Baxter v. Fairfield Financial Serv. Inc. Fairfield Financial Serv. Inc. v. Baxter

• Decision Date: 26 April 2011
• Docket Number: A10A1108.,Nos. A10A1107,s. A10A1107
• Parties: BAXTER, et al.v.FAIRFIELD FINANCIAL SERVICES, INC. et al.Fairfield Financial Services, Inc. et al.v.Baxter, et al.
• Court: Georgia Court of Appeals

307 Ga.App. 286

704 S.E.2d 423

10 FCDR 3399

BAXTER, et al.

v.FAIRFIELD FINANCIAL SERVICES, INC. et al.Fairfield Financial Services, Inc. et al.

v.Baxter, et al.

Nos. A10A1107

A10A1108.

Court of Appeals of Georgia.

Oct. 15, 2010.Reconsideration Denied Dec. 2, 2010.Certiorari Denied April 26, 2011.

Ichter Thomas, Cary Ichter, S. Renee Huskey, Atlanta, for appellants.Weissman, Nowack, Curry & Wilco, Leigh M. Wilco, Atlanta, McGuire Woods, Robert J. Waddell Jr., Atlanta, Charles J. Myers, for appellees.MIKELL, Judge.

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.

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9–11–56(c). A de novo standard of review applies to an appeal from a grant or denial of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant.¹

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 project because they had opted to receive new units in the redeveloped condominiums in return for their conveyance of the interest in their damaged units to Riverbrooke Capital Partners, LLC (“Riverbrooke”).²

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 claim of [the Bank] against [Sapphire] for judicial foreclosure is dismissed without prejudice or waiver of the right of [the Bank] to later initiate a non-judicial foreclosure of its mortgage; There be Judgment in favor of [the Bank] against [Sapphire] in the sum of $909,487.11. Said judgment is joint and several with the Court's previous judgment against [the Guarantors] of September 3, 2008. The Court's Judgment against [the Guarantors] is affirmed. Other than as expressly set out herein, all claims remaining against [the Guarantors] are dismissed. This Order resolves all pending claims against all parties and constitutes a final adjudication of all claims in this matter and is without prejudice as to any other litigation including Fairfield Financial Services, et al. v. Baxter, et al., Civil Action File No. 08C–04159–2 pending before the State Court of Gwinnett County, State of Georgia [the instant action] or claims of any parties against Steve Hornyak and George “Jeff” Chandler.

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 aside.” ³ “[F]or one action to act as a bar to a subsequent action, the two actions must share certain characteristics. First, the parties to the two actions must be identical and, second, the subject matter of the actions must also be identical.” ⁴ Additionally, “the party against whom the doctrine of res judicata is raised must have had a full and fair opportunity to litigate the issues in the first action.” ⁵

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.⁶ and Green v. Bd. of Directors of Park Cliff Unit Owners Assn.⁷ In our view, however, these cases do not warrant a finding that res judicata bars the instant action. In Flagg, the plaintiffs purchased turbine engines from one company that were manufactured by General Motors (“GM”).⁸ After becoming dissatisfied with the engines, the plaintiffs entered a settlement agreement with GM; and as a part of the settlement, GM assumed all of the duties of the seller under the original purchase order.⁹ The plaintiffs filed an action in Connecticut against GM based upon the terms of the purchase order, and then filed a second action in Georgia, alleging a breach of the settlement agreement.¹⁰ We concluded that the subject matter in both actions involved GM's duties under the settlement agreement; therefore, res judicata applied to bar the plaintiffs' Georgia claim.¹¹ In Green,¹² the plaintiff homeowner sued his condominium association for its failure to repair a roof in one action and to maintain the common areas in another.¹³ We concluded that res judicata applied because both actions concerned the same subject matter, that is, the association's failure to maintain the complex in accordance with its bylaws and standards.¹⁴

Our holdings in Flagg ¹⁵ and Green ¹⁶ were not based on the fact that the claims in the actions arose from the same document. Rather, the inquiry was whether the subject matter was identical.¹⁷ In the instant case, the subject matters in the two actions are not identical. The Alabama action concerned Sapphire's breach of its obligations under the mortgage documents entered into with the Participating Owners, which triggered the Guarantors' obligation to indemnify the Bank for the cost of the litigation. In contrast, the Georgia action concerned the Guarantors' breach of their contractual obligation to repay Sapphire's debt. We recognize that the subject matter of the actions is linked. But

[t]he fact that the subject matter of different lawsuits may be linked factually...