Rubber v. Thermo–flex Technologies Inc.

• Decision Date: 24 February 2011
• Docket Number: No. A10A2016.,A10A2016.
• Citation: 308 Ga.App. 89,706 S.E.2d 728
• Parties: TEXTILE RUBBER AND CHEMICAL COMPANY, INC.v.THERMO–FLEX TECHNOLOGIES, INC. et al.
• Court: Georgia Court of Appeals

308 Ga.App. 89

706 S.E.2d 728

11 FCDR 471

TEXTILE RUBBER AND CHEMICAL COMPANY, INC.

v.THERMO–FLEX TECHNOLOGIES, INC. et al.

No. A10A2016.

Court of Appeals of Georgia.

Feb. 24, 2011.

Coppedge & Evans, Joseph B. Evans, Warren N. Coppedge, Jr., Dalton, for appellant.Edward Hine Jr., Rome, Daniel R. Hoyt, for appellees.BARNES, Presiding Judge.

This is the second appeal of this case, which arose out of a dispute between the parties over an agreement to sell certain carpet-making technology for $3 million. In the first appeal, we affirmed the trial court's decision that the plaintiff, Thermo–Flex Technologies, Inc., was entitled to $500,000 in damages as a matter of law, based upon the defendant Textile Rubber and Chemical Company, Inc.'s failure to make an installment payment, but remanded the case for a jury to decide additional damage claims. Textile Rubber and Chemical Co. v. Thermo–Flex Technologies, 301 Ga.App. 491, 687 S.E.2d 919 (2009). On remand, Thermo–Flex moved for summary judgment against Textile on its claim for statutory attorney fees based on the $500,000 damages awarded. The trial court granted the motion. The third-party defendants, Larry Mullinax and Technology Works, Inc., also moved for summary judgment on the cross-claims brought against them by Textile, and the trial court likewise granted their motion. Textile now appeals these summary judgment rulings made by the trial court on remand. For the following reasons, we affirm the trial court's grant of summary judgment to Thermo–Flex on its attorney fees claim and to the third-party defendants on Textile's cross-claims for tortious interference with contract, breach of warranty, and indemnity. We reverse the trial court's grant of summary judgment to the third-party defendants on Textile's cross-claims for fraud, negligent misrepresentation, and breach of duty to principal.

When reviewing the grant ... of a motion for summary judgment, this Court conducts a de novo review of the law and the evidence. To prevail at summary judgment, the moving party must demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law.

(Footnotes omitted.) Smith v. Gordon, 266 Ga.App. 814(1), 598 S.E.2d 92 (2004). See OCGA § 9–11–56(c).

So viewed, the record showed that at all times relevant to this dispute, Larry Mullinax was the president and owner of 50 percent of the outstanding shares of Thermo–Flex Technologies, Inc., which was in the business of developing a thermoplastic recyclable backing system for carpets. Mullinax also was the president, chief executive officer, chief financial officer, and owner of Technology Works, Inc., a consulting firm in the area of thermoplastic technology.

Due to his expertise in the area, Textile Rubber and Chemical Company, Inc. hired Mullinax to serve as its consultant in the application of thermoplastic technologies in the flooring industry. Mullinax had previously been an employee of Textile and had a longstanding relationship with its founder. Textile paid Mullinax $100,000 a year for his role as a consultant. Mullinax informed Textile that his other company, Thermo–Flex, had developed a thermoplastic recyclable backing system that was ready to go to market and proposed a partnership between the two companies. Mullinax repeatedly advised Textile that the technology developed by Thermo–Flex did not produce a significant amount of “volatile organic compounds” (“VOCs”), which would raise environmental concerns and would be an important issue to potential customers. Textile chose not to perform its own independent testing of Thermo–Flex's technology for VOCs after Mullinax advised that such testing was unnecessary and would be “a waste of money.”

Textile and Mullinax ultimately concluded that it made more business sense for Textile to simply purchase the thermoplastic backing technology from Thermo–Flex rather than form a partnership. Consequently, on August 11, 2006, Thermo–Flex sold its technology to Textile in return for $3 million in installment payments (the “Agreement”). The Agreement specified that Textile would make three separate payments of $500,000 to Thermo–Flex on the closing date of the sale, on January 1, 2007, and on December 31, 2007, respectively. The Agreement provided that the remaining $1.5 million would be paid in quarterly installments based upon a formula relating to Textile's future net income and net profits. In addition to these installment payments, Textile agreed that it would “pay to [Thermo–Flex] all costs and expenses, including reasonable attorney[ ] fees incurred by [Thermo–Flex] in enforcing any of the covenants and provisions of this Agreement and incurred in any action brought by [Thermo–Flex] against [Textile] on account of the provisions hereof.”

With respect to the quality of the technology purchased, the Agreement provided that Textile was buying the technology

in an “as is” condition, that no warranties of any type (whether for merchantability or fitness for a particular purpose or use, express or implied, or otherwise) [were] being made by [Thermo–Flex], and that any and all such warranties [were] ... expressly disclaimed to the fullest extent allowed by Georgia law. The bill of sale for the technology contained a similar disclaimer of all express or implied warranties.

Following execution of the Agreement, Textile paid the $500,000 due at closing and on January 1, 2007. In the summer of 2007, customers notified Textile that the technology produced problematic levels of VOCs. Textile launched its own investigation which confirmed the presence of considerable levels of VOCs. As a result, Textile informed Thermo–Flex that it would not be making the third $500,000 payment due on December 31, 2007, and that it planned to make certain modifications to its installment payments relating to future net profits.

Unwilling to accept Textile's unilateral changes to the payment arrangements, Thermo–Flex sued Textile for anticipatory breach of contract and sought contractual damages of $2,000,000, plus accrued interest, court costs, and attorney fees. Textile counterclaimed for breach of contract on the ground that the technology was defective for containing problematic levels of VOCs. Textile also successfully moved to add Mullinax and Technology Works as third-party defendants and asserted cross-claims against them for tortious interference with contract, breach of warranty, fraud, negligent misrepresentation, breach of duty to principal, and indemnity.

The trial court thereafter granted partial summary judgment to Thermo–Flex, concluding that the uncontroverted evidence showed that Textile had committed an anticipatory breach of contract by unilaterally changing the payment arrangements. Regarding the measure of damages, the trial court ruled that Thermo–Flex was entitled to entry of judgment in the amount of $500,000 plus interest based upon Textile's failure to make the December 31, 2007 installment payment. As to the $1.5 million in installment payments relating to Textile's future net profits, the trial court ruled that Thermo–Flex was “ entitled to some or all of the $1.5 million if it [could] show with reasonable certainty the extent to which [Textile] could have used the technology profitably.” Additionally, the trial court granted summary judgment to Thermo–Flex on Textile's breach of contract counterclaim, reasoning that any oral representations concerning VOCs would constitute inadmissible parol evidence and could not be used to vary the plain terms of the warranty disclaimers in the Agreement. The trial court reserved ruling on the issue of attorney fees.

Textile appealed to this Court, and we affirmed in part and vacated in part the trial court's decision. See Textile Rubber & Chemical Co. v. Thermo–Flex Technologies, 301 Ga.App. 491, 687 S.E.2d 919 (2009). We affirmed the trial court's grant of summary judgment in favor of Thermo–Flex on its claim for anticipatory breach of contract and against Textile on its counterclaim for breach of contract. Id. at 494–495(1), 496–497(3), 687 S.E.2d 919. We also affirmed the trial court's entry of judgment in the amount of $500,000 plus interest for Textile's refusal to make the December 31, 2007 installment payment. Id. at 494–495(1), 687 S.E.2d 919. However, we vacated the trial court's ruling as to the $1.5 million in installment payments relating to future net profits and held that Thermo–Flex was entitled to recover the present value of the $1.5 million after that value was determined by a jury using the formula set out in our opinion. Id. at 495–496(2), 687 S.E.2d 919.

Following remand, Textile paid to Thermo–Flex the $500,000 plus accrued interest in satisfaction of the judgment relating to the unpaid December 31, 2007 installment payment. Thermo–Flex then moved for summary judgment on its claim for attorney fees predicated on its recovery of those damages. Thermo–Flex argued that it was entitled to attorney fees pursuant to OCGA § 13–1–11 because it made a proper written demand for those fees and Textile failed to pay the amount demanded. Textile responded that Thermo–Flex could not recover attorney fees because its demand letter failed to comply with the statutory notice requirements. Concluding that Thermo–Flex had made a demand for attorney fees that substantially complied with OCGA § 13–1–11, the trial court granted summary judgment to Thermo–Flex and entered judgment in the amount of $55,417.65, representing the amount of fees owed by Textile.

Mullinax and Technology Works also moved for summary judgment, contending that there were no genuine issues of material fact as to Textile's cross-claims for tortious interference with contract, breach of warranty, fraud, negligent misrepresentation, breach of duty to principal, and indemnity. Textile responded that there were several disputed...