West v. Diduro

• Citation: 11 FCDR 3262,312 Ga.App. 591,718 S.E.2d 815
• Decision Date: 16 November 2011
• Docket Number: No. A11A1059.,A11A1059.
• Parties: WEST v. DIDURO et al.
• Court: United States Court of Appeals (Georgia)

11 FCDR 3262

312 Ga.App. 591

718 S.E.2d 815

WEST

v.DIDURO et al.

No. A11A1059.

Court of Appeals of Georgia.

Oct. 18, 2011.Reconsideration Denied Nov. 16, 2011.

Albert Lewis Norton, Jr., Lawrenceville, for appellant.

John L.G. Herbert, Jr., Atlanta, for appellees.

MIKELL, Judge.

Shelley West sold her chiropractic practice to Matthew Diduro and Christopher Bragg (hereinafter collectively “Buyers”). Buyers subsequently defaulted on the promissory note given in connection with the sale, and West sued them on the note, for breach of contract and for other claims. Buyers counterclaimed, and both parties filed motions for partial summary judgment. The trial court denied West's motion and granted Buyers' motion in part. Following a jury trial, judgment was entered in favor of West on her claim for conversion of certain accounts receivable; and in favor of Buyers on certain counterclaims and for attorney fees on Buyers' counterclaim for breach of contract. West appeals from the trial court's orders on the parties' motions for partial summary judgment and from the judgment entered following the jury trial. For the reasons set forth below, we affirm in part and reverse in part, and we remand for further proceedings in accordance with this opinion.

As to West's challenge to the trial court's adverse rulings on summary judgment, we apply the following standard of review:

Summary judgment is proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. OCGA § 9–11–56(c). A de novo standard of review applies to an appeal from a grant of summary judgment, and we view the evidence, and all reasonable conclusions and inferences drawn from it, in the light most favorable to the nonmovant. ¹

So viewed, the record reflects that West operated a chiropractic practice incorporated as Healthsource Chiropractic of Johns Creek P.C. (“Healthsource PC”), of which she was sole owner. On March 26, 2008, West sold this practice to Buyers for $185,000, pursuant to a Purchase Agreement executed by the parties that day. The Purchase Agreement provided that $135,000 of the purchase price was to be paid in cash, with the remaining $50,000 to be financed by a promissory note from Buyers to West. Upon execution of the Purchase Agreement, Buyers gave West a promissory note in the amount of $50,000 (the “Note”); however, Buyers tendered at that time only $125,000 of the $135,000 remaining on the purchase price. Buyers apparently made an oral promise to pay the $10,000 shortfall at some later time. As contemplated by the Purchase Agreement, West executed a Non–Compete Agreement in favor of Buyers. When the parties executed the Purchase Agreement, Buyers did not request any stock certificates in Healthsource PC, and no stock certificates were transferred at that time. After this transaction, Buyers took over the operation of the practice but failed to make payments under the Note, which contained an acceleration clause. Buyers also failed to pay the $10,000 shortfall on the purchase price.

Two months after the sale of her business, West filed suit against Buyers, asserting claims for breach of contract based on Buyers' default under the Note, failure to pay over certain accounts receivable collections, and failure to pay the $10,000 remaining on the purchase price; conversion, based on Buyers' alleged fraudulent negotiation of checks made out to West; fraud, based on Buyers' use of tax identification numbers and “approved preferred provider” status, which West alleged belonged to either Healthsource PC or West, in connection with Buyers' billing various insurance companies; and assault and battery against Diduro, based on an incident alleged to have occurred on April 18, 2008. On July 21, 2008, Buyers answered and asserted counterclaims against West, based on breach of contract, conversion, fraud, defamation, false light, tortious interference with contract, and intentional infliction of emotional distress. On December 29, 2008, Buyers amended their answer to assert failure of consideration as a defense to West's claim on the Note, based on West's failure to convey the stock in Healthsource PC when the Purchase Agreement was executed.

West filed a motion for partial summary judgment on the $50,000 Note, which the trial court denied in its order entered April 10, 2009 (the “April 2009 Order”), on the ground that a genuine issue of material fact existed as to whether the Note was void for lack of consideration.

Buyers also moved for partial summary judgment. Their motion was granted in part and denied in part by the trial court's order entered May 6, 2010 (the “May 2010 Order”). The trial court ruled that the Purchase Agreement unambiguously contemplated a stock sale, as well as an asset sale; that the consideration for the sale was the stock in Healthsource PC; and that the Buyers had not received any stock in Healthsource PC when the Purchase Agreement was signed. Therefore, the court concluded that the Purchase Agreement, Note, and Non–Compete Agreement “were executed and delivered without substantial consideration,” because West had not transferred the Healthsource PC stock certificates to Buyers upon execution of the Purchase Agreement.

In its May 2010 Order, the court granted partial summary judgment to Buyers on the following issues: (1) West's claim for the $50,000 owing under the Note; (2) West's claim for the $10,000 shortfall in the purchase price, on the ground that West breached the Purchase Agreement by conveying a DRX unit used in the practice to a third party a few days before the Purchase Agreement was executed on March 26, 2008; (3) West's claim for conversion of Healthsource PC's accounts receivable collected after March 26, 2008; and (4) West's fraud claim, based on her allegation that Buyers improperly used tax identification numbers and “approved provider status” associated with Healthsource PC or West. The trial court also granted summary judgment to Buyers and against West as to their claim that West breached the Purchase Agreement by failing to transfer ownership of the DRX unit. The May 2010 Order denied Buyers' motion for partial summary judgment as to the following issues, thus reserving them for trial: (1) West's claim for conversion of Healthsource PC's pre-March 26, 2008, accounts receivable; (2) West's claim against Diduro for assault and battery; (3) West's claim for punitive damages based on the alleged assault and battery; (4) Buyers' counterclaims against West for defamation and tortious interference with Buyers' business relationships, based on Buyers' allegations that West made derogatory statements to third parties; and (5) Buyers' counterclaim against West based on West's alleged breach of her agreement in the Purchase Agreement “to create a smooth transition” of the practice.

The case was then tried before a jury, which awarded West $389 on her claim for conversion of pre-March 26, 2008, accounts receivable, but found against West and in favor of Buyers on West's assault and battery claim. On Buyers' claim against West for breach of contract, the only issues presented to the jury were the amount of damages owed to Buyers for the breach and the amount of attorney fees Buyers were entitled to recover. On this claim, the jury awarded Buyers $0 in damages and $84,983 attorney fees. The jury awarded Buyers $100,000 on Buyers' other counterclaims but awarded no punitive damages against West. West appeals from the adverse orders on summary judgment and from the judgment entered on the jury's verdict.

1. The April 2009 Order. In her motion for partial summary judgment, West sought to recover against Buyers on the Note. Buyers responded, asserting that the Note lacked consideration because West had conveyed the DRX unit to a third party before the execution of the Purchase Agreement and because she had removed certain items from the Healthsource PC offices and she had defamed Buyers after the sale. In its April 2009 Order, the trial court concluded that West was not entitled to judgment on the Note because fact issues remained as to whether it lacked consideration. This ruling was in error, and we reverse.

“It is well established that a plaintiff seeking to enforce a promissory note establishes a prima facie case by producing the note and showing that it was executed. Once that prima facie case has been made, the plaintiff is entitled to judgment as a matter of law unless the defendant can establish a defense.” ² There is no dispute that Buyers borrowed $50,000 from West to finance their purchase of her chiropractic practice, this debt being evidenced by the Note; that they signed the Note; and that they failed to make payments under the Note. Therefore, West established a prima facie case and was entitled to judgment as a matter of law, unless Buyers established a valid defense.

Buyers interposed the defense of lack of consideration.³ However, this defense cannot stand. Contrary to the trial court's ruling, no genuine issue of material fact remained as to whether there was consideration given in exchange for the Note. Abundant evidence in the record showed that, upon execution of the Purchase Agreement, Buyers acquired the chiropractic practice formerly owned and operated by West.

As this Court explained in Greene v. Johnson,⁴ the party claiming under a contract has the burden of proving a prima facie case to recover thereunder, but the burden of sustaining the defense of total or partial failure of consideration falls on the one asserting the defense. ⁵ In that case, the seller of an accounting business attempted to recover for the unpaid balance on two promissory notes given in connection with the sale of the business.⁶ The purchaser asserted failure of consideration as a defense, based upon evidence that, after the sale, seller had breached her covenant not to compete. However, as in the case before us, the defense of total failure of...