David Eichenblatt v. piedmont/maple, LLC , 341 Ga. App. 761 ( 2017 )

THIRD DIVISION
ELLINGTON, P. J.,
ANDREWS and RICKMAN, JJ.
NOTICE: Motions for reconsideration must be
physically received in our clerk’s office within ten
days of the date of decision to be deemed timely filed.
http://www.gaappeals.us/rules
June 14, 2017
In the Court of Appeals of Georgia
A17A1205. EICHENBLATT v. PIEDMONT/MAPLE, LLC et al.
ANDREWS, Judge.
In 1995, David L. Eichenblatt and Kaufman Development Partners, L.P.
(“KDP”) formed Piedmont/Maple, LLC, a real estate investment company that owned
and operated commercial real estate located between Piedmont Road and Maple
Drive in Atlanta. Following the sale of its final asset in November 2013,
Piedmont/Maple sought to distribute its proceeds and dissolve. A dispute arose
regarding the amount of money owed Eichenblatt, and, on October 27, 2014, KDP,
Craig S. Kaufman (KDP’s general partner), and Piedmont/Maple (collectively,
“plaintiffs”) sued Eichenblatt for a declaratory judgment regarding proper asset
distribution. Eichenblatt counterclaimed for breach of contract, breach of fiduciary
duty, and attorney fees. The trial court subsequently granted the plaintiffs partial
summary judgment on the counterclaims. Eichenblatt appeals, and for reasons that
follow, we reverse the grant of partial summary judgment.
Summary judgment is appropriate when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, 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). We review the grant
of summary judgment de novo, construing the evidence and all reasonable inferences
drawn from it in the light most favorable to the nonmovant. See Humphrey v. JP
Morgan Chase Bank, 337 Ga. App. 331 (1) (787 SE2d 303) (2016).
So viewed, the record shows that this is the second time the parties’ business
dispute has been before us. See Kaufman Dev. Partners v. Eichenblatt, 324 Ga. App.
71 (749 SE2d 374) (2013). As described in our previous opinion, Eichenblatt and
KDP entered into an operating agreement in 1995 that governed Piedmont/Maple’s
operation and management. The agreement identified Eichenblatt and KDP as
members, set forth management guidelines, and provided that Eichenblatt would
receive up to 40 percent of Piedmont/Maple’s quarterly cash flow distributions. Id.
at 72.
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At some point, the parties’ business relationship changed, and Eichenblatt was
removed as a Piedmont/Maple member via a January 1, 2000 amendment to the
operating agreement. Id. Pursuant to that amendment, Eichenblatt retained “the right
to receive such share of allocations and distributions to which he would otherwise
[have been] entitled, but [had] no other powers, rights or privileges of a Member of
the Company.” Management of Piedmont/Maple fell to KDP, the only remaining
member.
In 2005, KDP refinanced the debt on the Piedmont/Maple holdings, taking out
separate loans on the parcels of property fronting Piedmont Road and Maple Drive.
In the process, it placed ownership of the property into two single-asset subsidiaries:
Piedmont Road, LLC, which owned the Piedmont Road property, and Maple Drive,
LLC, which owned the Maple Drive property.
The real estate venture ultimately experienced financial difficulties, and
Eichenblatt suspected mismanagement by KDP. He sued Kaufman, KDP, and several
related entities, alleging, among other things, that KDP and Kaufman had
mismanaged Piedmont/Maple, breached the amended operating agreement, and
ignored their fiduciary responsibilities. The case proceeded to trial in September
2011. The jury awarded Eichenblatt $625,000 against KDP for breach of contract, and
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we affirmed the resulting judgment. See id. We also rejected KDP’s claim that the
$625,000 award extinguished Eichenblatt’s interest in Piedmont/Maple. Id. at 76 (3).
As we explained, nothing in the verdict indicated that “the jury intended either for
this amount to represent the full value of Eichenblatt’s ownership interest in
Piedmont/Maple or for Eichenblatt to have no interest in Piedmont/Maple going
forward.” Id. at 76 (3).
The venture continued after the trial, and in September 2012, KDP loaned
Piedmont/Maple $3,550,000, which allowed Piedmont/Maple to pay off outstanding
debt on the Maple Road property that had gone into default. This member loan and
the associated promissory note carried a greater principal balance than the original
indebtedness and a 15 percent interest rate, rather than the 5.61 percent rate
associated with the original loan. The note also obligated Piedmont/Maple to pay fees
to KDP and a Kaufman-related real estate entity.
Approximately two months before the member loan and promissory note were
issued, Maple Drive, LLC, entered into a contract to sell the Maple Drive property for
$5,500,000. The sale closed in April 2013, and the proceeds were used to extinguish
the promissory note, interest, and fees owed to KDP on the Maple Drive property. In
November 2013, Piedmont Road, LLC, sold the Piedmont Road property for
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$5,525,000. Following that sale, the plaintiffs sought to wind down and terminate
Piedmont/Maple. As part of the dissolution, Piedmont/Maple distributed to
Eichenblatt $969,609.23, which it had determined to be 40 percent of its total
remaining assets, less certain fees and expenses. Eichenblatt, however, disputed the
accuracy of Piedmont/Maple’s calculation and refused to cash the distribution checks.
The plaintiffs subsequently filed this declaratory judgment action to establish
the proper dissolution payment. Eichenblatt counterclaimed for breach of contract and
breach of fiduciary duty, asserting that KDP and Kaufman had manipulated the Maple
Drive member loan to KDP’s advantage and had reduced the value of the
Piedmont/Maple property by selling the Piedmont Road and Maple Drive parcels
separately.1 The trial court granted summary judgment to the plaintiffs on these
counterclaims, and this appeal followed.
1. Counterclaims Relating to Sale of the Property. Eichenblatt argues that the
trial court erred in granting summary judgment on his breach of contract and fiduciary
duty counterclaims involving the sale of the Piedmont/Maple property. We agree.
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Eichenblatt also alleged that the plaintiffs failed to collect rent on the
commercial spaces at the property, and he sought attorney fees. The trial court denied
summary judgment on these allegations, and the plaintiffs have not appealed that
denial.
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(a) Citing the judgment in the prior lawsuit, the trial court found that res
judicata barred the sale-related counterclaims, entitling the plaintiffs to summary
judgment. According to the trial court, Eichenblatt sought damages in both suits
based on the value of the Piedmont/Maple property as an assemblage, rather than as
separate parcels. It concluded that because Eichenblatt had already litigated this
damage claim in the first suit, he could not raise it again as a counterclaim to the
declaratory judgment action.
Res judicata, however, only applies where the cause of action in each suit is
“identical.” Haley v. Regions Bank, 277 Ga. 85, 91 (2) (586 SE2d 633) (2003). The
term “cause of action” means “the entire set of facts which give rise to an enforceable
claim.” Id. (punctuation and emphasis omitted). Thus,
[w]here some of the operative facts necessary to the causes of action are
different in the two cases, the later suit is not upon the same cause as the
former, although the subject matter may be the same, and even though
the causes arose out of the same transaction.
Id. (citations and punctuation omitted). See also Morrison v. Morrison, 284 Ga. 112,
115 (3) (663 SE2d 714) (2008) (“The fact that the subject matter of different lawsuits
may be linked factually does not mean that they are the same ‘cause.’”).
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In the prior lawsuit, Eichenblatt alleged that KDP’s mismanagement of
Piedmont/Maple – including its failure to sell the property as an assemblage before
the real estate market declined in 2008 – negatively impacted his share of the venture.
Although that litigation ended with a judgment in favor of Eichenblatt for $625,000,
his interest in Piedmont/Maple continued. In the present litigation, Eichenblatt claims
that following the first trial, KDP and Kaufman once again mismanaged the venture,
breached the amended operating agreement, violated their fiduciary duties, and
diminished the value of his remaining interest by failing to sell the property for its
highest value (which, in his view, was as a combined assemblage). Although the two
suits involve the same real estate and both raise issues about property management
and valuation, they are not identical for purposes of res judicata. On the contrary, the
claims at issue here relate to mismanagement and devaluation of Eichenblatt’s interest
after the first trial.
“These claims could not have been raised in the prior lawsuit[] because the
underlying circumstances had not yet occurred.” Humphrey, 337 Ga. App. at 335 (2).
The trial court, therefore, erred in granting summary judgment based on res judicata.
Id.; see also Glen Oak , Inc. v. Henderson, 258 Ga. 455, 458 (2) (c) (369 SE2d 736)
(1988) (prior action did not bar claim arising after trial in previous litigation).
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(b) On appeal, the plaintiffs argue that even if the prior and current causes of
action are not identical, the doctrine of collateral estoppel precludes the sale-related
claims. Under this doctrine, “so long as [an] issue was determined in [a] previous
action and there is identity of the parties, that issue may not be re-litigated, even as
part of a different claim.” Waldroup v. Greene County Hosp. Auth., 265 Ga. 864, 867
(2) (463 SE2d 5) (1995) (footnote omitted). Collateral estoppel bars an issue that was
actually “litigated and decided in the previous action, or that necessarily had to be
decided in order for the previous judgment to have been rendered.” Id. (footnote
omitted).
According to the plaintiffs, Eichenblatt’s sale-related counterclaims rest on the
same premise as his prior claims – that KDP “should have sold the combined
parcels.” (Emphasis in original). The plaintiffs’ effort to boil Eichenblatt’s allegations
down to six words, however, cannot bring collateral estoppel into play. At issue here
is whether sale of the Piedmont/Maple property breached the amended operating
agreement or any fiduciary duty. This issue was not and could not have been litigated
during the 2011 trial because the April 2013 and November 2013 sales – and the
market conditions under which they occurred – had not yet taken place.
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(c) Finally, the plaintiffs argue that they were entitled to judgment as a matter
of law on Eichenblatt’s sale-related counterclaims because “[t]he only evidence is that
it did not make sense” to sell the parcels together in 2013. Eichenblatt offered expert
testimony, however, that the appraised value of the combined property exceeded $18
million, well over the amount for which the parcels were sold separately, and that the
property should have been marketed as an assemblage. Although the plaintiffs offered
contrary evidence, material factual questions exist as to whether KDP and Kaufman
mismanaged the sale to Eichenblatt’s detriment.
2. Counterclaims Relating to the 2012 Member Loan. The trial court found
that, as a matter of law, Eichenblatt could not establish that the circumstances
surrounding the KDP member loan on the Maple Drive property breached the
amended operating agreement or any fiduciary duty.2 Again, we disagree.
2
Before reaching this conclusion, the trial court found that at least some
evidence raised a jury question as to the existence of a fiduciary relationship here.
Although the plaintiffs assert on appeal that “KDP does not owe Eichenblatt a
fiduciary duty,” they offered no argument or citation of authority supporting this
claim. And given the evidence, a jury could determine that KDP and Kaufman
exercised a controlling influence over Eichenblatt’s interest in Piedmont/Maple,
placing them in a confidential relationship with Eichenblatt. See OCGA § 23-2-58;
Cushing v. Cohen, 323 Ga. App. 497, 508 (5) (746 SE2d 898) (2013) (evidence
presented factual questions regarding whether officer of real estate investment firm
owed fiduciary duty to the firm’s investors).
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Without dispute, the amended operating agreement allowed KDP to loan
money to Piedmont/Maple in 2012. According to Eichenblatt, however, the terms of
the member loan violated Section 2.10 of that agreement, which provides:
[Piedmont/Maple] is permitted in the normal course of its business to
enter into transactions with any Member . . . provided that the price and
other terms of such transactions . . . are fair to [Piedmont/Maple] and are
not less favorable to [Piedmont/Maple] than those generally prevailing
with respect to comparable transactions . . . between unrelated parties.”
The trial court granted summary judgment because it found no evidence that
the terms of the 2012 member loan transaction were unfair. But Eichenblatt testified,
based on 30 years of experience in the commercial real estate business, that the
promissory note issued by Piedmont/Maple to KDP was unfair, given the market
conditions. And the evidence showed that the member loan carried significantly
higher principal, interest rates, and fees (all of which inured to KDP’s benefit) than
the loan it replaced. Moreover, just one year earlier, KDP had obtained a commercial
bank loan for the Piedmont Road property that carried a stated interest rate of 5.5
percent, approximately one third of the interest rate associated with the member loan.
On appeal, the plaintiffs cite us to expert evidence that the terms of the member
loan and promissory note were reasonable and appropriate. Eichenblatt, however, has
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pointed to at least some evidence from which a jury could conclude that the high
interest rate and fees that directly benefitted KDP and cost Piedmont/Maple money
were unreasonable. The trial court, therefore, erred in granting the plaintiffs summary
judgment on the loan-related counterclaims. See Dalton v. City of Marietta, 280 Ga.
App. 202, 203 (633 SE2d 552) (2006) (“Even slight evidence will be sufficient to
satisfy the [claimants] burden of production of some evidence on a motion for
summary judgment; such evidence may include favorable inferences drawn by the
court from the evidence presented.”) (citations and punctuation omitted).
3. Admissibility of Expert Testimony. In its summary judgment order, the trial
court determined that because res judicata barred the sale-related counterclaims, the
sales valuation testimony offered by Eichenblatt and his expert should be excluded
as irrelevant. As discussed in Division 1, however, the trial court erred in granting
summary judgment based on res judicata. Accordingly, the trial court improperly
excluded the testimony as irrelevant.
Seeking to avoid the impact of this evidence, the plaintiffs ask us to affirm the
evidentiary exclusion as “right for any reason,” asserting that the expert testimony
was “fundamentally flawed and riddled with critical errors.” Although the plaintiffs
moved to exclude the evidence on this basis, the trial court did not reach the
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substance of the motion, and we will not resolve their evidentiary challenge for the
first time on appeal. See An v. Active Pest Control South, 313 Ga. App. 110, 115-116
(720 SE2d 222) (2011). Instead, we have considered “whether the record as we now
find it – including the opinions of the experts – is enough to get [Eichenblatt] past
summary judgment.” Id. at 116.
Judgment reversed. Ellington, P. J., and Rickman, J., concur.
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