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Laymac v. Kushner

Court of Appeals of Georgia, Second Division

March 11, 2019

LAYMAC
v.
KUSHNER et al.

          MILLER, P. J., BROWN and GOSS, JJ.

          Brown, Judge.

         James Laymac appeals from summary judgment orders entered in his action against Lending Solutions, Inc. d/b/a LSI Mortgage Plus ("LSI"), David Kushner, and Kevin Pezzani (collectively "defendants") in connection with the formation and operation of LSI, a mortgage brokerage business. Laymac contends that the trial court erred in granting summary judgment to defendants on his breach of contract and partnership claims, and in denying his motion for summary judgment on his breach of contract claim and on defendants' breach of contract claim. For the reasons discussed below, we affirm in part, reverse in part, vacate in part, and remand this case to the trial court with direction.

To prevail at summary judgment under OCGA § 9-11-56, 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. OCGA § 9-11-56 (c). 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.

(Emphasis omitted.) Lau's Corp. v. Haskins, 261 Ga. 491 (405 S.E.2d 474) (1991). So viewed, the record shows that Laymac incorporated LSI in May 2000 for the purpose of operating a mortgage lending business. LSI held a state license as a mortgage lender, and as of January 26, 2015, the company conducted business in 36 states. In 2003, Laymac met Kushner and Pezzani through their work at other mortgage lenders, and Pezzani joined Laymac as a loan officer at Mortgage Now, Inc. (MNI), where they devised a plan "to build a national mortgage brokerage business through the use of internet leads provided by LendingTree Dot Com and similar type companies." According to Laymac, the three men verbally agreed that each was a "one third owner" of LSI. At that time, Kushner began operating LSI as a marketing company, while Laymac and Pezzani continued working at MNI. On December 31, 2003, Laymac resigned as a director of LSI, and tendered back to the company 10, 000 shares of stock, [1] which were then issued to Kushner, who became LSI's sole officer, director, and employee.

         Beginning in the summer of 2006, Laymac and Pezzani left MNI and joined Kushner at LSI. On August 4, 2006, Laymac signed an employment agreement to serve as LSI's Finance Manager. The agreement was for a one-year term, but provided that "[a]t the end of the Initial Term, the term of this Agreement may be renewed and extended upon the mutual agreement of the parties hereto." Laymac's employment was terminable at will. Laymac claims that LSI had inadequate working capital at the time he came over from MNI, so he contributed $282, 000 to LSI's corporate treasury. Laymac also used his own credit to secure bank lines of credit and credit cards for LSI. All three men guaranteed loans on behalf of LSI, including Laymac guaranteeing over $50 million of LSI debt.

         On January 1, 2008, Kushner, Laymac, and Pezzani executed a Letter Agreement concerning the operation of LSI, [2] wherein the three men appointed themselves directors in the company, with each possessing separate roles: Laymac served as CFO; Kushner was President in charge of marketing; and Pezzani was Secretary in charge of operations. The Letter Agreement begins as follows: "I[, Pezzani, ] wish to confirm certain agreements that we have reached with respect to, among other things, the operations of [LSI], the imposition of restrictions on transfers of our shares in [LSI] and the purchase of those shares by one or more of us upon the occurrence of certain events." The Letter Agreement further provided that Laymac, Pezzani, and Kushner were the owners of record and beneficiaries of 10, 000 shares of 30, 000 outstanding shares of LSI, and that each were employees at will. It set forth the parties' compensation plan, provided that LSI was to be taxed as an "'S corporation, '" and that LSI would pay life insurance for each in the amount of $3 million, and it contained an entire agreement clause. According to Laymac, between 2006 and 2013, he, Kushner, and Pezzani "worked in concert to make all material decisions to the operation of LSI." As provided in the Letter Agreement, Laymac affirmed that the company also maintained "key man" insurance on the life of each in the principal amount of $3 million.

         In a subsequent Share Subscription Agreement, dated February 13, 2008, Laymac subscribed to 10, 000 shares of LSI common stock and agreed to pay $1, 000 to LSI upon issue of the common stock and acceptance of the subscription. Laymac never paid for any LSI stock and no stock certificate was ever issued to or delivered to him. In his affidavit, Laymac averred that "[a]t all time[s] both Kushner and Pezzani understood that [Laymac] believed that he owned 10, 000 shares of LSI (one third the total issued and outstanding shares), or had the right to acquire 10, 000 shares." Laymac deposed that he does not hold a stock certificate with his name on it that shows he owns any shares of stock in LSI, and he does not know if he ever paid $1, 000 to buy "[his] stock." None of LSI's tax returns reviewed and approved by Laymac show him as a shareholder; rather, since at least 2007, LSI reported on its state and federal tax returns that Kushner was its sole shareholder, and Kushner averred that he has been LSI's sole shareholder since 2004.[3] LSI's lawyer averred that "[a]s sole shareholder of LSI, Kushner is a Direct Owner of LSI. As a Direct Owner, Kushner was approved by each state regulator in which LSI is licensed to originate mortgage loans." The lawyer's affidavit implies that Laymac could never become a control person of LSI because he never completed the required forms, most likely because he has a criminal background and could not be approved by state licensing regulators. In his affidavit, Laymac stated that "[a]t no time between 2003 and July 24, 2013[, ] did [he] express in words or deeds to anyone that [he] was not a one-third owner of LSI. At all times both Kushner and Pezzani understood that [Laymac] believed that he owned 10, 000 shares of LSI . . . or had the right to acquire 10, 000 shares."

         The company operated under the Letter Agreement until July 2013, when Kushner and Pezzani terminated Laymac's employment effective July 24, 2013, for misleading LSI's management and failing to comply with LSI's written Secondary Market Interest Rate Risk Policy ("IRRP"), resulting in losses to LSI in excess of $1.6 million. On August 2, 2013, LSI's corporate counsel sent correspondence to Laymac confirming his termination. Later that month, Kushner wrote to Laymac pointing out that he never paid the subscription price for the stock, but noting that, "[r]egardless, if there is any doubt about whether your subscription agreement was cancelled, LSI hereby cancels your subscription agreement, either pursuant to LSI's rights under OCGA § 14-2-621 or under general contract principles as a result of your over five-year failure to perform under the subscription agreement, or both."

         Laymac filed suit on September 6, 2013, alleging that from mid-2006 until July 24, 2013, he worked with Pezzani and Kushner as business partners of LSI until defendants physically removed him from the premises of LSI. Laymac asserted claims for tortious deprivation of an interest in a corporation (Count I), breach of fiduciary duty (Count II), money had and received and unjust enrichment (Count III), and attorney fees and expenses of litigation (Count IV). The gravamen of Laymac's claims was based upon the Letter Agreement and the Share Subscription Agreement.

         Laymac later amended his complaint, adding additional facts as well as a claim for breach of contract (Count IV), alleging that

[o]n or about July 24, 2013, [defendants] breached the Letter Agreement and Subscription Agreement including their obligation of good faith and fair dealing by: (a) denying Plaintiff his ownership in Defendant LSI (b) denying Plaintiff his right to participate in making decisions with respect to LSI; (c) terminating Plaintiff as an employee of Defendant LSI; (d) denying Plaintiff any further share of the profits of LSI and all compensation due him under the Letter Agreement; and (e) failing or refusing to issue to Plaintiff stock in LSI.

         And that the "actions of [defendants] in breaching the terms of [the] Letter Agreement and Subscription Agreement, constitute a breach of [Laymac's] contract with [d]efendants."

         Defendants filed an answer and counterclaim, which they amended several times, alleging 12 counts, including breach of fiduciary duty, breach of duty of loyalty, breach of contract, and breach of duty of good faith and fair dealing. Defendants allege that Laymac violated the company's IRRP, lied about violating it, and then attempted to cover up his violations. They also contend that he converted money belonging to LSI, misused LSI credit cards for his own personal benefit, and wrongfully recruited LSI employees.

         On January 26, 2015, both sides moved for summary judgment. Defendants filed a motion for partial summary judgment on Counts I, II, and IV of the amended complaint, and Laymac filed a motion for partial summary judgment on Counts III and IV of the complaint, and on nine of the twelve counts of the counterclaim. On June 10, 2016, the trial court ruled on both motions. The trial court granted summary judgment to defendants on Laymac's claims for tortious deprivation of an interest in a corporation (Count I) and breach of fiduciary duty (Count II), but denied it as to his claim for attorney fees (Count IV). As to Laymac's motion for partial summary judgment, the trial court denied the motion as to Count III (money had and received and unjust enrichment) of the complaint and Count III (breach of contract) of the counterclaim, but granted it as to Counts I, II, IV, VII, VIII, IX, and X of the counterclaim. The trial court designated its order as a final judgment pursuant to OCGA § 9-11-54 (b). In granting summary judgment to defendants on Laymac's claims for tortious deprivation of business interest and breach of fiduciary duty, the trial court ruled that Laymac "has not produced evidence he has an ownership interest in [LSI] to support [those claims]. Plaintiff's admission that he does not know whether he paid for his alleged stock does not create an issue of material fact."

         On June 15, 2016, five days after the trial court entered its summary judgment order, Laymac amended his complaint a second time, reasserting his originals claims, but adding a claim for breach of fiduciary duties in partnership venture (Count V). Defendants then amended their answer and counterclaim asserting defenses of res judicata, collateral estoppel, res gestae, or law of the case.

         On November 4, 2016, defendants Kushner and LSI filed a second motion for summary judgment, arguing that the trial court's previous order effectively eliminated the claims Laymac asserted in his second amended complaint, and that they were, therefore, entitled to summary judgment on Counts I, II, IV, and V of the second amended complaint. On January 23, 2017, Pezzani moved for summary judgment on the same ground.

         On May 25, 2017, the trial court issued two orders. In the first order, styled a supplemental order to its June 10, 2016 order, the trial court indicated that it "misidentified Count IV of Plaintiff's first amended Complaint as 'Count IV: Attorney's Fees' when it was, in fact, 'Count IV: Breach of Contract.' Plaintiff's claims related to attorney[ ] fees were instead to be found in Count VI of his first amended Complaint." The trial court then granted summary judgment to defendants on Laymac's claim for breach of contract (Count IV of the amended complaint). In the second order, granting defendants' second motions for summary judgment, the trial court ruled that Counts I, II, and V of the second amended complaint were barred by res judicata. Laymac appeals these orders, alleging that the trial court erred (1) in granting summary judgment to defendants on his breach of contract claim (Count IV); (2) in granting summary judgment to defendants on his claim for breach of fiduciary duties ...


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