Contribution and Indemnification Limited to Joint Tortfeasors by Court of Appeals

The Court of Appeals of Georgia held that a release and settlement agreement between two parties that contained a covenant not to sue barred a party from obtaining rights to bring a claim via assignment and asserting such third-parties rights. Likewise, no claim for contribution of indemnification can lie where a defendant does not breach a duty directly to a plaintiff(s). Finally, the apportionment statute, O.C.G.A. § 51-12-33, no longer offers indemnification in such a situation. ALR Oglethorpe, LLC et al., v. Fidelity National Title Insurance Company, A21A0989, 2021 WL 4398520 (Ga. Ct. App. Sept. 27, 2021).

First, the Court reviewed whether a covenant not to sue in a release and settlement agreement covered claims that were assigned to Plaintiffs by a third party.

A release or settlement agreement is a contract subject to construction by the court. It is governed by state law applicable to contracts in general. The cardinal rule of construction is to determine the intention of the parties. Where the terms of a written contract are clear and unambiguous, the court will look to the contract alone to find the intention of the parties. Such a contract is the only evidence of what the parties intended and understood by it. UniFund Financial Corp. v. Donaghue, 288 Ga. App. 81, 82 (653 SE2d 513) (2007). A covenant not to sue is a contract that “bars the holder of the cause of action from asserting it against the party or parties with whom he has covenanted. Brantley Co. v. Briscoe, 246 Ga. 310, 312 (1) (271 SE2d 356) (1980). “In order to ascertain what claims the parties sought to address in the [covenant not to sue], we must read that provision in light of the contract as a whole and in the legal context in which it was created.” Langley v. MP Spring Lake, 307 Ga. 321, 325 (834 SE2d 800) (2019).

The Court reviewed the express language of the the release, which stated that ALR released "any and all liability for any and and all claims . . . arising out of or relating in any way to the released agreement . . ." ALR Oglethorpe, 2021 WL 4398520 at *4. The agreement defined “released claims” as “any claims or other matters. . . arising out of or in connection with the [p]olicy [c]laims,” which it defined as “any claims or matters arising out of the [e]asement. . .” Id. This included the agreement not to participate or institute any suit as a party against Fidelity by reason of the released claims. Id. This broad language covered "a clear intent to resolve any claim ALR might ever have against Fidelity relating to the easement." Id. The Court as such stated they would not obtain via assignment a third-party's claims against Fidelity related to the easement.

Second, the Court reviewed whether the Plaintiffs could make a claim for contribution.

The contribution statute, O.C.G.A. § 51-12-31, states, "the right to contribution relates only to joint tortfeasors, and where the proposed defendant cannot be made liable as a joint tortfeasor, the contribution action does not state a claim." Hines v. Holland, 334 Ga. App. 292, 295 (1) (a) (779 SE2d 63) (2015). In order to make the showing that Fidelity was a joint tortfeasor, ALR had to present evidence that Fidelity can be directly liable to them. Weller v. Brown, 266 Ga. 130-131 (464 SE2d 805) (1996).

The only claims asserted were negligent misrepresentation and legal malpractice, however, none of these duties by Fidelity were owed to the Plaintiffs.

The essential elements of a cause of action for negligent misrepresentation against one with whom the plaintiff is not in privity are: “(1) the defendant’s negligent supply of false information to foreseeable persons, known or unknown; (2) such persons’ reasonable reliance upon that false information; and (3) economic injury proximately resulting from such reliance.” Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, 267 Ga. 424, 426 (1) (479 SE2d 727) (1997). Plaintiffs failed to present any evidence that they relied on any information supplied by Fidelity. ALR Oglethorpe, 2021 WL 4398520 at *6-7. Likewise, as for legal malpractice, the Plaintiffs did not present any evidence that there was an attorney client relationship with Fidelity or its attorney. Id. at *7. Therefore, the negligent misrepresentation and legal malpractice claims were not grounds for joint tortfeasor contribution.

Lastly, the Court reviewed whether Plaintiffs were entitled to indemnification.

Plaintiffs made a claim under common-law indemnity under O.C.G.A. § 51-12-32(c) states, "the right of indemnity, express or implied, from another or others shall continue unabated and shall not be lost or prejudiced by compromise and settlement of a claim or claims for injury to person or property or for wrongful death and release therefrom." Id. at *7.

The Court noted that there is no claim for a right to indemnify under a contract or under vicarious liability, which are the only forms of indemnification viable after the enactment of the apportionment statute, therefore the claim failed. Id. at *7.

The apportionment statute, O.C.G.A. § 51-12-33, changed the law of indemnity. Following its enactment, “Georgia law continues to recognize two broad categories of indemnity: as created by contract, as between a surety and a debtor; and under the common law of vicarious liability, as between principals and agents.” Dist. Owners Assn. v. AMEC Environmental & Infrastructure, 322 Ga. App. 713, 715 (1) (747 SE2d 10) (2013) (citations and punctuation omitted); accord Hines, 334 Ga. App. at 296 (1) (b). The Plaintiffs rely on cases that found that passive tortfeasors have a right to indemnity against active tortfeasors. This theory of indemnity concerns liability among joint tortfeasors. See Reid v. Morris, 309 Ga. 230, 238 (845 SE2d 590) (2020) (noting that in 1997, Georgia law “distinguished between active and passive tort-feasors in the context of contribution and indemnity among joint tort-feasors”). As held in the contribution ruling, Fidelity was not a joint tortfeasor.

The Court went on to state, "even if Fidelity were a joint tortfeasor, following the enactment of the apportionment statute, common-law indemnity based on the distinction between active and passive negligence no longer exists in Georgia." Id. at *8. The enactment of the apportionment statute, OCGA § 51-12-33, changed the Georgia law of joint tortfeasor liability (whether in the context of claims for contribution or in the context of claims for indemnity) by limiting joint and several liability of tortfeasors to instances when fault is legally or factually indivisible. See Alston & Bird v. Hatcher Mgmt. Holdings, __ Ga. at __ (3). In light of this changed legal landscape, the Curt stated "after the enactment of the apportionment statute, a defendant may not seek indemnification from another defendant as a joint tortfeasor simply based on allegations that the other defendant’s negligence actually caused the harm." Id. at *8. Therefore, "after the enactment of the apportionment statute, Georgia law recognizes 'two broad categories of indemnity: as created by contract, as between a surety and a debtor; and under the common law of vicarious liability, as between principals and agents.'" ALR Oglethorpe, 2021 WL 4398520 at *8 quoting Dist. Owners Assn., 322 Ga. App. at 715 (1). Since neither form was alleged on the facts of the matter before the Court there could be no claim for indemnification against Fidelity. Id. at *9.

Court of Appeals Clarifies When A Foreign Corporation Is Deemed To Be Transacting Business

A foreign corporation is not deemed to be transacting business in Georgia under O.C.G.A. § 14-2-1501, and therefore is able to maintain a civil action in Georgia without obtaining a certificate of authority, when it agrees to (i) buy real property in Georgia; (ii) build a plant on that property; and (iii) use the plant to provide certain gaseous oxygen requirements pursuant to a Supply Agreement. Universal Industrial Gases, Inc. v. Action Industries, Inc. et al., A21A1183, 2021 WL 4451386 (Ga. Ct. App. Sept. 29, 2021).

By statute, a foreign corporation transacting business in this state is required to obtain a certificate of authority from the Georgia Secretary of State, subject to certain exceptions that include, as relevant here, “[c]onducting an isolated transaction not in the course of a number of repeated transactions of a like nature.” O.C.G.A. § 14-2-1501 (a), (b) (10). Further, a foreign corporation transacting business in Georgia may not maintain a proceeding in a Georgia court until it has obtained the required certificate. O.C.G.A. § 14-2-1502 (a).

A motion to dismiss for failure to obtain a certificate of authority to do business in Georgia is properly considered a motion in abatement, in which the defendant has the burden of proving the facts necessary to obtain a dismissal. Mfgs. Nat. Bank of Detroit v. Tri-State Glass, Inc., 201 Ga. App. 253, 253-254 (1), 410 S.E.2d 808 (1991).

Whether one is “transacting business” for purposes of the applicable statutes should be decided on a case-by-case basis “and not by application of a mechanical rule.” Winston Corp. v. Park Elec. Co., 126 Ga. App. 489, 495, 191 S.E.2d 340 (1972). Under such test it is the extent of activities by the foreign corporation in Georgia rather than the singleness that is considered, whether it be a construction enterprise or some other business. Id. at 496. Where the activities are minimal and unsubstantial in connection with only one contract and there is displayed no intention to continue these activities after completion of the single contract, the foreign corporation does not have to qualify because its contracts with Georgia relate to an isolated transaction. Id. If such activities are extensive in scope and involve a great deal of work over a period of time, then qualification is required despite all such activities being related to a single contract. Id.; Barker v. County of Forsyth, 248 Ga. 73, 75 (1), 281 S.E.2d 549 (1981) (“[A]n isolated transaction indicates no purpose of continuity of conduct whereas doing business implies an intent to conduct a continuous, as opposed to a temporary, business.”); Reisman v. Martori, Meyer, Hendricks, & Victor, 155 Ga. App. 551, 552 (1), 271 S.E.2d 685 (1980) (“[T]he purpose of [the predecessor to O.C.G.A. § 14-2-1501] is to require registration of foreign corporations which intend to conduct business in Georgia on a continuous basis, not as a temporary matter.”).

In Winston Corp., the Court of Appeals concluded that a party was not “transacting business” in Georgia for purposes of these statutes where he “was in Georgia completing a subcontract as a sole proprietor,” and, after incorporating his business in Tennessee, he “completed the performance of the contract as an individual and in connection therewith undertook additional work in the name of his foreign corporation without intention of doing any further business in Georgia other than the isolated transaction.” In a similar case, the Court of Appeals found a foreign LLC was not transacting business in Georgia where the foreign LLC merely acquired loan documents underlying a foreclosure sale at issue in a proceeding, advertised and conducted the sale, bought the subject property, reported the sale, and filed a petition to confirm the sale. Powder Springs Holdings, LLC, 325 Ga. App. at 696-697 (1), 754 S.E.2d 655. However, a foreign company was transacting business in Georgia when it spent over $20,000 (in the 1980s) designing, surveying, and planning a project for an alpine slide on a Georgia mountain; its staff members spent two weeks in Georgia accomplishing some of these tasks; and it entered into an agreement to buy and lease land on the mountain to operate both the slide and a scenic lookout. Barker, 248 Ga. at 73, 75 (1), 281 S.E.2d 549.

The trial Court found that Universal Industrial Gases, Inc. ("UIG"), was transacting business pursuant to the statute because (1) it requested consequential damages which the court reasoned depended on an expectation of profits to be derived from continuing business operations and (2) it had a single employee that was plant manager at the plant in Georgia. Universal Industrial Gases, Inc., 2021 WL 4451386 at *4.

The Court of Appeals reversed and remanded the matter. The Court of Appeals dismantled the first line of reasoning by stating that even if UIG sought lost profits, that would show at most that UIG potentially may have, at some point in the past, contemplated engaging in long-term business activities in Georgia, however, it does not shed any light on whether they actually transacted business in Georgia. Id. (emphasis in original). The Court notes that the statute bars a foreign corporation from “maintain[ing] a proceeding in any court in this state” only if the corporation is “transacting business” in Georgia, i.e., actively doing so, without a certificate of authority. Id. citing O.C.G.A. §14-2-1502(a). The plain language therefore does not encompass a foreign corporation that contemplates transacting business. Id. The Court also noted that "it is undisputed that UG has not owned the [plant] or the land on which it sits and has no rights under the [Supply Agreement]... since well before this action began." Id. at * 5.

As to the second line of reasoning, that a single employee in the State of Georgia is transacting business, the Court of Appeals relied on Roberts v. Chancellor Fleet Corp., for the finding that the presence in Georgia of a sales representative who solicited lease orders and made deliveries of leased equipment did not constitute “transacting business” in Georgia for purposes of the certificate-of-authority requirement. 182 Ga. App. 69, 70-71 (1), 354 S.E.2d 628 (1987).

Repudiation of Fraudulent Act of Ratification Nullifies Said Ratification

The Court of Appeals of Georgia held that there is no ratification of any conduct or act where an alleged principal (1) obtains no benefit from an act sought to be ratified by a third-party; (2) engaged in no affirmative conduct that may be viewed as knowing acquiescence in the ratified act; and (3) instead took positive steps to repudiate the act before the party relying on seeking ratification had the opportunity to rely on it. U.S. Bank Trust National Association v. Chieftain Atlanta, L.P., A21A0796, 2021 WL 4260382 at *3 (Ga. Ct. App. Sept. 20, 2021).

The relationship of principal and agent may be established if one person, expressly or by implication, ratifies the acts of another on his behalf. Rains v. Dolphin Mtg. Corp., 241 Ga. App. 611, 614 (4) (525 SE2d 370) (1999). Ratification, the confirmation by one of an act performed by another without authority, is an affirmative defense, and the burden of proving it is on the party asserting it. Hendrix v. First Bank of Savannah, 195 Ga. App. 510, 511 (1) (394 SE2d 134) (1990).

The ratification must be made by the principal with knowledge of the material facts and "may be express or implied from the acts or silence of the principal.” Hendrix, 195 Ga. App. at 511 (1) (citation omitted) (quoting O.C.G.A. § 10-6-52). Thus, “[i]f the principal, with full knowledge of all the material facts, accepts and retains the benefits of the unauthorized act, he thereby ratifies the act.” Id.

The key question therefore becomes whether the party knowingly accepted benefits under the agreement through silence and/or performance. McKean v. GGNSC Atlanta, LLC, 329 Ga. App. 507, 511-513 (1) (b) (765 SE2d 681) (2014); American Computer Technology, Inc. v. Hardwick, 274 Ga. App. 62, 65-66 (2) (616 SE2d 838) (2005). The concept that ratification typically entails the acceptance of benefits extends to cases in which a party alleges that another forged his signature on a contract without his knowledge. Ferguson v. Golf Course Consultants, Inc., 243 Ga. 112, 112-113 (252 SE2d 907) (1979); Southtrust Bank of Ga. v. Parker, 226 Ga. App. 292, 294-295 (1) (486 SE2d 402) (1997). For instance, a forged signature is nonetheless binding if the person whose name was signed, “with full knowledge of all the material facts, accepts the benefits of an unauthorized act, or retains such benefits after discovering the material facts." Brock v. Yale Mtg. Corp., 287 Ga. 849, 854-855 (3) (700 SE2d 583) (2010). This concept extends beyond forgery and is true after the principal accepts and retains the benefits from a fraudulent act. Summit Automotive Group, LLC v. Clark, 298 Ga. App. 875, 883-884 (4) (681 SE2d 681) (2009).

Ultimately, the Court of Appeals stated that Chieftain had pointed to no evidence of any benefit retained by the forgery. U.S. Bank Trust National Association, 2021 WL 4260382 at *3.

Chieftain made an alternative argument that U.S. Bank's delay in repudiating the cancellation, standing alone, creates a jury question as to whether the length of delay constitutes a ratification. Id. Chieftain relied on the Supreme Court statement in Harris v. Underwood, that ratification may be implied from the acts or silence of the principal and that ratification will be presumed if the principal, upon learning of what the agent has done, fails to repudiate the act promptly or within a reasonable time. 208 Ga. at 250. The Court found that Harris was not directly on point because the cancellation deed that was forged was filed in September 2014, U.S. Bank filed an Affidavit Affecting Title To Land in May 2014, which was recorded with the county real estate records on May 22, 2014, and Chieftain received the land via a limited warranty deed on July 22, 2015. Therefore, the act of repudiation (filing the affidavit) was conducted before Chieftain ever had an interest in the land and did not represent a delay or silence. U.S. Bank Trust National Association, 2021 WL 4260382 at *3.