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Bearoff v. Craton

Court of Appeals of Georgia, Third Division

June 24, 2019


          DILLARD, C. J., GOBEIL and HODGES, JJ.

          GOBEIL, JUDGE

         These companion appeals arise out of a lawsuit filed in the Superior Court of Floyd County by Janet Bearoff, JBear, LLC, and JDream, LLC, d/b/a Frisky Biscuit Couples Boutique (collectively, "Plaintiffs") against Charles Thomas Craton, III and Craton Entertainment, LLC, d/b/a The Love Library (collectively, "Defendants").[1]The complaint asserted claims for breach of a non-compete agreement, aiding and abetting the breach of that agreement, conversion and misappropriation, and violations of Georgia's Uniform Deceptive Trade Practices Act ("UDTPA") (OCGA § 10-1-370, et seq.)[2] The relief sought by the Plaintiffs included compensatory and punitive damages, injunctive relief, attorney fees, and an equitable extension of the expiration date of the non-compete agreement at issue. Following a hearing on the Plaintiffs' request for a preliminary injunction, the trial court entered an order granting that relief and enjoining the Defendants from operating The Love Library. The Defendants appealed that order and while the appeal was pending, the noncompetition period expired. This Court then dismissed the appeal for lack of jurisdiction.

         Following remittitur, the Defendants moved for summary judgment. The trial court granted that motion in part, finding that as a matter of law, it could not equitably extend the non-compete period. The case thereafter proceeded to a bench trial on the Plaintiffs' remaining claims, with the court finding in the Plaintiffs' favor. The trial court awarded the Plaintiffs injunctive relief and nominal and punitive damages. The court declined to award attorney fees to either party, finding that neither had presented any evidence at trial as to the amount or reasonableness of any fees they were seeking.

         In Case No. A19A0548, the Plaintiffs appeal the trial court's grant of summary judgment in favor of the Defendants on the Plaintiffs' claim seeking an equitable extension of the non-compete agreement. They also appeal the order of judgment, arguing that the trial court erred in declining to award them compensatory damages and in failing to hold a post-judgment hearing on their request for attorney fees under the UDTPA. In Case No. A19A0549, the Defendants appeal the order of judgment, asserting that the trial court erred in finding for the Plaintiffs on their conversion claim, in awarding damages to Bearoff in her individual capacity, and in awarding damages for misappropriation of a trade name. The Defendants also challenge the trial court's punitive damages award.

         For reasons explained more fully below, in Case No. A19A0548, we affirm both the grant of partial summary judgment in favor of the Defendants and the award of nominal damages. We find, however, that the Plaintiffs were entitled to a post-judgment hearing on their claim for attorney fees under the UDTPA. Accordingly, we vacate that part of the judgment finding that the Plaintiffs were not entitled to recover attorney fees, and remand for a hearing on the question of attorney fees under the UDTPA. Additionally, we find no merit in any of the claims of error asserted by the Defendants in Case No. A19A0549. We therefore affirm the order of judgment against Charles Craton and Craton Entertainment.

         On an appeal from a judgment entered following a bench trial, we view the evidence in the light most favorable to the judgment, giving due deference to the trial court's credibility determinations. Gibson v. Gibson, 301 Ga. 622, 624 (801 S.E.2d 40) (2017). We will not disturb the trial court's factual findings if there is any evidence to support them, but we review de novo any questions of law decided by that court. Champion Windows of Chattanooga v. Edwards, 326 Ga.App. 232, 233 (756 S.E.2d 314) (2014).

         Viewed in the light most favorable to the judgment, the record shows that in 2005, Bearoff, Kenneth Gabler (who at the time was married to Bearoff), and Susan Craton (who at the time was married to Charles Craton) formed two companies: High Five Investments, LLC ("High Five") and Shannon Video, Inc. Bearoff and Gabler each owned 25% of the common stock in both corporations, and Susan Craton owned the remaining 50% of stock in each company. High Five purchased a commercial property in Rome (the "Property") and then leased the Property to Shannon Video, which opened a retail business thereon in May 2006. The business, Entice Couple's Boutique ("Entice"), was an "adult store," meaning it sold lingerie, tobacco, adult movies, sexual aids, and other adult-themed, sexually-oriented products.

         In 2009, Bearoff and Gabler agreed to sell their interests in High Five and Shannon Video to Susan Craton. On December 10, 2009, the parties executed a Stock/Membership Unit Redemption Agreement (the "Redemption Agreement"), under which Susan Craton agreed to purchase Bearoff's and Gabler's interests in both companies for $505, 000.00. At the time of the sale, Susan Craton paid Bearoff and Gabler $55, 000 in cash and provided them with a non-negotiable promissory note (the "Promissory Note") executed by Shannon Video and High Five. The Promissory Note provided that High Five and Shannon Video would pay Bearoff and Gabler $450, 000 plus interest in equal monthly installments of approximately $6, 000 for a period of 81 months. The Promissory Note was secured by a deed to secure debt and an assignment of leases and rents executed by High Five[3]; a commercial security agreement (the "Security Agreement") executed by Shannon Video[4]; and an Unconditional Guaranty of Payment and Performance executed by both Susan and Charles Craton (the "Guaranty").[5] (Collectively, these documents are referred to as the "Security Documents.")

         The Redemption Agreement incorporated a separate, non-competition agreement (the "Non-Compete"), to which Bearoff, Gabler, Shannon Video, High Five, and Charles and Susan Craton were all parties. The Non-Compete stated that the necessity for the agreement arose from "the fact that the financed portion of the purchase price under the [Redemption Agreement] [was to] be paid from revenues generated by the sales of adult novelties by Shannon Video," and the competitive activities would impair Shannon Video's ability to make the required payments. The Non-Compete prohibited both Charles and Susan from engaging in any activity that competed with the business of Shannon Video or High Five.[6] Specifically, under the terms of the Non-Compete, both Charles and Susan, together with Shannon Video and High Five, agreed "[f]or a period of eighty-one (81) months following the date of execution of this Agreement . . . not to engage in any Competitive Activity[7] within Floyd County, Georgia or any of the counties located in the States of Georgia and Alabama contiguous to Floyd County, Georgia."

         In early 2012, at the request of the Cratons, the parties entered into two additional agreements, one of which modified the Promissory Note and the other of which modified the Redemption Agreement. Charles Craton signed both of these modification agreements. The modification agreements increased the interest on the balance due to 5% annually; extended the term of the Promissory Note and other Security Documents for a period of 96 months, beginning January 1, 2012 (meaning those documents now had a maturity date of January 1, 2020); reduced the monthly payments by approximately $2, 000; and provided that Gabler had the right to transfer and assign his interest in the Promissory Note and other Security Documents to Bearoff.[8] Gabler thereafter assigned to Bearoff his interest in all Security Documents in October, 2012.

         In April 2013, the Cratons filed a voluntary joint petition under Chapter 7 of the Bankruptcy Code. Two months later, the Cratons were divorced and, as part of the divorce settlement, Susan Craton transferred all of her interests in High Five and Shannon Video to Charles.[9] . On November 5, 2013, the Cratons received a discharge in their bankruptcy case.

         Shortly after the Cratons' personal bankruptcy discharge, the payments due under the Promissory Note ceased, leaving an outstanding principal balance of approximately $250, 000. After failing to make payments for December 2013 and January and February 2014, Charles Craton emailed Bearoff that Entice (and therefore High Five and Shannon Video) was experiencing significant financial difficulties and asked her to forgive the balance owed under the Promissory Note. Bearoff thereafter issued a formal notice of default in which she demanded full payment of the principal and interest owed under the Promissory Note, as well as attorney fees. Craton made no further payments on the amount owed Bearoff.

         On December 29, 2014, Shannon Video filed a voluntary Chapter 11 bankruptcy petition, and that proceeding subsequently was converted to a Chapter 7 bankruptcy liquidation. Craton closed the Entice Boutique in July of 2015. Following the bankruptcy filing, and in preparation for foreclosing on her security interests in High Five and Shannon Video, Bearoff formed JBear, LLC and JDream, LLC.[10] In November 2015, Bearoff assigned all of her right, title, and interest in the Promissory Note, the High Five security deed, and the Redemption Agreement to JBear. Approximately three months later, JBear foreclosed on the security deed, and it now holds title to the Property. JBear leased the Property to JDream, which operates The Frisky Biscuit Couples Boutique thereon. Additionally, JBear foreclosed on the property of Shannon Video serving as collateral under the Security Agreement (including the Entice store inventory) and transferred the collateral to The Frisky Biscuit. Like Entice, The Frisky Biscuit is an adult store, selling items such as lingerie, tobacco products, adult movies, sexual aids, and other adult-themed, sexually-oriented products.[11]

         Approximately five months after Entice closed, Bearoff learned that Craton was planning to open a new adult store within the area covered by the Non-Compete and that he was using Entice's social media accounts to advertise the new business. On December 8, 2015, Bearoff sent Craton a cease-and-desist letter, notifying him that opening his planned store would be a violation of the Non-Compete. In response, Craton sent his own cease-and-desist letter to Bearoff, alleging that her planned opening of The Frisky Biscuit violated the Non-Compete. Two days later, on December 16, 2015, High Five (represented by Craton's attorneys) filed a lawsuit against Bearoff, JBear, and JDream, asserting claims for ejectment from and trespass upon the Property and a breach of the Non-Compete. The complaint sought injunctive relief, punitive damages, and attorney fees.[12]

         Despite the cease-and-desist letter and the existence of the Non-Compete, Craton opened his new business, The Love Library, on December 18, 2015. The Love Library is owned by Craton Entertainment, LLC, which was formed in 2013 and whose sole member is Craton's daughter, Calley Craton. The evidence at trial showed that Charles Craton is the registered agent for Craton Entertainment, that he negotiated the retail lease for the space housing The Love Library, and that he personally guaranteed that lease. Additionally, Craton negotiated with vendors on behalf of Craton Entertainment and he serves as the President and CEO of The Love Library. Craton also provided Calley with a small business loan to allow The Love Library to open, and at all times he has been the sole signatory on the Craton Entertainment bank accounts.

         Both Craton and his daughter promoted The Love Library on social media accounts belonging to Shannon Video/Entice, and Calley Craton testified that she converted the Entice Facebook page to a Facebook page for The Love Library. The evidence also showed that another employee of The Love Library converted the Entice twitter account to an account for The Love Library. Dozens of social media posts promoting The Love Library included the Entice store logo and for some length of time, The Love Library displayed on its property, next to its own sign, a sign featuring the Entice store logo. And on December 14, 2015, Charles Craton filed a trademark application for Entice Couple's Boutique, representing that the mark was owned by Craton Entertainment.

         In January 2016, the Plaintiffs initiated the current lawsuit. Two years later, the case proceeded to a bench trial and, after hearing the evidence, the court found in favor of the Plaintiffs. In its order of judgment, the trial court found that the Non-Compete is valid and enforceable and survived Craton's bankruptcy discharge; Craton's opening of The Love Library violated the Non-Compete; the breach of the Non-Compete was aided and abetted by Craton Entertainment; the Defendants misappropriated the Entice and Entice Couple's Boutique trade names; the Defendants unlawfully converted Shannon Video's social media accounts;[13] and the Defendants violated the UDTPA. The court further found that the Plaintiffs had failed to prove their compensatory damages with the requisite specificity. Accordingly, the court awarded Janet Bearoff, individually, $1, 000 in nominal damages against Craton and Craton Entertainment on her claim for breach of the Non-Compete agreement. The court also awarded the Plaintiffs $1, 000 in nominal damages for conversion of the Entice trade name and social media accounts and $50, 000 in punitive damages against the Defendants, jointly and severally. The order permanently enjoined the Defendants from using the trade names Entice and Entice Couple's Boutique. Finally, although the court found that the Defendants had violated the UDTPA, it made no findings as to whether their conduct was willful, so as to warrant an award of attorney fees under that statute. Instead, the court stated that it was declining to award attorney fees based on any statutory provision under which either party had claimed such fees, because neither party had presented at trial any evidence as to the amount or reasonableness of any fees they might be seeking.[14]

         Following the entry of judgment, the Plaintiffs filed a motion to amend or modify that order to reflect that they were entitled to attorney fees under the UDTPA. The Plaintiffs also sought a post-judgment hearing as to the amount of fees to which they were entitled. Before the trial court ruled on that motion, both the Plaintiffs and the Defendants filed their respective notices of appeal.

         Case No. A19A0548

         1. Bearoff[15] contends that the trial court erred in granting summary judgment to Craton on her claim seeking an equitable extension of the Non-Compete until such time as the amounts due under the Promissory Note and Guaranty are paid.[16] We disagree.

         In support of this argument, Bearoff relies on the well-established principle that when interpreting a contract, "the cardinal rule of . . . construction is to ascertain the intent of the parties." Miller v. GGNSC Atlanta, 323 Ga.App. 114, 118 (2) (746 S.E.2d 680) (2013). Bearoff further relies on OCGA § 13-8-57 (d), which provides that when a non-compete agreement involves the owner or seller of a business, "a court shall presume to be reasonable in time any restraint . . . equal to the period of time during which payments are being made to the owner or seller as a result of any sale [of the business]."[17] Bearoff argues that although the Non-Compete provided for a term of 81 months (until September 16, 2016), other language in the Non-Compete reflects that the parties intended for the agreement to be in effect as long as money was owed under the Redemption Agreement and Promissory Note. Thus, equitably extending the non-compete period until Craton has satisfied his obligations to Bearoff would effectuate the intent of the parties. Moreover, Bearoff reasons that the existence of OCGA § 13-8-57 (d) shows that an equitable extension of the non-compete period until the amount owed under the Redemption Agreement and related documents is paid would not violate Georgia's public policy. We find these arguments unpersuasive.

         We first note that the Georgia Supreme Court has rejected - at least implicitly - the idea that equity permits a court to extend the period of a non-compete agreement. See Elec. Data Systems Corp. v. Heinemann, 268 Ga. 755, 757 (3) (493 S.E.2d 132) (1997); Coffee Systems of Atlanta v. Fox, 227 Ga. 602, 602 (182 S.E.2d 109) (1971). The non-compete at issue in Coffee Systems prohibited an employee from engaging in competitive acts for 12 months following the termination of his employment. 227 Ga. at 602. The employee left his job in November 1969 and began engaging in competitive activities almost immediately thereafter. Id. The employer sued and sought a preliminary injunction, but during the pendency of the litigation, the non-compete period expired. The employer thereafter argued that the litigation tolled the running of the non-compete period, but our Supreme Court rejected that argument, reasoning that "[s]uch an extension would in effect rewrite the one-year feature of the agreement. Courts do not make contracts for the parties. The contingency of litigation could have been provided for in the agreement, but was not." Id.

         More than 25 years after deciding Coffee Systems, the Georgia Supreme Court declined an express invitation to overrule the case and again rejected the argument that where a party sues to enforce a non-compete agreement, the litigation should toll the running of the agreement's term. Elec. Data Systems, 268 Ga. at 757 (4). In doing so, the Court reiterated its reluctance to engage in judicial reformation of contracts, explaining "[t]he court should hesitate to rewrite private contracts. Judicially providing a tolling provision would affect such a rewrite. Private parties are able to include reasonable tolling provisions in their own contracts." Id. (footnotes omitted).

         Both Coffee Systems and Electric Data Systems reflect Georgia's rules of contract interpretation. Specifically, while Georgia courts look for the intent of the parties when enforcing a contract, they also presume that the intent is reflected in the contractual language. Miller, 323 Ga.App. at 118 (2) (courts ascertain the intent of the parties to the contract by looking to the language of the contract). Thus, where the language at issue is plain and unambiguous, we presume that the parties meant what they said and we simply enforce the contract as written. S-D RIRA, LLC v. Outback Property Owners' Assn., 330 Ga.App. 442, 453 (3) (c) (765 S.E.2d 498) (2014). See also Omni Builders Risk v. Bennett, 325 Ga.App. 293, 296 (1) (750 S.E.2d 499) (2013) ("[w]here the language of the contract is plain and unambiguous. . . no construction is required or permissible and the terms of the contract must be given an interpretation of ordinary significance") (citation and punctuation omitted). Put another way, under Georgia law, this Court is "not at liberty to ignore the specific terms of the parties' written agreement and rewrite or revise a contract under the guise of construing it." Miller, 323 Ga.App. at 123 (2) (citation and punctuation omitted). See also Roquemore v. Burgess, 281 Ga. 593, 595 (642 S.E.2d 41) (2007) ("[i]t is the function of the court to construe the contract as written and not to make a new contract for the parties") (citation and punctuation omitted); Hamrick v. Kelley, 260 Ga. 307, 308 (392 S.E.2d 518) (1990) ("a trial court may not under the guise of the 'blue pencil' method" reform or amend the plain terms of a covenant not to compete).

         Here, the terms of the Non-Compete are clear and capable of only one construction: the Agreement was effective "[f]or a period of eighty-one (81) months following the date of execution of [the Non-Compete]." Thus, the non-compete period began on December 16, 2009 and ended on September 16, 2016. Moreover, although the parties subsequently amended the Redemption Agreement and the Promissory Note to reflect a maturity date of January 1, 2020, the parties did not amend the Non-Compete so as to extend its term. Accordingly, given the general rules of contract construction we are obligated to apply, the relevant precedent related to non-compete agreements, and the parties' failure to extend the non-compete term at the time they extended the maturity date on the purchase alone, we find no error by the trial court in refusing to grant an equitable extension of the time period covered by the Non-Compete.

         2. The Plaintiffs assert that the trial court erred in refusing to award them ...

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