A Case Worth Watching
The Georgia Supreme Court has announced the release of its opinion tomorrow in Alston & Bird’s appeal of a decision of the Court of Appeals.
The issues involve comparative fault in a tort action as described by Smith, Gambrell & Russell LLP
Alston & Bird, LLP v. Hatcher Management Holdings, LLC, Case No. S20G1419, the Court will examine two questions regarding the apportionment of fault in tort cases. Georgia statutes allow the apportionment of fault between two defendants. The court will address whether a court also can apportion fault in a case involving only one defendant where non-parties are alleged to be at fault. The court will also consider whether attorney fees awarded as damages under O.C.G.A. § 13-6-11 for stubborn litigiousness or bad faith can be apportioned. Both issues are significant for all defendants looking to have damages apportioned in tort cases.
From the lower court opinion
the record shows that in 2000, Maury Hatcher hired Alston & Bird and its partner, Jack Sawyer, to form and represent HMH, a holding company for the Hatcher family fortune. Sawyer prepared HMH’s operating agreement and presented it to family members at a March 2001 organizational meeting.
The agreement drafted by the attorney provided members a right to an annual report
For the next seven years, Maury managed HMH and was the only member in regular contact with Sawyer. Starting in 2005, however, Maury began embezzling company funds, eventually paying himself $876,500 in compensation and $218,000 in distributions. In the spring of 2008, other family members, including Maury’s brother Jerry, raised concerns about a lack of information about company affairs. In response to these concerns, and at Maury’s request, Sawyer issued a May 2008 letter describing Maury’s broad authority but not responding to members’ requests to see company records.
In response to the inquiries
In the course of and following this exchange, Sawyer confirmed that members could have the information only if there were majority approval for replacing Maury or full disclosure, or if the other members “went to [c]ourt” and obtained a ruling to “compel Maury to turn that information over[.]” Sawyer also suggested that “full disclosure” would cost the family “$25,000 a year.”
Maury’s conduct continued and he was replaced by majority vote
On January 16, 2009, the members fired Maury as manager and appointed Jerry and Barry in his stead. On February 2, and despite a warning from a junior attorney about an actual conflict of interest, Alston & Bird sent Jerry and Barry a cease-and-desist letter demanding that they stop interfering with HMH’s interests. In early February, as they worked on a second cease-and-desist letter, the junior attorney again warned Sawyer of the conflict between the firm’s representation of Maury and that of the company under new management. On February 27, Maury and Sawyer presented Jerry and Barry with a universal release from any claims or litigation, to be signed in exchange for the return of HMH’s records. Jerry refused to sign the release, however.
A subsequent investigation revealed that Maury had taken nearly $1.5 million.
Holdings below
Here, a jury was authorized to conclude from the evidence outlined above that as a result of [attorney] Sawyer’s incorrect advice in response to direct inquiries, family members left the August 2008 meeting under the mistaken belief that they were not entitled to information on members’ interests, and that as a result, they were deprived of the opportunity to take action to remedy Maury’s fraud. The jury was also authorized to infer that when Sawyer did not disclose Maury’s redemption or moving plans to the members and when he drafted letters demanding that Jerry and Barry stop interfering with Maury (even after repeated warnings from a junior attorney), Sawyer violated his duties of care and loyalty to HMH. Further, and although Alston & Bird points to evidence that Maury’s thefts occurred before the August 2008 family meeting, Sawyer himself testified that had members learned of Maury’s theft before the redemption, the company could have used his remaining membership interest to repay a portion of what had been stolen. We also note, moreover, that the jury’s award of compensatory damages was well within the range of the evidence.
For all these reasons, the trial court did not err when it denied Alston & Bird’s motion for directed verdict and for judgment notwithstanding the verdict.
On a separate issue
Alston & Bird also asserts that the trial court erred when it instructed the jury that it could award prejudgment interest in this tort action. We agree.
As to plaintiffs’ issue
HMH first argues that the trial court erred in reducing the jury’s award by the percentage of the fault of Maury as well as HMH. We agree.
Oral argument is linked here.
After listening, my impression is that the result more likely will turn on Georgia-specific statutory interpretation rather than general tort principles. (Mike Frisch)