005) (defendant former
sheriff was accused of theft based on routine use of county property for his own
convenience and profit; Supreme Court held that accused could not have had an
honest claim of right to the county’s property and trial court was not required to
instruct jury on affirmative defense); Wideman v. State, 222 Ga. App. 733, 733-734
(2) (476 SE2d 49) (1996) (no “honest claim of right” jury instruction required for
accused who stole one brand of television, when he claimed that victim owed him a
different brand of television). Therefore, to the extent there is some objective
component to an “honest claim,” application of OCGA § 16-8-10 (2) suggests that a
trial court can make this finding in some instances.
In other situations, we have concluded that an incorrect belief in entitlement
to certain goods requires a jury finding as to the accused’s honest claim to the
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property. See Foskey v. State, 125 Ga. App. 672, 674 (3) (188 SE2d 825) (1972)
(where accused incorrectly but subjectively believed that he was allowed to purchase
goods off wholesale grocery truck for a reduced price, trial court was required to
instruct jury on honest claim defense). In the only Georgia case that cites OCGA §
16-8-16 (c), the Supreme Court in dicta explained that threatening litigation in
exchange for obtaining property from another may serve as the basis for an extortion
charge, but noted that a defendant would have an opportunity to defend such a charge
by arguing to a jury that he had an honest claim to the property in question. See State
v. Cohen, 302 Ga. 616, 624 n.9 (807 SE2d 861) (2017). These cases suggest that a
defendant’s honest claim is a question for the jury after a trial, as opposed to a judge
on summary judgment.4
We find the instant case to be closer to the latter examples than the former. A
sheriff routinely using county resources for his own profit and benefit, and a thief
4
In its order granting summary judgment, the trial court relied on what it found
to be persuasive authority from Washington State, State v. Burns, 161 Wash. 362 (297
P 212) (1931), which held that one who demands the return of more than the specific
amount stolen from him is guilty of extortion. Id. at 366-368. However, even in
Burns, it was ultimately found to be a jury question as to whether the accused had or
had not extorted his employee based on the accused’s belief that the employee had
embezzled money. Id. at 367, 370 (holding that the jury should have been allowed to
consider evidence of employee’s potential embezzlement in order to determine
accused’s guilt for extortion).
15
stealing a television that could not be the one owed to him, are much more clear cut
examples of an objectively non-honest claim than the one presented in the instant
case. Whether a reasonable person in Naffis’s shoes would have believed he was
entitled to the damages he claimed is a closer question, especially at the summary
judgment stage where we are required to construe the record in his favor.
Indeed, there was some evidence in the limited record before the trial court to
support his honest claim to the debt laid out in the Note. First, Naffis averred that
Tzavaras delivered to him unsolicited, without threats or demands, the
Acknowledgment of Debt . The amount of debt memorialized in the Note is the same
as the amount laid out in the Acknowledgment of Debt. Second, there is Naffis’s
affidavit, in which he claims an honest entitlement to the debt acknowledged in the
Note.
There is also some evidence in the record that may cast doubt on the amount
Tzavaras actually owed to Naffis, or on the good faith nature of Naffis’s belief that
he was entitled to the full amount laid out in the Note. The $1.5 million investment
plus the $380,000 to $390,000 spent on the Fulton County house does not equal the
$1.934,000 laid out in the Note, and Naffis himself acknowledged that he received
some money from Tzavaras. Further, there is also the question of how much interest
16
Naffis may honestly claim a right to, when investments are by their nature not
guaranteed to return a profit.
At this stage of the proceeding, we conclude that this conflicting evidence
raises a genuine question of material fact regarding Naffis’s honest claim to the debt
laid out in the Note. And, as discussed above, disputed facts preclude summary
judgment. Dills, 208 Ga. App. at 533 (1). Therefore, for this additional reason, we
reverse the trial court’s judgment granting partial summary judgment to Tzavaras.5
Judgment reversed. Barnes, P. J., and Pipkin, J., concur.
5
In his brief on appeal, Naffis also raised as error the trial court’s consideration
of the Ichter Affidavit and accompanying documents in deciding Tzavaras’s motion
for summary judgment. Because we have reversed the trial court’s judgment for other
reasons and without consideration of these documents, we need not reach this issue.
17