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Healthy-IT, LLC v. Agrawal

Court of Appeals of Georgia, First Division

October 31, 2017

AGRAWAL et al.


          McMillian, Judge.

         This case arises from the breakup of a joint venture company named Healthy Panacea Network LLC ("HPN"), which was formed to develop medical technology. HPN was governed by an Operating Agreement, pursuant to which ownership of HPN was split equally between two members - (1) Panacea Medical MBA, LLC ("Panacea Medical"), a holding company which had been created by Dr. Subodh K. Agrawal ("Agrawal"), [1] and (2) Healthy-IT, LLC, a Georgia limited liability company formed by Dr. Mohamed Ahmed Hammady Ahmed ("Hammady")[2] and Dr. Adel Mohamed Fathy for the purpose of entering into the joint venture. As set out in the Operating Agreement, the primary business of HPN was for Healthy-IT[3] to complete the development of electronic medical record software[4] ("the EMR software") and in particular, to bring it in compliance with regulations promulgated by the Office of the National Coordinator for Health Information Technology ("ONC"), as well as to develop "a complete solid integration"[5] between software that Healthy-IT Egypt had already developed, called TelePax, and the EMR software with HPN having the exclusive right to market and sell the integrated system in the United States. The Operating Agreement also purported to describe how Healthy-IT would be reimbursed for the development costs of the EMR software.

         During the next stage of the venture, Agrawal was generally in charge of sales and marketing, and Hammady was in charge of the technical aspects of the project. Panacea Medical, with money provided by Agrawal, contributed the funds to actually operate the venture, including hiring marketing staff. Hammady started working on the project at offices provided to him at AHC, and Healthy-IT began working on developing the EMR software. However, according to Hammady, there were unanticipated problems with the software development and that part of the project did not progress as quickly as expected. Agrawal eventually began beta testing the software[6] using AHC's medical records in May 2013. It appears undisputed, however, that no outside sales were ever made of the EMR software. The TelePax software, on the other hand, continued to be refined, [7] and HPN began to sell licensing agreements to a cloud version of that product.

         According to Appellants, despite the fact that there had been no sales of the EMR software, HPN's tax return showed it had received income or revenue for tax years 2011-2013, and Healthy-IT, through Fathy and Hammady, began demanding to be paid for its costs in developing the EMR software. Although Agrawal maintained he did not think Healthy-IT had a right to be paid under the terms of the Operating Agreement because there had been no sales of the EMR software and most of the money on the tax return reflected investments by Panacea Medical in the company, he ultimately paid Healthy-IT $25, 000, which Agrawal said was to keep Hammady working on the project because he believed that the EMR software was close to being ONC compliant. However, Agrawal testified that it reached a point where he could not make any more monetary investments in the venture. HPN began to terminate employees, and by summer 2013 the parties began to explore ways to wind down the joint venture, which the parties at first hoped would be amicable.

         At that point, Hammady was the only person who had the pass codes for access to HPN's servers, which were housed at a data center named Cirracore, and it was initially agreed that he would provide support for the medical records and customer information they had stored there. But their relationship continued to deteriorate, and Hammady quit going to his office at AHC's building and, according to Agrawal, would not get in contact with him when he needed him, although he maintained some contact through his lawyer.

         By the beginning of August 2013, Agrawal still did not have the pass codes to HPN's servers, which held not only the medical images for customers who had purchased the PaxBox system, but also medical records from AHC, which had been placed in this system when the beta testing of the EMR software began. After Agrawal contacted Athens-Clarke County Police Department and told them that Hammady had stolen sensitive information from the company, the police prepared a report of that meeting, which contained the notation "FURTHER INVESTIGATION" beside the caption "Case Status/Disposition." A few days later, Agrawal sent an email to Cirracore employee Fred Tanzella, informing him that Hammady was under investigation by the Clarke County Police Department for theft by deception and that he was replacing Hammady as the primary contact for HPN, but the email also instructed Tanzella to keep Hammady as the technical contact and to log all of his activity inside the data center as well as any remote activity on the servers.

         Hammady and Agrawal met with their attorneys, and Hammady testified he offered to provide Agrawal with his patient records but said he would not give him the source code for EMR II because Healthy-It had not been paid for its work and because it possibly had a "bug" in it. Subsequent to this meeting, Appellants also contacted HPN's customers and told them that HPN had lost its license to distribute TelePax/PaxBox, that the service was no longer available from HPN, and that they needed to either go to a different vendor or transfer their licensing agreements to Healthy-IT.

         A few weeks later, AHC, Panacea Medical, and HPN filed suit against Appellants for violation of the Georgia Computer Systems Protection Act, misappropriation of trade secrets, promissory estoppel, tortious interference with contracts, money had and received, breach of fiduciary duty, breach of contract, civil conspiracy, punitive damages, and attorney fees.[8] Appellants answered and counterclaimed, as later amended, for breach of contract, tortious interference with contracts, conversion, defamation per se, computer trespass, civil conspiracy, punitive damages, dissolution of HPN, and attorney fees.

         Appellants subsequently moved to add Agrawal as a defendant in counterclaim, and the trial court granted the motion. In the order granting the motion, the trial court specifically ordered Agrawal to file an answer to Appellants' second amended counterclaim within thirty days after the service of the summons and counterclaim. Agrawal was served with Appellants' second amended counterclaim, and a summons was issued requiring Agrawal to respond to the filing, although the record does not show if the summons was also served on Agrawal. In any event, Agrawal never filed an answer or other responsive pleading.

         Appellees filed a motion for partial summary judgment on Appellants' counterclaims for tortious interference with contracts, defamation, conversion, computer trespass, and breach of contract. Appellants then filed an "Omnibus Motion for Partial Summary Judgment" seeking summary judgment on their claims for breach of contract, defamation per se, conversion and computer trespass, and on all claims asserted by plaintiffs in their complaint. A short while later, the parties filed a joint motion to consolidate Appellants' claims with a separate defamation action Hammady had filed against Agrawal in another county, and the trial court granted the motion.

         On November 17, 2015, Appellants sought a default judgment against Agrawal based on his failure to file an answer to Appellants' second amended counterclaim after he was added as a party-defendant. The trial court entered an order granting the default but reserved the issue of damages for the jury on all but one claim. Agrawal subsequently moved to set aside the judgment and open default. Following a hearing, the trial court granted the motion to open default pursuant to OCGA § 9-11-55 (b).

         Subsequently, the trial court entered a comprehensive order granting in part and denying in part the parties' respective motions for summary judgment. Appellants filed this appeal, arguing that the trial court erred by: (1) granting Agrawal's motion to open the default; (2) granting summary judgment to Appellees on Appellants' breach of contract counterclaim; (3) denying summary judgment on Hammady's defamation claim; (4) denying summary judgment to Appellants on Appellees' claims for misappropriation of trade secrets and promissory estoppel; and (5) denying summary judgment to Healthy-IT on Appellants' claims for tortious interference with contracts and breach of fiduciary duty. As more fully set forth below, we now affirm in part and reverse in part.

         1. We turn first to Appellants' contention that the trial court erred by allowing Agrawal to open the default judgment.

         OCGA § 9-11-55 (b)[9] gives the trial court discretion to open a prejudgment default on one of three grounds, provided four conditions are met. (Citation omitted.) Karon, Inc. v. Auto-Owners Ins. Co., 280 Ga. 545, 547 (629 S.E.2d 260) (2006) ("Compliance with the four conditions is a condition precedent and once met the question of whether to open the default on one of the three grounds rests within the sound discretion of the trial court."). "[T]he sole function we have as an appellate court... is to ascertain whether all of the conditions delineated in OCGA § 9-11-55 have been satisfied and, if so, 'whether the trial court abused its discretion based on the facts peculiar to the case.'" Strader v. Palladian Enterprises, LLC, 312 Ga.App. 646, 649 (719 S.E.2d 541) (2011).

         Appellants do not contend on appeal that the four conditions were not met or that the trial court abused its discretion under OCGA §9-11-55 (b), but argue instead that the trial court should have applied OCGA §9-11 -60 (d) instead of the more liberal provisions of OCGA § 9-11-55 (b) because final judgment had been entered and thus the judgment had to be set aside before default could be opened.[10] See Granite Loan Solutions, LLC v. King, 334 Ga.App. 305, 310 (3) (c) (779 S.E.2d 86) (2015). It does not appear, however, that Appellants ever made this contention below. Agrawal recited OCGA § 9-11-55 (b) in his motion to open the default judgment, specifically arguing that "[t]his is not a final judgment so the liberal criteria of OCGA § 9-11-55 (b) apply[, ]" and at no point in the proceedings below did Appellants oppose this statement or contend otherwise. In fact, Appellants also framed their arguments within the context of OCGA § 9-11-55 (b) without making any reference to OCGA §9-11 -60 (d) and expressly referred to the fact that the trial court had ordered a trial on damages. This Court does not apply a "wrong for any reason" analysis and, accordingly, we will not consider Appellants' contention that Agrawal failed to satisfy the requirements of OCGA § 9-11-60 (d) since this argument was never raised below. Gwinnett County v. Old Peachtree Partners, LLC, 329 Ga.App. 540, 549 (1) (d) (764 S.E.2d 193) (2014).

         To the extent that Appellants are challenging the trial court's finding that a proper case had been made to open default, we reject that contention. The trial court specifically found there was no reason to doubt Agrawal's attorney's claim that he had not received a copy of the trial court's order requiring him to file an answer.[11]Further, the court also took some responsibility for the fact that the order may not have been sent to counsel due to the trial court's home office being located in another county. And we reject Appellants' contention that Agrawal had constructive notice that he was required to answer the counterclaim because Agrawal's attorney should have been aware of a proposed order, which would have required him to file an answer. Lastly, although Appellants argue in their reply brief that they were prejudiced by the opening of the default because they were deprived of the liquidated damages award on the breach of contract claim, we note that they continued to litigate this case for approximately nine months after Agrawal failed to file his answer. Shortancyv. North Atlanta Internal Medicine, P.C., 252 Ga.App. 321, 324 (1) (556 S.E.2d 209) (2001) ("plaintiffs have demonstrated no prejudice to their case by the opening of default, particularly since they waited 11 months after filing proof of service to move for entry of default judgment."). We discern no abuse of discretion under the circumstances of this case.

         2. Appellants also argue that the trial court erred by granting summary judgment on their counterclaim for breach of contract, in which they sought to recover costs of up to $250, 000 incurred by Healthy-IT in the development of the EMR software. Healthy-IT contends that it is entitled to ...

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