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American Management Services East, LLC v. Fort Benning Family Communities, LLC

Court of Appeals of Georgia

July 15, 2015

AMERICAN MANAGEMENT SERVICES EAST, LLC et al.
v.
FORT BENNING FAMILY COMMUNITIES, LLC et al

Reconsideration denied July 31, 2015.

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[Copyrighted Material Omitted]

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Contract, etc. Muscogee Superior Court. Before Judge Jordan.

Greenberg Traurig, Michael J. King, Stephanie O. Mitchell; Page, Scrantom, Sprouse, Tucker & Ford, William L. Tucker, Marcus B. Calhoun, Jr., Thomas F. Gristina, for appellants.

Buchanan & Land, Jerry A. Buchanan, Lori M. Leonardo; Bondurant, Mixson & Elmore, Michael B. Terry, Bret R. Hobson; The Finley Firm, James B. Finley, Andrew M. Gibson, Austin J. Hemmer, R. Walker Garrett, for appellees.

PHIPPS, Presiding Judge. Doyle, C. J., concurs. Boggs, J., concurs in judgment only.

OPINION

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Phipps, Presiding Judge.

This appeal from two summary judgment orders is the third appearance of this case before this court.[1] In American Management I, the court stated the facts as follows.

Appellees Fort Benning Family Communities, LLC (" FBFC" ) and Fort Belvoir Residential Communities, LLC (" BRC" ) are owners of military housing projects at Fort Benning, Georgia and Fort Belvoir, Virginia. On May 20, 2010, they filed a complaint in Muscogee County Superior Court seeking a declaratory judgment that their property management agreements with appellant American Management Services East LLC (" AMSE" ), their property manager, automatically terminated for cause because of AMSE's misconduct. They also alleged breach of fiduciary duty, fraud, conspiracy to commit fraud, and unjust enrichment, and sought an accounting.[[2]] The parent company, American Management Services LLC d/b/a Pinnacle (" AMS" ), was also named in the action.[3]
AMS, a property management firm ..., and Clark Realty, a national general building contractor, entered into a joint venture known as " Clark Pinnacle," to bid on military housing privatization projects. Clark Pinnacle won four bids to establish private military housing facilities, including projects at Fort Benning and Fort Belvoir. Clark Pinnacle created limited liability companies (" Clark Pinnacle LLCs" ) to manage each project, which were 70 percent owned by Clark and 30 percent owned by Pinnacle. It formed Clark Pinnacle Belvoir, LLC to operate the Fort Belvoir facility and Clark Pinnacle Benning, LLC to operate the Fort Benning facility. In addition, each LLC had a Clark manager and Pinnacle manager, whose duties were defined by the LLC's operating agreement.[4]
Clark Pinnacle Benning LLC and the United States Army thereafter entered into a limited liability company operating agreement to form FBFC whose purpose was to develop and operate the Fort Benning location. Likewise, BRC was formed under a similar agreement between Clark Pinnacle Belvoir, LLC and the Army to develop and operate the Fort Belvoir facility. FBFC and BRC entered into property management agreements with AMSE for the Fort Benning and Fort Belvoir facilities.[5]

In American Management I, AMS and AMSE (hereinafter collectively " Pinnacle" ) appealed the trial court's grant of Fort Benning Family Communities LLC (hereinafter " FBFC" ) and Fort Belvoir Residential Communities, LLC's (hereinafter " FBRC" ) motion to enjoin Pinnacle from pursuing a Virginia action, which action it filed after it had filed in the instant (Georgia) suit an answer, counterclaim, motion to dismiss the action, and motion to dismiss the declaratory judgment claim related to the termination of the Fort Belvoir property management agreement (" PMA" ) under the doctrine of forum non conveniens. Pinnacle also appealed the trial court's denial of its motion to dismiss the declaratory judgment claim for forum non conveniens.[6] This court affirmed the judgment of the trial court.[7]

In American Management II, Pinnacle appealed the trial court's order (entered October 2011) which lifted the restriction in an earlier injunction that had prohibited FBRC from removing Pinnacle as property manager

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at the Fort Belvoir facility.[8] This court affirmed that judgment, too.[9]

While American Management II was on appeal, Pinnacle filed in the instant action an amended counterclaim, adding, inter alia, a claim against FBFC alleging breach of contract for wrongful termination; Pinnacle asserted that in June 2010, it was " physically ... forced out ... as the property manager," and " others" were installed to perform its duties. Pinnacle later filed a " Second Amended Counterclaim," wherein it, among other things, added a claim against FBRC for breach of contract for wrongful termination.

FBFC and FBRC (hereinafter, collectively " the Owners" ) amended their complaint seven times, ultimately dropping their claims for declaratory judgment as to whether their PMAs with Pinnacle automatically terminated for cause, adding a claim for violation of Georgia's RICO statute, and maintaining their initial claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, conspiracy to commit fraud, and unjust enrichment.

On January 17, 2014, the Owners filed a motion for summary judgment, which they later amended after Pinnacle filed its second amended counterclaim; in an amended brief the Owners asserted that they were entitled to judgment as a matter law on four counts of Pinnacle's second amended counterclaim, which counts alleged a breach of contract for wrongful termination of both PMAs (two counts), the failure to pay AMSE for reimbursable expenses, and the failure to pay AMSE a certain fee for supervising a mold abatement project to completion and under budget. On January 24, 2014, Pinnacle filed a motion for partial summary judgment as to claims alleged in the Owners' seventh amended complaint, including those for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, conspiracy to commit fraud, RICO, and unjust enrichment.

On March 20, 2014, the trial court entered an order granting the Owners' motion for summary judgment as to Pinnacle's two wrongful termination claims, and denying the Owners' motion with regard to Pinnacle's claims based on the failure to pay AMSE the expenses and fee (as set out above). On the same day, in a separate order, the trial court denied Pinnacle's motion for partial summary judgment with regard to the Owners' complaint. It is from these two orders that Pinnacle appeals.

On appeal, Pinnacle contends that the trial court erred by: (1) granting summary judgment in favor of the Owners as to AMSE's counterclaim for wrongful termination of the PMAs; (2) failing to apply Virginia's economic loss rule to bar FBRC's tort claims; (3) denying Pinnacle's motion for summary judgment as to the Owners' claim for breach of fiduciary duty; (4) denying Pinnacle's motion for summary judgment as to the Owners' claim for aiding and abetting a breach of fiduciary duty; (5) denying Pinnacle's motion for summary judgment as to FBRC's claims under Georgia's RICO statute; and (6) denying Pinnacle's motion for summary judgment as to the Owners' unjust enrichment claim.

Appeal of Order Partially Granting the Owners' Motion for Summary Judgment

1. To support its contention that the trial court erred by granting summary judgment in favor of the Owners on Pinnacle's counterclaim alleging breach of contract for wrongful termination of the PMAs, Pinnacle advances several arguments. Pinnacle argues that: (a) statements in affidavits upon which the trial court relied " raised myriad issues of disputed facts" ; (b) the Owners failed to give Pinnacle notice of an alleged default and an opportunity to cure any default, as required by the PMAs; (c) the Owners' termination of the PMAs was based on an allegation of fraud, rather than on a determination of fraud (which determination was for a jury to make); and to the extent that the trial court relied on " misconduct" as a basis to terminate the PMAs, that term is not defined in the PMAs and could not serve as a basis for the trial court's summary judgment ruling; (d) because the Owners " had discretion over

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whether to terminate the PMAs in the event of fraud; that is, they could elect the remedy or waive it," the default provision was not automatically triggered in the event of fraud; (e) it was for the jury to decide whether the Owners had complied with an " implied covenant of good faith and fair dealing" in their termination of AMSE, and the evidence showed that the Owners did not act in good faith in that regard; (f) the Owners' removal of Pinnacle violated " Project Operating Agreements" ; and (g) the PMAs' " insurance clause precludes automatic termination."

To prevail at summary judgment ... the moving party must demonstrate that there is no genuine issue of material fact and that the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law. A defendant may do this by showing the court that the documents, affidavits, depositions and other evidence in the record reveal that there is no evidence sufficient to create a jury issue on at least one essential element of plaintiff's case. If there is no evidence sufficient to create a genuine issue as to any essential element of plaintiff's claim, that claim tumbles like a house of cards. All of the other disputes of fact are rendered immaterial. ... If the moving party discharges this burden, the nonmoving party cannot rest on its pleadings, but rather must point to specific evidence giving rise to a triable issue.[10]

(a) Pinnacle argues that statements in affidavits upon which the trial court relied " raised myriad issues of disputed facts," precluding summary judgment.

The PMAs provided that AMSE would receive an annual base fee (plus reimbursement of certain expenses) as well as the opportunity to earn a property management incentive fee. AMSE's incentive fee was based on various factors, including its timeliness (evaluated on a " pass/fail" basis) in responding to resident requests for maintenance; the requests were entered by Pinnacle as " work orders" into a certain database utilized by Pinnacle. An investigation undertaken at Pinnacle's behest revealed that although managers at Fort Belvoir did not direct employees to enter false reports into the database, several Pinnacle associates had sometimes done so. The investigator's report read:

The allegation that associates improperly updated work order data was substantiated. In interviews, two Maintenance Supervisors admitted to changing work order start dates and times for the sole reason of making the work orders meet the response times criteria. Sample data available from e-mail records, financial reports and the maintenance database showed at least nine associates changed work order date and time information decreasing the number of failing work orders by more than 80% for three of seven months where sufficiently detailed data was available for analysis. An analysis of less detailed data for the entire 59 month period under review found a total of eight months with work order update patterns similar to those observed in the detailed data analysis. The number of late-updated work orders, the associates making the updates, and the manner in which the work orders were changed was not consistent with the mere correction of data entry errors.

In moving for summary judgment, the Owners presented sworn affidavits and excerpts of deposition testimony of former AMSE employees at Fort Belvoir and Fort Benning purporting to show that they admitted to falsifying work order data to improve or increase " pass percentage," which resulted in overpayments of management incentive fees. Pinnacle responded by filing a brief opposing the Owners' summary judgment motion and a separate response to the Owners' statement of theories of recovery and material fact. In the latter document, Pinnacle disputed allegations of employee misconduct by pointing to other evidence in the record purporting to show conflicts in the employees' statements. In neither its brief opposing the Owners' summary judgment motion, nor in a supplemental response brief later filed, did Pinnacle attempt to counter the misconduct evidence adduced by the Owners, instead limiting its response to reasons

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it claimed the PMAs did not terminate automatically, and to the Owners' purported breach of a duty of good faith and fair dealing.

On appeal, Pinnacle argues that evidence of the following precluded a grant of summary judgment to the Owners: employees made conflicting statements regarding whether they had falsified data or were instructed by supervisors to falsify data; although some employees testified that certain supervisors had instructed them to change data inputs, the accused supervisors denied the allegations; and some employees had credibility issues. In its order granting (partial) summary judgment to the Owners, the trial court referenced testimony of the following three former Pinnacle employees, and concluded that " [t]hese unrebutted admissions conclusively establish that Pinnacle employees engaged in intentional misconduct."

(i) Wanda Gotay.

The Owners attached to their motion for summary judgment an affidavit Gotay had executed and an excerpt of Gotay's deposition testimony. The affidavit showed that Gotay had worked for Pinnacle at Fort Belvoir. The deposition excerpt included her testimony that she had falsified work orders, " changing fails to passes," by " selecting a time that [she] would make up that fell within the pass range for that specific type of work order." Gotay testified that in addition to changing " fails" to " passes," she would, at the direction of a supervisor, " close out" work orders she believed had not actually been completed.

In its appeal brief, Pinnacle points out that in Gotay's deposition, Gotay admitted that (prior to the deposition) she had been interviewed by Pinnacle's investigator and at that time denied having changed date and time information.[11] Pinnacle also points out that although Gotay deposed that she changed work order data because a supervisor had instructed her to do so, one supervisor she named denied the accusations, and the evidence showed that another supervisor she named had requested that work order data be accurate.

By their own terms, the PMAs terminated upon the requisite acts committed by Pinnacle or its " employees" or agents. Therefore, whether Gotay's data was falsified at the behest of a supervisor was immaterial, and any conflict in the evidence regarding that issue could not work to preclude summary judgment.[12] On the other hand, whether Gotay (herself) falsified data was a material fact. " [E]vidence offered on motion for summary judgment is held to the same standards of admissibility as evidence at trial." [13] When a witness " admits making [a] prior inconsistent statement, evidence of that statement is admissible because the jury may ... consider the inconsistent statement as substantive evidence," [14] as well as for impeachment purposes.[15] The statement Gotay made in deposition (that she had falsified data) contradicted the statement she had

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made earlier to an investigator (that she had not falsified data). Because the evidence was in dispute on that material fact, Gotay's later admission (that she had falsified data) should not have served as a basis upon which summary judgment was granted, and the trial court erred by concluding that Gotay's admission of misconduct was " unrebutted" and " conclusively establish[ed] that Pinnacle employees engaged in intentional misconduct" at Fort Belvoir.[16] But our inquiry does not end here.

" On appeal we review the trial court's grant of summary judgment de novo to determine whether the evidence, viewed in the light most favorable to the nonmoving party, demonstrates a genuine issue of material fact." [17] In this case, the trial court stated that it had considered all the evidence in the record, and ruled that " [e]ach instance of misconduct serves as an independent ground under which the PMAs have terminated." [18] In the trial court, Pinnacle recognized that other former Pinnacle employees at Fort Belvoir had testified to falsifying work order data, and Pinnacle pointed to no contradictions in their admissions. In its appeal brief, Pinnacle makes no effort to dispute those admissions. Consequently, Pinnacle failed to meet its burden as a respondent on summary judgment, and the trial court did not err by granting judgment as a matter of law in the Owners' favor on the issue of intentional misconduct by Pinnacle employees at Fort Belvoir.[19]

(ii) Denise White.

White, a former Pinnacle employee at Fort Benning, testified that she changed thousands of work orders " from fails to passes," without knowing whether the work requested had in fact been completed within the timeframes set by the PMAs for their completion. White testified that after reviewing a " pass/fail report," she would " click on the item that showed as failed[,] ... pull that work order up and change the dates, close it out again, and it would pass."

Pinnacle rebuts this evidence by pointing to White's testimony that she sometimes changed the priority of a work order if, for instance, a call " come through as an emergency but yet it was just a frame wall or a hole in the wall or a minor issue, ... I would change [the priority of the work order] from emergency to ... urgent or routine." But White's testimony that she changed the priority of a work order did not contradict her testimony that she changed an entry from " fail" to " pass." " To the contrary, it is, at best, a mere inconclusive inference ... insufficient to get [Pinnacle] by [the Owners'] motion for summary judgment." [20]

Pinnacle further asserts that because the supervisor who White testified had instructed her to falsify data denied White's accusations, and because White purportedly " gave conflicting accounts of why she left Pinnacle, and may have harbored a grudge against [Pinnacle]," summary judgment was precluded. Pinnacle argues that evidence of the foregoing " raises a question of bias and also places [White's] credibility at issue." Pinnacle ...


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