Georgia Business Litigation

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And they call some tort cases frivolous!?
In Caincare Inc. v. Ellison, decided 3/15/05 in the Georgia Court of Appeals, a contract for sale of a pharmacy provided liquidated damages if the buyer failed to cease all use of the old store name within six months. An employee programmed the old name in the header generated by a fax machine which continued sending out faxes bearing the old name beyond the six months. When this was called to its attention, the new owner changed the header. However, the seller sued for breach of contract and sought liquidated damages totally unrelated to the scope of the alleged breach.
The Court of Appeals flushed this frivolous case, but was polite enough not to use the phrase that a federal judge employed to describe an insurance company’s defense in a disability insurance case: “pure poppycock.”
A liquidated damages provision for the misuse of the seller’s brand name in a sales agreement for an existing pharmacy was an unenforceable penalty, since the seller never adequately explained how the damages amount was calculated. See the opinion below.

In Fellows v. All Star Inc., decided 3/17/05, the Georgia Court of Appeals held that the non-competition covenant in an employment contract was unreasonable and overbroad when it prohibited the former employees from contacting or soliciting any customer of the employer, no matter where located and no matter whether the employees had had contact with those customers.
The reasonableness of a non-compete clause is determined by applying a three-element test of duration, territorial coverage, and scope of prohibited activity. If not carefully and narrowly drafted, such covenants may well be unenforceable. Broad, overreaching provisions may be effective to intimidate employees, but not enforceable when tested in court.
See the court’s opinion below.

In Albany Bone & Joint Clinic PC v. Philip D. Hajek MD, the Georgia Court of Appeals ruled on 3/11/05 that a medical clinic’s bylaws, which entitled all departing shareholders to the book value of their stock, did not constitute a financial “penalty” on shareholders who left the clinic to work for a competitor. The corporate bylaws of the clinic did not constitute a non-competition covenant of the sort often seen in employment contracts. See the court’s opinion below.

A federal court win for the home team was just published at Giddens v.The Equitable Life Assurance Society of the United States, 356 F.Supp.2d 1313(N.D.Ga.,2004) [Westlaw $$$].
We represented a dentist / real estate developer on a disability insurance claim after he had liver failure requiring a liver transplant at the Mayo Clinic. The insurance company took the position that during a long period of inability to work due to undiagnosed illness prior to diagnosis of liver failure, he abandoned both of his occupations, and therefore no longer had an occupation from which to become disabled. We won summary judgment before the Honorable Richard Story, U.S. District Judge in Atlanta.
The case is significant because it established Georgia precedent on (1) admissibility of disability opinions of treating physicians under Daubert despite lack of definitive tests and specialization in disability evaluation, with any deficiency going to weight rather than admissibility; and (2) rejection of insurer’s “occupation defense” that insured who was unable to work for extended time due to illness had abandoned occupation and therefore had no occupation from which to become disabled.
The insurer has filed an appeal pending in 11th Circuit Court of Appeals. We hope the appeal produces a published decision affirming Judge Story’s order, which other policyholders may use as precedent against The Equitable throughout the United States.
See the published order below:

The McKesson – HBOC merger led to a legal morass due to allegations of accounting irregularies at HBOC. A few months later, McKesson discovered that, due to accounting fraud, HBOC’s common stock had been overvalued and that, consequently, McKesson had paid too much for it. McKesson hired a law firm and accounting firm to investigate HBOC accounting practices, and voluntarily provided the audit documents to the SEC and the United States Attorney’s Office, both of which were conducting their own investigations of HBOC and McKesson. After a sharp decline in value of McKesson stock, many of McKesson’s shareholders, including plaintiffs in this case, who were former shareholders of HBOC, sued McKesson alleging that they had incurred stock losses as a result of the accounting fraud. McKesson filed a counterclaim seeking damages for unjust enrichment on the ground that the HBOC shareholders received more shares of McKesson stock than they were entitled to receive due to the accounting fraud. The trial court granted a motion to compel the production of the audit documents; it denied a motion to dismiss McKesson’s unjust enrichment counterclaim.
The Georgia Supreme Court held: (1) the burden of proving a waiver of work-product protection lies on the party asserting the waiver; (2) the evidence supports the conclusion that McKesson waived work-product protection when it provided the audit documents to the SEC, as their confidentiality agreement was not airtight; (3) the former HBOC shareholders were not liable for unjust enrichment, as they were not accountable for the fraudulent acts of HBOC, and McKesson failed to allege that these shareholders controlled HBOC or used the corporate form to defraud McKesson. The mere fact that the shareholders may have received a windfall, in the form of additional shares of McKesson stock, at the time of the merger does not make them liable to McKesson. As the Ninth Circuit Court of Appeals said when it affirmed the dismissal of McKesson’s unjust enrichment claim in a related case, “[t]he sanctity of the corporate entity, as well as the policies militating against subjecting individual shareholders of a public company to liability for a merger gone bad, defeat McKesson’s effort to turn corporate law inside out.” McKesson HBOC v. New York State &c. Fund , 339 F3d 1087, 1093 (9th Cir. 2003). See full text (Fulton County Daily Report, subscription required.), and below:

Company A entered two intellectual property licensing agreements with Company B, but a year later was $3 million behind on payments and unable to pay the debt. Company B agreed to forgive the debt in exchange for software developed by Company A, with a provision that Company B would pay Company A net profits from resale of the software. The contract included a 7-year non-competition and non-solication covenant, but no express provision requiring Company B to market the software. Company B failed to sell the software or generate any royalties, and Company A sued Company B for breach of contract and common law fraud, alleging failure to undertake a good faith effort to market the software. After a long analysis of the law and facts, the Court of Appeals held there was no violation of an implied obligation to market the software, no failure of consideration, and no breach of an implied duty of good faith and fair dealing. See WirelessMD Inc. v. Healthcare.com Corp (Fulton County Daily Report, subscription required). See text of decision below.

In Prime Retail Dev. Inc. v. Marbury Eng’g Co., Case # A04A1275, decided by the Georgia Court of Appeals on 11/19/04, the court held that evidence that the plaintiff chose to close on commercial real estate, which used to be a service station, without reviewing the Phase 1 environmental audit conducted by the defendant supported a jury charge on comparative and contributory negligence.
The contract for purchase of the property included a provision permitting the buyer to conduct an environmental assessment, and to terminate the contract if environmental remediation costs would exceed $100,000. The Buyer paid for a boundary survey and a non-intrusive “Phase I” environmental audit without taking any samples or performing any testing. To make a long story short, it was later determined that there was an abandoned underground storage tank on the property and accompanying petroleum contamination.
In the subsequent litigation, in which the buyer lost at trial, the trial judge instructed the jury on defenses of contributory negligence and comparative negligence, limited to the claims of professional negligence and negligent misrepresentation, and not the contract claims. The buyer’s choice to proceed without a more complete environmental assessment was sufficient to support those jury instructions.