I. A. Grp., LTD v. Rmnandco, Inc., A18A0578

• Court: United States Court of Appeals (Georgia)
• Citation: 346 Ga.App. 396,816 S.E.2d 359
• Docket Number: A18A0578
• Parties: I. A. GROUP, LTD, et al. v. RMNANDCO, INC.
• Decision Date: 19 June 2018

346 Ga.App. 396
816 S.E.2d 359

I. A. GROUP, LTD, et al.
v.
RMNANDCO, INC.

A18A0578

Court of Appeals of Georgia.

June 19, 2018

816 S.E.2d 361

Christopher Scott Anulewicz, Brooke Walker Gram, Atlanta, for Appellants.

R. Randy Edwards, Paul Anthony Piland, Smyrna, for Appellee

Dillard, Chief Judge.

346 Ga.App. 396

I. A. Group Limited Company and Stephan Fitch (collectively, "the appellants") appeal the trial court’s denial of their motion for summary judgment in RMNANDCO, Inc.’s action against them, in which it asserted various business-related tort claims, as well as the trial court’s reinstatement of a damages award to RMNANDCO, which had been reversed by this Court in a prior appeal. Specifically, the appellants argue that the trial court erred in denying their motion for summary judgment because RMNANDCO lacked standing to bring direct claims against them and the trial court was unauthorized to reinstate the judgment. For the reasons set forth infra , we affirm in part, reverse in part, and remand the case with direction.

When this case was previously before us in I. A. Group Co. v. RMNANDCO, Inc .¹ (" I. A. Group I" ), we reversed a jury verdict in favor of RMNANDCO because the trial court erroneously instructed the jury on joint and several liability, rather than on apportionment.² In the case giving rise to I. A. Group I , RMNANDCO sued I. A. Group, Fitch, CX5 Capital Corporation, and Christopher Collins³ (collectively, "the defendants"), asserting several claims, including breach of fiduciary duty, fraud, and violations of the Georgia Racketeer Influenced and Corrupt Organizations Act ("RICO").⁴ Due to discovery abuses by the defendants, the trial court struck their answers, counterclaims, and third-party complaints, and entered a default judgment as to liability on all counts.⁵ As a result of the default judgment, the only issue remaining for trial was a determination of

816 S.E.2d 362

unliquidated damages.⁶ Following a jury trial solely on damages, the jury awarded $2,500,000 in compensatory damages, jointly and

346 Ga.App. 397

severally against the defendants, as well as attorney fees.⁷ And finding specific intent to harm, the jury also awarded $10,000,000 in punitive damages against Fitch.⁸ Thereafter, each defendant retained new counsel and filed separate motions for new trial, all of which were denied.⁹

I. A. Group and Fitch appealed, raising several arguments, including that the damages award must be reversed because the trial court improperly instructed the jury that damages should be awarded jointly and severally among the four defendants, rather than based on apportionment of fault.¹⁰ In I. A. Group I , this Court agreed that the jury instruction was erroneous, holding that I. A. Group, Fitch, and the other defendants were entitled to a new trial.¹¹ And given our reversal of the final judgment and remand for a new trial, we did not address most of I. A. Group’s remaining enumerations of error.¹² On remand, the appellants filed a motion for summary judgment, arguing that RMNANDCO’s claims must be dismissed as a matter of law because the well-pleaded facts in its complaint and amended complaint establish that this lawsuit should have been brought as a derivative action, rather than a direct action. But before the trial court ruled on that motion, RMNANDCO filed a motion to reinstate the original damages award and hold a new trial solely for the jury to apportion those damages among the defendants. This motion was based on a decision issued by the Supreme Court of Georgia after our decision in I. A. Group I , but before the new trial ordered by this Court was held by the trial court.

346 Ga.App. 398

Specifically, following I. A. Group I , the Supreme Court of Georgia decided Martin v. Six Flags Over Georgia II, L.P. ,¹³ in which it addressed the appropriate means for correcting a trial court’s apportionment error when there are no other outstanding issues.¹⁴ Ultimately, our Supreme Court concluded that the apportionment error in Martin required a new trial only on apportionment, rather than a new trial on liability and damages.¹⁵ So, relying on Martin , RMNANDCO argued to the trial court that, despite our reversal of the jury’s verdict and grant of a new trial on damages, it should reinstate the judgment and hold a new trial solely for the jury to apportion the compensatory damages among the defendants. And following a hearing, the trial court issued an order, denying I. A. Group’s motion for summary judgment, granting RMNANDCO’s motion to reinstate the prior judgment, and scheduling the case for retrial solely on the issue of apportionment. Thereafter, the trial court granted the

816 S.E.2d 363

appellants' request for a certificate of immediate review. We then granted the appellants' petition for an interlocutory appeal, and this appeal follows.

1. The appellants first argue that the trial court erred in denying their motion for summary judgment because RMNANDCO’s complaint and amended complaint establish that it was required to bring a derivative, rather than a direct, action against them, and thus, the default judgment did not result in their admission of liability. We disagree.

When, as here, a question of law is at issue we "owe no deference to the trial court’s ruling and apply a de novo standard of review."¹⁶ Further, while the appellants couch their argument in terms of the sufficiency of the allegations in the complaint and amended complaint, whether a shareholder plaintiff is authorized to bring a direct action is, of course, a matter of standing.¹⁷ And as we have explained,

346 Ga.App. 399

a derivative suit is brought "on behalf of [a] corporation for harm done to it and any damages recovered are paid to the corporation."¹⁸ Thus, to have standing to sue individually, rather than derivatively on behalf of the corporation, the plaintiff must "allege more than an injury resulting from a wrong to the corporation."¹⁹ In this respect, the Supreme Court of Georgia has held that "[t]he failure to assert a plaintiff’s alleged lack of standing prior to the entry of judgment results in the waiver of such defense."²⁰ In one case, our Supreme Court explained the reasons for allowing the waiver of a standing objection as follows:

The timely assertion of a standing defense is necessary to prevent precisely what happened here. Discovery, a pretrial conference and order, and a fairly lengthy trial consumed judicial as well as private resources unnecessarily, if plaintiff had no capacity to pursue this claim. It is primarily a threshold question and generally collateral to the real issues. The object of lawsuits is to resolve merits of disputes, not to engage in a meaningless frustration of them.²¹

Additionally, the purpose of requiring that affirmative defenses be pleaded is to "prevent surprise and to give the opposing party fair notice of what he must meet as a defense."

816 S.E.2d 364

²² Thus, if it is not pleaded, it is "generally held that the [standing] defense is waived."²³

346 Ga.App. 400

Here, when the default judgment as to liability was entered, all of the responsive pleadings in which the appellants could have raised a standing defense were stricken as a sanction for discovery violations. And regardless, none of those pleadings specifically asserted, as I. A. Group does now, that RMNANDCO was required to bring its claims in a derivative-shareholder’s action. Indeed, while Fitch’s amended answer—which again, was also stricken—asserted generally that RMNANDCO lacked standing to sue, he did not provide any specific basis for that claim. Furthermore, after the trial court entered the default judgment, the appellants filed motions to vacate the judgment, but neither I. A. Group nor Fitch argued that the judgment should be vacated due to RMNANDCO’s lack of standing. Instead, they both argued that the judgment should be vacated because they had made diligent efforts to comply with discovery requests. But ultimately, the default judgment was not vacated, and this Court denied I. A. Group’s application for an interlocutory appeal from that judgment. Given these particular circumstances, the appellants waived their standing defense by failing to raise it prior to the entry of the default judgment.²⁴

In their reply brief, the appellants appear to concede that the first time they raised their standing argument was on appeal to this Court in I. A. Group I following the default judgment and the jury verdict on damages. But they contend that their liability has not been established because a default judgment "operates only as a defendant’s admission of the truth of a complaint’s well-pleaded allegations." But as previously explained, whether a plaintiff can maintain a direct, rather than derivative, lawsuit against a defendant is a matter of standing , not a matter of whether a complaint is sufficient to state a valid claim. And the appellants have...