Access Point Financial, Inc. v. Ext-Indy Suites, LLC et al

Filing 185

ORDER: Defendants Jerry Dehner and Hyde Park CG, LLCs 153 Motion for Summary Judgment of the Cross-Claims of Ext-Indy Suites, LLC./Ryszard and Claire Zadow is GRANTED as to Cross-Claims Counts Two, Three, and Four, GRANTED in part and DENIED in part as to Cross-Claim Count One, and DENIED as to Cross-Claims Counts Five, Six, and Seven. The parties are ORDERED to submit a proposed consolidated pretrial order within thirty days. Signed by Judge Richard W. Story on 06/13/18. (rsg)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
ACCESS POINT FINANCIAL,
INC.,
Plaintiff,
v.
EXT-INDY SUITES, LLC,
RYSZARD J. ZADOW, CLAIRE
J. ZADOW, JERRY DEHNER,
and HYDE PARK CG, LLC,
Defendants.

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CIVIL ACTION NO.
1:15-CV-0002-RWS

ORDER
This case comes before the Court on Defendants’ Jerry Dehner and Hyde
Park CG, LLC’s Motion for Summary Judgment of the Cross-Claims of
Defendants Ext-Indy Suites, LLC and Ryszard and Claire Zadow (“Motion for
Summary Judgment”) [153]. After reviewing the record, the Court enters the
following Order.
Background
This action arises out of an arrangement between Plaintiff Access Point
Financial, Inc. (“APF”) and Defendant Ext-Indy Suites, LLC (“Ext-Indy”).
Ext-Indy and APF entered into several agreements in an effort to secure funds

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to transform a hotel, owned by Ext-Indy, into a more profitable enterprise.
These agreements were facilitated by Ext-Indy’s broker, Defendant Hyde Park
CG, LLC (“HPCG”). On December 29, 2017, APF’s claims against HPCG and
Defendant Jerry Dehner (collectively the “HPCG Defendants”) were dismissed
with prejudice by stipulation. (Stipulation of Dismissal, Dkt. [177].) On
March 8, 2018, the claims between APF, Ext-Indy, Ryszard J. Zadow, and
Claire J. Zadow (collectively the “Ext-Indy Defendants”) were dismissed with
prejudice by stipulation. (Order, Dkt. [183].) The cross-claims asserted by the
Ext-Indy Defendants against the HPCG Defendants are therefore all that
remain pending.
Ext-Indy’s initial financing involved a loan with Private Capital Group
(“PCG”). Ext-Indy entered into an agreement with HPCG in order to secure
new financing prior to the maturity date on the loan with PCG. Ext-Indy and
HPCG signed a written Advisory Engagement Agreement on July 30, 2013,
under which HPCG would act as a broker for Ext-Indy. (Statement of Material
Facts in Supp. of HPCG Defs.’ Mot. for Summ. J. (“HPCG Defs.’ SOMF”),
Dkt. [153-2] ¶ 1.) HPCG facilitated the loan between APF and Ext-Indy.
In their cross-claims, the Ext-Indy Defendants bring claims for breach of
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fiduciary duty, fraud, negligent misrepresentation, breach of contract, and other
subsidiary claims. These claims, in large part, stem from the terms of the loan
from APF. The Closing Statement, signed by Claire Zadow for Ext-Indy,
stated that Ext-Indy would be required to make an equity contribution of
$115,610 prior to the first draw. (Id. ¶ 5.) The Ext-Indy Defendants allege that
the inclusion of this term amounts to a breach of contract and a breach of
fiduciary duty by the HPCG Defendants, as well as fraud and negligent
misrepresentation. They further allege that Henry Dehner’s representations
that he would have the equity requirement removed after the Closing Statement
was signed amounts to fraud and negligent misrepresentation. Finally, they
allege that Henry Dehner shared confidential financial information with PCG,
thus breaching the fiduciary duty owed to the Ext-Indy Defendants.
Analysis
I.

Legal Standard
Federal Rule of Civil Procedure 56 requires that summary judgment be

granted “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” “The moving
party bears ‘the initial responsibility of informing the . . . court of the basis for
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its motion, and identifying those portions of the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits,
if any, which it believes demonstrate the absence of a genuine issue of material
fact.’” Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259 (11th Cir.
2004) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). Where the
moving party makes such a showing, the burden shifts to the non-movant, who
must go beyond the pleadings and present affirmative evidence to show that a
genuine issue of material fact does exist. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 257 (1986).
The applicable substantive law identifies which facts are material. Id. at
248. A fact is not material if a dispute over that fact will not affect the outcome
of the suit under the governing law. Id. An issue is genuine when the evidence
is such that a reasonable jury could return a verdict for the non-moving party.
Id. at 249–50.
Additionally, “the plain language of Rule 56(c) mandates the entry of
summary judgment, after adequate time for discovery and upon motion, against
a party who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the
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burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
No genuine issue of material fact exists “since a complete failure of proof
concerning an essential element of the nonmoving party’s case necessarily
renders all other facts immaterial.” Id. at 323. Thus, if a party who has the
burden of proof fails to make a showing sufficient to establish the existence of
any essential element to a claim, summary judgment may be properly granted
against him.
Finally, in resolving a motion for summary judgment, the court must
view all evidence and draw all reasonable inferences in the light most favorable
to the non-moving party. Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1296
(11th Cir. 2002). But, the court is bound only to draw those inferences that are
reasonable. “Where the record taken as a whole could not lead a rational trier
of fact to find for the non-moving party, there is no genuine issue for trial.”
Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
“If the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Anderson, 477 U.S. at 249–50 (internal citations
omitted); see also Matsushita, 475 U.S. at 586 (once the moving party has met
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its burden under Rule 56(a), the nonmoving party “must do more than simply
show there is some metaphysical doubt as to the material facts”).
II.

Analysis
A.

Breach of Contract

As an initial matter, the parties dispute whether Georgia or Ohio law
governs this claim. “In a case founded on diversity jurisdiction, the district
court must apply the forum state’s choice of law rules.” Federated Rural Elec.
Ins. Exch. v. R.D. Moody & Assocs., Inc., 468 F.3d 1322, 1325 (11th Cir.
2006). Under Georgia law, “parties by contract may stipulate that the laws of
another jurisdiction will govern the transaction.” Manderson & Assocs., Inc. v.
Gore, 389 S.E.2d 251, 254 (Ga. Ct. App. 1989). “In the absence of contrary
public policy, [Georgia] courts normally will enforce a contractual choice-oflaw provision, as the parties by contract may stipulate that the laws of another
jurisdiction will govern the transaction.” Scales v. Textron Fin. Corp., 622
S.E.2d 903, 904 (Ga. Ct. App. 2005) (quoting Nationwide Logistics v. Condor
Transp., 606 S.E.2d 319, 322 (Ga. Ct. App. 2004)). However, if “the chosen
state has no substantial relationship to the parties or the transaction,” the
chosen law will not be applied. Ryder Truck Lines, Inc. v. Goren Equip. Co.,
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576 F. Supp. 1348, 1354 (N.D. Ga. 1983).
Here, the Advisory Engagement Agreement contains a choice-of-law
provision stating that “[t]his Engagement Agreement shall be construed and
enforced pursuant to the Laws of the State of Ohio.” (Advisory Engagement
Agreement, Ex. B, Dkt. [153-4], at 7.) While the HPCG Defendants argue in
favor of applying Georgia law to this cause of action, they do not point to any
policy considerations that would prohibit the application of Ohio law. In
addition, Ohio has a substantial relationship to the parties since HPCG is based
in Ohio. The Court therefore finds that Ohio law governs any disputes arising
out of the Advisory Engagement Agreement.
Under Ohio law, for “a breach of contract claim, a party must establish
four elements: (1) a binding contract or agreement was formed; (2) the
nonbreaching party performed its contractual obligations; (3) the other party
failed to fulfill its contractual obligations without legal excuse; and (4) the
nonbreaching party suffered damages as a result of the breach.” Carbone v.
Nueva Constr. Grp., L.L.C., 83 N.E.3d 375, 380 (Ohio Ct. App. 2017) (internal
quotations and alterations omitted). The HPCG defendants argue that they
fulfilled their obligations under the Advisory Engagement Agreement, so the
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Ext-Inty Defendants cannot show that the contract was in fact breached. The
Ext-Inty Defendants respond that the breach occurred when the HPCG
defendants failed to obtain loan terms that did not require an equity
contribution at closing. They concede that “[t]here is no express term in the
Engagement Agreement” concerning the terms of the loan to be negotiated,
instead arguing that the parties reached an understanding outside the written
terms of the contract. (Ext-Indy Defs.’ Resp. in Opp’n to HPCG Defs.’ Mot.
for Summ. J. (“Ext-Indy Defs.’ Resp.”), Dkt. [167], at 20.)
“The parol-evidence rule is a principle of common law providing that a
writing intended by the parties to be a final embodiment of their agreement
cannot be modified by evidence of earlier or contemporaneous agreements that
might add to, vary, or contradict the writing.” Bellman v. Am. Int’l Grp., 865
N.E.2d 853, 856–57 (Ohio 2007) (internal quotations omitted). “The rule
operates to prevent a party from introducing extrinsic evidence of negotiations
that occurred before or while the agreement was being reduced to its final
written form, and it assumes that the formal writing reflects the parties’ minds
at a point of maximum resolution and, hence, that duties and restrictions that do
not appear in the written document were not intended by the parties to survive.”
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Id. at 857 (internal quotations, alterations, and citations omitted). However,
“the parol evidence rule applies only to evidence of prior or contemporaneous
written or oral understandings or negotiations.” Hawley v. Dresser Indus., Inc.,
738 F. Supp. 243, 248 (S.D. Ohio 1990). “Subsequent written and oral
agreements can modify an integrated written contract.” Id. at 248–49.
The Ext-Indy Defendants point to several pieces of evidence to show that
the parties reached an agreement that the HPCG Defendants were required to
negotiate a loan without a cash contribution requirement. Claire Zadow
testified at her deposition that the Ext-Indy Defendants “directed [Dehner] to
give us a loan that had no cash at closing . . . .” (C. Zadow Dep., Ex. 5, Dkt.
[167-5], at 10.) Ryszard Zadow testified that the Ext-Indy Defendnats did not
indicate that they would be able to refinance if an equity contribution was
required. (R. Zadow Dep., Ex. 6, Dkt. [167-6], at 3.) There is also evidence
that the HPCG Defendants informed APF that the Ext-Indy Defendants desired
a no cash closing. (Ex. 1, Dkt. [165-1].)
It is unclear whether this evidence is offered in support of a prior or
contemporaneous understanding between the parties or a subsequent agreement
intended to modify the written Advisory Engagement Agreement. Assuming
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arguendo that it is of a subsequent agreement and therefore not barred by the
parol evidence rule, this evidence is insufficient to show an agreement between
the parties. While there is evidence that the Ext-Indy Defendant’s desire for a
closing without a cash contribution was known to the HPCG Defendants, there
has been no evidence that the parties reached an agreement guaranteeing that
the HPCG Defendants would secure such a term in negotiations. The Ext-Indy
Defendants have therefore failed to meet their burden, and the HPCG
Defendant’s motion for summary judgment is GRANTED as to Cross-Claim
Count Four.
B.

Fraud and Negligent Misrepresentation

The parties agree that Counts Two and Three of the Cross-Claim [23] for
fraud and negligent misrepresentation are governed by Georgia law. To prove
fraud, the Ext-Indy Defendants must show: “(1) false representation by [the
HPCG Defendants]; (2) scienter; (3) intent to induce the [Ext-Indy Defendants]
to act or refrain from acting; (4) justifiable reliance by the [Ext-Indy
Defendants]; and (5) damage to the [Ext-Indy Defendants].” Next Century
Commc’ns Corp. v. Ellis, 318 F.3d 1023, 1027 (11th Cir. 2003) (quoting Ades
v. Werther, 567 S.E.2d 340, 343 (Ga. Ct. App. 2002)). A claim of negligent
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misrepresentation requires the Ext-Indy Defendants prove: “(1) the [HPCG
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.” Id. at 1030 (citing Hardaway Co. v. Parsons, Brinckerhoff, Quade &
Douglas, Inc., 479 S.E.2d 727, 729 (Ga. 1997)). These are similar causes of
action, and “the only real distinction . . . is the absence of the element of
knowledge of the falsity of the information disclosed” in a claim of negligent
misrepresentation. Holmes v. Grubman, 691 S.E.2d 196, 200 (Ga. 2010).
These claims are based on two separate alleged misrepresentations: the
HPCG Defendants’ representations to APF that the Ext-Indy Defendants would
make an equity infusion into the transaction and the HPCG Defendants’
representations to the Ext-Indy Defendants that the equity contribution
requirement would be removed after the closing documents were signed. As to
the first representation, the Ext-Indy Defendants offer no evidence that such a
representation ever actually occurred. The evidence instead necessitates the
conclusion that APF was told that the Ext-Indy Defendants were unable to
make an equity contribution. The Ext-Indy Defendants state that “it is clear
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that APF was informed that the Ext-Indy Parties wanted a no-cash at closing
loan.” (Ext-Indy Defs.’ Resp., Dkt. [167], at 21; see also Ex. 1, Dkt. [165-1], at
3 (stating, in an internal APF email, that the “sponsors are not able to put
additional equity into the property at this time”).) All communications with
APF were with the HPCG Defendants. (Ext-Indy Defs.’ SOMF, Dkt. [168] ¶¶
30, 45.) Since the Ext-Indy Defendants have not pointed to any evidence that
the HPCG Defendants made the alleged representation to APF, summary
judgment is GRANTED as to this portion of Cross-Claims Counts Two and
Three.
As to the second representation, it “is axiomatic that a false
representation made by a defendant, to be actionable, must relate to an existing
fact or a past event. Fraud cannot consist of mere broken promises, unfilled
predictions or erroneous conjecture as to future events.” Next Century
Commc’ns, 318 F.3d at 1027 (quoting Fuller v. Perry, 476 S.E.2d 793, 796
(Ga. Ct. App. 1996)). The Court finds that any statements made by the HPCG
Defendants regarding their ability to remove the equity contribution
requirement after the closing documents were signed amounts to “promises to
perform some act in the future.” Equifax, Inc. v. 1600 Peachtree, LLC., 601
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S.E.2d 519, 525 (Ga. Ct. App. 2004). A “mere failure to perform promises
made” does not amount to actionable fraud. Id. at 525–26; see also Fuller, 476
S.E.2d at 796 (finding that statements regarding a proposed transaction still
under negotiation were not actionable in a claim for fraud).
“Although fraud may not generally be predicated on statements which
are promissory in nature as to future acts or events, it can be predicated on such
representations where there is a present intention not to perform or a present
knowledge that the future event will not occur.” Seligman v. Savannah
Wholesale Co., 363 S.E.2d 785, 787 (Ga. Ct. App. 1987) (quoting Seminole
Peanut Co. v. Goodson, 335 S.E.2d 157, 160 (Ga. Ct. App. 1985)). Although
the Ext-Indy Defendants argue that the HPCG Defendants knew they would not
be able to reduce the equity requirement to zero when the alleged
representations were made, they provide no evidence in support. The failure to
“predict accurately or guaranty the future financial condition or performance of
a third party” cannot be the basis of a claim for fraud or negligent
misrepresentation. Fuller, 476 S.E.2d at 796. This alleged representation is
therefore not actionable, and summary judgment is GRANTED as to this
portion of Cross-Claim Counts Two and Three.
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C.

Breach of Fiduciary Duty

The parties agree that Count One of the Cross-Claim [23] for breach of
fiduciary duty is governed by Georgia law. “It is well settled that a claim for
breach of fiduciary duty requires proof of three elements: (1) the existence of a
fiduciary duty; (2) breach of that duty; and (3) damage proximately caused by
the breach.” Ansley Marine Const., Inc. v. Swanberg, 660 S.E.2d 6, 9 (Ga. Ct.
App. 2008) (quoting Jonas v. Jonas, 633 S.E.2d 544, 549 (Ga. Ct. App. 2006)).
The Ext-Indy Defendants point to two instances in which the HPCG
Defendants breached their fiduciary duty. First, they allege that the HPCG
Defendants failed to comply with the directive to secure a loan that did not
require an equity contribution at closing. However, any “duty of diligence and
good faith cannot be held to include an obligation to predict accurately or
guaranty the future . . . performance of a third party.” Fuller, 476 S.E.2d at 796
(quoting Garcia v. Unique Realty & Prop. Mgmt. Co., 424 S.E.2d 14, 16 (Ga.
Ct. App. 1992)). As discussed above, the HPCG Defendants informed APF
that the Ext-Indy Defendants would be unable to make an equity contribution.
The HPCG Defendants’ inability to force APF, a third party, to comply with the
Ext-Indy Defendants’ request cannot be held to be a breach of fiduciary duty.
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Second, the Ext-Indy Defendants allege that the HPCG Defendants
breached their fiduciary duty by sharing with Private Capital Group, without
authorization, confidential financial information regarding the finalization of
the loan with APF. Assuming, without deciding, that a fiduciary relationship
existed between the parties, the Court finds that a question of fact exists as to
whether the HPCG Defendants had the authority to share this information and
therefore whether this amounts to a breach of a fiduciary relationship.
The HPCG Defendants argue that the evidence relied upon for this claim,
an email dated September 4, 2013, between Justin Griffin, of Private Capital
Group, and Shane Toland, the Ext-Indy Defendants’ lawyer, is inadmissible.
(Ex. 11, Dkt. [165-11].) “Inadmissible hearsay generally ‘cannot be considered
on a motion for summary judgment.’” McCaskill v. Ray, 279 F. App’x 913,
914 (11th Cir. 2008) (quoting Macuba v. Deboer, 193 F.3d 1316, 1322 (11th
Cir. 1999)). Otherwise admissible evidence, however, may be “submitted in
inadmissible form at the summary judgment stage . . . .” McMillian v. Johnson,
88 F.3d 1573, 1584 (11th Cir. 1996). This evidence is therefore appropriate for
consideration at this stage of the litigation.
Summary Judgment is therefore DENIED as to Cross-Claim Count One
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insofar as it relates to the relaying of information to Private Capital Group and
GRANTED summary judgment as to the remainder of Cross-Claim Count
One.
D.

Other Claims

The Ext-Indy Defendants bring claims for attorney’s fees and litigation
expenses under O.C.G.A. § 13-6-11 (Cross-Claim Count Five), punitive
damages under O.C.G.A. § 51-12-5.1 (Cross-Claim Count Six), and
indemnification (Cross-Claim Count Seven). Since summary judgment has
been denied as to a portion of the Ext-Indy Defendants’ claims, these claims
remain. Summary judgment is therefore DENIED as to Cross-Claim Counts
Five, Six, and Seven.
Conclusion
In accordance with the foregoing, Defendants Jerry Dehner and Hyde
Park CG, LLC’s Motion for Summary Judgment of the Cross-Claims of ExtIndy Suites, LLC./Ryszard and Claire Zadow [153] is GRANTED as to CrossClaims Counts Two, Three, and Four, GRANTED in part and DENIED in
part as to Cross-Claim Count One, and DENIED as to Cross-Claims Counts
Five, Six, and Seven. The parties are ORDERED to submit a proposed
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consolidated pretrial order within thirty days.
SO ORDERED, this 13th day of June, 2018.

________________________________
RICHARD W. STORY
United States District Judge

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