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NASH v. ROBERTS RIDGE FUNDING LLC

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Court of Appeals of Georgia.

NASH et al. v. ROBERTS RIDGE FUNDING, LLC.

No. A10A0049.

Decided: July 09, 2010

Richard J. Storrs, for Benjamin Nash. Simon Robert Malko, Todd Pendley, for Roberts Ridge Funding.

Roberts Ridge Funding, LLC (“RR Funding”) filed suit against Benjamin P. Nash, Jr. and Nash Land Company, LLC, alleging claims of inceptive fraud, rescission for nonperformance, fraud, and breach of contract arising out of its investment in a failed land development. RR Funding filed a motion for partial summary judgment as to the inceptive fraud claim, which the trial court granted. RR Funding then filed a motion for a supersedeas bond, which the trial court also granted. The Nash defendants appeal both of the trial court's rulings, contending that the evidence failed to establish the claim for inceptive fraud and that the order for a supersedeas bond was unauthorized since no final judgment had been entered in the case. We agree that summary judgment on the claim for inceptive fraud was not warranted; therefore, we reverse the judgment. The Nash defendants' appeal as to the supersedeas bond has otherwise been rendered moot.

1. The Nash defendants first contend that the trial court erred in granting summary judgment in favor of RR Funding on the inceptive fraud claim.

On appeal of a grant of summary judgment, we review the evidence de novo and determine whether the trial court erred in concluding that no genuine issue of material fact remains and that the party was entitled to judgment as a matter of law. Summary judgment is appropriate when the court, viewing all the facts and evidence and reasonable inferences from those facts in a light most favorable to the non-movant, concludes that the evidence does not create a triable issue as to each essential element of the case.

(Citations and punctuation omitted.) Krogh v. Pargar, LLC, 277 Ga.App. 35, 625 S.E.2d 435 (2005).

This case arises out of a failed land development project known as “Roberts Ridge.” The evidence shows that Charles and Nell Veal were the owners of approximately 43 acres of land in Gwinnett County. The Veals entered into an agreement with the Nash defendants and another individual, Phillip Todd Pendley, for development of the land. The Veals were paid between $25,000 and $70,000 for use of their property, and they were to receive additional funds from profits generated by the project. The Veals, Nash Land, and Pendley organized the limited liability company, Roberts Ridge, LLC, and entered into an Operating Agreement to carry out the project. Under the terms of the Roberts Ridge Operating Agreement, the Veals owned a 50% membership interest, while Nash Land and Pendley each owned a 25% membership interest in the company. In addition, the Roberts Ridge Operating Agreement contained an article governing the disposition of membership interests, which provided in pertinent part as follows:

1. PROHIBITIONS․ No member may in any way alienate all or part of his membership interest in the Company be it through assignment, conveyance, encumbrance or sale, without the prior written consent of the majority of the remaining members․

2. PERMISSIONS. A[m]ember may assign his membership interest in the Company subject to the provisions of this article. The assignment of [a] membership interest does not in itself entitle the assignee to participate in the management of the Company nor is the assignee entitled to become a member of the Company. The assignee is not a substitute member but only an assignee of [a] membership interest and as such, is entitled to receive the income and distributions the assigning member would have otherwise received.

3. SUBSTITUTE MEMBER. Only upon the unanimous consent of the remaining members may an assignee of [a] membership interest become a substitute member and be entitled to all rights associated with the assignor. Upon such admission, the substitute member is subject to all restrictions and liabilities of a[m]ember.

Nash Land and Pendley later approached Keith Pugh, the managing member of RR Funding, about becoming an investor in the Roberts Ridge project. Following their negotiations, RR Funding, Nash Land, and Pendley formed a new limited liability company, Roberts Ridge Developers, LLC (“RR Developers”). On January 18, 2006, they executed an RR Developers Operating Agreement, providing that RR Funding owned a 50% membership interest, and Nash Land and Pendley each owned 25% membership interests in RR Developers. The RR Developers Operating Agreement further provided for initial capital contributions, which required RR Funding to contribute $1,000,500 and required Nash Land and Pendley to each contribute their 25% interests in Roberts Ridge, LLC. The Operating Agreement also attached and incorporated a Term Sheet, which required Nash Land and Pendley “to contribute their respective interests in Phase IRoberts Ridge LLC ․ to [RR Developers] effective with [RR Funding's] funding.” In addition, the Operating Agreement attached a written consent allegedly executed by each of the members of Roberts Ridge, LLC, approving the transfer of Nash Land's and Pendley's 25 % interests, rights and obligations to RR Developers, effective January 9, 2006.1 The written consent further approved the appointment of RR Developers as the managing member and operating manager to replace Pendley and Nash, and provided that RR Developers was to assume the rights and obligations of Nash Land and Pendley as reflected in the Roberts Ridge Operating Agreement.

Following execution of the RR Developers Operating Agreement, RR Funding paid its $1 million capital contribution. The funds were distributed to Nash Land and Pendley, with each receiving $500,000 for use in the project. Nash Land also obtained a $2.3 million bank loan to fund the project.

The project subsequently failed. The costs for the project exceeded the amounts budgeted and none of the parties were willing to make additional financial contributions to complete the project. Eventually, the bank foreclosed on the property.

RR Funding filed the instant lawsuit against Nash and Nash Land,2 seeking to rescind the RR Developers Operating Agreement and to recover its $1 million investment in the project. RR Funding alleged that the Nash defendants had committed inceptive fraud by failing to transfer Nash Land's membership interest in Roberts Ridge, LLC, as contemplated by their agreement. Specifically, RR Funding alleged that Nash Land had misrepresented that RR Funding would receive Nash Land's 25% membership interest in Roberts Ridge, LLC in exchange for its $1 million contribution to the project; that Nash Land had no intention of making the transfer at the time that it made the misrepresentation; that RR Funding was induced and reasonably relied upon the misrepresentation when it paid the contribution to fund the project; that Nash Land failed to make the transfer of the membership interest as required; and, that RR Funding received nothing in return for its $1 million contribution.

RR Funding filed a motion for partial summary judgment on the inceptive fraud claim. The trial court granted the motion, finding that the RR Developers Operating Agreement unambiguously required Nash Land to transfer its membership interest in Roberts Ridge, LLC to RR Funding and that Nash had given deposition testimony conceding that no such interest had been transferred. We disagree with the trial court's findings and analysis.

To establish a claim for fraud in the inducement, or inceptive fraud to enter into a contract, a plaintiff must prove both that the defendant failed to perform a promised act and that the defendant had no intention of performing when the promise was made. See Cowart v. Gay, 223 Ga. 635, 636-637(1), 157 S.E.2d 466 (1967). Evidence showing nothing more than the parties' disagreement regarding the interpretation of a contract's terms is inadequate to support an inceptive fraud claim. See Bridges v. Bridges, 216 Ga. 808, 810-811(1), 120 S.E.2d 180 (1961); Equifax, Inc. v. 1600 Peachtree, LLC, 268 Ga.App. 186, 194-196, 601 S.E.2d 519 (2004).

In support of its claim, RR Funding relies upon the terms set forth in RR Developers Operating Agreement, which required Nash Land to make an initial capital contribution of its “25% Interest in Roberts Ridge LLC,” and the Term Sheet attached and incorporated therein, which required Nash Land “to contribute [its] respective interest[ ] in Phase IRoberts Ridge LLC ․ to [RR Developers.]” Significantly, the Roberts Ridge LLC Operating Agreement contained provisions governing the manner in which an interest in its company could be effectively conveyed. In this regard, the Roberts Ridge LLC Operating Agreement distinguished between an assignment of a limited membership interest, which only provided for the assignee's right to receive income and distributions from the company (“economic interest”), and a substitute membership interest, which provided for the assignee's entitlement to all rights, restrictions, and liabilities of a membership interest (“membership interest”). In setting forth the transfer requirement, however, the RR Developers Operating Agreement failed to specify which type of interest was to be transferred. To the extent that the transfer terms of the RR Developers Operating Agreement and Term Sheet were not specific, they were ambiguous-i.e., subject to more than one reasonable construction.3 See generally RLI Ins. Co. v. Highlands on Ponce, LLC, 280 Ga.App. 798, 801(1), 635 S.E.2d 168 (2006). See also Block v. Peter, 63 Ga. 260, 262 (1879); Raymond Rowe Furniture v. Simms, 84 Ga.App. 184, 186, 65 S.E.2d 830 (1951).

Pretermitting whether under the rules of contract construction4 the ambiguous transfer terms ultimately could be resolved in favor of RR Funding, the evidence simply reflected the parties' disagreement regarding the type of transfer intended. The parties' conflicting interpretations regarding the transfer terms did not establish that the Nash defendants lacked a present intent to perform at the time that the agreement was signed.5 See Bridges, 216 Ga. at 810-811(1), 120 S.E.2d 180; Equifax, Inc., 268 Ga.App. at 194-196, 601 S.E.2d 519. Because the record evidence did not plainly and indisputably establish the claim for inceptive fraud, the trial court erred in granting RR Funding's motion for partial summary judgment. See id.

2. The Nash defendants also appeal the trial court's order setting a supersedeas bond in the amount of $500,000 for their appeal of the trial court's grant of the motion for partial summary judgment. That appeal now having been decided, the issue as to the propriety of the supersedeas bond is moot. See Transp. Ins. Co. v. Piedmont Constr. Group, 301 Ga.App. 17, 26, 686 S.E.2d 824 (2009); Almonte v. West Ashley Toyota, 281 Ga.App. 808, 810, 637 S.E.2d 755 (2006).

Judgment reversed.

BERNES, Judge.

BARNES, P.J., and Senior Appellate Judge G. ALAN BLACKBURN, concur.

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