FIFTH DIVISION ELLINGTON, P. J., MCFADDEN, P. J. and RAY, J.
NOTICE: Motions for reconsideration must be physically received in our clerk’s office within ten days of the date of decision to be deemed timely filed. http://www.gaappeals.us/rules
June 28, 2018
In the Court of Appeals of Georgia A18A0304. STEWART v. McDONALD.
MCFADDEN, Presiding Judge.
Robert J. Stewart filed this lawsuit against attorney Gus McDonald for legal
malpractice, among other things. Stewart claimed that, as a result of that malpractice,
he had suffered financial loss in connection with the 2010 sale of a business which
he had formed in 2001 with Chip Smith. A Rabun County jury returned a $392,000
verdict in favor of Stewart, but the superior court granted McDonald’s motion for
judgment notwithstanding the verdict. Stewart appeals from that order as well as the
trial court’s grant of McDonald’s motion for a directed verdict on Stewart’s other
claims.
Because Stewart presented evidence to create a jury question on his claim of
legal malpractice, the trial court erred in granting McDonald’s motion for judgment notwithstanding the verdict on the claim. Any error in the grant of a directed verdict
on Stewart’s breach of fiduciary duty and fraud claims, which duplicate the legal
malpractice claim, was harmless, given our reversal of the grant of the motion for
judgment notwithstanding the verdict on the malpractice claim. Finally, the jury
should have been allowed to consider Stewart’s claims for attorney fees and punitive
damages. So we reverse the judgment and remand the case with direction.
1. Factual background.
In his complaint, Stewart asserted claims against McDonald for, inter alia,
fraud, breach of fiduciary duty, and legal malpractice. He sought compensatory
damages, punitive damages, and attorney fees. Stewart claimed that his lawyer,
McDonald, conspired with Stewart’s business partner, Chip Smith, to defraud him out
of his “fair share of the proceeds of the sale of a company that Stewart and Smith
jointly owned.” Stewart asserted that McDonald’s negligence damaged him by
depriving him of economic benefits that he was entitled to by virtue of his “equal
ownership” position in the company. McDonald denied these claims, arguing at trial
that he was not Stewart’s lawyer, that he only agreed to help Stewart and Smith
reduce to paper a sale that the two had already negotiated with the company’s buyer,
and that he did not cause any of Stewart’s alleged damages.
2 During the trial, the trial court granted McDonald’s motion for a directed
verdict on all but Stewart’s legal malpractice claim. After the jury returned a verdict
for $392,000 in Stewart’s favor, the trial court granted McDonald’s motion for a
judgment notwithstanding the verdict based on its determination that Stewart had
failed to present evidence that McDonald’s negligence was the proximate cause of his
claimed damages. For the following reasons, we disagree.
On appeal from a trial court’s rulings on motions for directed verdict and judgment notwithstanding the verdict, we review and resolve the evidence and any doubts or ambiguities in favor of the verdict; directed verdicts and judgments notwithstanding the verdict are not proper unless there is no conflict in the evidence as to any material issue and the evidence introduced, with all reasonable deductions therefrom, demands a certain verdict.
Vol Repairs II v. Knighten, 322 Ga. App. 416, 417 (745 SE2d 673) (2013) (citations
and punctuation omitted). So viewed, the record shows as follows.
Stewart and Smith form CES. In 1996, Smith worked as the fitness director at
the Atlanta Athletic Club and he had a side business training athletes. Smith
approached Stewart about working with him as a strength trainer, and he offered him
a position at the Atlanta Athletic Club. The two later left the Atlanta Athletic Club
and, in 2001, formed Competitive Edge Sports, LLC (“CES”). The company’s
3 operating agreement provided that Smith had a 51 percent, controlling interest in the
company and that Stewart owned the remaining 49 percent.
CES’s operating agreement did not address whether CES, Smith, or Stewart
owned any intellectual property. At trial, Smith testified that he was the sole owner
of the intellectual property used by CES. He elaborated that he created and
continuously owned all of the intellectual property used by CES, including a logo, a
unique training system, a training manual, and various pieces of athletic equipment.
Smith presented evidence showing that at some point, he obtained patents,
trademarks, and copyrights in the intellectual property.
Stewart, however, testified at trial that everything used in the business —
including the intellectual property — belonged to CES. Stewart introduced evidence
that the agreed 51-49 split was intended to reflect a fair allocation of the value of the
company, based on his and Smith’s complimentary efforts and contributions,
including Smith’s contribution of the company’s logo. He explained that although he
and Smith each had developed his own training system prior to forming CES, when
they “got together, all of that changed and became a whole new system with both
parts being added into it.” He testified that while they were operating CES, there
were no patents or trademarks; that they had used their logo from the beginning,
4 although they refined it over time; and that they and their staff jointly wrote the
training manuals that Smith ultimately turned into a copyrighted book.
In 2007, CES was having financial difficulties, and Smith and Stewart began
looking for ways to improve the company’s cash flow. They spoke with two
businessmen about franchising CES and its training methods. The businessmen
testified at trial that they were assured by both Smith and Stewart that Smith was the
sole owner of the intellectual property used by CES. Stewart, however, denied saying
that he had no interest in any of CES’s intellectual property. He explained that,
because the costs of constructing weight rooms made it too expensive to license the
weightlifting component of the program, which was Stewart’s speciality, the
discussions concerned only the running component of the CES training program,
Smith’s speciality. In any event, Smith and Stewart abandoned the negotiations and
decided to pursue a sale of CES instead.
CES Holdings acquires CES. Shortly after ending the franchising negotiations,
Smith and Stewart struck a deal with Todd Robison, an international business
consultant, to get the funds necessary to keep the company operating. Robison
testified that he organized a group of investors to purchase CES outright from Smith
and Stewart through a company that he had formed for that purpose, CES Holdings.
5 Robison’s immediate goal was to provide CES Holdings with an infusion of operating
capital. Thereafter, he would find other investors to acquire CES Holdings from the
investors who bought CES.
On September 8, 2008, CES Holdings entered into a binding letter of intent
with CES for the asset acquisition and purchase of CES, a document signed by both
Smith and Stewart. The letter of intent expressly provided that the terms outlined in
the agreement “are binding” on both parties and that they would be memorialized in
a forthcoming “Definitive Agreement.” The parties also agreed that the attorney
acting as “outside advisor” concerning the sale, Chad Speck, represented all parties
to the agreement and that all parties acknowledged, consented to, and waived any
conflict of interest that counsel had with the parties.
In the 2008 agreement, CES Holdings promised to assume CES’s debts and to
pay Stewart and Smith $100,000 each for their membership interest in the company,
to be paid in installments. CES Holdings retained Smith and Stewart as independent
contractors and promised to pay them a salary, benefits, and other compensation,
including 20 percent of the profits of CES Holdings. Both Stewart and Smith were
also given the option to buy equity positions in CES Holdings. The 2008 agreement
between CES and CES Holdings did not address the ownership of any intellectual
6 property, other than to note that CES Holdings would continue to purchase any
equipment invented by Smith. Robison testified that the 2008 agreement was silent
on the issue of ownership of intellectual property because he had determined that
Smith, not CES, owned all of the intellectual property relevant to the transaction.
The 2008 agreement did, however, address intellectual property as it pertained
to licensing agreements. It provided that all existing licensing agreements between
CES Holdings and CES would be void and that only those licensing agreements that
either Smith or Stewart entered into with CES Holdings would remain in effect. CES
Holdings later entered into a separate licensing agreement with Smith for the use of
intellectual property, including the CES logo, equipment, the training system, and
written materials. Smith also purchased a 10 percent equity position in CES Holdings,
which was memorialized in a separate agreement as well. Defendant McDonald was
not involved in negotiating or drafting any of these agreements.
CES Performance acquires CES Holdings. While Robison looked for investors
to acquire CES Holdings, CES Holdings made the agreed installment payments to
Smith and Stewart for their membership interests in CES and began retiring CES’s
debts. Robison, as the chief executive officer of CES Holdings, offered to sell the
company to a group of Texas investors in exchange for $3 million.
7 In late 2009, after a series of negotiations between Robison and the Texas
investors, CES Performance (“CESP”) was created to acquire CES Holdings. CESP
agreed to assume and ratify all of the contractual obligations of CES Holdings.
Robison sold his shares in the company and “exited the picture.” Shortly thereafter,
CESP’s attorney began drafting the definitive agreements memorializing the sale of
CES to CESP in accordance with the terms his client gave him. He did not complete
drafting the documents, as he was informed that McDonald would be taking over.
In 2009, before McDonald’s involvement, Smith renegotiated his employment
contract with CESP. Smith testified that he also spoke with Todd Leake, the chief
executive officer of CESP, in January 2010 concerning the definitive agreement with
CESP and the terms of his compensation. Smith said that, since he was still owed
money from CES Holdings for licensing fees and equipment sales, he asked Leake
to modify his definitive agreement to compensate him with additional CESP stock in
lieu of the money owed. An April 8, 2010 email from CESP’s attorney to McDonald
confirmed that
CES Performance and [Smith] have been negotiating issues relating to [Smith’s] compensation, license agreements, and equipment sales. In those negotiations, CES Performance has agreed to grant [Smith] a 10 percent equity interest in the company. The 10 percent granted to
8 [Smith] in these negotiations plus the effective 10 percent he owns through CES Holdings Corp brings his effective ownership to 20 percent.
Ultimately, the CESP-Smith agreement (which was drafted by McDonald) granted
Smith equity in CESP “as incentive . . . for his knowledge, skill and contributions. .
. .” Stewart was granted no equity in CESP and did not know that Smith had been
granted equity. Further, upon CESP’s acquisition of the company, Smith received
$500,000 more than Stewart.
In sum, just prior to McDonald’s involvement in 2010, CESP, as the successor
to CES Holdings, intended to complete the purchase of CES, but the terms of the
purchase had not been finalized. CESP’s attorney had begun drafting the documents
to accomplish the purchase, but then McDonald took over.
McDonald enters the transaction. McDonald met Smith and Stewart through
CES, which provided athletic training services to McDonald’s son, a high school
football player. In 2009, McDonald had helped CES deal with an employee who had
embezzled company funds. McDonald had had no formal, written engagement
agreement with CES concerning the embezzlement matter; rather McDonald agreed
9 to trade his legal services to the company for nine “free” athletic training sessions for
his son.
Later, in early April 2010, McDonald agreed to help facilitate the transaction
with CESP at the request of Smith and CESP. McDonald testified that Smith and
Stewart had already struck a deal to sell their company but that they and CESP
needed help moving “the transaction forward” by “basically handing things around
to get signed.” (Stewart denied that the terms of the deal had been finalized.)
McDonald testified that he did not negotiate the terms of the deal; rather, he helped
reduce the deal to writing using terms provided to him by the parties to the
agreement. McDonald testified that he had understood his assignment to be one of
assistant scrivener and messenger who was “doing a favor for friends.” McDonald
testified that he had no engagement letter with Smith, Stewart, or CESP, and that he
was not compensated for these services in money or trade. CESP’s lawyer testified
that he had already received the terms of the transaction from his employer and had
prepared drafts of the definitive agreements before McDonald was asked to help
expedite the closing. An April 15 email from CESP to its lawyer shows that
McDonald had agreed to “finish the paperwork pertaining to Chip Smith and CES.”
10 Stewart, on the other hand, testified that he believed that McDonald did
represent him and was negotiating on his behalf. He testified that, with respect to the
2010 transaction, he had assumed that McDonald was his lawyer because “[Smith]
told [him] that [McDonald] would represent [them].” He further testified that,
although he could not remember the exact words or whether the discussion was in
person or over the telephone, he believed that McDonald had said as much to him as
well. He testified that McDonald sent him no bill for his services; rather, he assumed
that McDonald would be paid as he had been in the past, with free athletic training
sessions for his son. Stewart did not know when McDonald got involved in the
transaction or the extent to which he was involved in drafting the definitive
agreements. He testified: “At that time[,] whenever it happened, I had no clue to
anything that had transpired.”
The record shows that, in early April 2010, McDonald received a number of
draft documents from CESP’s attorney and began reviewing them. McDonald
testified that, before he received the documents, he was not familiar with how Smith
and Stewart’s “business was organized or what was going on [with respect to the
transaction].” But, after reviewing the documents, McDonald saw that CESP had
dealt with Smith and Stewart differently. CESP’s draft documents, which included
11 an “Acknowledgment and Release” dated February 2010, showed that Stewart was
being released from his employment with CESP pursuant to the 2008 agreement and
that he would be paid the final $50,000 installment owed to him for his 49 percent
membership interest in CES. The documents also showed that Smith was still owed
a $50,000 installment for his 51 percent ownership interest in CES as well as
outstanding amounts for equipment sales and license fees. Moreover, the documents
revealed that Smith was a shareholder in CES Holdings and that he would remain a
shareholder in CESP with a 20 percent equity stake. Stewart, on the other hand, had
no equity position in CES Holdings and had not taken advantage of the opportunity
to buy stock, as Smith had done.
McDonald testified that, after meeting with Stewart, he was left “scratching
[his] head” because, although the documents he reviewed showed that Stewart had
sold his membership interest in the company in 2008, Stewart did not seem to
understand what that meant. McDonald testified that he believed that Stewart had a
fundamental misunderstanding about what he did and did not own and that he had
confused his right to a share of the profits going forward with an equity stake in CES
Holdings. At this point, McDonald did not tell Stewart that he should retain an
attorney to advise him on what had transpired in 2008 and how that sale affected the
12 instant transaction. Nor did he explain to Stewart that he did not represent him in the
transaction and that his role was limited to facilitating the closing by drafting and
delivering documents. Instead, McDonald engaged in the following conduct.
At Stewart’s request, McDonald called his contacts at CESP and asked: “[W]ill
y’all give [Stewart] some stock?” He told Stewart that they said “no” because “[t]hey
were reluctant to revise the agreement.” Stewart testified that McDonald falsely told
him that CESP was not granting equity to anybody, although in fact, as noted, the
CESP-Smith agreement (drafted by McDonald) had granted Smith equity in CESP “as
incentive . . . for his knowledge, skill and contributions. . . .” McDonald also
negotiated Stewart’s five-year employment contract with CESP and was able to
obtain a salary increase for him.
Stewart testified that, based on these representations and concessions, he
signed the closing document, which was styled as an “Agreement, Release and
Indemnification Between Robbie Stewart and CES Performance, LLC.”
The record shows that, after Stewart signed the agreements and began working
for CESP, he voiced no objection to the terms of the transaction for three years.
Stewart testified that he did not discover that he and Smith had been treated
differently in the transaction until 2013, when CESP and Smith became embroiled in
13 a dispute and Leake informed Stewart of the details of Smith’s agreement with the
company.
In his appellate brief, Stewart contends that McDonald’s negligence directly
cost him $735,000. He argues that he was entitled to 49 percent of the total proceeds
of the sale of the company, not just the cash amount he was to be paid pursuant to the
2008 agreement. Specifically, he claims that Smith got an additional $500,000
pursuant to a licensing agreement and a 20 percent equity stake in CESP,
compensation that Stewart contends he would have shared had McDonald been acting
as his advocate.
2. Legal malpractice.
Stewart contends the trial court erred in granting McDonald’s motion for
judgment notwithstanding the verdict on his legal malpractice claim because the
record shows that he presented sufficient evidence, though disputed, on each of the
essential elements of that claim and that the evidence did not demand a verdict in
McDonald’s favor. We agree.
In a legal-malpractice case, a plaintiff has the burden of proving the three elements of such an action: (1) employment of the defendant attorney (i.e., the plaintiff had an attorney-client relationship with the attorney); (2) failure of the attorney to exercise ordinary care, skill, and
14 diligence; and (3) that the attorney’s negligence was the proximate cause of the plaintiff’s damages.
Estate of Nixon v. Barber, 340 Ga. App. 103, 105 (1) (796 SE2d 489) (2017)
(footnote omitted) .
(a) Attorney-client relationship.
With respect to the first element, attorney-client relationship,
[i]t is generally held that an attorney-client relationship must be demonstrated before a plaintiff may recover in a legal malpractice suit. This is essential in establishing the element of duty that is necessary to every lawsuit based upon a theory of negligence. Though an attorney-client relationship generally is a matter of express contract, it may be implied from the conduct of the parties. The employment is sufficiently established when it is shown that the advice or assistance of the attorney is sought and received in matters pertinent to his profession. Moreover, while the payment of a fee is relevant to the inquiry and may in some circumstances be controlling, an attorney-client relationship may be found to exist where no fee is paid, and the payment of a fee does not necessarily demonstrate the existence of the relationship. All that is necessary is a “reasonable belief” on the part of the would-be client that he or she was being represented by the attorney. A reasonable belief is one which is reasonably induced by representations or conduct on the part of the attorney.
15 Cleveland Campers, Inc. v. R. Thad McCormack, P.C., 280 Ga. App. 900, 903 (2)
(635 SE2d 274) (2006) (footnotes and punctuation omitted).
Under the circumstances here, it was reasonable for Stewart to believe that
McDonald was his lawyer and was providing legal advice to him concerning the sale
of his interest in CES. As noted above, McDonald spoke with CESP on Stewart’s
behalf concerning a key term of the sale, Stewart’s compensation. And he advised
Stewart that the terms of the sale in its current form was the best deal available to
him. The record supports a finding that Stewart sought and received McDonald’s
legal advice concerning the sale of his membership interest in CES; thus, Stewart
presented sufficient evidence concerning the existence of an attorney-client
relationship between himself and McDonald to survive a directed verdict or a motion
notwithstanding the verdict. See, e.g., Mays v. Askin, 262 Ga. App. 417, 419-20 (1)
(585 SE2d 735) (2003) (An attorney’s failure to document non-representation in
writing, coupled with the giving of some advice, gave rise to a jury question on the
issue of whether a relationship existed and thus, a duty owed to the client.); Calhoun
v. Tapley, 196 Ga. App. 318, 319 (395 SE2d 848) (1990) (The evidence, though
disputed, was sufficient for a jury to find that an attorney-client relationship had been
formed, even without the payment of a fee, where the attorney freely discussed the
16 case with the client, answered all of the client’s questions, never told the client that
he could not discuss the matter because he did not represent her, and never advised
her to retain another lawyer.).
(b) Breach of duty of care.
Stewart also presented sufficient evidence concerning the second element of
his claim for legal malpractice, that is, whether McDonald breached his duty of care
to him. As Stewart’s attorney, McDonald owed him a duty to “exercise ordinary care,
skill and diligence.” Allen v. Lefkoff, Duncan, Grimes & Dermer, P.C., 265 Ga. 374,
375 (2) (a) (453 SE2d 719) (1995) (citations omitted). More specifically,
the law imposes upon persons performing professional services the duty to exercise a reasonable degree of skill and care, as determined by the degree of skill and care ordinarily employed by their respective professions under similar conditions and like surrounding circumstances.
Id. (citations, punctuation, and emphasis omitted).
In this case, Stewart presented ample evidence, including expert opinion
testimony, from which the jury could find the requisite breach of duty. Most
fundamentally, the record shows that McDonald admitted that he did not perform the
duties of counsel on Stewart’s behalf because he did not believe that he was Stewart’s
17 counsel. McDonald testified that he drafted the definitive agreements exactly as
CESP told him to and that he was not trying to negotiate for Stewart. Further, he
admitted that he did not tell Stewart that Smith had stock in the new company.
Indeed, email communications between McDonald and the parties show that
McDonald was behaving like an intermediary between parties who had often
conflicting interests and not as Stewart’s attorney. Stewart’s expert testified that this
behavior constituted malpractice because McDonald was “not advocating for his
client.”
By failing to act as Stewart’s attorney, McDonald ignored core obligations that
a lawyer owes a client. An attorney’s fiduciary duty to his client requires the attorney
“to show loyalty, to exercise the utmost good faith, to apply his best skill, zeal, and
diligence in representing him, and to avoid interests or actions that [are] incompatible
with [the client’s].” Tunsil v. Jackson, 248 Ga. App. 496, 499 (2) (546 SE2d 875)
(2001) (footnote omitted).
Given the evidence, the jury was authorized to find that McDonald breached
his duty of care to Stewart. See Traub v. Washington, 264 Ga. App. 541, 543-544 (1)
(591 SE2d 382) (2003) (A jury issue existed as to whether an attorney committed
18 legal malpractice when he allegedly represented multiple clients after conflicts arose
and he took action adverse to a client.).
(c) Causation and damages.
When we view this evidence and the deductions drawn from it in favor of the
verdict, as we must, Dept. of Transp. v. Blair, 220 Ga. App. 342, 344 (1) (469 SE2d
446), 449 (1996), the evidence authorized the jury to conclude that Stewart did not
receive 49 percent of the proceeds realized from the sale to CESP and to conclude
that the difference between what he and Smith received was not attributable to
intellectual property owned by Smith, because the intellectual property was owned
by CES, not Smith individually. The jury could further conclude that this unfavorable
outcome was the result of McDonald’s failure to fulfill his duties to Stewart and that
had he done so, the proceeds from which Stewart’s share was calculated would have
been greater.
A judgment notwithstanding the verdict is “not proper unless there is no
conflict in the evidence as to any material issue and the evidence introduced, with all
reasonable deductions therefrom, demands a certain verdict.” Blair, 220 Ga. App. 345
(1). Stewart presented evidence creating conflicts on the issues of causation and
damages. Accordingly, the issues were properly submitted to the jury for resolution
19 and the trial court erred by granting McDonald’s motion for judgment
notwithstanding the verdict. Compare Szurovy v. Olderman, 243 Ga. App. at 453
(Because the plaintiff failed to show that her attorney could have negotiated a better
agreement, she failed to establish damages and proximate cause. Therefore, as a
matter of law, her claims of damage were speculative.).
3. Breach of fiduciary duty and fraud.
Stewart contends that the trial court erred in granting McDonald’s motion for
a directed verdict as to Stewart’s claims for fraud and breach of fiduciary duty. Any
error in this regard was harmless.
Stewart’s claims for damages for fraud and breach of fiduciary duty are
factually based upon McDonald’s breach of his fiduciary duties to Stewart in the
performance of his duties as a lawyer, so the claims are duplicative of Stewart’s legal
malpractice claim. See, e.g., See McMann v. Mockler, 233 Ga. App. 279, 281-282 (3)
(503 SE2d 894) (1998); Griffin v. Fowler, 260 Ga. App. 443, 446 (1) (579 SE2d 848)
(2003). Compare Both v. Frantz, 278 Ga. App. 556, 559 (2) (629 SE2d 427) (2006)
(fiduciary duty claim not merely duplicative of legal malpractice in the event the jury
finds no evidence of attorney-client relationship). Any trial court error in granting
McDonald a directed verdict on Stewart’s alternative but duplicative claims was
20 harmless, given our reversal of the grant of the judgment notwithstanding the verdict
on the legal malpractice claim. Starks v. Robinson, 189 Ga. App. 168, 170 (3) (375
SE2d 86) (1988) (any error in directing verdict was harmless without showing that
plaintiff was otherwise jeopardized). See also Bibbs v. Toyota Motor Corp., __ Ga.
__, __ (3) (__ SE2d __) (Case No. S18Q0075, decided June 18, 2018) (where
damages overlap, a double recovery is impermissible). Compare Long v. Marion, 182
Ga. App. 361 (355 SE2d 711) (1987) (physical precedent only) (damage award for
breach of contract and fraud was not double recovery because alleged fraud involved
matters other than matters connected to consent to contract).
4. Attorney fees.
Stewart contends that the trial court erred in granting McDonald’s motion for
a directed verdict on his claim for attorney fees pursuant to OCGA § 13-6-11. We
agree. “The evidence . . . could support a jury finding that [McDonald’s] persistent
failure to adequately represent [Stewart] went beyond mere negligence and rose to the
level of bad faith in dealing with [him].” Brito v. Gomez Law Group, LLC, 289 Ga.
App. 625, 629 (658 SE2d 178) (2) (b) 183 (2008). The trial court erred by removing
this issue from the jury.
5. Punitive damages.
21 Stewart contends that the trial court erred in granting McDonald’s motion for
a directed verdict on his claim for punitive damages. We agree. Under OCGA § 51-
12-5.1 (b), “punitive damages may be awarded only in such tort actions in which it
is proven by clear and convincing evidence that the defendant’s actions showed
willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care
which would raise the presumption of conscious indifference to consequences.” “A
breach of fiduciary duties is sufficient to support an award of punitive damages.”
Kahn v. Britt, 330 Ga. App. 377, 392 (8) (765 SE2d 446) (2014) (citation omitted).
As noted in Division 3, supra, Stewart’s “legal malpractice claim . . . is based on the
establishment of a fiduciary, attorney-client relationship that [was] breached.” Griffin,
260 Ga. App. at 446 (1).”Whether punitive damages should be awarded for a breach
of fiduciary duties is ordinarily a question for the jury.” Kahn, 330 Ga. App. at 392
(8) (citation omitted). Since Stewart introduced evidence that created issues for jury
resolution on his legal malpractice claim based on a breach of fiduciary duty, then the
evidence likewise created issues for jury resolution on his punitive damages claim.
Judgment reversed and case remanded with direction. Ray, J., concurs in the
judgment only. Ellington, P. J., concurs in Divisions 1, 2 (a), 2 (b), and 3, and
dissents in Divisions 2(c), 4, and 5*
22 *THIS OPINION IS PHYSICAL PRECEDENT ONLY. COURT OF
APPEALS RULE 33.2.
23 A18A0304. STEWART v. McDONALD
ELLINGTON, Presiding Judge.
Respectfully, I dissent to Divisions 2 (c), 4, and 5 of the majority opinion. I
agree that the evidence adduced at trial was sufficient for a jury to find the existence
of an attorney-client relationship and a breach of the attorney’s duty of care.
However, I believe that whether McDonald could have obtained a better deal for
Stewart under these circumstances is fatally speculative. The record shows that CESP
treated Stewart and Smith differently in 2010 because the two actually owned
different interests by then. They were not, as Stewart argues, negotiating “over one
pot” when McDonald got involved in the transaction. Given the evidence presented,
the superior court was correct in determining that Stewart failed to show that
McDonald’s malpractice was the proximate cause of his claimed damages.
As we have held, “proof that the attorney’s negligence proximately caused the
client’s harm is necessary for recovery. A claim for legal malpractice is sui generis
insofar as the plaintiff’s proof of damages effectively requires proof that he would
have prevailed in the original litigation.” (Citation omitted.) Oehlerich v. Llewellyn,
285 Ga. App. 738, 739-740 (647 SE2d 399) (2007). Or, as is more pertinent to business transactions like those of the instant case, the plaintiff must demonstrate that
“but for the attorney’s error, the outcome would have been different; any lesser
requirement would invite speculation and conjecture.” (Citations and punctuation
omitted.) Szurovy v. Olderman, 243 Ga. App. 449, 451 (530 SE2d 783) (2000). See
also Whiteside v. Decker, Hallman, Barber & Briggs, 310 Ga. App. 16, 18-19 (1)
(712 SE2d 87) (2011) (“To establish proximate cause, a [tort] plaintiff must show a
legally attributable causal connection between the defendant’s conduct and the
alleged injury[, and] must introduce evidence which affords a reasonable basis for the
conclusion that it is more likely than not that the conduct of the defendant was a cause
in fact of the result.”) (citation and punctuation omitted). As the facts set forth below
show, the superior court properly concluded that Stewart failed, as a matter of law,
to carry his burden of presenting evidence that demonstrated a reasonable basis for
inferring that his claimed damages proximately flowed from McDonald’s malpractice.
I disagree with the majority’s recitation of the relevant facts in two key respects. First,
Stewart failed to present any evidence – other than his own assumptions – that the
intellectual property used by CES was in fact the property of CES. Second, when
CESP acquired CES Holdings in 2010, Stewart had already sold his interest in CES.
2 That CES’s operating agreement was silent on the issue of intellectual property
is some evidence that it owned none. Morever, Smith and several witnesses testified
that Smith was the sole owner of the intellectual property used by CES. Smith
testified that he had been training athletes since the 1980s using a system that he had
developed prior to meeting Stewart a decade later. He testified that he created and had
continuously owned all of the intellectual property used by CES, including a logo, a
unique training system, a training manual, and various pieces of athletic equipment.
Smith also presented documentary evidence showing that he holds patents,
trademarks, and copyrights in his intellectual property. Stewart did not contend that
he personally owned any intellectual property and he presented no evidence from
which a jury could infer such ownership. Rather, his trial testimony shows only that
he assumed that any intellectual property used in the business belonged to CES. The
record also shows that Stewart did not tell McDonald or anyone with CES Holdings
or CESP that he was entitled to share in the value of Smith’s intellectual property or
that the payment that he had already received for his share of CES did not adequately
take into account the value of any intellectual property.
More significantly, even if the value of CES included the value of intellectual
property owned by the company, the record plainly shows that Stewart sold his
3 membership interest in CES to CES Holdings in 2008 for $100,000. Stewart testified
that he understood that this transaction was a sale of his membership interest in CES
and that, as a result of the sale, he no longer held an equity interest in CES. Instead,
he was a contract employee of CES Holdings. The 2008 letter of intent that Stewart
presumably read before he signed expressly provided that the material terms outlined
in the agreement “are binding” on the parties and that they would be memorialized
in a forthcoming “Definitive Agreement.” And, finally, on October 1, 2008, CES
amended its articles of incorporation to reflect that CES Holdings was now the sole
member of the company.1 Given these facts, I disagree with the majority’s
characterization of the sale of Stewart’s interest in CES as one that was not yet final
when McDonald got involved.
The record also does not support a finding that CESP paid Stewart an
additional $500,000 for his membership interest in CES. That $500,000 was for a
multi-year licensing agreement that Smith entered into with CES Holdings after
1 When CESP acquired CES Holdings, the equity positions in the company were reallocated based on the amounts invested by the Texas investors and by those who already held shares in CES Holdings (one of whom was Smith, who was by then a director and shareholder with a 28.18 percent ownership interest in CES Holdings.) Stewart had no equity stake in CES Holdings. After adjusting for the financial contributions of the new investors, Smith had a 10 percent equity stake in CESP.
4 Stewart had sold his interest in CES. And the additional 10 percent equity stake that
Smith acquired from CESP in 2010 was for compensation in lieu of the money still
owed to him under that very licensing agreement.
In summary, what this record shows is that Stewart and Smith were paid the
same amount, $100,000, for their membership interest in CES. In 2008, when Stewart
signed the binding letter of intent, he was aware of Smith’s licensing agreements.
Despite that, he did not assert any claim to Smith’s intellectual property, he gave no
one any reason to believe that he was entitled to any interest in the intellectual
property, nor did he argue that the $100,000 payment he received for his membership
interest was in any way inadequate. The record also shows that Smith, unlike Stewart,
thereafter separately purchased an equity stake in CES Holdings and negotiated a
licensing agreement with CES Holdings for the use of his intellectual property. And,
prior to McDonald’s involvement in the transaction, Smith acquired an additional 10
percent equity stake in CESP in lieu of payment for funds that he was owed by CES
Holdings. There is no evidence in the record that Stewart was legally entitled to share
in benefits that accrued to Smith after Stewart had sold his interest in CES to CES
Holdings. There is no evidence that Smith or CESP would have agreed to abandon
the terms of the binding 2008 agreement, or that there was a viable basis for suing to
5 set it aside. Finally, there is no evidence that Smith would have agreed to renegotiate
his deal with CESP to allow Stewart to share in the value of his intellectual property
or equity. In short, when he signed his 2010 agreement with CESP, Stewart had very
little with which to bargain. That McDonald could have improved on Stewart’s deal
under these circumstances is pure conjecture.
Given these facts, Stewart has not carried his burden of showing that
McDonald likely would have obtained the more favorable agreement that he alleges
would have been reached but for McDonald’s negligence. See Szurovy v. Olderman,
243 Ga. App. at 453 (Because the plaintiff failed to show that her attorney could have
negotiated a better agreement, she failed to establish damages and proximate cause.
Therefore, as a matter of law, her claims of damage were speculative.). See also
Bryant v. Bryan Cave, LLP, 400 S.W3d 325, 340 (Mo. App. 2013) (“In the context
of transactional malpractice, the parties agree, and we hold, that a plaintiff must show
that an agreement more preferable to the plaintiff likely would have been
consummated but for the negligence of the defendant attorney.”). Because Stewart
failed to carry his burden of proving this essential element of his claim for legal
malpractice, the superior court did not err in granting McDonald’s motion for a
6 judgment notwithstanding the verdict. See Szurovy v. Olderman, 243 Ga. App. at 453.
For these reasons, I would affirm the superior court’s order in its entirety.