Garbutt v. Southern Clays, Inc.

• Decision Date: 04 August 1995
• Docket Number: No. 5:93-cv-433-1 (WDO).,5:93-cv-433-1 (WDO).
• Parties: Gordon S. GARBUTT, Jr., et al., Plaintiffs, v. SOUTHERN CLAYS, INC., et al., Defendants.
• Court: U.S. District Court — Middle District of Georgia

894 F. Supp. 456

Gordon S. GARBUTT, Jr., et al., Plaintiffs, v. SOUTHERN CLAYS, INC., et al., Defendants.

No. 5:93-cv-433-1 (WDO).

United States District Court, M.D. Georgia, Macon Division.

August 4, 1995.

COPYRIGHT MATERIAL OMITTED

Benjamin M. Garland, Macon, GA, for plaintiffs Gordon S. Garbutt, Jr., Frank L. Garbutt, Mary Garbutt Mercer, Margaret Garbutt, Executrix of the Estate of Reese T. Garbutt, Deceased.

Richard Anthony Schneider, Atlanta, GA, for defendant Southern Clays, Inc., Rhode Island Charities Trust.

ORDER

OWENS, District Judge.

Before the court is defendant's motion for summary judgment. After careful consideration of the arguments of counsel, the relevant caselaw, and the record as a whole, the court issues the following order.

I. INTRODUCTION

Even though the law of the forum state governs the substantive aspects of this diversity case, "federal law controls the procedural aspects." Hammer v. Slater, 20 F.3d 1137, 1140 (11th Cir.1994). Thus, the movant is entitled to summary judgment if the pleadings, depositions, and affidavits show (1) there is no genuine issue as to any material fact, and (2) the movant is entitled to judgment as a matter of law. FED. R.CIV.P. 56(c). The court examines substantive law involved to determine which facts are material. Mulhall v. Advance Sec., Inc., 19 F.3d 586, 590 (11th Cir.), cert. denied, ___ U.S. ___, 115 S.Ct. 298, 130 L.Ed.2d 212 (1994).

II. FACTS¹

Defendant² was a corporation engaged in the business of prospecting for and mining kaolin, a chalky white substance for which the number of applications daily increases. Plaintiffs — Annie Julia Garbutt (now deceased), Gordon S. Garbutt, Jr., Frank J. Garbutt, Mary Garbutt Mercer, and Reese Tucker Garbutt (now deceased) — owned land in middle Georgia that was a likely spot for kaolin deposits.

True to its nature as a kaolin company, defendant purchased from plaintiffs a 575-acre tract of land in Washington County, Georgia in 1957. Plaintiffs knew at the time that defendant was a kaolin company, and that defendant had prospected the property with kaolin in mind. The purchase price paid was around $88,000, plus other considerations, such as allowing plaintiffs' parents to reside on the property for the remainder of their lives, and to then remove the dwelling after their deaths. Gordon Garbutt, Jr., however, admitted to thinking prior to the sale that the property was worth more.

Prior to this purchase, defendant had been a lessee of plaintiffs. In 1939 plaintiffs and others with an interest in the property leased the property to defendant for ninety-nine (99) years under the following terms: defendant would make an annual payment of $1000 to plaintiffs; defendant possessed an option to purchase the land at any time during the term of the lease for $70 per acre plus 7% interest, less the amount of rental payments and royalties paid up to that time; defendant could mine the land if it chose; if defendant took any kaolin from the ground, it would pay a royalty of ten (10) cents per refined ton; and defendant could prospect the land for kaolin deposits.

However, plaintiffs realized that the option to purchase was structured in such a way that for each successive year that they held on to the land, the less the ultimate purchase price would be. Defendant was essentially paying $1,000 each year towards the purchase of the land when it made its rental payment, since that amount would be deducted from whatever the ultimate purchase price was. Realizing this, plaintiffs desired to sell the property to defendant.

Defendant's representative, Mr. Scott (deceased prior to this case), negotiated with Mr. and Mrs. Garbutt, Sr. (both of whom also died prior to this case) for the sale of the property. Plaintiff Gordon Garbutt, Jr. was allowed to sit in on at least one of their meetings, but generally remembers nothing of substance.

Plaintiffs had the impression in 1957 that defendant had prospected the land for kaolin, knew how much of the mineral the land possessed, and would not disclose that information during negotiations. However, plaintiffs did absolutely nothing to discover on their own behalf how much kaolin the property might contain. They did not inquire of neighboring landowners who had sold property to the kaolin companies the price for which they sold; they did not contact other kaolin companies that might be interested in purchasing the property to establish a competitive bid; they did not investigate in courthouse records the purchase price of other properties thought to contain kaolin; they did not contact any government official or agency for assistance or advice of any sort; and, finally, they did not even contact neighboring family members who had entered similar negotiations for the sale of their property, despite the fact that they were close and one of them was apparently knowledgeable concerning these matters, see G. Garbutt, exh. 4. Nor did plaintiffs ask defendant how much kaolin was on the property, notwithstanding their belief at the time that defendant possessed this information. Consistent with plaintiffs' failure to ask defendant for this information, defendant never offered it nor made any representation upon which plaintiffs might have relied.

III. DISCUSSION

In their response brief, plaintiffs argue that there is sufficient evidence for this case to proceed to the jury on claims of fraud and unconscionability. Plaintiffs describe three disputes that they claim mandate denial of summary judgment. First, plaintiffs argue that the 1939 lease was voidable because of fraud, viz., defendant allegedly altered, without plaintiffs' knowledge, the basis for royalty payments from the prior, 1933 lease. Second, the option to purchase contained in the lease was voidable because of the Rule Against Perpetuities, and this fact, too, was unknown to plaintiffs. Defendant allegedly used its knowledge, and plaintiffs' corresponding lack of knowledge, of the option's purported voidability when negotiating for the purchase of the property. Finally, plaintiffs contend that defendant's superior knowledge, and superior ability to gain access to knowledge about the property's kaolin deposits, imposed upon it a duty to communicate this to plaintiffs.

Defendant responds as follows: (1) defendant had no duty to disclose; (2) plaintiffs cannot prove the reliance element of their fraud claims; (3) the statute of limitations has run on fraud claims, and was not tolled on account of fraud; (4) application of Georgia's Dead Man Statute to the transaction at issue bars any testimony regarding the transaction, thereby rendering impossible plaintiff's proof of either type of claim; (5) plaintiffs cannot prove the value of the property was worth more than was paid for it in 1957; and (6) plaintiffs did not in any event suffer damage, since the binding 1939 lease would have allowed defendants to purchase the land for less than was actually paid.

For the reasons that follow, the court is persuaded by defendants' arguments, and finds that summary judgment should be GRANTED to defendants. The court discusses each type of plaintiffs' claims in turn.

A. Fraud Claims

In counts I, II, IV, and V, plaintiffs allege one form of fraud or another — actual or constructive fraud; suppression of a material fact as fraud under O.C.G.A. § 23-2-53; and inadequacy of consideration as evidence of fraud under O.C.G.A. § 13-3-46.³ Before proceeding to a consideration of each of the several manifestations of plaintiffs' fraud claims, the court should address an important evidentiary issue. Only competent and admissible evidence can successfully oppose a motion for summary judgment. McLendon v. Georgia Kaolin Co., Inc., 782 F.Supp. 1548, 1557 (M.D.Ga.1992). Competency of witnesses to testify in this case, where state law provides the rule of decision as to an element of a claim or defense, is controlled by state law. FED.R.EVID. 601. The Georgia Dead Man's Statute, § 38-1603(3),⁴ thus controls.

Where any suit shall be instituted or defended by a corporation, the opposite party shall not be admitted to testify in his own behalf to transactions or communications solely with a deceased or insane officer or agent of the corporation; nor shall an officer or agent of the corporation ... be admitted to testify against an opposite party who is the personal representative of a deceased person, as to transactions or communications with such deceased person.

The only agent defendants used in negotiating the 1957 purchase was John Scott, now deceased.⁵ Therefore, the Dead Man's Statute precludes testimony from any plaintiff concerning dealings with Scott. Butts v. Southern Clays, 215 Ga.App. 110, 110-11, 450 S.E.2d 244 (1994); McLendon v. Georgia Kaolin Co., Inc., 782 F.Supp. 1548, 1558-59 (M.D.Ga.1992). Once defendants have carried their initial burden on summary judgment, plaintiffs must find another source of evidence to carry their burden of rebuttal.

1. Actual or Constructive Fraud

Pursuant to O.C.G.A. § 23-2-51, fraud may be actual or constructive. See also 37 AM.JUR.2D Fraud and Deceit § 4 (1968) (comparison of actual and constructive fraud). The prima facie elements of actual fraud are: "(1) a false representation by defendant; (2) scienter; (3) an intention to induce the plaintiff to act or refrain from action; (4) justifiable reliance by the plaintiff; and (5) damages." Smith v. McClung, 215 Ga.App. 786, 452 S.E.2d 229, 230 (1994) (citations and internal quotations omitted). The first element,

misrepresentation of a material fact, can be demonstrated by either showing that a material fact was, in fact, misrepresented, or that a material fact was concealed by defendants. In this latter situation, however, plaintiff must further allege that a fiduciary or confidential relationship existed such that defendants had a duty to disclose the material fact in question.

Hubbard v. Stewart, 651 F.Supp. 294, 298 (M.D.Ga.1987).

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