author: Branch, Judge.

text:
    A13A0132.
    A13A0133.
    WYLIE v. DENTON et al. SUNTRUST BANK v. DENTON et al.
    (746 SE2d 689)
   Branch, Judge.

These related appeals arise out of the termination of Angie Denton, Lynette Kearney, Donna O’Berry, Krystal Sikes, and Terri Smith (collectively “plaintiffs”) from their employment with Sun-Trust Bank. After they were fired, the plaintiffs filed the current action against several defendants, including Samuel Wylie, their supervisor at SunTrust, and the bank. Both their original and amended complaints assert claims against Wylie and SunTrust for violations of the Georgia Racketeer Influenced and Corrupt Organizations Act (RICO), conspiracy to violate the Georgia RICO statute, common law fraud, and defamation. SunTrust filed a motion to dismiss the complaint in its entirety or, in the alternative, for a more definite statement, asserting that the facts alleged in the original complaint were insufficient to support the plaintiffs’ claims. The bank also filed a separate motion to dismiss under OCGA § 9-11-12 (b) (6), on the grounds that the plaintiffs’ RICO and common law fraud claims failed as a matter of law. Wylie filed a motion to dismiss the complaint in its entirety or, in the alternative, for a more definite statement. Additionally, he joined SunTrust’s motion under OCGA § 9-11-12 (b) (6) to dismiss the plaintiffs’ RICO and fraud claims. The trial court entered a series of orders in which it granted Wylie’s motion for a more definite statement, denied Wylie’s motion to dismiss the complaint for insufficient pleadings, denied the parties’ joint motion to dismiss the RICO and fraud claims, and denied SunTrust’s motion to dismiss the complaint or, in the alternative, for a more definite statement. The trial court certified its orders for immediate review, Wylie and SunTrust each filed an application for an interlocutory appeal, and we granted both applications. These appeals followed.

In Case No. A13A0132, Wylie appeals from the orders of the trial court denying his motion to dismiss the complaint in its entirety because of insufficient pleadings and denying the joint motion to dismiss the plaintiffs’ RICO and common law fraud claims. In Case No. A13A0133, SunTrust appeals from the orders of the trial court denying its motion to dismiss the complaint or, in the alternative, for a more definite statement, and the joint motion to dismiss the RICO and common law fraud claims asserted by the plaintiffs. For reasons explained below, we find that the plaintiffs cannot state a claim under the Georgia RICO statute or for common law fraud. We therefore reverse the orders of the trial court, entered in both Case No. A13A0132 and Case No. A13A0133, denying Wylie’s and SunTrust’s joint motion to dismiss those claims. Additionally, in Case No. A13A0132 we vacate the order of the trial court denying Wylie’s motion to dismiss the plaintiffs’ remaining claim, for defamation, and remand with direction. And in Case No. A13A0133 we vacate the order denying SunTrust’s motion to dismiss or, in the alternative, for a more definite statement of the plaintiffs’ defamation claim and remand with direction.

The standard of review for a trial court’s order on a motion to dismiss is de novo, and

we treat all well-pled material allegations by the nonmovant as true and all denials by the movant as false. Only if the pleadings and exhibits incorporated into the pleadings show a complete failure by the plaintiff to state a cause of action, is the defendant entitled to judgment as a matter of law.

(Citation, punctuation and footnote omitted.) Crosby v. Pittman, 305 Ga. App. 639 (700 SE2d 629) (2010).

According to the complaint, the plaintiffs were all employed as tellers at a SunTrust branch in Waycross during the relevant time period. They allege that sometime in the mid to late 2000s, Sandy Ursery, an employee of SunTrust client Clayton Homes, Inc., began to embezzle money from the Clayton Homes account. Ursery allegedly accomplished this embezzlement by presenting checks made payable to fictitious Clayton Homes employees or former employees, who no longer worked for the company. SunTrust cashed the checks without requiring Ursery to present a valid form of identification for the people to whom the checks were made out.

According to the plaintiffs, when Ursery first began presenting checks made out to third parties and for whom she could present no valid form of identification, they refused to cash them. Ursery then contacted Wylie, who directed each of the plaintiffs “not to question Ursery when she presented checks, but instead to cash the checks for Ursery as presented without [requiring identification].” The plaintiffs contend that they periodically questioned Wylie about this practice, and “[h]e consistently and repeatedly told [them] to forget banking practices and laws as they understood them, and insisted that they continue to cash the checks” presented by Ursery without requiring proper identification. Additionally, when SunTrust began to impose a $5 fee for cashing the check of any person who did not maintain a SunTrust account, Wylie directed the plaintiffs to waive the fee for any Clayton Homes checks made payable to third parties and presented by Ursery.

Clayton Homes discovered Ursery’s long-term embezzlement in November 2010 and at that time it contacted SunTrust regarding the money stolen by Ursery. SunTrust then conducted an internal investigation, during which it interviewed each of the plaintiffs. Following their interviews, each plaintiff was instructed “to comply with the bank’s written policy [regarding the identification required to cash a check] going forward, and to talk to no one, including each other,” about the embezzlement.

SunTrust eventually reimbursed Clayton Homes the money Ursery embezzled from its account, after allegedly securing a confidentiality agreement with the company. According to the complaint, SunTrust then filed a report with bank regulators and/or the United States Department of Justice (“DOJ”) that failed to reveal that SunTrust management had ordered the plaintiffs to cash the checks presented by Ursery without requiring proper identification.

On April 20, 2011, approximately five months after Clayton Homes first reported Ursery’s embezzlement, the plaintiffs’ employment with SunTrust was terminated. The reason given for the plaintiffs’ firing was their violations of “bank policy in the cashing of. . . checks” on the Clayton Homes account. The plaintiffs, allege, however, that SunTrust actually fired them in an effort to cover up the role that it and Wylie played in Ursery’s scheme to embezzle money from her employer. They also contend that to further its cover-up efforts, the bank confiscated all of the notes and other documents that the plaintiffs had kept at the Waycross branch that reflected Wylie’s and SunTrust’s role in the embezzlement scheme. Following their termination, the plaintiffs filed the current lawsuit against Sun-Trust, Wylie, Clayton Homes, and Ursery.

The Joint Motion to Dismiss

Wylie’s and SunTrust’s separate appeals from the trial court’s denial of their joint motion to dismiss the plaintiffs’ RICO and common law fraud claims present identical claims of error; we therefore address these appeals together. In support of their appeals, Wylie and SunTrust argue that even if proved, the facts alleged in the complaint cannot support the RICO and fraud claims as a matter of law. We agree.

1. Under Georgia’s RICO statute, it is “unlawful for any person, through a pattern of racketeering activity or proceeds derived therefrom, to acquire or maintain, directly or indirectly, any interest in or control of any enterprise, real property, or personal property of any nature, including money.” OCGA § 16-14-4 (a). A “racketeering activity,” also known as a “predicate act,” is the commission of, the attempt to commit, or the solicitation or coercing of another to commit, a “crime which is chargeable by indictment” under one of forty-one categories of offenses. OCGA § 16-14-3 (9) (A) (i)-(xli). And a “pattern of racketeering activity” means that there have been at least two acts of racketeering activity that are interrelated and that were done “in furtherance of one or more incidents, schemes, or transactions.” OCGA § 16-14-3 (8) (A). Additionally, it is unlawful to conspire to violate the substantive provisions of Georgia’s RICO Act. OCGA § 16-14-4 (c). Under Georgia law, a person may be found liable for RICO conspiracy “if they knowingly and willfully join a conspiracy which itself contains a common plan or purpose to commit two or more predicate acts.” (Citation omitted.) Rosen v. Protective Life Ins. Co., 817 FSupp.2d 1357, 1382 (II) (G) (N.D. Ga. 2011) (applying the Georgia RICO statute).

To assert a civil claim based upon either a violation of the RICO statute or a conspiracy to violate that statute, a plaintiff must show that the defendants violated or conspired to violate the RICO statute; that as a result of this conduct the plaintiff has suffered injury; and that the defendant’s violation of or conspiracy to violate the RICO statute was the proximate cause of the injury. Cox v. Mayan Lagoon Estates, 319 Ga. App. 101, 109 (2) (b) (734 SE2d 883) (2012).

As best we can tell from their amended complaint, the plaintiffs are alleging the existence of two separate but related schemes. The first was a scheme to defraud (or conspiring to defraud) Clayton Homes; the second scheme was to cover up the first scheme, by misleading or defrauding (or conspiring to mislead or defraud) federal bank regulators and/or the DOJ. The predicate acts alleged in furtherance of the first scheme are forgery, theft, money laundering, financial institution fraud, and engaging in a monetary transaction with property derived from an unlawful activity. The predicate acts allegedly committed in furtherance of the second scheme are mail and wire fraud, based on the fact that the false statements made to the bank regulators and/or the DOJ were transmitted by mail and electronic means. The injury alleged by the plaintiffs is “the loss of [their] long term employment with benefits at SunTrust Bank.”

We find that these allegations are insufficient to support a claim against either Wylie or SunTrust under the Georgia RICO statute. Even assuming that the plaintiffs could prove the facts alleged in their complaint and that the alleged conduct constituted either a violation of the RICO statute or a conspiracy to violate that statute, they cannot establish the required causal connection between these predicate acts and their injuries.

To satisfy the proximate cause element of RICO, a plaintiff must show that her injury flowed directly from at least one of the predicate acts. Longino v. Bank of Ellijay, 228 Ga. App. 37, 41 (2) (491 SE2d 81) (1997) . This burden is not met where a plaintiff shows “merely that his injury was an eventual consequence of the [predicate act] or that he would not have been injured but for the [predicate act].” Maddox v. Southern Engineering Co., 231 Ga. App. 802, 806 (1) (500 SE2d 591) (1998). See also Nicholson v. Windham, 257 Ga. App. 429, 430 (1) (571 SE2d 466) (2002) (“[a]s a mandatory condition to asserting [a] RICO claim [ ], [a plaintiff] must show a direct nexus between at least one of the predicate acts [alleged] and the injury she purportedly sustained”) (footnote omitted; emphasis supplied); Gentry v. Volkswagen of America, 238 Ga. App. 785, 791 (4) (521 SE2d 13) (1999) (“[t]he question is whether the injury was directly caused by any RICO violation, not whether the injury was [the] reasonably foreseeable” result of the RICO violation) (citation omitted; emphasis supplied). Thus, to survive a motion to dismiss, a plaintiff asserting a RICO claim must allege more than that an act of racketeering occurred and that she was injured. Longino, supra. Rather, she must show that her injury was the direct result of a predicate act targeted toward her, such that she was the intended victim. Nicholson, supra at 431 (1). See also Green Leaf Nursery v. E.I. DuPont De Nemours and Co., 341 F3d 1292, 1307 (2) (11th Cir. 2003) (in determining whether a plaintiff has satisfactorily alleged a RICO claim, a court should examine whether the alleged predicate acts were aimed at the plaintiff or whether they were aimed primarily at a third party); Bivens Gardens Office Bldg. v. Barnett Banks of Florida, 140 F3d 898, 906 (IV) (A) (11th Cir. 1998) (noting that a shareholder or a limited partner in a company that was the target of the alleged RICO violation does not have standing to sue for the losses he sustained as a result of the racketeering activity against the company).

With respect to the question of whether the plaintiffs here have alleged a sufficient causal relationship between the predicate acts alleged and their injury, we find two cases to be particularly instructive. The first is Morast v. Lance, 631 FSupp. 474 (N.D. Ga. 1986), abrogated in part on other grounds, Haddle v. Garrison, 525 U. S. 121, 125-126 (119 SCt 489, 142 LE2d 502) (1998). Morast was a former bank officer who was fired from his job after he cooperated in an investigation by the Comptroller of the Currency into an illegal transaction by the bank. He then filed suit against the bank and its officers asserting a number of claims, including claims under both the federal and Georgia RICO statutes. In support of his RICO claims, Morast alleged that the bank had engaged in a number of predicate acts in the form of banking violations and that he had been fired after discovering these violations, refusing to help cover up the violations, and cooperating with the federal investigation. The trial court granted the bank’s motion to dismiss the RICO claims, noting that Morast did not have standing to sue because his injury — the loss of his employment — was not the direct result of the alleged predicate acts. Morast, supra at 631 FSupp. 481. The Eleventh Circuit affirmed the dismissal of Morast’s RICO claims, noting that “Morast’s injury, his discharge, did not flow directly from the predicate acts, the defendants’ banking violations.” (Footnote omitted.) Morast v. Lance, 807 F2d 926, 933 (II) (A) (6) (11th Cir. 1987), abrogated in part on other grounds, Haddle, supra.

This Court employed a similar rationale in Nicholson, supra. After she was fired from her temporary employment with a law firm, Nicholson filed suit against the firm and its partners and employees asserting claims for, among other things, violations of the Georgia RICO Act, conspiracy to violate that Act, and for aiding and abetting violations of the Georgia RICO statute. Id. at 430 (1). With respect to her RICO claims, Nicholson alleged that the law firm “was operating a RICO enterprise, which she characterized as a ‘real estate transaction closing mill.’ ” Id. Her complaint further alleged

that the defendants engaged in predicate acts that included, inter alia, theft, tampering with evidence, obstruction of justice, mail fraud, and wire fraud. Nicholson also alleged that the defendants solicited her participation in the scheme. According to Nicholson, after she refused to participate in the scheme and complained about the alleged criminal acts, she was fired. Nicholson contends that her premature termination constitutes the injury which forms the basis of her RICO complaint.

Id. at 430-431 (1).

The trial court granted the defendants’ motion to dismiss Nicholson’s RICO claims for failure to state a claim, and this Court affirmed, holding that even when taken as true, the allegations in the complaint could not satisfy the RICO proximate cause requirement. Specifically, Nicholson could not show the required “direct nexus” between any of the predicate acts and her injury, because “none of [the alleged predicate] acts was directed at Nicholson” and therefore she could not “demonstrate that she was directly harmed, as opposed to being indirectly harmed” by those acts. (Footnotes omitted.) Nicholson, supra at 431 (1). “It follows that Nicholson, having sustained at best an indirect injury, lacks standing to pursue her RICO claims.” Id.

As in Morast and Nicholson, the plaintiffs in this case seek to recover for their injuries (the loss of their jobs) that were the indirect result of predicate acts directed at third parties. Specifically, the plaintiffs’ amended complaint alleges predicate acts directed at Clayton Homes (as the victim of the alleged acts of theft, forgery, money laundering, financial institution fraud, and engaging in a monetary transaction with property derived from an unlawful activity) and at federal bank regulators and/or the DOJ (as the victims of the alleged acts of mail and wire fraud). Given this lack of a direct nexus between the predicate acts and the plaintiffs’ injuries, the allegations of the plaintiffs’ complaint show that they cannot satisfy the proximate cause element of a civil RICO claim and lack standing to bring them. Accordingly, the trial court erred when it denied the joint motion to dismiss the plaintiffs’ RICO claims. See Benedict v. State Farm Bank, FSB, 309 Ga. App. 133, 134 (1) (709 SE2d 314) (2011) (dismissal of a claim under OCGA § 9-11-12 (b) (6) is appropriate where the allegations of the complaint “ ‘disclose with certainty’ that no set of facts consistent with the allegations could be proved that would entitle the plaintiff to the relief he seeks”) (citation omitted).

2. We now consider whether the plaintiffs’ complaint alleges facts sufficient to support a fraud claim against either Wylie or SunTrust. To state a cause of action for fraud, the plaintiffs were required to allege facts showing that the defendants knowingly made false statements; that they intended for the plaintiffs to act or refrain from acting in reliance on those statements; that the plaintiffs justifiably relied on the false statements; and as a result of their reliance, the plaintiffs suffered damage. Maddox v. Southern Engineering Co., 216 Ga. App. 6, 7 (1) (453 SE2d 70) (1994). Afraud claim is not actionable, however, if it is based on a promise that was unenforceable at the time it was made. See Dennis v. First Nat. Bank of the South, 293 Ga. App. 890, 895 (668 SE2d 479) (2008) (there can be “no justifiable reliance on a promise which is unenforceable at the time it is made”) (citation and punctuation omitted). And because oral promises of continued employment made to at-will employees are unenforceable as a matter of law, Balmer v. Elan Corp., 278 Ga. 227, 228-229 (2) (599 SE2d 158) (2004), such promises cannot serve as the basis of a fraud claim. Id. at 230 (4).

In Balmer, the employer gave oral assurances to several at-will employees that they would not be discharged or otherwise suffer adverse treatment if they provided truthful information to the Food and Drug Administration, which was conducting an inspection of the employer’s facility. After they cooperated with the federal inspectors, several employees were fired; they subsequently sued the company, asserting claims for breach of contract, promissory estoppel, fraud, defamation, and violation of whistleblower laws. The trial court granted the employer’s motion to dismiss the claims for breach of contract, promissory estoppel, and fraud, each of which was based on the employer’s assurances to the employees that they would suffer no adverse consequences if they cooperated with the FDA. The Supreme Court of Georgia affirmed, finding that the breach of contract claim was without merit because oral promises of future employment are not enforceable by at-will employees. Id. at 229 (2). The court further held that because the promise upon which the plaintiffs based their fraud claim was unenforceable, the plaintiffs could not prove the justifiable reliance element of that claim and the fraud claim therefore failed as a matter of law. Id. at 230 (4).

Here, the plaintiffs allege that Wylie, as an agent of SunTrust, assured them on several occasions that their failure to require Ursery to present proper identification before cashing the checks she presented would not jeopardize their jobs; that without these assurances they would not have violated bank policy and cashed the checks in question; and as a result of their reliance on these assurances they were damaged. The plaintiffs, however, concede that they were at-will employees of SunTrust. Thus, because the alleged fraudulent statements relied upon by the plaintiffs constituted promises of continued employment, those statements cannot support their claims for fraud. Balmer, supra. Accordingly, the court below erred in refusing to dismiss those claims. Benedict, supra at 134 (1).

Case No. A13A0132

3. We next address Wylie’s appeal from the trial court’s denial of his motion to dismiss the plaintiffs’ complaint based on the insufficiency of the pleadings. In light of our holdings in Divisions 1 and 2, we address only whether the plaintiffs have sufficiently pled their claim for defamation. In determining this question, we bear in mind that “[t]he Georgia Civil Practice Act requires only notice pleading and, under the Act, pleadings are to be construed liberally and reasonably to achieve substantial justice consistent with the statutory requirements of the Act.” (Footnote omitted.) Rucker v. Columbia Nat. Ins. Co., 307 Ga. App. 444, 446 (1) (a) (705 SE2d 270) (2010). Thus, “most elements of most claims can be pled in general terms, so long as they give fair notice of the nature of the claims to the defendant.” Bush v. Bank of New York Mellon, 313 Ga. App. 84, 90 (720 SE2d 370) (2011).

A plaintiff asserting a claim for defamation is generally required to show that the defendant made a false and defamatory statement concerning the plaintiff; that the defendant made an unprivileged communication of that statement to a third party; fault by the defendant constituting at least negligence; and either that the plaintiff suffered special harm or that the statement is actionable even in the absence of special harm. Renton v. Watson, 319 Ga. App. 896, 900 (2) (739 SE2d 19) (2013). With respect to their defamation claim, the plaintiffs assert Wylie has published to third parties statements: (i) that the plaintiffs were responsible for the losses sustained by SunTrust as a result of Ursery’s embezzlement; and (ii) that in facilitating the embezzlement, the plaintiffs engaged in illegal or immoral acts.

Although the plaintiffs fail to identify specifically to whom the allegedly false statements were made, that failure, standing alone, does not warrant a dismissal of their claims at the pleading stage. See Renton, supra at 902 (2) (reversing trial court’s dismissal of defamation claim where plaintiff asserted defendant had falsely accused plaintiff of forgery and communicated those accusations “ ‘to third parties without privilege’ ”; although the allegations were “broad and conclusory, . . . that is not fatal to a plaintiff’s claim at the motion-to-dismiss stage”) (citation and punctuation omitted). Additionally, because the plaintiffs have alleged defamatory statements that both imputed to them a crime punishable by law and made charges against them in reference to their trade or profession, damage is presumed and they were not required to plead special damages. See Walker v. Walker, 293 Ga. App. 872, 876 (2) (e) (668 SE2d 330) (2008); OCGA § 51-5-4. Nevertheless, we must conclude that to provide Wylie with the notice he needs to defend against the defamation claim, some more specific facts are required. Specifically, the plaintiffs must amend their complaint to include facts sufficient to provide Wylie with notice of both the content of the allegedly defamatory statements and the context in which those statements were made. See Benedict, supra at 134 (1) (a complaint must contain “enough detail to afford the defendant ... a fair opportunity to frame a responsive pleading”) (citations omitted). Accordingly, we vacate the trial court’s order denying Wylie’s motion to dismiss the defamation claim for insufficient pleadings and remand this case with direction. On remand, the trial court shall order the plaintiffs to amend the complaint to include facts sufficient to show the content and context of any allegedly defamatory statements made by Wylie.

Case No. A13A0133

4. SunTrust also appeals from the denial of its motion to dismiss the complaint based on the sufficiency of the pleadings or, in the alternative, for a more definite statement. Again, in light of our holdings in Divisions 1 and 2, we address only whether the court below erred in denying this motion with respect to the plaintiffs’ defamation claim.

The plaintiffs make the exact same allegations with respect to their defamation claim against SunTrust as they made with respect to the defamation claim asserted against Wylie. For the reasons set forth in Division 3, therefore, we vacate the trial court’s order denying SunTrust’s motion to dismiss the defamation claim for insufficient pleadings and remand this case with direction. On remand, the trial court shall order the plaintiffs to amend the complaint to include facts sufficient to show the content and context of any allegedly defamatory statements made by SunTrust and/or its agents.

For the reasons set forth above, the orders entered in Case No. A13A0132 and Case No. A13A0133 denying Wylie’s and SunTrust’s joint motion to dismiss the plaintiffs’ RICO and common law fraud claims are reversed. The order entered in Case No. A13A0132 denying Wylie’s motion to dismiss the plaintiffs’ defamation claim is vacated and remanded with direction. The order entered in Case No. A13A0133 denying SunTrust’s motion to dismiss the plaintiffs’ defamation claim or, in the alternative, for a more definitive statement, is also vacated and remanded with direction.

Judgment reversed in part and vacated in part, and case remanded in Case Nos. A13A0132 and A13A0133.

Ellington, P. J., concurs. Phipps, C. J., concurs in judgment only.

Decided July 16, 2013.

Conner & Jackson, Neal L. Conner, Jr., for appellant (case no. A13A0132).

Dillard & Lowery, Kristi L. Lowery, Hunter, Maclean, Exley & Dunn, Wade W. Herring II, Rachel Y. Fields, for appellant (case no. A13A0133).

Savage, Turner, Pinson & Karsman, Brent J. Savage, Kenneth E. Futch, Jr., for appellees.

       OCGA § 16-14-1 et seq.

       It was after the entry of this order that the plaintiffs filed their amended complaint.

       In their original complaint, the plaintiffs alleged that these employees were supposedly illegal, undocumented workers, who lacked the identification necessary to cash their own paychecks.

       Ursery is not a party to this appeal, and Clayton Homes is no longer a party to this action. After the plaintiffs filed their complaint, Clayton Homes removed the case to the United States District Court for the Southern District of Georgia. That court remanded the case back to the State Court of Ware County. Following remand, the plaintiffs moved to dismiss voluntarily its claims against Clayton Homes without prejudice, and the trial court granted that motion.

       Predicate acts will be considered interrelated where they “have the same or similar intents, results, accomplices, victims, or methods of commission or otherwise are interrelated by distinguishing characteristics and are not isolated incidents.” OCGA § 16-14-3 (8) (A).

       The plaintiffs may also be attempting to allege the commission of wire fraud in conjunction with the first scheme; they allege that they were ordered by Wylie, via e-mail and telephone, to cash the checks presented by Ursery without requiring proper identification.

       “Because Georgia’s RICO statute is modeled upon the federal RICO statute, we find federal authority to be persuasive in addressing [the] issue” of whether a plaintiff has pled sufficient facts to satisfy RICO’s proximate cause requirement. Cox, supra at 108 (2) (b).

       It may be that the plaintiffs are attempting to assert that Wylie communicated to other members of SunTrust management that the plaintiffs were not authorized to cash the checks presented by Ursery without requiring proper identification and that they independently made the decision to violate bank policy in this regard. It also may be that the plaintiffs are attempting to claim that Wylie and SunTrust repeated these allegedly false statements to the plaintiffs’ fellow employees at the bank, as well as to third parties outside of the bank, including Clayton Homes, bank regulators, the DOJ, and/or SunTrust’s insurer. Given the vague language of the amended complaint, however, we cannot be certain exactly what facts the plaintiffs are alleging in support of their defamation claim, and it is not fair to require Wylie to defend based on broad allegations that lack specificity. See Bush, supra at 91.


source: Caselaw Access Project

author: ELLINGTON, Presiding Judge. BRANCH, Judge,

license: Public Domain

text:
    A13A0265.
    HERITAGE HEALTHCARE OF TOCCOA et al. v. AYERS.
    (746 SE2d 744)
   ELLINGTON, Presiding Judge.

In this workers’ compensation appeal, the amount of disability benefits and the employer’s liability for attorney fees have been established. The only issue on appeal is the amount of attorney fees assessed against the employer. The Appellate Division of the State Board of Workers’ Compensation (“the Board”) fixed the award at a lump sum based on the employee’s weekly benefit from the date of injury to just before the final hearing, when the employer paid an uncontested late-payment penalty. The employee appealed to the superior court, which ruled that the employee is entitled to continuing add-on attorney fees relating to future benefit payments and to fees based on the late-payment penalty. Pursuant to a granted application for discretionary appeal under OCGA § 5-6-35 (a) (1), the employer appeals, contending, inter alia, that the Superior Court of Stephens County erred in setting aside the Board’s decision. For the reasons explained below, we affirm.

In resolving this appeal, we must keep in mind the various standards of review applicable in a workers’ compensation case.

Pursuant to OCGA § 34-9-103 (a), any party dissatisfied with a decision of an ALJ of the trial division of the State Board of Workers’ Compensation may appeal that decision to the [A]ppellate [Division of the State Board of Workers’ Compensation which shall have original appellate jurisdiction in all workers’ compensation cases. The Appellate Division is authorized to weigh the evidence of record and assess the credibility of witnesses. If, after assessing the evidence of record, the Appellate Division determines that the findings of the ALJ were supported by a preponderance of the competent and credible evidence, the Appellate Division must accept the factual findings of the ALJ. But, if after assessing the evidence of record, the [A]ppellate [Division concludes that the award does not meet the statute’s evidentiary standards, the [A]ppellate [Division may substitute its own alternative findings for those of the ALJ, and enter an award accordingly. After a workers’ compensation decision becomes final at the administrative level, the parties have a right of direct appeal to the superior court, pursuant to OCGA § 34-9-105 (b).

(Citations, punctuation and footnote omitted.) Stokes v. Coweta County Bd. of Ed., 313 Ga. App. 505, 505-506 (722 SE2d 118) (2012). The superior court shall set aside the decision of the Board

... if it is found that:
(1) The members acted without or in excess of their powers;
(2) The decision was procured by fraud;
(3) The facts found by the members do not support the decision;
(4) There is not sufficient competent evidence in the record to warrant the members making the decision; or
(5) The decision is contrary to law.

OCGA § 34-9-105 (c). As a reviewing court,

the superior court applies an any-evidence standard of review to the Board’s findings of fact, construing the evidence in the light most favorable to the party prevailing before the Board, and lacks authority to substitute itself as a factfinding body in lieu of the Board. Erroneous applications of law to undisputed facts, as well as decisions based on erroneous theories of law, however, are subject to the de novo standard of review in the superior court. Where it affirmatively appears that the Board’s decision is based upon an erroneous legal theory, and that for this reason the Board has not considered all of the evidence in the light of correct and applicable legal principles, the case should be remanded to the Board for further findings. . . . Appeals to this Court are governed by the same standards of review as appeals to the superior court under OCGA § 34-9-105.

(Citations, punctuation and footnote omitted.) Stokes v. Coweta County Bd. of Ed., 313 Ga. App. at 506-507. “On appeal to this Court, our duty is not to review whether the record supports the superior court’s decision but whether the record supports the initial decision of the local governing body or administrative agency.” (Citations and punctuation omitted.) Jamal v. Thurmond, 263 Ga. App. 320 (587 SE2d 809) (2003).

Viewed in the light most favorable to the employee, Martha Ayers, as the party prevailing before the Board, the record shows the following. Ayers reported an alleged work injury immediately after its occurrence on October 26, 2010. Her employer, Heritage Healthcare of Toccoa, fired her the next day and rejected her request for disability benefits. On November 23, 2010, Ayers filed a request for a hearing, praying for income benefits of $226.24 per week (based on her weekly wage of $339.34), medical benefits (including payment of medical expenses incurred), late-payment penalties pursuant to OCGA § 34-9-221, and assessed attorney fees and expenses of litigation pursuant to OCGA § 34-9-108 (b).

Heritage never controverted the claim. On March 11, 2011, Heritage’s workers’ compensation insurer paid Ayers a lump sum of $4,524.80 for 20 weeks of past due benefits and began paying weekly benefits. On September 27, 2011, two days before a scheduled final hearing, the insurer paid Ayers a lump sum of $678.72 (15 percent of $4,524.80) as a late-payment penalty for the March 11, 2011 benefits payment.

A final hearing took place before an Administrative Law Judge on September 29, 2011, for resolution of Ayers’ claim for assessed attorney fees. The ALJ rejected Ayers’ claim for fees, and Ayers appealed to the Board. The Board found that the evidence of record supports Ayers’ contentions that Heritage acted in violation of OCGA § 34-9-221 (b) and (e) and that there is no competent and credible evidence to the contrary. Additionally, the Board found that the record contains no competent and credible evidence that Heritage’s failure to pay timely disability benefits was owing to conditions beyond its control. See OCGA § 34-9-221 (e). The Board found that the evidence contradicts rather than supports “reasonable grounds” for Heritage’s failure to comply with OCGA § 34-9-221 and that Heritage failed to present a reasonable defense on the issues at the hearing. Based on these findings, the Board ruled that Ayers “is entitled to assessed attorney fees pursuant to OCGA § 34-9-108 (b) (1) and [to reasonable expenses of litigation pursuant to OCGA § 34-9-] 108 (b) (4).”

Additionally, the Board found that, although Heritage did not contest the late-payment penalty mandated by OCGA § 34-9-221 (e), it delayed paying the penalty without reasonable grounds, and that assessed attorney fees are also warranted under OCGA § 34-9-108 (b) (2).

The Board recapitulated that it found that Ayers “is entitled to attorney fees pursuant to OCGA § 34-9-108 (b)(1) [and OCGA § 34-9-] 108 (b) (2) and [to reasonable expenses of litigation pursuant to OCGA § 34-9-] 108 (b) (4) [.]” The Board ordered Heritage to pay Ayers $3,122.62, which represents the sum of “$2,714.88 quantum meruit fees plus $407.74 litigation expense.”

The Board having found that the defense presented by Heritage lacked reasonable grounds, OCGA § 34-9-108 (b) (1) authorized the Board to assess Ayers’ attorney fees against Heritage, subject to the limitation in subpart (a) that the fee be no more than 25 percent of Ayers’ award of weekly benefits. OCGA § 34-9-108 (a) (“The board shall approve no fee of an attorney for services to a claimant in excess of 25 percent of the claimant’s award of weekly benefits or settlement.”). The record shows that Ayers’ contract with her attorney provided just that — for a fee of 25 percent of her award of weekly benefits. Rule 108 of the State Board of Workers’ Compensation provides that any attorney fee contract which provides for a fee no greater than 25 percent of the recovery of weekly benefits, “absent compelling evidence to the contrary, shall be deemed to represent the reasonable fee of the attorney.” In this case, there is no evidence that a fee of 25 percent of Ayers’ weekly benefit was not a reasonable fee. It follows that there is an absence of compelling evidence to rebut the presumption that the fee under the contract represents the reasonable fee of the attorney.

Applying OCGA § 34-9-108 (b) (1) and Rule 108 to the circumstances of this case, including the absence of compelling evidence to rebut the presumption that the fee under the contract represents the reasonable fee of Ayers’ attorney, would require the Board to order Heritage to pay attorney fees of $56.56 per week (25 percent of Ayers’ weekly benefit of $226.24) for up to 400 weeks unless the weekly benefit is terminated sooner. In ordering Heritage to pay attorney fees of $2,714.88 (25 percent of Ayers’ weekly benefit multiplied by 48 weeks), even though Ayers’ weekly benefit did not terminate after 48 weeks, but is continuing, the Board failed to award attorney fees in compliance with OCGA § 34-9-108 (b) (1) and Rule 108.

Furthermore, as Ayers contends, the attorney fee award under OCGA § 34-9-108 (b) (1) should also include, in addition to 25 percent of her weekly benefit, 25 percent of $678.72, the late-payment penalty Heritage paid, because “a penalty imposed for violation of OCGA § 34-9-221 is properly characterized as part and parcel of the compensation awarded.” Hardee’s v. Bailey, 180 Ga. App. 332, 333 (1) (349 SE2d 211) (1986). See Cartersville Ready Mix Co. v. Hamby, 224 Ga. App. 116, 119 (2) (479 SE2d 767) (1996) (accord).

Finally, we note that, unlike OCGA § 34-9-108 (b) (1), which simply authorizes an award of “the adverse attorney’s fee against the offending party,” subsection (b) (2), with regard to late payment and resulting noncompliance with OCGA § 34-9-221, provides for an award of “the reasonable quantum meruit fee of the attorney, as determined by the board, and the costs of the proceedings ... against the employer.” A “reasonable quantum meruit fee,” however, may still be based on the amount due under an express attorney fee contract. Atlas Automotive v. Wilson, 225 Ga. App. 631, 635 (3) (484 SE2d 669) (1997); G. Carbonara & Co. v. Helms, 205 Ga. App. 547, 548 (423 SE2d 36) (1992). The Board’s findings under OCGA § 34-9-108 (b) (1) and (4) indicate that this is not a case in which the assessment of attorney fees should be tailored to reflect an attorney’s limited effort. Thus, under the circumstances presented here, there is no inherent conflict in an award under both subsection (b) (1) and subsection (b) (2).

The superior court was authorized to set aside the ruling of the Board upon finding that it did not act within the scope of its discretion, erroneously applied the law to the undisputed facts, and otherwise rendered a decision that is contrary to law. OCGA § 34-9-105 (c) . Given the Board’s finding that Ayers is entitled to attorney fees pursuant to OCGA § 34-9-108 (b) (1), (2), and (4), and given the strong presumption in favor of the contract fee in the Board’s own rules, the superior court did not err in setting aside the decision of the Board and remanding the case to the Board for entry of a corrected award.

Judgment affirmed.

Phipps, C. J., Barnes, P. J., and Miller, J., concur. Andrews, P. J., Ray and Branch, JJ., dissent.

BRANCH, Judge,

dissenting.

The Appellate Division of the State Board of Workers’ Compensation determined that the claimant’s attorney was entitled to “quantum meruit” fees of 25 percent of the amount of temporary total disability (“TTD”) benefits from the date of injury through the date the employer paid the late fees just prior to the final hearing. The record supports the Appellate Division’s award, and the superior court therefore was not authorized to substitute its own findings for the findings of the Appellate Division and thereby increase the attorney fee award to include 2 5 percent of TTD benefits payable after the employer paid the late fee. Accordingly, I respectfully dissent.

1. “On appeal to this Court, our duty is not to review whether the record supports the superior court’s decision but whether the record supports the initial decision of the local governing body or administrative agency.” (Citations and punctuation omitted.) Jamal v. Thurmond, 263 Ga. App. 320 (587 SE2d 809) (2003).

On appeal from an award of the Appellate Division of the State Board of Workers’ Compensation, this Court examines the record to see if there is competent evidence to support the award and construes the evidence in a light most favorable to the prevailing party. Further, it is axiomatic that the findings of the State Board of Workers’ Compensation, when supported by any evidence, are conclusive and binding, and that neither the superior court nor this court has any authority to substitute itself as a fact finding body in lieu of the board.

(Citation and punctuation omitted.) Harris v. Peach County Bd. of Commrs., 296 Ga. App. 225 (674 SE2d 36) (2009).

This case turns on the wording of the Appellate Division’s award, which shows that the Appellate Division awarded fees in quantum meruit under OCGA § 34-9-108 (b).

Subsection (b) of OCGA § 34-9-108 provides for recovery of attorney fees from a party to the proceedings or the employer in two circumstances. Subsection (b) (1) provides that the “adverse attorney’s fee” may be assessed against the “offending party” when that party “brought, prosecuted, or defended [the proceedings] in whole or in part without reasonable grounds”; subsection (b) (2) provides that “the reasonable quantum meruit[] fee of the attorney, as determined by the board” may be assessed against “the employer” if the employer fails to comply with OCGA § 34-9-221 “without reasonable grounds.” (Emphasis supplied.) Attorney fees may be assessed under either or both provisions. See, e.g., C. Brown Trucking v. Rushing, 265 Ga. App. 676, 678-679 (2) (595 SE2d346) (2004). And the decision to assess fees under either subsection falls within the discretion of the court, although the determination of the amount of fees must be based upon the evidence presented. See Copelan v. Burrell, 174 Ga. App. 63, 64 (2) (329 SE2d 174) (1985).

The Appellate Division ruled that Ayers was entitled to attorney fees under both subsections (b) (1) and (2) of OCGA § 34-9-108, but it announced that it was determining the amount of the award in the quantum meruit language of subsection (b) (2) as follows:

[I]t is the determination of the Board that the reasonable quantum meruit fee to be assessed against the Employer/ Insurer is 25% of the amount of [TTD] benefits plus late fees paid from October 26, 2010, (the date of injury) through September 27,2011, (the issuance of the late fee payment on the eve of hearing below).

(Emphasis supplied.) Thus, it is clear from the Appellate Division’s order that it used its discretion to assess fees under subsection (b) (2) rather than (b) (1).

The amount of fees to be assessed under subsection (b) (2) is “the reasonable quantum meruit fee of the attorney, as determined by the board.” Although proof of an express attorney fee agreement may afford “prima facie proof of the value of the services rendered... even when recovery is sought upon quantum meruit,” G. Carbonara & Co. v. Helms, 205 Ga. App. 547, 548 (423 SE2d 36) (1992) (citations and punctuation omitted), “the hearing director and full board are vested with exclusive authority to weigh the evidence.” Zurich Ins. Co. v. McDuffie, 117 Ga. App. 90, 91 (2) (159 SE2d 423) (1968). The question of the amount and reasonableness of the quantum meruit attorney fees under OCGA § 34-9-108 (b) (2) is thus a factual question for the State Board. Here, the State Board awarded attorney fees for the period of time that the employer stood delinquent in its obligations to the employee, i.e., from the time of injury through the date the employer paid the late fees. There was competent evidence in the record to support the agency decision to limit the assessed fees to the specified period of time. Thus the record supports the initial decision of the Appellate Division, and the superior court was therefore not authorized to substitute its own findings for the findings of the Appellate Division.

2. Rule 108 (a) of the State Board of Workers’ Compensation is inapplicable to the Appellate Division’s decision in this case.

Whereas subsection (b) of OCGA § 34-9-108 provides for assessing attorney fees and litigation expenses against an employer or a party and is relevant to this case, subsection (a) regulates the fee an attorney may charge a workers’ compensation claimant, which is a separate matter. Similarly, Rule 108 (a) of the State Board of Workers’ Compensation also addresses the claimant-attorney relationship in that it provides that contracts between an attorney and a claimant must contain certain provisions, including the following:

This contract is subject to the approval of the State Board of Workers’ Compensation, and no fee of more than $100.00 shall be paid under the contract unless approved by the Board.
No contract shall be filed with the Board which provides for a fee greater than 25 percent of the recovery of weekly benefits. Any contract with these terms, absent compelling evidence to the contrary, shall be deemed to represent the reasonable fee of the attorney.

Decided July 16, 2013

Swift, Currie, McGhee & Hiers, Rodney A. Ficker, for appellants.

Stephen C. Carter, for appellee.

(Emphasis supplied.)

Ayers argues that by applying the highlighted language to her claim for assessed fees against her employer, the evidence of attorney fees presented by her attorney, including the fee agreement, should be deemed as a matter of law to represent the reasonable value of those fees. Nothing in the language of Rule 108 (a) shows that the provisions contained therein apply to an award of quantum meruit fees against an employer under OCGA § 34-9-108 (b). Moreover, Rule 108 (a) cannot override the express authority granted to the board by statute to determine “the reasonable quantum meruit fee of the attorney.” OCGA § 34-9-108 (b) (2). See generally MARTA v. Reid, 282 Ga. App. 877, 883 (3) (640 SE2d 300) (2006) (the board is not authorized to make rules inconsistent with the Workers’ Compensation Act, OCGA § 34-9-1 et seq.). In short, the Appellate Division was not bound by Rule 108 (a) to assess attorney fees against the employer under OCGA § 34-9-108 (b) based on the precise terms of Ayers’s attorney fee agreement with Carter.

For the above reasons, the superior court erred by reversing the decision of the Appellate Division of the State Board of Workers’ Compensation.

I am authorized to state that Presiding Judge Andrews and Judge Ray join in this dissent.

       See OCGA § 34-9-221 (b) (“The first payment of income benefits shall become due on the twenty-first day after the employer has knowledge of the injury or death, on which day all income benefits then due shall be paid. Thereafter, income benefits shall be due and payable in weekly installments!!]”); (e) (“If any income benefits payable without an award are not paid when due, there shall be added to the accrued income benefits an amount equal to 15 percent thereof, which shall be paid at the same time as, but in addition to, the accrued income benefits unless notice is filed under subsection (d) of this Code section or unless this nonpayment is excused by the hoard after a showing by the employer that owing to conditions beyond control of the employer the income benefits could not be paid within the period prescribed.”).

       (1) Upon a determination that proceedings have been brought, prosecuted, or defended in whole or in part without reasonable grounds, the administrative law judge or the board may assess the adverse attorney’s fee against the offending party.
      (2) If any provision of Code Section 34-9-221, without reasonable grounds, is not complied with and a claimant engages the services of an attorney to enforce his or her rights under that Code section and the claimant prevails, the reasonable quantum meruit fee of the attorney, as determined by the board, and the costs of the proceedings may be assessed against the employer.
      (3) Any assessment of attorney’s fees made under this subsection shall be in addition to the compensation ordered.
      (4) Upon a determination that proceedings have been brought, prosecuted, or defended in whole or in part without reasonable grounds, the administrative law judge or the board may, in addition to reasonable attorney’s fees, award to the adverse party in whole or in part reasonable litigation expenses against the offending party. Reasonable litigation expenses under this subsection are limited to witness fees and mileage pursuant to Code Section 24-13-25; reasonable expert witness fees subject to the fee schedule; reasonable deposition transcript costs; and the cost of the hearing transcript.
      OCGA § 34-9-108 (b).

       See OCGA § 34-9-221 (d) (“If the employer controverts the right to compensation, it shall file with the board, on or before the twenty-first day after knowledge of the alleged injury or death, a notice in accordance with the form prescribed by the hoard, stating that the right of compensation is controverted and stating the name of the claimant, the name of the employer, the date of the alleged injury or death, and the ground upon which the right to compensation is controverted.”).

       See OCGA § 34-9-60 (a) (“The [State Board of Workers’ Compensation] may make rules, not inconsistent with [Chapter 9 of Title 34], for carrying out this chapter.”).

       Ayers’ attorney stated in his place, as an officer of the court and attorney with over 20 years representing employees with workers’ compensation claims, that the contract fee in this case comports with the rules and regulations of the State Board of Workers’ Compensation and represents the usual and customary fee of a claimant’s attorney. When the ALJ asked if Heritage had any questions concerning the statement of Ayers’ attorney in support of her claim for assessed fees, Heritage’s attorney declined to cross-examine Ayers’ attorney or present any evidence on the issue of the fee claim.

       We note that Rule 108 does not expressly apply to attorney fees assessed pursuant to OCGA § 34-9-108 (b). We find no justification, however, for the Board to apply a different standard to the issue of whether attorney fees are “reasonable” when, because of the conduct of the employer or its insurer, the Board is shifting the responsibility for the claimant’s attorney fees from the claimant to the employer/insurer.

       “Quantum meruit” is defined as “[t]he reasonable value of services; damages awarded in an amount considered reasonable to compensate a person who has rendered services in a quasi-contractual relationship.” Black’s Law Dictionary (9th ed. 2009).

       See also Flores v. Keener, 302 Ga. App. 275, 278 (690 SE2d 903) (2010) (“In most cases, the Board considers the amount due under the terms of an express contract between an attorney and a workers’ compensation claimant to provide prima facie proof of the value of the services rendered. This rule is formalized in State Board of Workers’ Compensation Rule 108 (a), which provides that any contract that provides for a fee of 25 percent of the recovery, or less, absent compelling evidence to the contrary, shall be deemed to represent the reasonable fee of the attorney.”) (citation omitted).

       See James B. Hiers et al., Ga. Workers’ Comp. Law & Practice § 22-3, n. 14 (5th ed., updated October 2012) (explaining that the “quantum meruit” provision in OCGA § 34-9-108 (b) (2) allows the ALJ or the Board to tailor the assessment by awarding fees on a lump sum basis instead of on a continuing percentage add-on basis in the context of fees for noncompliance/late payment, because in some late-payment situations the effort expended by an attorney may be limited to one telephone call or letter, resulting in payments being made, albeit late. “Under those circumstances the board may award attorney fees commensurate with the effort expended (telephone call, letter, etc.).”).

       See Copelan v. Burrell, 174 Ga. App. 63, 64 (2) (329 SE2d 174) (1985) (Although whether to assess add-on fees under OCGA § 34-9-108 (b) (1) or (2) is discretionary, “[t]he determination of [the] amount [of such fees] must be made in light of evidence presented.”) (emphasis supplied).

       “Quantum meruit” is defined as “[t]he reasonable value of services; damages awarded in an amount considered reasonable to compensate a person who has rendered services in a quasi-contractual relationship.” Black’s Law Dictionary (9th ed. 2009).

       OCGA § 34-9-221 provides for several rules for when workers’ compensation benefits must be paid.

       By ignoring how the Appellate Division actually made the attorney fee award — based on the quantum meruit value of the services — the majority has reviewed the record to see whether it supports the superior court’s decision, which is exactly what this Court is not supposed to do; rather, we are required to review the record to determine whether it supports the Appellate Division’s award. The record clearly supports the Appellate Division’s quantum meruit award.

       Indeed, as pointed out in James B. Hiers, Jr. et al., Ga. Workers’ Compensation Law & Practice, § 22-3, n. 14 (5th ed.), an award of something less than the full value of the attorney's services makes sense under the circumstances:
      For example, assume there is some non-compliance to the extent of a late payment or non-payment. The claimant retains an attorney who contacts the insurer hy telephone or letter or both and payments are made, albeit late. Under those circumstances the board may award attorney fees commensurate with the effort expended (telephone call, letter, etc.) on a lump sum basis instead of on a continuing percentage add-on basis. It makes sense. The attorney is compensated for work performed. The insurer is made to pay for its error. The assessment may be tailored to the circumstances.

       Specifically, subsection (a) provides that any fee in excess of $100 must be approved by the board and that no fee can exceed 25 percent of the claimant’s award of weekly benefits or settlement.


author: Ray, Judge.

text:
    A13A0266.
    GEORGIA DERMATOLOGIC SURGERY CENTERS, P.C. v. PHARIS.
    (746 SE2d 678)
   Ray, Judge.

David B. Pharis, M.D. (“Pharis”) filed a complaint against Georgia Dermatologic Surgery Centers, PC. (“GDSC”) asserting a claim for breach of contract/wrongful termination. Pharis also sought to compel the redemption of his shares of stock in GDSC and to recover attorney fees and expenses of litigation. On the parties’ cross-motions for summary judgment, the trial court denied GDSC’s motion for summary judgment and granted Pharis’ motion for partial summary judgment on the issue of GDSC’s liability for breach of contract/wrongful termination. GDSC appeals from the trial court’s ruling on these cross-motions for summary judgment. For the following reasons, we affirm.

“We review a grant of summary judgment de novo, and we view the evidence in a light most favorable to the nonmovant.” (Footnote omitted.) Silver Pigeon Properties, LLC v. Fickling & Co., 316 Ga. App. 167, 167 (728 SE2d 801) (2012).

So viewed, the evidence shows that GDSC is equally owned by Pharis and Dr. Mark Baucom. Baucom and Pharis are the sole two directors of GDSC, each having one director’s vote apiece. Baucom and Pharis are also the sole officers of GDSC, with Baucom serving as president and Pharis serving as vice president, secretary, and treasurer. Baucom and Pharis, as GDSC’s only directors and shareholders, approved identical employment contracts and entered into those contracts with GDSC. At all times relevant to this case, Baucom and Pharis jointly operated GDSC as its equal owners, directors, officers, and key physician-employees.

On October 26, 2010, Baucom, in his capacity as president of GDSC, notified Pharis that his employment with GDSC was terminated for cause. Baucom did not call a meeting to seek or obtain the approval of GDSC’s directors or shareholders before he unilaterally decided to terminate Pharis.

1. GDSC contends that the trial court erred in granting Pharis’ motion for partial summary judgment on his claim for breach of contract/wrongful termination. In its ruling, the trial court found that the termination of Pharis was an act which fell outside the scope of Baucom’s authority as president and, therefore, it required the approval of GDSC’s board of directors. In resolving this issue, we must look at the relevant governing documents of GDSC.

The shareholders’ agreement provides that the termination of a shareholder’s employment constitutes a “Sale Event” which requires the sale of the terminated employee/shareholder’s shares to the corporation. Although the shareholders’ agreement provides that upon occurrence of any “Sale Event” the terminated employee/shareholder shall be deemed to have resigned as an officer and/or director of GDSC, the shareholders’ agreement is silent as to who makes the determination as to whether a “Sale Event” has occurred. The shareholders’ agreement provides that the president’s authority is limited to conducting the “day-to-day operations” of the corporation and that the functions of the president shall be set forth in the bylaws.

The bylaws provide that the directors shall be elected at the shareholders’ annual meeting and that the removal of a director during his term requires a special meeting of the shareholders called for that purpose. The bylaws provide that the president, vice president, secretary, and treasurer shall be elected by the board of directors, and that such officers may only be removed or terminated by the board of directors. The bylaws further provide that the business and affairs of the corporation shall be managed by the board of directors, and that the president “shall have general and active management of the business of the [c] orporation and shall see that all orders and resolutions of the [b]oard of [directors are carried into effect.”

When the above provisions of the shareholders’ agreement and bylaws are read together, it appears that only the shareholders and board of directors have the authority to terminate the employment of an employee/shareholder who is also a director and officer of the corporation. As noted above, Baucom and Pharis were equal 5.0 percent shareholders, equal directors, and board-elected officers, and both were employees of GDSC. Under these unique circumstances, the termination of Pharis would be an extraordinary act which falls well outside the authority of the president to conduct the day-to-day operations of GDSC.

Although we can find no authority in Georgia directly on point, we find persuasive authority in Fournier v. Fournier, 479 A2d 708, 711-712 (I) (R.I. 1984). In Fournier, the Supreme Court of Rhode Island held that a corporate president’s general authority to manage the day-to-day operations of the corporation did not include the authority to terminate an employee who was also an owner, director, and officer of the corporation. Similarly, in Georgia, we have held that a president’s general authority to manage the day-to-day affairs of the corporation did not include the power to file a lawsuit on behalf of the corporation against a 50 percent shareholder. See Glisson Coker, Inc. v. Coker, 260 Ga. App. 270, 270-272 (1) (581 SE2d 303) (2003). Under the reasoning in Fournier and Glisson, we find that the general grant of authority given to Baucom as president of GDSC did not give him the power to terminate Pharis.

Although GDSC claims that Baucom had the authority to terminate Pharis as an employee because he signed Pharis’ employment agreement on behalf of GDSC, the evidence shows that GDSC’s authority to enter into Pharis’ employment agreement came from the board of directors and shareholders (Baucom and Pharis), who unanimously approved their own employment contracts. Therefore, when Baucom signed Pharis’ employment agreement, he was simply carrying out the order of GDSC’s board of directors. The evidence also shows that GDSC has only terminated three employees in the past, and in each instance, Baucom and Pharis, as directors, approved the termination of those employees.

Decided July 16, 2013

Freeman, Mathis & Gary, MichaelD. Flint, John S. Rees, Michael J. Eshman, for appellant.

Under OCGA § 14-2-843 (b), as well as GDSC’s bylaws, only the board of directors has the power to remove an officer whom the board elected. GDSC terminated Pharis without a meeting of the board of directors and without obtaining board approval. Under the corporate bylaws, a director may be removed during his term only upon a special meeting of the shareholders called for that purpose. GDSC terminated Pharis without a meeting of the shareholders. We note that had the shareholders and board of directors (Baucom and Pharis) met to consider Pharis’ termination, such a meeting would have most certainly resulted in a deadlock with a 1-to-l vote. However, this did not excuse GDSC from adhering to its governing documents and to OCGA § 14-2-843 (b). Moreover, Baucom and GDSC are not left without a remedy, as Baucom may seek a judicial dissolution of GDSC under OCGA § 14-2-1430 (2) (A).

For the above reasons, the trial court was correct in ruling that Baucom lacked the authority as president to unilaterally terminate Pharis’ employment.

2. In its second enumeration of error, GDSC contends that the trial court erred in denying its motion for summary judgment on Pharis’ claim to compel redemption of shares of stock. Based on our holding in Division 1, this enumeration is moot.

3. In its final enumeration of error, GDSC contends that the trial court erred in denying its motion for summary judgment regarding Pharis’ claim for attorney fees and expenses under OCGA § 13-6-11. “Questions concerning bad faith under this statute are generally for the jury to decide, and the trial court may grant judgment as a matter of law on such issues only in the rare case where there is absolutely no evidence to support the award of expenses of litigation.” (Citation and punctuation omitted.) Hewitt Assocs., LLC v. Rollins, Inc., 308 Ga. App. 848, 853 (3) (708 SE2d 697) (2011). As Pharis was terminated wrongfully and without authority, and because there is evidence from which a jury could find that GDSC acted in bad faith and has been stubbornly litigious, the trial court properly denied GDSC’s motion on this claim.

Judgment affirmed.

Barnes, P. J., and Miller, J., concur.

Ray & Sherman, James M. Sherman, Sherri L. Kimmell, for appellee.


author: Phipps, Chief Judge.

text:
    A13A0272, A13A0630.
    MARTIN v. HAMILTON STATE BANK (two cases).
    (746 SE2d 750)
   Phipps, Chief Judge.

In Martin v. Hamilton State Bank, (hereinafter “Martin I”) the first appearance of this dispute before this court, we affirmed the trial court’s grant of summary judgment to Bartow County Bank wherein the evidence showed that Larry Martin had failed to make payments required under the terms of several promissory notes and that Bartow County Bank had declared a default for nonpayment and accelerated the debt due under the notes. In reaching our decision we noted that, “After the notice of appeal was filed below, the assets of Bartow County Bank apparently were assigned to Hamilton State Bank,” and we allowed Hamilton State Bank (hereinafter “HSB”) to be substituted as a party for Bartow County Bank.

Just over a month after Martin had filed in the trial court his notice of appeal giving rise to Martin I, HSB filed in the trial court a motion for substitution of party plaintiff, asserting that Bartow County Bank no longer had any interest in the assets associated with Martin’s loan, asserting that HSB owned Martin’s loan assets entirely, and moving for HSB’s substitution as the party plaintiff in place of Bartow County Bank. Approximately eight days after the motion for substitution of party was filed, the trial court entered two consent orders whereby Martin and HSB agreed that HSB would be substituted for Bartow County Bank as party plaintiff in the case, that the judgment entered in favor of Bartow County Bank and against Martin had been assigned to HSB and that the records of the superior court would be changed to reflect the assignment of that judgment to HSB; and that Martin would post a supersedeas bond in a set amount or pledge additional collateral with an agreed value of said set amount to secure the judgment entered in favor of HSB.

After the Supreme Court of Georgia denied a petition for writ of certiorari in Martin I, and after the remittitur from this court had issued, but before it was filed with the trial court clerk, Martin filed in the trial court a document entitled “Defendant’s Emergency Motion for Expedited Hearing to Limit Fi Fa and Enforcement of Judgment and for Injunctive Relief Pursuant to Rule 6.7, URSC.” The remittitur was thereafter filed with the trial court clerk, and the trial court entered an order on the remittitur, responding therein to Martin’s emergency motion, and adopting this court’s decision in Martin I as the judgment of the trial court. It is from this order that Martin appeals in Case No. A13A0272.

After Martin filed a notice of appeal (giving rise to Case No. A13A0272), HSB moved the trial court to dismiss the appeal. The trial court entered an order in which it declined to dismiss the appeal, but ruled that the supersedeas bond it had ordered Martin to post after the filing of the notice of appeal giving rise to Martin I had expired. In the same order, the trial court thereupon issued another supersedeas bond — this one, from Martin’s appeal of the trial court’s order on the remittitur (Case No. A13A0272). It is from this order that Martin appeals in Case No. A13A0630.

Case No. A13A0272

1. Martin, in his emergency motion, asked the trial court to: (1) require that HSB prove that it had paid consideration for the judgment it had been assigned from Bartow County Bank; (2) limit any fi. fa. issued on the judgment to the amount of consideration HSB had paid for the judgment; (3) limit HSB’s enforcement of the judgment to the amount of the fi. fa.; and (4) enjoin the issuance of the fi. fa. to HSB and entry of the judgment on the general execution docket until such time as HSB established the consideration it had paid for the judgment.

Martin challenges the trial court’s adoption of the remittitur, particularly taking issue with that portion of the order wherein the trial court stated that at the time of Martin’s involvement with setting the supersedeas bond, Martin had an opportunity to raise the issue he now raises on appeal as to the consideration purportedly paid by HSB to purchase the judgment; but, Martin did not “challenge the value of [HSBj’s rights as successor.” Instead, the trial court stated, he had, in a supersedeas bond filed with the court, “bound himself to [HSB] (not Bartow County Bank) ... as principal and surety, for payment of the judgment in full.”

Indeed, the record shows that after Martin filed the notice of appeal giving rise to Martin I, he consented to the entry of two orders that were signed and filed the same day. In one order, Martin agreed to the substitution of HSB as party plaintiff for Bartow County Bank, pursuant to OCGA § 9-11-25 (c). In the other order, Martin agreed forthetrialcourtto“[o]rder[ ], [d]ecree[ ], and [a]djudge[ ]”thatthe judgment entered in favor of Bartow County Bank and against Martin, “has been assigned to [HSB] and the records of the Superior Court shall be changed to reflect the assignment of that judgment to [HSB]”; that Martin is “ordered to post a supersedeas bond in [a set amount] to secure the judgment in favor of [HSB]”; that in lieu of posting the supersedeas bond in the amount set, Martin could, within a set time, pledge additional collateral with an agreed value of the amount of the bond set and which was “acceptable to [HSB]”; that in the event collateral “acceptable to [HSB]” was not pledged, and no supersedeas bond was posted within the time set, “the automatic supersedeas provided by law shall be lifted and [HSB] shall have such remedies as are available under the law in such circumstances”; and that in the event Martin pledged collateral “acceptable to [HSB]” in lieu of bond, the automatic supersedeas would remain in full force and effect during the course of the appeal.

In his appellate brief, Martin cites Durham v. Crawford and other cases for the following general rule:

[A] former judgment binds only as to the facts in issue and events existing at the time of such judgment, and does not prevent a re-examination even of the same questions between the same parties, if in the interval the material facts have so changed or such new events have occurred as to alter the legal rights or relations of the litigants; although, in the absence of evidence to the contrary, the facts as they existed at the time of the former judgment would be presumed to continue.

Martin asserts that at the time the trial court issued its order granting summary judgment leading to Martin I, the “purported assignment of [Bartow County Bank]’s . . . judgment against [Martin]” had not yet occurred. Thus, he argues, when the remittitur from this court was filed in the trial court, re-vesting jurisdiction of the case in the trial court, material facts had changed or new events had occurred; those facts or events altered the legal rights or relations of the litigants, requiring a re-examination of the issues between the parties. Those issues — concerning the consideration purportedly paid by HSB to purchase the judgment — he claims, could not have been asserted by him after he had filed his first notice of appeal, paid costs, and posted a supersedeas bond, because, pursuant to OCGA § 5-6-46 (a), his filing a notice of appeal, paying costs, and posting a supersedeas bond deprived the trial court of jurisdiction to take further proceedings toward the enforcement of the judgment superseded. He posits: “Therefore, it makes no sense for the trial court to scold [him] for failing to raise an issue which the trial court itself, at that juncture, had no power to decide.”

“[A]ny ruling by the appellate court in a case shall be binding in all subsequent proceedings in that case in the lower court and in the appellate court.” Thus, this court’s “[affirmance of the judgment without condition or direction left the trial court without jurisdiction to entertain or pass on [the emergency motion] filed after the judgment of affirmance,” in this case. And a party cannot, on a second appeal, “by challenging the judgment entered on remittitur, enlarge the scope of the previous appeal.” The issue as to the consideration purportedly paid by HSB to purchase the judgment was not within the scope of the appeal in Martini. Yet, Martin, in this appeal, attacks the consideration issue by challenging the judgment entered on remittitur. This he cannot do.

In McDaniel v. City of Griffin, the appellants argued that the trial court erred in concluding that it did not have jurisdiction to consider issues raised in an amended pleading while its ruling on cross-motions for summary judgment was on appeal. This court held:

Because summary judgment is an adjudication on the merits, once entered, a party is not free to amend its pleadings. No party, plaintiff or defendant, is permitted to stand his case before the court on some of its legs, and if it falls, set it up again on the rest in a subsequent proceeding, and thus evade the bar of the former judgment. Therefore, we cannot ... permit a defendant to utilize a new defense following a ruling on summary judgment in plaintiff’s favor as to liability.

Furthermore, assuming without deciding that the issue of whether the consideration purportedly paid by HSB to purchase the judgment was sufficiently unrelated so as not to affect the judgment at issue on appeal in Martin I, i.e., whether Bartow County Bank was within its rights to declare a default and accelerate notes, thereby warranting further consideration in the trial court, the appellate record demonstrates that Martin consented to any change in procedural posture.

Indeed, the record shows that Martin voiced no objection to the assignment and transfer to HSB. Instead, after he was informed that Bartow County Bank no longer had any interest in the notes, Martin entered into agreements consenting to a transfer of interest to HSB, to the substitution of HSB for Bartow County Bank in the case, to an assignment of Bartow County Bank’s judgment to HSB, and to posting bond for the benefit of securing judgment in favor of HSB or pledging collateral subject to HSB’s acceptance.

“A litigant cannot submit to a ruling or acquiesce in the holding, and then complain of the same on appeal.” Because Martin specifically consented to the transfer and assignment of judgment to HSB, this issue is waived. Accordingly, the trial court did not err in adopting this court’s decision in Martin I as the judgment of the trial court, and the trial court’s judgment in this case is affirmed. Nothing in Durham, upon which Martin relies, demands a contrary result.

Decided July 16, 2013.

Smith, Shaw & Maddox, Virginia B. Harman, Jackson B. Harris, for appellant.

Burr & Forman, Brad A. Baldwin, Busch, Slipakoff & Schuh, Tawana B. Johnson, for appellee.

HSB’s motions for frivolous appeal penalties are denied.

Case No. A13A0630

2. In this appeal, Martin contends that the trial court erred by finding that the supersedeas bond he was required to post during the pendency of the appeal in Martin I had expired and by ordering, sua sponte, that he post a new bond to secure the judgment in favor of HSB (giving rise to Case No. A13A0272).

As alluded [to] in [OCGA § 5-6-46], the purpose [of an appellee being entitled to the posting of a supersedeas bond] is for its judgment to be protected from non-satisfaction in the event appellant has insufficient assets to satisfy the judgment when the judgment is affirmed on appeal.

Although Martin was ordered to post a new bond, the appellate record does not reflect that he posted bond. In light of our decision in Case No. A13A0272, this appeal is dismissed as moot.

HSB’s motions for frivolous appeal penalties are denied.

Judgment affirmed in Case No. A13A0272. Appeal dismissed in Case No. A13A0630.

Ellington, P. J., and Branch, J., concur.

       314 Ga. App. 334 (723 SE2d 726) (2012).

       Id. at 334-335.

       Id. at 335, n. 1.

       OCGA § 9-11-25 (o) pertinently provides: “In case of any transfer of interest, the action may be continued by or against the original party unless the court, upon motion, directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.”

       196 Ga. 381 (26 SE2d 778) (1943).

       Id. at 387 (4).

       OCGA § 5-6-46 (a) pertinently provides:
      In civil cases, the notice of appeal . . . shall serve as supersedeas upon payment of all costs in the trial court by the appellant and it shall not be necessary that a supersedeas bond or other form of security be filed; provided, however, that upon motion by the appellee, made in the trial court before or after the appeal is docketed in the appellate court, the trial court shall require that supersedeas bond or other form of security be given. . . .

        Jebco Ventures v. City of Smyrna, 259 Ga. 599, 601-602 (385 SE2d 397) (1989).

        Pearle Optical of Monroeville v. State Bd. of Examiners, 219 Ga. 856, 858 (136 SE2d 371) (1964) (citation and punctuation omitted).

        Womack Indus. v. B&A Equip. Co., 204 Ga. App. 32 (418 SE2d 411) (1992).

       See id.

       281 Ga. App. 350 (636 SE2d 62) (2006).

       Id. at 352 (1).

       Id. (punctuation and footnotes omitted).

       See Martin 1, supra at 334-335.

       See generally Avren v. Garten, 289 Ga. 186, 190-191 (6) (710 SE2d 130) (2011) (the filing of the notice of appeal does not deprive the trial court of jurisdiction as to other matters in the same case not affecting the judgment on appeal); Cohran v. Carlin, 249 Ga. 510, 512 (291 SE2d 538) (1982) (“[Pjursuant to [OCGA § 5-6-46], a notice of appeal, with payment of costs, serves as a supersedeas of the judgment (unless supersedeas bond be required), and while on appeal, the trial court is without authority to modify such judgment. But the notice of appeal supersedes only the judgment appealed; it does not deprive the trial court of jurisdiction as to other matters in the same case not affecting the judgment on appeal”) (citations and punctuation omitted); Ga. Farm Bureau, Mut. Ins. Co. v. Willoughby, 320 Ga. App. 431, 432 (2) (741 SE2d 172) (2013) (“Absent a change in the evidentiary posture, the rulings of this court are binding on the trial court in all subsequent proceedings in this case and may not be disregarded”).

       See generally McDaniel, supra at 353 (1).

        Davison v. Hines, 291 Ga. 434, 439 (3) (729 SE2d 330) (2012), quoting Norman v. Ault, 287 Ga. 324, 329 (3) (695 SE2d 633) (2010); Capes v. Bretz, 195 Ga. App. 467, 469 (393 SE2d 702) (1990) (“No matter how erroneous a ruling of a trial court might be, a litigant cannot submit to a ruling or acquiesce in the holding, and then complain of the same on appeal. He must stand his ground. Acquiescence deprives him of the right to complain further”) (citations and punctuation omitted).

       See generally Perry v. Gilotra-Mallik, 314 Ga. App. 764, 765 (1) (726 SE2d 81) (2012).

       Supra.

        Bank South v. Roswell Jeep Eagle, 200 Ga. App. 489 (2) (408 SE2d 503) (1991) (citation omitted).

       See generally Lee v. City of Villa Rica, 264 Ga. 606, 609 (4) (449 SE2d 295) (1994).


author: Ellington, Presiding Judge. BRANCH, Judge,

text:
    A13A0383.
    LEXINGTON INSURANCE COMPANY v. ROWLAND et al.
    (746 SE2d 924)
   Ellington, Presiding Judge.

In this case, the following circumstances exist and are dispositive of the appeal:

(1) The evidence supports the judgment;

(2) No reversible error of law appears and an opinion would have no precedential value;

(3) The judgment of the court below adequately explains the decision; and

(4) The issues are controlled adversely to the appellant for the reasons and authority given in the appellees’ brief.

The judgment of the court below therefore is affirmed in accordance with Court of Appeals Rule 36.

Judgment affirmed.

Phipps, C. J., Barnes, P. J., and Miller, J., concur. Andrews, P. J., Ray and Branch, JJ., dissent.

BRANCH, Judge,

dissenting.

In this case’s first appearance before this Court, we affirmed a jury’s verdict and a trial court’s judgment awarding nearly $4 million to the widow and estate of William Rowland, who died as a proximate result of the negligence of employees of DeKalb Medical Center and Medical Staffing. See Medical Staffing Network v. Connors, 313 Ga. App. 645, 646-650 (722 SE2d 370) (2012). The question presented in this appeal is whether the trial court properly granted summary judgment to plaintiffs in their declaratory action against Lexington Insurance Company concerning Lexington’s provision of excess liability coverage to Medical Staffing, which was held 95 percent liable for plaintiffs’ losses. Medical Staffing was self-insured to the extent of $ 1 million and carried a $5 million policy issued by Lexington. Because I conclude that the trial court erred when it granted summary judgment to Medical Staffing as to its duty to cooperate with Lexington and as to Lexington’s waiver of defenses to coverage, I respectfully dissent.

A jury found in favor of the Rowlands and against DeKalb Medical Center and Medical Staffing in the amount of $1,364,279.40 for William Rowland’s medical bills and his pain and suffering. The jury found in favor of Janet Rowland, and against DeKalb Medical only, in the amount of $2.5 million on her wrongful death claim. The jury also found that DeKalb Medical’s employee was 5 percent at fault for William Rowland’s injuries and death, while an employee of Medical Staffing, Peggy Howard, was 95 percent at fault. See Medical Staffing, supra at 646-647.

The parties entered into settlement negotiations immediately after the jury’s verdict, during which negotiations Medical Staffing disclosed that it would likely be filing for bankruptcy. On March 18, 2010, Medical Staffing agreed to pay the $737,852.93 balance of its self-insured retention; on March 19, the parties agreed to settle the suit for $1,150,000, withDeKalb Medical paying $100,000 and Medical Staffing contributing the rest. On June 2, 2010, the Rowlands executed the settlement agreement. Less than two weeks later, on June 15,2010, Medical Staffing informed the Rowlands that, because of its insolvency and impending bankruptcy, it would not fulfill its obligations under the settlement agreement. The following day, Lexington notified Medical Staffing that its failure to honor the settlement agreement could result in a loss of coverage. Lexington then tendered two checks to the Rowlands totaling $262,147.07, or Lexington’s portion of the amount due under the settlement agreement.

The Rowlands never deposited Lexington’s checks. Instead, on June 18, 2010, the Rowlands moved to rescind the settlement agreement based on Medical Staffing’s failure to contribute its share of the settlement. Three days later, on June 21, 2010, Lexington notified Medical Staffing that Lexington was terminating coverage based, inter alia, on Medical Staffing’s failure to perform the settlement agreement. See Medical Staffing, supra at 650-651 (3). Medical Staffing then filed for bankruptcy and moved the bankruptcy court for permission to continue to pay its self-insured retention amounts, as well as other insurance obligations, as “imperative” to its ongoing business credibility. On July 7, 2010, the bankruptcy judge authorized Medical Staffing to pay, “in [its] reasonable business judgment,” any self-insured retention claims “to the extent they may become due and payable according to the terms of such policies.” Medical Staffing never paid any part of its $1 million self-insured retention or any other amount to either DeKalb Medical or the Rowlands, however. Instead, on November 18, 2010, and after it had stopped paying its own defense costs in the Rowlands’ underlying action, Medical Staffing signed an agreement under which Lexington assumed Medical Staffing’s defense without waiving Lexington’s right to disclaim coverage.

In the wake of the settlement’s collapse, the trial court granted DeKalb Medical’s cross-claim against Medical Staffing for indemnity (on the theory that Medical Staffing was DeKalb Medical’s agent as to the negligence causing William Rowland’s death) and thus entered judgment against Medical Staffing in the total principal amount of almost $3.75 million. The Rowlands then filed this action seeking a declaratory judgment as to Lexington’s obligation to pay the $3.75 million judgment against Medical Staffing, less Medical Staffing’s $1 million self-retention amount. Both parties moved for summary judgment on the question of whether Medical Staffing’s refusal to honor the settlement agreement allowed Lexington to limit or terminate coverage for the Rowlands’ claim. After a hearing, the trial court granted the Rowlands’ motion and denied Lexington’s motion.

On appeal, Lexington asserts that the trial court erred when it (1) held Lexington responsible for that portion of the judgment assessed against DeKalb Medical Center; (2) concluded that Medical Staffing had not breached the policy’s consent and cooperation clauses; and (3) concluded that Lexington had waived its right to disclaim coverage.

The parties agree that Lexington issued the policy in February 2009 and delivered it to Medical Staffing in Florida. See Gen. Elec. Credit Corp. v. Home Indem. Co., 168 Ga. App. 344, 350 (2) (b) (309 SE2d 152) (1983) (“[An] insurance contract is constructively made at the place where the contract is delivered.”) (punctuation omitted). In the absence of any choice-of-law provision in the policy itself, then, and as the parties also agree, the trial court properly considered Florida law to construe the language of the policy. Id. at 352 (2) (b) (applying Alabama law to strike down a provision limiting the time for actions on a contract delivered in Alabama). Specifically, because questions as to an insurer’s defenses to coverage, including any waiver of such defenses, concern the parties’ obligations under an insurance policy, they are “substantive issues” governed by the law of the state in which the policy was delivered — here, Florida. See State Farm Fire & Cas. Co. v. Mills Plumbing Co., 152 Ga. App. 531, 537 (2) (263 SE2d 270) (1979).

Although I agree with the majority’s implicit conclusion that Medical Staffing did not refuse its consent to the settlement, I believe that issues of fact remain as to (a) whether Lexington properly-terminated coverage due to Medical Staffing’s failure to cooperate with Lexington in reaching and implementing the settlement and (b) whether Lexington waived its right to disclaim coverage.

(a) To support their argument that Medical Staffing had no choice but to refuse to pay its self-insured retention, the Rowlands point to testimony by Lexington’s own spokesperson that “the chief restructuring officer” (CRO) for Medical Staffing, Loughlin Meghi & Co., “would not allow those funds to be released” in the wake of the bankruptcy. As Lexington points out, however, the contract retaining Loughlin Meghi provided that as CRO for Medical Staffing, Loughlin Meghi was obligated to “consult with and obtain input from the appropriate members of senior management” of Medical Staffing, with all acts undertaken “subject to the direction, review, and authority” of Medical Staffing. It is also undisputed that the settlement, which had reduced Lexington’s exposure from nearly $4 million to approximately $262,000, collapsed as an immediate and direct result of Medical Staffing’s decision not to pay nearly $788,000 of the $1,150,000 amount due under the settlement agreement. Indeed, the trial court rescinded the agreement on this very ground. See Medical Staffing, supra at 651 (3).

Under Florida law, an insured is under an obligation to conduct settlement negotiations with a plaintiff in good faith for the purpose of minimizing both the insured’s and the insurer’s liabilities.

Only that failure which constitutes a material breach and substantially prejudices the rights of the insurer in defense of the cause will release the insurer of its obligation to pay. The question of whether the failure to cooperate is so substantially prejudicial as to release the insurance company of its obligation is ordinarily a question of fact, but under some circumstances, particularly where the facts are admitted, it may well be a question of law.

Bontempo v. State Farm Mut. Auto. Ins. Co., 604 S2d 28, 29 (Fla. App. 1992). This record shows that Medical Staffing requested and obtained permission from the bankruptcy judge to pay its self-insured retention amount for the purpose of maintaining its credibility as a business, and then decided shortly afterward not to make any such payments to the Rowlands or anyone else. Because this record supports a reasonable conclusion that Medical Staffing’s decision not to pay its lion’s share of the settlement was taken in the exercise of its business judgment, the question of whether this decision amounted to a “failure to cooperate” must be left for a jury to consider under Florida law. See Ramos v. Northwestern Mut. Ins. Co., 325 S2d 87, 89 (Fla. App. 1975) (jury properly determined that an insured breached his duty to cooperate with insurer), aff’d, 336 S2d 71 (Fla. 1976).

Decided July 16, 2013.

Carlton Fields, Walter H. Bush, Jr., Christopher B. Freeman, Catherine S. Aeree, for appellant.

(b) Under Florida law, “engaging in negotiations looking toward a possible settlement” of a loss or claim cannot ‘he deemed to constitute a waiver of any provision of a policy or of any defense of the insurer thereunder.” Fla. Stat. Ann. § 627.426 (1), (1) (c); see also OCGA § 33-24-40 (3). Likewise, Florida courts define “waiver” as “the intentional relinquishment or abandonment of a known right or privilege, or conduct that warrants an inference of the intentional relinquishment of a known right.” (Citation and punctuation omitted.) Hale v. Dept. of Revenue, 973 S2d 518, 522 (Fla. App. 2007).

The crux of the waiver doctrine rests upon conduct demonstrating an intent to relinquish a known right. If a party relies upon the other party’s conduct to imply a waiver, the conduct relied upon to do so must make out a clear case of waiver. Waiver does not arise merely from forbearance for a reasonable time.

(Citations and punctuation omitted.) Id. at 522-523.

The Rowlands’ assertion that Lexington waived coverage as a result of its actions during and immediately after the apparent collapse of the settlement agreement runs afoul of these principles. It is undisputed that Lexington advised all parties during the settlement that it would not “drop down” and pay Medical Staffing’s self-insured amount; that on the day after Medical Staffing repudiated the settlement agreement in June 2010, Lexington notified Medical Staffing that such repudiation endangered its excess coverage; and that Medical Staffing agreed in writing some months afterward that in exchange for Lexington’s defense, Lexington would not be held to have waived any defenses to coverage. Given these undisputed facts, I believe that summary judgment should not have been granted to plaintiffs on this issue.

For these reasons, I respectfully dissent. I am authorized to state that Presiding Judge Andrews and Judge Ray join in this dissent.

Cash, Krugler & Fredericks, Alwyn R. Fredericks, John G. Mabrey, Summerville Moore, J. Darren Summerville, for appellees.

       Because Medical Staffing’s self-insured retention ($1 million less expenses incurred in investigating and defending the Rowlands’ claim) was then $787,852.93, the settlement required Lexington to pay $262,147.07 (including $130,685.15 to discharge a Medicare lien).

       Although the matter is hardly plain from the trial court’s final order, the parties apparently agree that Lexington has never been under any responsibility, even faced with Medical Staffing’s insolvency, to “drop down” and pay the first $ 1 million of the latter’s liability.
      The description of an excess insurer’s coverage as beginning when the insured or the primary insurer had either paid or been held liable to pay the limits of the underlying policy has not generally required the excess insurer to drop down to replace the coverage of an insolvent primary insurer, although there is limited authority to the contrary.
      Couch on Insurance, § 6:38 (3d ed., database updated Dec. 2012), and cases cited.