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Warren Averett, LLC v. Landcastle Acquisition Corporation

Court of Appeals of Georgia, First Division

March 13, 2019

WARREN AVERETT, LLC
v.
LANDCASTLE ACQUISITION CORPORATION.

          BARNES, P. J., MCMILLIAN and REESE, JJ.

          REESE, JUDGE.

         The Appellant, Warren Averett, LLC, an accounting firm, appeals from the grant of partial summary judgment to the Appellee, Landcastle Acquisition Corporation. According to the Appellant, the trial court erred in finding, as a matter of law, that a contract provision limiting the amount of damages the Appellee could recover was unenforceable. For the reasons set forth, infra, we affirm.

         Viewed in the light most favorable to the Appellant, [1] the record shows the following facts. From 2010 through 2014, Morris Hardwick Schneider, P.C., ("MHS") was a large, multi-state law firm that conducted real estate closings and other mortgage-related services. As a result of the nature and size of its business, MHS had "billions of dollars flowing in and out of its [title] escrow accounts[, ]" as well as "millions of dollars flowing in and out" of its trust accounts, during that time period.

         In December 2012, the managing partner of MHS, [2] Nathan E. Hardwick, IV, hired the accounting firm of Gifford Hillegass & Ingwersen, LLP, ("GH&I") to conduct an audit for the prior three years. GH&I drafted an engagement letter that memorialized the scope of the audit and the terms of its contract ("2012 Contract") and sent it to MHS. According to the 2012 Contract, GH&I was going to "audit the consolidated balance sheets of [MHS] as of January 1, 2010, December 31, 2010, 2011[, ] and 2012 and the related consolidated statements of income, comprehensive income, members' equity, and cash flow for the years then ended." The objective of the audit was to enable GH&I to express "an opinion about whether [MHS's] financial statements [were] fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles."[3] Hardwick signed the 2012 Contract and returned it to GH&I.

         Shortly thereafter, the Appellant, an accounting firm, acquired GH&I, effective January 1, 2013, and the Appellant took over the performance of MHS's audit. The Appellant sent a letter to MHS notifying the law firm of the acquisition and asking that a corporate official confirm that the ongoing audit would still be subject to the 2012 Contract. On February 4, 2013, a partner of MHS signed the letter and returned it to the Appellant.

         In October 2013, Hardwick hired the Appellant to conduct an audit of MHS's[4]financial statements for the year ending on December 31, 2013. The Appellant memorialized the terms of the audit in a second engagement letter ("2013 Contract"), which contained essentially the same terms as the 2012 Contract. Hardwick signed the contract and returned it to the Appellant.

         In the meantime, in early 2013, the Appellant issued to MHS Independent Auditors' Reports for 2010/2011 and 2011/2012. The Appellant subsequently issued its Independent Auditors' Report for 2012/2013 on April 18, 2014. Each of the reports stated that it "present[ed] fairly . . . the assets, liabilities, and stockholders' deficit of [MHS]" for the applicable years, as well as the revenues, expenses, and cash flows for those years. However, none of the audit reports addressed or even acknowledged the assets, liabilities, or cash flows for MHS's trust or title escrow accounts.

         In the summer of 2014, MHS discovered that Hardwick, MHS's managing partner, had embezzled at least $20 million from MHS's trust and title escrow accounts.[5] And, according to the Appellee, Hardwick embezzled at least $11 million of that total after the Appellant had issued its 2010/2011 Independent Auditors' Report on January 11, 2013.

         In January 2017, the Appellee[6] filed suit against the Appellant for breach of contract, professional negligence, [7] and gross negligence, seeking at least $17.5 million in damages.[8] The Appellant filed a motion for partial summary judgment, contending that a provision in both the 2012 and 2013 Contracts expressly limited the amount of damages that the Appellee could recover on any claim to the amount of professional fees MHS had paid to the Appellant, which totaled about $87, 000. The record shows that both four-page contracts[9] contained the following provision ("Provision") near the bottom of the third page:

         Issue Resolution:

In the event we are required to respond to a subpoena, court order or other legal process for the production of documents and/or testimony relative to information we obtained and/or prepared during the course of this engagement, you agree to compensate us at our hourly rates, as set forth above, for the time we expend in connection with such response, and to reimburse us for all of our out-of-pocket expenses incurred in that regard.
Should you become dissatisfied with our services at any time, we ask that you bring your dissatisfaction to our attention promptly. If you remain dissatisfied, it is agreed that you will participate in non-binding mediation under the commercial mediation rules of the American Arbitration Association before you assert any claim. In any event, no claim shall be asserted which is in excess of the lesser of actual damages incurred or professional fees paid to us for the engagement.

         In response to the Appellant's motion, the Appellee filed a cross-motion for partial summary judgment, arguing that the Provision was unenforceable as a matter of law because (1) it was not sufficiently prominent to provide notice; (2) it was ambiguous and insufficiently explicit as to whether it applied to the Appellee's claims for professional negligence and gross negligence; and (3) even if the Provision was otherwise enforceable, it was still invalid and unenforceable under Georgia law to the extent it purported to limit the amount of recoverable damages for the Appellee's gross negligence claim.

         The trial court conducted a hearing on the motions, during which it ruled that the Provision was unenforceable due to its lack of prominence among the surrounding contract terms, the ambiguous scope of the provision, and its invalidity as to the Appellee's claim for gross negligence. Based on this finding, the court granted the Appellee's cross-motion for partial summary judgment and denied the Appellant's motion. This appeal followed.

In order to prevail on a motion for summary judgment under OCGA § 9-11-56, the moving party must show that there exists no genuine issue of material fact, and that the undisputed facts, viewed in the light most favorable to the nonmoving party, demand judgment as a matter of law. Moreover, on appeal from the denial or grant of summary judgment[, ] the appellate court is to conduct a de novo review of the evidence to determine whether there exists a genuine issue of material fact, and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law.[10]

         In addition, because this case involves a contract, we note that

an issue of contract construction is usually a question of law for the court to resolve and, as such, it is subject to de novo review. This review is guided by three fundamental principles of contract construction: (1) If the agreement is unambiguous, the court will look to the contract alone to find the intention of the parties; (2) the existence or nonexistence of an ambiguity is a question of law for the court; and (3) the issue of interpretation becomes a jury question only when there appears to be an ...

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