Sun Nurseries, Inc. v. Lake Erma, LLC

• Decision Date: 12 July 2012
• Docket Number: No. A12A0784.,A12A0784.
• Parties: SUN NURSERIES, INC. v. LAKE ERMA, LLC, et al.
• Court: Georgia Court of Appeals

730 S.E.2d 556

12 FCDR 2335

SUN NURSERIES, INC.

v.LAKE ERMA, LLC, et al.

No. A12A0784.

Court of Appeals of Georgia.

July 12, 2012.

Joseph Szczecko, for Appellant.

Patrick DeBorde Jaugstetter, McDonough, Robert Emmett Maloney Jr., Mark A. Conner, David Black, Atlanta, J.P. Evans, Andrew Carmichael Ausband, Stockbridge, for Appellees.

ADAMS, Judge.

Sun Nurseries, Inc. (“Sun”) appeals the trial court's order directing a partial verdict in its suit for damages arising out of an agreement to provide landscape installation services, material and labor at the Crystal Lake Golf Course (“Crystal Lake”) in Henry County. We affirm for the reasons set forth below.

Sun originally filed suit against Lake Erma, LLC (“Lake Erma”) and BEC Properties and Holdings, LLC (“BEC”) (collectively referred to herein as the “corporate defendants”) to collect on past due invoices for work it performed at Crystal Lake. Sun contended that both BEC and Lake Erma owned and developed Crystal Lake, although BEC disputed any interest in the development. The suit, as amended, asserted claims for breach of contract, quantum meruit, fraud, attorney fees and conversion. Sun subsequently added David Black, J.P. Evans, Mark Conner, W.D. Everitt and Talon Equities, Inc. (“Talon”) ¹ as party defendants. Black, Evans, Conner, Everitt and Talon were all owners, operators and members of Lake Erma. Black, Evans and Conner were also members of BEC. BEC shared office space with Lake Erma, and BEC employees performed work for both companies but were paid by BEC.

The evidence at trial showed that sometime in or around 2003, Robert Mitchell Bozzone, Sun's owner, entered into discussions with Carl Vassallo, a BEC employee, about the possibility of Sun providing landscaping services for the Crystal Lake project. Bozzone later met with Evans ² and Vassallo to finalize the terms of a verbal agreement for Sun to work on the golf course. Sun apparently provided landscaping services from late 2003 through mid–2005. At the direction of Evans and Vassallo, Sun submitted its invoices for this work to BEC, but Lake Erma issued the checks to pay the invoices. Lake Erma's records reflect that it paid Sun in excess of $238,000 for the work it performed, but Sun's records reflect that it received only around $210,700 in payment. At issue in the litigation were a series of six invoices that Sun submitted in 2005, which Sun contends Lake Erma did not pay in full, leaving a balance due of $30,506.88.

Kevin Burke, who performed accounting services for Lake Erma and BEC, testified that he cut a check to pay those invoices (the “First Check”), but it apparently was lost in the mail. Burke told Bozzone that the check had been lost, that he would stop payment on that check and that Lake Erma would issue another one. At trial, Burke did not recall cutting a replacement check, but he acknowledged that Lake Erma could have issued another check that was never signed. In any event, no replacement check was ever sent to Sun. Although Conner was not called as a witness at trial, he previously submitted an affidavit on summary judgment indicating that at some point, he directed that a check in the amount of $30,067.18 made out to Sun (the “Second Check”) be removed from a stack of payments and then asked Burke to set up a meeting with Bozzone. Burke had no recollection of being directed to pull the Sun check from the payment process or of pulling the check himself, but he acknowledged that someone else could have done so.

Sometime in September 2005, while awaiting payment, Bozzone threatened to file a lien on the Crystal Lake property, but he testified that he did not file the lien because Burke told him that Sun would be paid. Then in October 2005, Burke arranged a meeting with Bozzone, Evans and Conner to discuss the outstanding balance. Evans testified that the meeting was called because Conner and he were concerned that Sun was overcharging for the work it performed on the golf course when compared with charges from other subcontractors. Bozzone testified that Conner told him at the meeting that the Crystal Lake project was over budget and that they did not have the money to pay Sun. Conner accused Sun of overbilling. Evans offered to pay Sun $15,000 on the outstanding balance, but Bozzone refused. Bozzone said that he did not believe that Lake Erma was out of money; he just thought that Evans and Conner did not want to pay what was owed.

Sun filed the complaint in this case in February 2006. During discovery, Sun determined from Lake Erma's 2005 tax return that at some point in 2005, Lake Erma distributed a total of $8,297,003 to its members. Although the tax returns indicate that these were cash distributions, Evans said that the members instead received the distributions in cash and property. For example, Evans testified that although the tax form indicates that he received $2,103,262 from Lake Erma, only $160,000 of that distribution was in cash and the remainder was in property. And in March 2006, Lake Erma transferred 93 lots to Black and Evans, who then used the lots as collateral to secure a $5.216 million loan from First City Bank in Stockbridge (the “Bank”).³ Black and Evans then transferred the proceeds of the loans and quitclaimed the lots back to Lake Erma. They did not keep any of the proceeds for themselves. Evans testified that this procedure was employed to pull cash flow out of the property to cover the 2005 distributions and for the corporation's future needs. Evans said that Black and he determined that it was “simpler” to obtain the loan themselves rather than having Lake Erma obtain the loan directly.

At trial, Sun presented the testimony of an accounting expert, who testified, based upon documentation provided by Sun, that Lake Erma's $8 million distribution rendered the company insolvent as of the end of 2005. On cross-examination, however, the expert admitted that her original analysis had valued Lake Erma's property holdings using a historical cost basis of $1,028,920, which was the property's purchase price plus development costs. After reviewing additional documents provided by the defendants, including a sales contract reflecting an actual sale of Crystal Lake lots, the expert was able to establish the market value for Lake Erma's property in 2005 as being in excess of $6.2 million. Using the market value in her analysis, the expert determined that Lake Erma had sufficient funds to pay its existing liabilities, with an excess of around $586,000 as of the end of 2005. Sun's expert conceded, therefore, that if the market value of Sun's property were considered, the company was not insolvent but rather was “marginally solvent.”

At the close of Sun's case, the defendants moved for a directed verdict on Sun's claims. The trial court directed a verdict in favor of the individual defendants on all of Sun's claims and directed a verdict in favor of the corporate defendants on Sun's claims of fraud and conversion. The matter was submitted to the jury solely on Sun's claims of breach of contract, quantum meruit and attorney fees against Lake Erma and BEC. The jury returned a verdict in favor of Sun and against Lake Erma and BEC on those claims. No appeal was taken from this verdict or the trial court's subsequent order reducing the award of attorney fees. Sun appeals solely from the trial court's orders of directed verdict.

“A directed verdict is authorized only where the evidence, with all reasonable deductions and construed in favor of the nonmovant, demands a particular verdict. OCGA § 9–11–50(a).” (Punctuation and footnote omitted.) Allen v. Spiker, 301 Ga.App. 893, 689 S.E.2d 326 (2009). But where “any evidence” or “some evidence” exists to support a jury issue on the non-movant's claims, a directed verdict is improper. (Punctuation and footnote omitted.) Id. This Court conducts a de novo review on appeal from the grant of a directed verdict, and we will uphold a directed verdict “only if all of the evidence demands it.” (Footnote omitted.) Id.

1. Sun argues that the trial court erred in directing a verdict on its fraud claims. Sun asserts that it presented at least some evidence to show (1) that Burke's statements to Bozzone that Sun would be paid, especially the statements made after Bozzone threatened to file a lien, were intended to fraudulently dissuade Sun from filing a lien; and (2) that Lake Erma's $8 million in distributions constituted a fraudulent conveyance designed to defeat the rights of its creditors in violation of OCGA § 18–2–74(a).⁴

Sun bore the burden at trial of presenting sufficient evidence to establish each element of its fraud claims. See Simmons v. Pilkenton, 230 Ga.App. 900, 901(2), 497 S.E.2d 613 (1998). “In order to prove fraud, the plaintiff must establish five elements: (1) a false representation by a defendant, (2) scienter, (3) intention to induce the plaintiff to act or refrain from acting, (4) justifiable reliance by plaintiff, and (5) damage to plaintiff.” (Citation and punctuation omitted.) Summit Automotive Group v. Clark, 298 Ga.App. 875, 880(3), 681 S.E.2d 681 (2009). And a plaintiff's failure to establish even one of these elements entitles a defendant to summary adjudication. See Beach v. B.F. Saul Property Co., 303 Ga.App. 689, 697(2) n. 6, 694 S.E.2d 147 (2010) (standards for both summary judgment and directed verdict motions are the same); Scarbrough v. Hallam, 240 Ga.App. 829, 832(3), 525 S.E.2d 377 (1999) (summary judgment appropriate where plaintiff failed to establish at least one element of fraud); OCGA §§ 9–11–50(a) and 9–11–56(c).

a. Sun asserts that it proffered evidence to support its claim that Burke intentionally misled Bozzone in order to forestall Sun's filing of a lien.⁵ Sun points to evidence that it submitted invoices to BEC totalling $30,506.88 that were not paid; that Bozzone spoke with Burke within what it contends was the statutory time for filing a materialman's lien and Burke...