William Goldberg & Co., Inc. v. Cohen

• Citation: 219 Ga.App. 628,466 S.E.2d 872
• Decision Date: 28 November 1995
• Docket Number: A95A1189 and A95A1190,Nos. A95A1188,s. A95A1188
• Court: United States Court of Appeals (Georgia)
• Parties: WILLIAM GOLDBERG & COMPANY, INC. et al. v. COHEN et al. COHEN v. WILLIAM GOLDBERG & COMPANY, INC. et al. COHEN et al. v. WILLIAM GOLDBERG & COMPANY, INC. et al.

Page 872

466 S.E.2d 872

219 Ga.App. 628

WILLIAM GOLDBERG & COMPANY, INC. et al. v. COHEN et al.

COHEN v. WILLIAM GOLDBERG & COMPANY, INC. et al.

COHEN et al. v. WILLIAM GOLDBERG & COMPANY, INC. et al.

Nos. A95A1188, A95A1189 and A95A1190.

Court of Appeals of Georgia.

Nov. 28, 1995.

Reconsideration Denied Dec. 20, 1995.

Certiorari Denied April 5, 1996.

Action on contract. Fulton Superior Court. Before Judge Hill.

Bedford, Kirschner & Venker, Andrew R. Kirschner, Atlanta, for William Goldberg & Company, Inc.

Powell, Goldstein, Frazer & Murphy, Frank Love, Jr., Meadows, Ichter & Trigg, James D. Meadows, Atlanta, for Jay Cohen.

Byrne, Eldridge, Moore & Davis, William L. Rothschild, Branch, Pike & Ganz, Gregory J. Digel, Atlanta, for Brent Cohen.

SMITH, Judge.

These appeals arise out of extensive litigation concerning a 1986 business transaction. Structured as a stock exchange, that transaction represented an attempt to combine three business entities: William Goldberg & Company, Inc. ("WGC"), the personal services corporation of business broker and financial and management consultant William S. Goldberg; the T-Shirtery, Inc., a screen printing and embroidery business owned by Jay Cohen ("Jay"); and All-Star Imprinting, Inc., owned by Steve Radford through his holding company, the Hightower Corporation. Jay Cohen's father, J. Joseph Cohen ("Joe"), occasionally provided both advice and loans to Jay, and at the time the transaction in issue was pending, Joe held a security interest in inventory, equipment, receivables and other personal property of the T-Shirtery. It is undisputed that this security interest was perfected by filing a U.C.C. financing statement.

The transaction fell through, and litigation commenced. Jay filed suit seeking a declaration that no enforceable contract existed, and Goldberg, WGC, Radford, Hightower, and All-Star filed numerous counterclaims. Joe was permitted to intervene; upon his subsequent death his estate (represented by his son Brent and his widow Betty, who were co-executors) was substituted as a party to the litigation. The trial court dismissed many of the claims made by Jay and the estate and realigned the parties, making WGC a plaintiff and Jay and the estate defendants.

In Cohen v. Wm. Goldberg & Co., 202 Ga.App. 172, 413 S.E.2d 759 (1991) ("Cohen I "), this court consolidated four appeals brought by Jay and the estate and addressed a number of issues. We held in Cohen I that the trial court properly denied Jay's motion for summary judgment on the issue of whether an enforceable contract existed, concluding that a question of fact remained regarding the circumstances surrounding the execution of the deferred compensation agreement. A jury must decide whether certain unfulfilled conditions terminated the contract by its own terms or constituted a breach of the contract. Id. at 176-177(1)(f), 413 S.E.2d 759. ¹

We also decided in Cohen I that Joe was not a party to the contract, ² id. at 177(2), 413 S.E.2d 759, but an intended beneficiary, and thus he could not be held liable for tortious interference with the contract, id. at 177-178(3), 413 S.E.2d 759. We also held that certain claims based upon violations of federal and state securities laws were inappropriate because those laws were inapplicable to this transaction. Id. at 179-180(5), 413 S.E.2d 759. Finally, we reinstated the remainder of Joe's and Jay's claims, id. at 180-184(6), 413 S.E.2d 759, but declined to hold that the trial court abused its discretion in realigning the parties. Id. at 184-185(7), 413 S.E.2d 759. The Supreme Court granted certiorari as to the holding of this court regarding the applicability of the securities laws. Following reversal of our holding that the securities laws were inapplicable, Cohen v. William Goldberg & Co., 262 Ga. 606, 423 S.E.2d 231 (1992) ("Cohen II "), the case returned to the trial court.

Upon remittitur, a different judge entered orders on several motions, including renewed cross-motions for summary judgment or to dismiss claims and renewed motions on realignment. The three present appeals are taken by WGC, Goldberg, Radford, Hightower and All-Star (collectively "WGC"), Jay, and Joe's estate from the various rulings by the trial court after remittitur; we have consolidated the three appeals for review in this opinion.

Case No. A95A1188 is WGC's appeal from those portions of the trial court's various orders eliminating all its claims against Joe's estate and Jay except for the claim against Jay for breach of contract. WGC also appeals from the trial court's failure to dismiss Jay's claim against it for attorney fees. ³ In Case No. A95A1189, Jay appeals from those portions of the trial court's orders granting summary judgment against him on all his claims against WGC except his claim for attorney fees, from the trial court's refusal of his request to consider certain language in the deferred compensation agreement, and from the trial court's denial of his motion to realign the parties. In Case No. A95A1190, Joe's estate appeals from those portions of the trial court's orders granting summary judgment to WGC on the estate's claim of conversion of its collateral, and from the denial of the estate's motion to realign the parties.

For the reasons that follow, we affirm the trial court's rulings challenged in Case No. A95A1188.

1. WGC contends the trial court erred in eliminating its claims against Jay and the estate based upon fraud. The fraud claims fall into three general categories: (a) alleged misrepresentations in the stock exchange agreement executed by Jay (but not by Joe); (b) Jay's alleged present intention not to perform the transaction despite execution of many of the necessary documents (and an alleged conspiracy between Jay and Joe in this regard); and (c) alleged securities fraud.

(a) WGC argues that the documents signed by Jay contained express misrepresentations because they failed to disclose the existence of Joe's security agreement or the possibility that it could interfere with the pending transaction.

It is undisputed, however, that WGC and its attorneys had both actual and constructive knowledge of Joe's security agreement before the documents were signed. The very purpose of U.C.C. financing statements is to provide notice to interested third parties that enforceable security interests may exist in property. See Kubota Tractor Corp. v. Citizens & Southern Nat. Bank, 198 Ga.App. 830, 834, 403 S.E.2d 218 (1991). In addition, Goldberg was present during the closing of a loan to the T-Shirtery from Shawmut Credit Corp.--a loan he, in fact, had helped the T-Shirtery procure--during which the existence of Joe's security interest was specifically and expressly disclosed, in relation to an inter-creditor agreement. In preparing for execution of the documents necessary to complete the proposed transaction, WGC's attorneys also performed a routine U.C.C. search, which revealed the existence of the U.C.C. financing statement. ⁴ "It is well settled that notice to an attorney is notice to the client employing him, and that knowledge of an attorney is knowledge of his client, when such notice and knowledge come to the attorney in and about the subject matter of his employment." (Citations and punctuation omitted.) Oseni v. Hambrick, 207 Ga.App. 166, 167, 427 S.E.2d 559 (1993). Moreover, it appears that Goldberg's attorney sent him a copy of the financing statement. Given this evidence, it cannot seriously be argued that WGC was without knowledge of Joe's security interest or the terms of his security agreement with the T-Shirtery.

Rivers v. BMW of North America, 214 Ga.App. 880, 449 S.E.2d 337 (1994), is cited by WGC in support of its argument that actionable fraud was present here based on Jay's reckless failure to disclose the truth. Rivers, however, involved concealment by one party to a sales contract of facts that the other party to the contract could not have discovered by the exercise of ordinary prudence. Id. at 883-884(2), 449 S.E.2d 337. Therefore, it cannot apply to the facts in this case. For several reasons, we likewise do not agree with WGC's argument that its position is identical to that of the defrauded party in Tower Fin. Svcs. v. Jarrett, 199 Ga.App. 248, 404 S.E.2d 622 (1991). First, this argument clearly does not apply to Joe. An obligation to disclose must exist before a party may be held liable for fraud based upon the concealment of material facts. Id. at 250, 404 S.E.2d 622. Even assuming that Joe's security interest was concealed, no evidence demonstrates any obligation on Joe's part to disclose it. Second, even as to Jay, assuming he did have such an obligation, unlike the defrauded party in Jarrett, Goldberg is a sophisticated businessman from whom greater diligence is required before reliance upon representations may be considered justified.

In light of the evidence in this case, the trial court concluded that if in fact misrepresentations existed in the stock exchange agreement and WGC relied upon any such representations that no security agreement existed, such reliance was simply "blind" reliance because WGC knew, or at the very least should have known, the representations were untrue. The trial court ruled, therefore, that WGC could not claim fraud because its reliance was not justified. We find the trial court's reasoning to be correct.

Even were this reasoning erroneous, the trial court's conclusion would not be undermined, since we also find that the representations in the stock exchange agreement executed by Jay were not fraudulent in this regard. That agreement contains a representation in § 2.9 that "[e]xcept as disclosed in Exhibit C ..., neither the T-Shirtery nor All-Star is a party to ... or bound by, any written or oral ... contracts or commitments involving any loan, guarantee, letters of credit or financing arrangement [that would be placed in default by or would interfere with or invalidate the...