Llp v. Mellon Ventures Ii

• Court: Georgia Court of Appeals
• Writing for the Court: MIKELL, Judge.
• Citation: Llp v. Mellon Ventures Ii, 307 Ga.App. 640, 706 S.E.2d 652 (Ga. App. 2011)
• Decision Date: 27 January 2011
• Docket Number: No. A10A1563.,A10A1563.
• Parties: ALSTON & BIRD LLP et al.v.MELLON VENTURES II, L.P. et al.

307 Ga.App. 640

706 S.E.2d 652

10 FCDR 4080

ALSTON & BIRD LLP et al.

v.MELLON VENTURES II, L.P. et al.

No. A10A1563.

Court of Appeals of Georgia.

Dec. 16, 2010.Reconsideration Denied Jan. 27, 2011.

Cook, Noell, Tolley & Bates, Edward D. Tolley, Sutherland, Thomas W. Curvin, Amy K. Averill, Atlanta, for appellants.Schklar, Ney & Heim, Edwin J. Schklar, William B. Ney, Magdalena M. Heim, J. James Johnson, Michael R. Peacock, Atlanta, for appellees.

MIKELL, Judge.

Alston & Bird LLP and two of its attorneys, W. Thomas Carter III, and Randolph A. Moore III, defendants below, appeal from the trial court's grant of partial summary judgment to their former clients, Mellon Ventures II, L.P.; Noro–Moseley Partners IV, L.P.; Noro–Moseley Partners IV–B, L.P.; SBK Capital, LLC; and GE Capital Equity Investments, Inc. (collectively the “appellees” or “investors”), in a lawsuit asserting several claims arising out of a soured financial transaction, including legal malpractice. Appellants also appeal from denial of their motion for partial summary judgment and from several procedural and evidentiary rulings. Finding error, we affirm in part and reverse in part.

Summary judgment is appropriate if the pleadings and evidence “show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” OCGA § 9–11–56(c). On appeal from the grant or denial of summary judgment, we conduct a de novo review, with all reasonable inferences construed in the light most favorable to the nonmoving party. A grant of summary judgment must be affirmed if right for any reason, whether stated or unstated. It is the grant itself that is to be reviewed for error, and not the analysis employed.¹

So viewed, the evidence shows that, in 1999, Joan Lyman and Michael Pearson founded SecureWorks, a small computer software company (“SecureWorks” or “the company”). Lyman and Pearson later hired Jardon Bouska to join the company; these three are referred to herein collectively as the “managers.” In 2000, the company sought additional capital; and in October 2000, SecureWorks agreed to a tentative deal whereby the investors would invest $20 million in the company. In return for the infusion of money, the managers would cede control of the company to the investors by issuing them “Class C Preferred Stock,” which allowed the investors to outvote the common stock owned by the managers. After reaching this tentative agreement with the managers, Mellon, the lead investor, hired appellants Carter and Moore to draft the final documents.² Although only Mellon hired the attorneys and gave them their instructions, it was the custom in the venture capital world that the attorney retained by the leading investor would also represent other investors who might be invited by the leading investor to participate in the deal. Mellon brought GE Capital into the deal as an additional investor. As the transaction progressed, GE and other investors demanded additional terms, including a provision that would increase the number of the investors' preferred shares if the company missed revenue targets, changes to the managers' employment agreements, and a lock-up provision that would prevent the managers from selling their shares except in an initial public offering, even if the investors fired them from the company. As a result, a day or so before the closing, Lyman and the other managers requested that the contract be changed to provide them additional protection in the event that the investors later decided to sell out and to transfer their preferred stock to new investors with whom the managers might not feel comfortable. Mellon, on behalf of all the investors, agreed and asked appellants to revise the draft contract to make certain concessions in this regard to the managers. The result was Section 2.3(b) of the Shareholders' Right of First Refusal and Co–Sale Agreement (the “Shareholders Agreement”), executed October 30, 2000, a section referred to as the “tag-along” clause.

Unfortunately, the tag-along clause conflicts with a provision of the corporate charter, the so-called “waterfall” clause. It is undisputed that, late in the process, someone with Alston & Bird “cut and pasted” the tag-along clause from an older contract for prior financing of the company. The transferred paragraph was not appropriate for the economics of the new financing. No one caught the mistake until after the closing.

A few years after the closing, the investors became convinced that the unilateral drafting error in the closing documents of the Class C Preferred Stock refinancing impaired the value of their investment and made it difficult to sell their interest in the company. Attempts to negotiate a settlement with the managers failed, and the investors, represented by new counsel, filed suit against the managers, seeking to reform the Shareholders' Agreement to reflect the original intent of the investors. In settlement of that lawsuit, the investors paid approximately $5.4 million to the managers. In return, the managers agreed to a redrafted tag-along clause. The investors then sued Alston & Bird, Carter, and Moore, alleging legal malpractice in the preparation of the documents relating to the Series C Preferred Stock refinancing, especially the Shareholders Agreement.

The trial court initially appointed a special master to make reports and recommendations on discovery disputes. Later, the mandate of the special master was expanded, over appellants' objection, to include issues of law and fact. Appellants filed the present appeal following the trial court's grant of partial summary judgment and its adoption of the special master's report and recommendation. The trial court's judgment invalidated many of appellants' affirmative defenses. Almost all of the previous approvals of reports and recommendations, including those on discovery issues, have been appealed or cross-appealed.

1. We have a duty to inquire into our jurisdiction to entertain an appeal, even if no motion to dismiss has been filed.³ Although a grant of partial summary judgment may be directly appealable under OCGA § 9–11–56(h), “this statute does not provide for direct appeals from all grants of summary judgment, but must be read in conjunction with OCGA §§ 5–6–34 and 5–6–35 regarding the procedure for appeal to this court.” ⁴

Under OCGA § 9–7–1, the duties previously performed by a “master” in the superior court are now performed by an “auditor,” ⁵ although Uniform Superior Court Rule (“USCR”) 46, which was adopted effective June 4, 2009, permits the trial court to appoint a special master to perform certain duties enumerated therein. OCGA § 5–6–35(a)(1) requires that appeals from judgments of superior courts reviewing decisions of auditors be brought by application.⁶ We conclude, however, that OCGA § 5–6–35(a)(1) does not apply in this case because the statute specifically refers to decisions of “auditors” and not to those of “special masters.” Therefore, we have jurisdiction to hear this appeal.⁷

2. Appellants first contend that the trial court erred in denying their motion for summary judgment because appellees cannot prove proximate cause as a matter of law. We disagree.

To prevail on a legal malpractice claim, a client must prove that (1) he employed the defendant attorney; (2) the attorney failed to exercise ordinary care, skill, and diligence; and (3) this failure was the proximate cause of damages to the client. To establish proximate cause, the client must show that but for the attorney's error, the outcome would have been different; any lesser requirement would invite speculation and conjecture. The defendant attorney is entitled to summary judgment if he shows that there is an absence of proof adduced by the client on the issue of proximate cause. ⁸

In its June 12, 2009, order, the trial court concluded that appellants' motion for summary judgment should be denied because their arguments hinged primarily upon the depositions and affidavit of Joan Lyman, one of the managers, whose credibility is vigorously disputed. We find no error.

“[T]his Court has specifically held that a non-moving party may withstand a motion for summary judgment by submitting sworn testimony averring personal knowledge of the existence of a prior inconsistent statement made by a witness upon whose sworn testimony the movant relies.” ⁹ Moreover, a witness's intent, expectation, or credibility are uniquely among those issues of material fact which are not appropriate for summary judgment.¹⁰ Therefore, the trial court did not err in denying appellants' motion for summary judgment on the issue of proximate cause.

3. Appellants' second enumeration is that the trial court erred in granting appellees' motion for summary judgment on appellants' affirmative defenses of comparative negligence, failure to mitigate damages, waiver, estoppel, and voluntary payment.

(a) The trial court granted partial summary judgment to appellees on appellants' affirmative defense of comparative negligence as to the Noro–Moseley and SBK investors because there was no evidence that these investors had seen the tag-along clause prior to the closing of the transaction.

As to the Noro–Moseley investors, however, the record reflects that appellants presented to the special master and to the trial court in a timely manner evidence which indicated that the Noro–Moseley investors had read the tag-along clause and that their attorney had reviewed the clause prior to the closing of the transaction. In light of this evidence, we conclude that the trial court erred in granting appellees' motion for partial summary judgment on appellants' affirmative defense of comparative negligence as to the Noro–Moseley investors,¹¹ and we reverse the trial court's ruling as to this issue.

With regard to the SBK investors, however, appellants cited evidence in support of their arguments below and in this Court that...