These companion appeals arise out of a lawsuit filed by Fairfield Financial Services, Inc. (the "Bank") against appellants Nathan Baxter, Tim Burgess, and Zach W. McLeroy (the "Guarantors"), seeking to recover the outstanding balances owed on notes upon which appellants served as guarantors. The parties filed motions for summary judgment. The Bank argued that it was entitled to judgment as a matter of law on its breach of contract claims and to attorney fees. The Guarantors argued that the Bank's lawsuit was barred by res judicata as a result of a final judgment entered in a related case in Alabama. The trial court denied both motions and granted certificates of immediate review to both parties. We granted the Bank's and the Guarantors' applications for interlocutory review. In Case No. A10A1107, the Guarantors appeal the denial of their motion, and in Case No. A10A1108, the Bank appeals the denial of its motion. We affirm the denial of the Guarantors' motion for summary judgment in Case No. A10A1107 and reverse the denial of the Bank's motion for summary judgment in Case No. A10A1108.
The record shows that the Bank, a collateral agent for a syndicated loan, provided financing to Sapphire Beach West Development, LLC ("Sapphire"), to purchase and redevelop hurricane-damaged condominiums in Alabama. Sapphire executed several promissory notes in the aggregate principal amount of $23,360,000 ("First Priority Notes") on or about June 3, 2005, and each of the Guarantors executed an Unconditional Guaranty of Payment and Performance (the "Guaranties"), which provided that they unconditionally and irrevocably guaranteed the payment of the notes extended to Sapphire. The Guarantors each held a membership interest in Sapphire. On March 9, 2007, Sapphire executed another promissory note in the amount of $2,420,000 ("Second Priority Note"), and each of the Guarantors executed Guarantees pertaining to the Second Priority Note as well. The project failed, and litigation ensued, first in Alabama, then in Georgia.
On or about June 11, 2007, some of the owners of the damaged condominium units (the "Participating Owners") filed a declaratory judgment action in Alabama against Sapphire, the Bank, and other defendants, requesting that the court declare their liens to be superior to any other encumbrances on the property and seeking the foreclosure of their vendor's and equitable liens on the property (the "Alabama action"). The Participating Owners had a stake in Sapphire's
On or about January 28, 2008, the Bank filed the instant action against the Guarantors seeking to recover the outstanding balance of the Notes totaling $25,780,000 (the "Georgia action"). On March 26, 2008, the Guarantors moved to stay the Georgia action pending the outcome of a court-ordered mediation in the Alabama action. In their motion, the Guarantors indicated that because of the overlap between the actions, they had agreed to participate in the mediation in Alabama, with the hope that the entire matter could be successfully resolved. The trial court granted the motion to stay in part, staying the case for 90 days, subject to the right of any party to conduct discovery related to filing a summary judgment motion.
On or about April 28, 2008, the Bank filed a third-party complaint against the Guarantors in the Alabama action seeking indemnification for the costs incurred in defending the action. The Bank did not assert its right to collect the unpaid balance from the Guarantors in the Alabama action. The Guarantors did not file an answer or enter an appearance in the Alabama action. The Bank filed a "Motion to Make Default Judgments Final as to Damages Incurred to Date and Conduct Hearing on Damages of Third-Party Plaintiff," which the Alabama court granted in an order dated September 3, 2008. In the order, the Alabama court awarded final judgment in the amount of $909,487.11 to the Bank against the Guarantors for attorney fees and costs incurred in defending the action and "reserve[d] its right to conduct further hearings as it deem[ed] necessary and proper to make final and carry into effect the Court's default judgments for future defense costs."
On March 5, 2009, the parties to the Alabama action, including the Guarantors, entered into a settlement agreement that resolved the Alabama action. A few months later on June 8, 2009, the Alabama court entered its final order, granting the Bank's Motion for Entry of Final Judgment. The court ruled as follows:
The Guarantors argue that the Alabama court's final order bars the instant action.
Case No. A10A1107
1. In three related enumerations of error, the Guarantors argue that the trial court erred in concluding that res judicata did not bar the instant action. We disagree.
OCGA § 9-12-40 codifies Georgia's basic common law rule of res judicata. The statute provides that "[a] judgment of a court of competent jurisdiction shall be conclusive between the same parties and their privies as to all matters put in issue or which under the rules of law might have been put in issue in the cause wherein the judgment was rendered until the judgment is reversed or set
The Guarantors argue that res judicata applies to bar the Georgia action because their alleged liability in both instances was based on the same contractual agreement, the Guaranties. In support of this argument, the Guarantors rely on Flagg Energy Dev. Corp. v. Gen. Motors Corp.
Our holdings in Flagg
Accordingly, res judicata does not bar the instant action. Thus, the trial court's denial of the Guarantors' motion for summary judgment was correct.
Case No. A10A1108
2. In this cross-appeal, the Bank appeals the denial of its motion for summary judgment on its breach of contract claim and its claim for attorney fees. In opposition to the Bank's motion, the Guarantors argue that they were fraudulently induced to execute the Guaranties, rendering them void and unenforceable. The Guarantors also maintain that the Bank breached the duty of good faith and fair dealing that is implied in every contract under Florida law. The trial court denied the Bank's motion for summary judgment, concluding that Florida law governed the Guaranties, and that under Florida law, the Guarantors raised genuine issues of material fact that precluded the entry of summary judgment in the Bank's favor. As explained in detail below, we conclude that the trial court erred.
3. In its first enumeration of error, the Bank argues that the trial court erred when it applied Florida law to the Guarantors' defenses and counterclaims related to the Guaranties, which sound in tort rather than contract. We agree.
The choice-of-law provision in the Guaranties provided as follows: "This Guaranty shall be governed by the laws of Florida." Citing Young v. W.S. Badcock Corp.,
In Young, the dealership agreement at issue contained the following choice-of-law provision: "This Agreement and the terms hereof shall be governed by and construed in accordance with the laws of the State of Florida."
The same result is warranted here because the choice-of-law provision here is similar to that at issue in Young. The Guaranties state only that "[t]his Guaranty" is to be governed by Florida law. Since the alleged misrepresentations in the instant case, which are discussed below, occurred in Georgia, Georgia law governs the validity of the Guarantors' defenses sounding in tort. Therefore, we now turn to the issue of whether the Bank was entitled to summary judgment under Georgia law.
4. The Bank argues that the trial court erred in holding that a triable issue of fact
Sapphire originally had four members, the three Guarantors and Riverbrooke. The Guarantors claim that they were fraudulently induced to sign the Guaranties based on alleged statements made by Paul Williams, a loan officer employed by the Bank, about the creditworthiness of Hornyak and Chandler, who owned and operated Riverbrooke. According to the Guarantors, Williams told them that Chandler and Hornyak "were the Bank's strongest borrowers," "were loved at the Bank," and "were good people to do business with"; that the project was a "great deal"; and that the property that secured the loan had been appraised at $48.2 million. The Guarantors maintain that these representations were false. Even assuming the Guarantors are correct, however, they cannot show that they were fraudulently induced to enter the Guaranties under Georgia law.
"The tort of fraud has five elements: a false representation by a defendant, scienter, intention to induce the plaintiff to act or refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff."
"A party can be held liable for fraudulently concealing a material fact only if the party has a duty to disclose or communicate the fact."
Moreover, "where the representation consists of general commendations or mere expressions of opinion, the party to whom it is made is not justified in relying upon it and assuming it to be true; he is bound to make inquiry and examination for himself so as to ascertain the truth."
Similarly, Williams' alleged statement about the appraised value of the Alabama property does not establish justifiable reliance. We have held that an appraisal is simply an opinion of the value of real estate, upon which a buyer is not entitled to rely.
It follows then that "[f]raud cannot be the basis of an action if it appears that the party alleging the fraud had equal and ample opportunity to prevent it and yet made it possible through the failure to exercise due diligence."
The record shows that prior to any communication with the Bank about the project, two of the Guarantors, Burgess and McLeroy, met with Chandler and Hornyak to discuss the project upon Hornyak's invitation. Burgess testified that at that meeting, he and several others received a copy of the pro forma on the project and saw the appraisal of the real property. Additionally, he recalled that the potential investors were told that they would not incur any expense to participate in the project but would earn approximately 12 percent of $53 million. McLeroy also testified that he attended the meeting after receiving a call from Hornyak and that he was shown several documents, including the pro forma and appraisal. Baxter, the third appellee, testified that he had no communications with Hornyak or Williams until after he had already signed the Guaranty. Accordingly, as there was no confidential relationship between the Guarantors and the Bank, and because the Guarantors failed to exercise due diligence to protect their own interests, the Guarantors' defense that the Bank fraudulently induced them to enter into the Guaranties fails.
The Guarantors argue that granting summary judgment in the Bank's favor would be premature because the Guarantors filed a counterclaim for setoff and recoupment to recover the following damages: (1) the difference between the actual value of the property and the represented value; (2) the difference between the actual value of the project and the value it would have had if the Bank's misrepresentations had been true; (3) costs, fees, and interest paid to the Bank; (4) costs, fees, and expenses incurred due to the Bank's wrongful acts. This argument lacks merit.
"Under Georgia law, both setoff and recoupment are considered counterclaims."
There can be no setoff or recoupment here because there is no claim that the Bank owed any debt to the Guarantors.
In sum, because the Guarantors cannot establish the elements necessary to substantiate their defense of fraudulent inducement, the trial court erred in denying the Bank's motion for summary judgment. Accordingly, we remand the case to the trial court for proceedings consistent with this opinion, specifically to determine the amount owing to the Bank pursuant to the Guaranties.
5. In light of our holding in Division 3, we need not address the Bank's remaining enumerations of error as they relate to other theories upon which the trial court relied to deny the motion for summary judgment, all of which ultimately depend upon a finding that a genuine issue of fact existed as to whether the Bank committed fraud.
Judgment affirmed in Case No. A10A1107. Judgment reversed in Case No. A10A1108.
SMITH, P.J., and ADAMS, J., concur.