All Business Corp. v. Choi
| Decision Date | 08 June 2006 |
| Docket Number | No. A06A0295.,A06A0295. |
| Citation | 280 Ga. App. 618,634 S.E.2d 400 |
| Parties | ALL BUSINESS CORPORATION v. CHOI. |
| Court | Georgia Court of Appeals |
Smith, White, Sharma & Halpern, Furman Smith, Jr., Atlanta, for appellant.
Jin Choi, pro se.
In this appeal, we affirm the grant of summary judgment to Jin Choi, an attorney who was sued by All Business Corporation ("ABC"), a secured creditor of Sang Woo Gu, for breach of trust and conversion of funds arising out of Choi's closing of the sale of Gu's business to a third party.
On appeal from the grant of a motion for summary judgment, we review the evidence de novo, viewing it in the light most favorable to the nonmovant, to determine whether a genuine issue of fact remains and whether the moving party is entitled to judgment as a matter of law.1
So viewed, the record shows that on July 17, 2001, ABC attempted to perfect a security interest in the assets of Gu's business, known as CCO Check Cashing and located on Buford Highway in Doraville ("the business"). The financing statement filed in DeKalb County Superior Court listed the debtor's name as "Gu, SangWoo" and stated the name of the business as "CCO Check Cashing-Buford." The record shows that the debtor's name is actually "Sang Woo Gu" and that the correct name of the business is "CCO Check Cashing."
On or about September 24, 2002, Gu sold the business for $197,000. Choi acted as the closing attorney/escrow agent and prepared the agreement for the sale of the business. The agreement recited that "[i]t is expressly understood and acknowledged by all parties that the Closing Attorney will not do a search for general docket, UCC Financing Statement, or any other forms pertaining to the title of the Business." In the agreement, Gu warranted that there were no liens or encumbrances "of any nature whatsoever unsatisfied against said business." Finally, insofar as it is relevant to this appeal, the agreement provided that Gu and the buyer
Notwithstanding the provision in the agreement stating that he would not search the docket, Choi conducted a UCC record search through the Georgia Superior Court Clerks Cooperative Authority. According to the affidavit Choi filed in support of his motion for summary judgment, he conducted the search utilizing the correct name of the seller, "Sang Woo Gu," and the business, "CCO Check Cashing." Choi averred that he did not find a financing statement under either name for the Buford Highway location, although the search returned financing statements showing that ABC held security interests in three other check cashing concerns owned by Gu. Choi further averred that prior to the sale, he questioned Gu about whether there were any liens on the business, and Gu stated that there were none; that Choi was unaware of ABC's security interest in the business prior to closing the sale and disbursing the proceeds thereof to Gu; that soon after the sale, he learned that Gu owed money to ABC; that Gu used the majority of the proceeds of the sale to pay other debts, but at Choi's request, Gu brought the remaining $80,000 to Choi's office that Choi offered these funds to ABC's principal, Chang Mo Bang, who rejected the offer; and that Choi returned the funds to Gu at Gu's demand. An affidavit filed by Choi's wife and office manager, June Sun Choi, in connection with an earlier lawsuit, states that the funds were stored in Choi's office from the time of the closing until September 30, 2002, when Gu demanded that Choi return the $80,000.
Bang averred that he learned on September 27 that Gu had defaulted on the underlying obligation of the business and two of the other check cashing stores and that Gu was indebted to ABC for approximately $235,000. Bang further averred that he notified Choi of Gu's default on or about September 29, 2002; that on the following day, Choi informed Bang that Gu had sold the business and that Choi was holding $80,000 in proceeds from the sale; that Choi offered the funds in exchange for full satisfaction of the $235,000 debt, which Bang refused to accept; and, finally, that he performed a "simple stem search" for "CCO" and "Gu," which revealed ABC's security interest in all four of Gu's stores, including the business at issue.
The record also shows that Choi sent Bang a letter by facsimile on September 30, 2002. In the letter, Choi states that he represents Gu and that Gu intends "to repay the $230,000 that he accepted from you in the form of a loan." Choi notified Bang that Choi was holding $80,000, representing proceeds from the sale of the business, and offered to tender those funds, assign a promissory note of $150,000, and pay an additional $3,000 in cash. The letter also requests a release of all liens placed against Gu's businesses and home. An affidavit from Gu reflects that he asked Choi to send the letter even though Choi had already returned the funds to Gu. The affidavit also states that Gu engaged Choi as a closing attorney but that Choi knew nothing of Gu's "problems" with ABC until after the closing.
Finally, the record shows that on the following day, October 1, 2002, counsel for ABC sent Choi a letter by facsimile demanding immediate possession of the funds representing the proceeds of the sale of the business. In the letter, counsel explained that the funds actually represented proceeds on the sale of ABC's money orders, and as such were trust funds held by Gu as ABC's agent. Counsel further explained that ABC held a security interest in the proceeds. A copy of the security agreements between ABC and Gu was attached to the letter.
Ultimately ABC sued Choi, alleging two causes of action: breach of trust and conversion. In the first count, breach of trust, ABC contended that Choi assumed a fiduciary duty to both Gu and the buyer by acting as the escrow agent; that part of his duty, particularly with respect to the buyer, was to satisfy all liens against the business prior to distributing any proceeds to Gu; that Choi had constructive knowledge of ABC's security interest prior to the sale; that after the sale, ABC notified Choi of its security interest before Choi disbursed the proceeds; and that Choi, in breach of his fiduciary duty, delivered the proceeds of the sale to Gu. ABC claimed damages of $80,000 and sought to recover attorney fees and expenses of litigation as well. In the second count of the complaint, ABC alleged that Choi committed conversion by exercising dominion and control over the proceeds of the sale and paying them to Gu, despite actual and constructive knowledge of ABC's superior rights. In addition to the other damages claimed in the first count, ABC sought punitive damages in the amount of $100,000.
In his motion for summary judgment, Choi asserted that ABC's security interest in the business was not perfected because the name of the debtor was incorrectly listed; that, as a result, Choi did not have constructive notice of ABC's security interest; and that ABC failed to establish the essential elements of a conversion claim. In a subsequent hearing memorandum, Choi asserted that he owed no duty to ABC with regard to the closing because the buyer and seller agreed that Choi would not perform a search for liens. The trial court granted Choi's motion without stating its reasons therefor.2 ABC appeals.
ABC argues that the trial court erred in granting summary judgment to Choi because (1) Choi's actual knowledge of ABC's security interest subsequent to closing "trumps any alleged deficiency in [ABC's] [f]inancing [s]tatement"; and (2) the disclaimer clause in the agreement for the sale of the business could not affect Choi's liability to ABC.3 For clarity, we address ABC's arguments in accordance with the causes of action alleged in its complaint.
1. Breach of trust. An action for breach of trust cannot lie absent evidence of a fiduciary duty. "A claim for breach of fiduciary duty requires proof of three elements: (1) the existence of a fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by the breach."4 In its complaint, ABC asserts that Choi, by acting as escrow agent in the sale of the business, assumed a fiduciary duty to Gu and the buyer to ensure proper application of the proceeds of the sale of the collateral. But ABC has not cited a single Georgia case showing that it is entitled to recover for any alleged breach of a fiduciary duty owed to a third party.5 Nor has ABC cited Georgia authority in support of its contention that an attorney who prepares closing documents for the sale of a business owes a duty to the seller's secured creditor to discover the security interest prior to the closing.
It is true that, under certain circumstances, when an attorney undertakes to provide information, the attorney owes a duty of reasonable care and competence to "foreseeable third parties who rely upon the information."6 But in the case at bar, Choi did not undertake to provide information to either Gu or the buyer concerning the status of any liens on the business. In fact, the agreement states to the contrary. The fact that he performed a search for liens does not change this result, because, as we hold in Division 2(a), infra, ABC's lien was not properly perfected, so that Choi did not have constructive notice of it.
The trial court did not err in granting summary judgment on the breach of trust claim because there is no evidence that Choi owed a duty to ABC.
2. The crux of ABC's appeal is that the trial court erred in granting summary judgment to Choi on its conversion claim. The tort of conversion applicable to secured creditors...
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