CS-LAKEVIEW v. RETAIL DEV'T PARTNERS, A04A0696.

• Decision Date: 28 June 2004
• Docket Number: No. A04A0696.,A04A0696.
• Citation: 268 Ga. App. 480,602 S.E.2d 140
• Parties: CS-LAKEVIEW AT GWINNETT, INC. v. RETAIL DEVELOPMENT PARTNERS et al.
• Court: Georgia Court of Appeals

602 S.E.2d 140

268 Ga. App. 480

CS-LAKEVIEW AT GWINNETT, INC. v. RETAIL DEVELOPMENT PARTNERS et al.

No. A04A0696.

Court of Appeals of Georgia.

June 28, 2004.

Reconsideration Denied July 14, 2004.

Certiorari Denied November 22, 2004.

Alexius Conroy, CS-Lakeview at Gwinnett, Inc., Fairfield, CT, William Mayfield, Constance Rodts, Mayfield Commander & Pound LLC, Atlanta, for Appellant.

Donald Loft, Morris, Manning & Martin, John Manning, Manning & Associates, Atlanta, Thomas Tate, Andersen, Tate, Mahaffey & McGarity, P.C., Lawrenceville, for Appellees.

ADAMS, Judge.

In this ongoing litigation involving a right of first refusal to purchase certain property, the trial court granted a defendant's emergency motion to cancel notice of lis pendens on the property. The plaintiff now appeals. The appeal raises questions regarding the preclusive effect of a prior federal court judgment arising out of the same facts and transactions.

On November 2, 1995, CS-Lakeview At Gwinnett, Inc. ("CS-Lakeview") entered into an agreement with certain entities including Melvin Simon & Associates, Inc., and certain Simon-related entities, namely Si-Lake, Inc., and Si-Lake Associates, L.P. One provision of the agreement granted CS-Lakeview a right of first refusal to purchase approximately 136 acres of property (the "Gwinnett Property"), then owned by Lakeview at Gwinnett Associates, L.P. ("LAGA") and controlled by Simon-related entities. On June 15, 2001, following an unresolved dispute between the parties regarding whether CS-Lakeview had been properly offered the right of first refusal, LAGA sold the Gwinnett Property to Retail Development Partners, LLC ("RDP").

On December 31, 2001, CS-Lakeview brought suit, based on diversity jurisdiction, against RDP, LAGA, Melvin Simon & Associates, Inc., and several other Simon-related entities in the United States District Court for the Northern District of Georgia.¹ With regard to RDP, CS-Lakeview alleged that RDP tortiously interfered with CS-Lakeview's right of first refusal, and, among other remedies, it sought to set aside the sale of the Gwinnett Property. With regard to the Simon-related entities, CS-Lakeview alleged breach of the agreement containing the right of first refusal, and again it sought to set aside the sale. On January 2, 2002, CS-Lakeview filed a notice of lis pendens on the Gwinnett Property pursuant to OCGA § 44-14-610, concerning the federal action in the Superior Court of Gwinnett County. But in response to a motion to dismiss for lack of diversity jurisdiction, CS-Lakeview dismissed all defendants except RDP,² and it later amended the notice of lis pendens to indicate that RDP was the sole defendant.³ The Simon-related entities admit that they lacked diversity with CS-Lakeview; in fact they sought sanctions in the federal action for, in their words, CS-Lakeview's "patently deficient jurisdictional allegations."

On March 1, 2002, CS-Lakeview brought essentially the same claims against the Simon-related entities in the Superior Court of Gwinnett County that it had brought in the federal action, but it initially sought no equitable relief. The parties all agree that the state court action arose from the same transactions which gave rise to the federal action. CS-Lakeview later successfully added several parties including RDP to the state court action, and, on November 12, 2002, in its Second Amended Complaint, CS-Lakeview added a claim, among others, of fraudulent conveyance and indicated that it sought to set aside the deed transferring the Gwinnett Property to RDP. In conjunction with that filing, it filed a notice of lis pendens on the Gwinnett Property concerning the state court action.

In July 2003, the District Court granted summary judgment in favor of RDP in the federal action for the following reasons: (1) under applicable law (Delaware) a right of first refusal exercisable "at any time" violates the Rule Against Perpetuities and is void; and (2) alternatively, CS-Lakeview proffered no evidence to show that RDP induced LAGA (or the other Simon-related entities) to breach the right of first refusal agreement, nor did it show that RDP was a stranger to that agreement.⁴ The District Court also concluded that because a legal remedy was the appropriate relief for the claims that CS-Lakeview made against RDP, CS-Lakeview was not entitled to pursue equitable remedies, such as seeking to set aside the deed. The District Court entered judgment against CS-Lakeview and in favor of RDP and dismissed the action. CS-Lakeview has appealed to the Eleventh Circuit Court of Appeals, and, according to the briefs, the appeal is still pending.

In the state court, RDP then filed an emergency motion to cancel the original and amended lis pendens concerning the federal action and the lis pendens concerning the state court action. The lower court granted the motion. The court held: (1) federal judgments are not suspended during an appeal for the purposes of res judicata and collateral estoppel; (2) the parties had agreed that the District Court's order was dispositive of all of CS-Lakeview's claims against RDP in the state court; and (3) therefore, the basis for the notice of lis pendens had "disappeared." The court also held that CS-Lakeview's claims against RDP were barred by the res judicata effect of the judgment of the District Court. Accordingly, the court ordered that the notice of lis pendens concerning the state court be cancelled of record. The order does not mention the lis pendens filed in connection with the federal action.

1. Choice of Law. The first question raised is what law controls the claims-preclusive effect of a judgment rendered by a federal court sitting in diversity. The United States Supreme Court recently answered this question in Semtek Int'l. v. Lockheed Martin Corp., 531 U.S. 497, 121 S.Ct. 1021, 149 L.Ed.2d 32 (2001). In that case, the Court was faced with a federal judgment dismissing a diversity action on statute-of-limitation grounds. Id. at 499, 121 S.Ct. 1021.

First the Supreme Court made clear that "federal common law governs the claim-preclusive effect of a dismissal[/judgment] by a federal court sitting in diversity." Id. at 508, 121 S.Ct. 1021. But the Court then proclaimed, as a matter of federal common law, that because state rather than federal substantive law is at issue in a diversity action, there is no need for a uniform federal rule of claim-preclusion in this setting. Id. at 508, 121 S.Ct. 1021. Rather, "nationwide uniformity in the substance of the matter is better served by having the same claim-preclusive rule (the state rule) apply whether the dismissal has been ordered by a state or a federal court." Id. Accordingly the Court announced that the federally prescribed rule would be that the claims-preclusive effect of a federal court sitting in diversity is governed by "the law that would be applied by state courts in the State in which the federal diversity court sits." Id.⁵ The only exception noted by the Court is that state law will not apply "in situations in which the state law is incompatible with federal interests." Id. at 509, 121 S.Ct. 1021. Under Semtek, therefore, we would look to the law of Georgia, the state in which the District Court of the Northern District of Georgia sits, to determine the claims-preclusive effect of the prior federal judgment.

2. Under Georgia law, the fact that a prior court judgment has been appealed suspends the operation of any preclusive effect pending the appeal:

"It is the general rule that a judgment sought to be used as a basis for the application of the doctrine of res judicata (or collateral estoppel) must be a final judgment. In Georgia a judgment is suspended when an appeal is

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