Harris v. Albany Lime & Cement Co.

• Decision Date: 24 April 2008
• Docket Number: No. A08A0940.,A08A0940.
• Citation: 662 S.E.2d 160,291 Ga. App. 474
• Court: Georgia Court of Appeals
• Parties: HARRIS v. ALBANY LIME & CEMENT COMPANY et al.

291 Ga. App. 474

662 S.E.2d 160

291 Ga.App. 474

HARRIS v. ALBANY LIME & CEMENT COMPANY et al.

No. A08A0940.

Court of Appeals of Georgia.

April 24, 2008.

Reconsideration Denied May 12, 2008.

Bovis, Kyle & Burch, Wayne S. Tartline, Charles M. Medlin, Atlanta, for appellant.

Divine, Finney & Dorough, Kermit S. Dorough Jr., Albany, for appellees.

BLACKBURN, Presiding Judge.

In this application to stay arbitration, Mark Alan Harris appeals the trial court's final judgment, in which the court concluded that the pertinent arbitration clause was valid and enforceable and in which the court therefore refused to stay the arbitration brought against Harris by Harris's former attorney and that attorney's businesses. We hold that the arbitration clause was voidable by Harris on the conflict of interest ground that Harris's former attorney (who negotiated the clause, who advised Harris to sign the agreement containing the clause, and who was himself a party to the agreement) was a personal beneficiary of that clause and in fact along with his businesses is a party in this attempted arbitration proceeding against his former client. Moreover, the common-law claims of indemnity and contribution, which the former attorney and his businesses seek to arbitrate against Harris, arose independently of the terms of the agreement and were therefore not covered by the arbitration clause in any case. Accordingly, we reverse.

The relevant facts are undisputed. Harris's father-in-law (Hilliard P. Burt, Sr.) is an attorney who was also the principal in several businesses. In 2002 Harris, who was a general contractor, persuaded the father-in-law to use his businesses (Albany Lime & Cement Company, The Burt Company, Burt Development Company, and Hotel Trust) to purchase a residence and to hire Harris (on a cost-plus-ten-percent basis) to renovate the residence. Harris was also to share in the profits from the resale of the residence. After the renovation was complete and the residence resold in 2004, the new purchasers found numerous construction defects in the house and in 2005 sued Harris for negligent construction, breach of contract, and fraud. The father-in-law entered an appearance as Harris's attorney in the action and actively represented him.

A few months later, the purchasers added the father-in-law and his businesses as defendants in the action. Though now a party to the suit, the father-in-law continued to represent Harris in the action despite conflict-of-interest questions raised by the plaintiffs. Cf. Rule 3.7(a), Bar Rule 4-102(d), Georgia Rules of Professional Conduct. Unable to locate any written contract as to the terms of the renovation agreement, the father-in-law in 2005 advised Harris, for purposes of the ongoing litigation, to execute a contract (backdated to 2002) memorializing the terms of the renovation agreement between Harris on the one hand and the father-in-law and his businesses on the other hand. The father-in-law prepared the contract and included an arbitration clause, even though no such clause had been a part of the original 2002 renovation agreement. Harris and the father-in-law and his businesses executed the contract.

In May 2006 while the purchasers' suit was still pending and the father-in-law continued to represent Harris therein, Harris's wife filed for divorce from Harris, and the father-in-law, acting on behalf of the wife (his daughter), filed a notice of lis pendens against Harris on certain marital property. A month later, the father-in-law moved to withdraw as Harris's counsel in the purchasers' lawsuit. Without participation from Harris, the father-in-law and his businesses mediated a settlement with the purchasers, in which the father-in-law and his businesses paid $200,000 to the purchasers.

The father-in-law and his businesses then sent a demand to Harris, seeking reimbursement of the $200,000 under common-law theories of contribution and indemnification, and demanding arbitration pursuant to OCGA § 9-9-6(c) under the arbitration clause of the backdated renovation contract. In response, Harris applied to the trial court in the present action to stay the arbitration on the ground that the arbitration clause was unenforceable due to conflicts of interest. Cf. OCGA § 9-9-6(d). After an evidentiary hearing, the trial court found that because Harris had entered the written renovation contract (containing the arbitration clause) knowingly and without undue duress, the court would not stay the arbitration. Harris appeals.

1. The first and foremost issue is whether the arbitration clause is enforceable. "Where there is a specific challenge attacking the validity of an arbitration agreement, the court and not the arbitrator should decide whether the arbitration provision is enforceable." Crawford v. Great American Cash Advance.¹ See Harris v. SAL Financial Svcs.² "As the part[ies] seeking arbitration, [the father-in-law and his businesses] [bear] the burden of proving the existence of a valid and enforceable agreement to arbitrate." Ashburn Health Care Center v. Poole.³

The nature of the attorney-client relationship between the father-in-law and Harris evinces the egregious conflict of interest that led to the agreement to arbitrate at issue. While acting as Harris's attorney in the purchasers' suit, the father-in-law persuaded Harris to execute an agreement (containing the relevant arbitration provision) with the father-in-law and his businesses, which waived Harris's right to litigate (against the father-in-law and his businesses) disputes arising out of the agreement. See Ashburn Health Care Center, supra, 286 Ga. App. at 27, 648 S.E.2d 430 (arbitration agreement waives litigation rights). Such an obvious conflict of interest strikes at the heart of the confidential fiduciary trust inherent in the relationship between an attorney and his client, making the transaction voidable at the option of the client. As eloquently explained in Stubinger v. Frey,⁴

[i]t is obvious that this relation (that of client and attorney) must give rise to great confidence between the parties, and to very strong influences over the actions and rights and interests of the client. The situation of an attorney or solicitor puts it in his power to avail himself not only of the necessities of his client, but of his good nature, liberality, and credulity to obtain undue advantages, bargains, and gratuities. Hence the law, with a wise providence, not only watches over all the transactions of parties in this predicament, but it often interposes to declare transactions void which between other persons would be held unobjectionable. . . . By establishing the principle that while the relation of client and attorney subsists in its full vigor the latter shall derive no benefit to himself from the contracts, or bounty, or other negotiations of the former, it supersedes the necessity of any inquiry into the particular means, extent, and exertion of influence in a given case; a task often difficult, and ill-supported by evidence which can be drawn from any satisfactory sources. . . . [T]he general rule of public policy, which discountenances transactions between persons who are situated in a confidential relation towards each other, applies with particular force to attorneys-at-law, who are officers of the court, and are, on that ground, as well as on account of the powerful influence which they exercise over the minds of their clients, restrained from dealing with those whose interests they have in charge. There are authorities which sustain the proposition that such a [transaction], though made without fraud or undue advantage and upon the payment of an adequate price, is nevertheless voidable at the option of the client.

(Citations and punctuation omitted; emphasis supplied.) See Reeves v. Callaway.⁵ See also Crayton...