Browne & Price, P. A. v. Innovative Equity Corporation

• Decision Date: 20 October 2021
• Docket Number: A21A1005
• Citation: 361 Ga.App. 521,864 S.E.2d 686
• Parties: BROWNE & PRICE, P. A. v. INNOVATIVE EQUITY CORPORATION.
• Court: Georgia Court of Appeals

361 Ga.App. 521

864 S.E.2d 686

BROWNE & PRICE, P. A.

v.INNOVATIVE EQUITY CORPORATION.

A21A1005

Court of Appeals of Georgia.

October 20, 2021

Kim Monroe Jackson, Atlanta, Joseph Jackson Harris, for Appellant.

Stacey Allen Carroll, Atlanta, David Visser Houtsma, Angie Michun Walton, for Appellee.

Hodges, Judge.

Innovative Equity Corporation, a real estate seller, sued Browne & Price, P. A. for breach of contract, breach of fiduciary duty, and legal malpractice arising from a failed real estate transaction in which Browne & Price served as the escrow agent for the prospective purchaser, Chris Harrell.¹ Browne & Price moved for summary judgment on each of Innovative's claims, arguing that (1) a liquidated damages provision in the parties’ purchase and sale agreement represented an unenforceable penalty; (2) an indemnity clause in the parties’ agreement insulated Browne & Price from liability; and (3) the absence of an attorney-client relationship precluded Innovative's malpractice cause of action. Following a hearing, the Superior Court of Baldwin County denied the motion, but granted Browne & Price a certificate of immediate review. We granted Browne & Price's application for interlocutory appeal, and now conclude that the liquidated damages provision of the parties’ contract was not an unenforceable penalty, that material issues of fact exist relating to an indemnification clause in the contract, and that the absence of an attorney-client relationship bars Innovative's legal malpractice cause of action against Browne & Price. Therefore, we affirm in part and reverse in part the trial court's order denying Browne & Price's motion for summary judgment.

"We review a grant or denial of summary judgment de novo and construe the evidence in the light most favorable to the nonmovant." (Citation and punctuation omitted.) Crown Series, LLC v. Holiday Hospitality Franchising, LLC , 357 Ga. App. 523, 851 S.E.2d 150 (2020). So viewed, the record reveals that Innovative and Harrell entered a purchase and sale agreement for certain real property in Fulton County on April 3, 2018, identifying the parties as the seller and the purchaser, respectively (the "Contract"). The Contract provided for a purchase price of $1,665,000 to be paid by the April 20, 2018 closing date. The Contract also required a $60,000 earnest money payment by check within three days of the date of the Contract, to be paid to Browne & Price as the "Holder of Earnest Money."² To that end, Paragraph 7 (d) of the Contract stated that

[a]ll parties hereby covenant and agree to: (1) Indemnify and hold Holder harmless from and against all claims, injuries, suits and damages arising out of the performance by Holder of its duties; (2) not to sue Holder for any decision of Holder to disburse earnest money in accordance with this Agreement.

Because the parties agreed that the transaction would be an all-cash sale, the Contract acknowledged that Browne & Price would represent Harrell at closing.³

On or about April 3, 2018, Harrell tendered a check in the amount of $60,000 to an attorney with Browne & Price. However, at no point did Browne & Price deposit an earnest money check from Harrell into escrow.⁴ Thereafter, Harrell failed to close the purchase of the property on April 20, 2018 as agreed.

As a result of Harrell's failure to close, Innovative sent a notice of termination to Browne & Price on April 23, 2018 requesting payment of the earnest money as compensation. Browne & Price did not remit payment to Innovative. Thereafter, Innovative sold the property to another buyer for $1,496,500, closing on July 16, 2018.

Innovative sued Harrell for breach of contract and Browne & Price for breach of contract, breach of a fiduciary duty, and legal malpractice. Browne & Price moved for summary judgment, alleging that the earnest money due under the Contract — which is, in essence, a liquidated damages provision⁵ — is unenforceable because it was "an arbitrary number to be haggled over" rather than a "reasonable pre-estimate of damages that would likely be incurred as a result of [a] breach." In addition, Browne & Price argued that the hold-harmless provision of the Contract shielded it from liability. Finally,⁶ Browne & Price asserted that it was not liable to Innovative for legal malpractice because it did not have an attorney-client relationship with Innovative.

Following a hearing, the trial court denied Browne & Price's motion, concluding that the liquidated damages provision was enforceable due to the "unambiguous contract language that was agreed to by the parties who were all experienced in the real estate field and the fact that the amount of earnest money was not unreasonable[.]" The trial court further concluded that the issue of whether Browne & Price was only partially negligent and, thus, whether it was protected by the indemnification provision was a jury issue. Finally, as to Innovative's claim of legal malpractice, the trial court held that "the escrow agent is properly classified as the agent of both parties, rather than as a subagent of only one of the parties with a fiduciary relationship owed solely to that party." In the manner explained above, this appeal followed.

1. Considering Browne & Price's second enumeration first,⁷ Browne & Price contends that the trial court erred in ruling that the hold-harmless provision of the Contract does not indemnify it from Innovative's claims. We do not agree.

At the outset, we note that an "escrow agent's rights, duties, and defenses are as provided by law and by the terms of the escrow agreement." Marathon U. S. Realties v. Kalb , 244 Ga. 390, 392, 260 S.E.2d 85 (1979). Furthermore, "it is well established in Georgia that contractual indemnities do not extend to losses caused by an indemnitee's own negligence unless the contract expressly states that the negligence of the indemnitee is covered. " (Citation omitted; emphasis supplied.) Fayette County Nursing Home, LLC v. PRI X-Ray, LLC , 342 Ga. App. 143, 146, 801 S.E.2d 116 (2017) ; see also Holmes v. Clear Channel Outdoor, Inc. , 284 Ga. App. 474, 477 (2), 644 S.E.2d 311 (2007).

In this case, Paragraph 7 (d) of the Contract provided, in part, that "[a]ll parties hereby covenant and agree to ... [i]ndemnify and hold [Browne & Price] harmless from and against all claims, injuries, suits and damages arising out of the performance by [Browne & Price] of its duties[.]" (Emphasis supplied.) The trial court, after stating Browne & Price's argument that "the indemnification clause requires [Innovative] to indemnify [it] from any claims that do not solely arise from [its] negligence[,]" denied Browne & Price's motion for summary judgment because "the determination of sole or partial negligence is an issue to be determined by a jury[.]"

Where, as here, an indemnification clause requires indemnification of losses that "arise out of" certain specified events but does not explicitly mention the indemnitee's negligence, the clause still requires full indemnification although the indemnitee's negligence may have partially caused the loss.

(Citation omitted; emphasis supplied.) City of Atlanta v. Benator , 310 Ga. App. 597, 608 (7) (b), 714 S.E.2d 109 (2011), disapproved in part on other grounds, FDIC v. Loudermilk , 305 Ga. 558, 565 (1), n. 7, 826 S.E.2d 116 (2019) ; see also Lawyers Title Ins. Corp. v. New Freedom Mortgage Corp. , 285 Ga. App. 22, 30 (2), 645 S.E.2d 536 (2007).

Therefore, the linchpin is whether Browne & Price partially or solely caused any loss suffered by Innovative. Paragraph 7 of the Contract mandated that the $60,000 earnest money "shall be paid by check ... within 3 days from the Binding Agreement Date." Paragraph 3 of Exhibit C to the Contract provided that "Buyer shall ... be responsible for paying all earnest money ... to Holder in accordance with the terms of this Agreement ... and immediately notifying Seller when the same has been accomplished."⁸ (Emphasis supplied.) Despite the plain language of this agreement, the record is not clear as to whether Harrell even paid the earnest money or, if he did, whether Browne & Price lost Harrell's check: Harrell contends that Browne & Price informed him that it had lost his earnest money check and that he sent Browne & Price a photograph of a replacement check at its request, while Browne & Price claims that Harrell instructed it not to deposit a check (to which Harrell admitted during deposition testimony) because it was drawn on the wrong account and that Harrell never sent a substitute check. What is clear is that the escrow account was never funded with the earnest money.

When the record is viewed in a light most favorable to Innovative, it does not confirm the degree to which Browne & Price may have been at fault as a matter of law. In short, whether the fault for the failure to deposit the earnest money was solely Browne & Price's (in view of the possible loss of Harrell's check), solely Harrell's (for the instruction against depositing a check and the subsequent failure to remit a replacement check as requested), or some partial combination of the two is unclear from the record.

As a result, the trial court did not err in denying Browne & Price's motion for summary judgment.

2. Next, Browne & Price argues that the trial court erred in denying its motion for summary judgment related to payment of the earnest money as liquidated damages. In particular, Browne & Price contends that the trial court (1) erroneously focused on the reasonableness of the liquidated damages rather than the well-recognized elements used to evaluate such provisions; (2) relied solely on the "boilerplate language" of the Contract indicating that the liquidated damages were reasonable; and (3) erroneously considered the parties’ experience in the real estate industry. Although we disagree with the trial court's analysis, we agree with its conclusion that Browne & Price is not entitled to judgment as a matter of law.

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