Textile Rubber & Chemical Co. v. Thermo-Flex Technologies, Inc.

Citations: 706 S.E.2d 728; 308 Ga. App. 89; 2011 Fulton County D. Rep. 471; 2011 Ga. App. LEXIS 125Docket: A10A2016

Court: Court of Appeals of Georgia; February 24, 2011; Georgia; State Appellate Court

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In the case of Textile Rubber and Chemical Company, Inc. v. Thermo-Flex Technologies, Inc., the Court of Appeals of Georgia addressed a dispute regarding a $3 million agreement for carpet-making technology. Following a prior ruling that awarded Thermo-Flex $500,000 in damages due to Textile's failure to make an installment payment, the case was remanded for further claims. On remand, Thermo-Flex sought summary judgment for statutory attorney fees related to the awarded damages, which the trial court granted. Additionally, third-party defendants Larry Mullinax and Technology Works, Inc. successfully moved for summary judgment against Textile's cross-claims. The appellate court affirmed the summary judgment on the attorney fees and the claims for tortious interference with contract, breach of warranty, and indemnity, but reversed the judgment on claims of fraud, negligent misrepresentation, and breach of duty to principal. The court applied a de novo review standard for summary judgment, emphasizing that the moving party must show no genuine issue of material fact exists. Mullinax, a key figure in both Thermo-Flex and Technology Works, had previously worked with Textile and had advised them on the technology's environmental safety, ultimately leading to Textile's decision to purchase the technology instead of forming a partnership.

On August 11, 2006, Thermo-Flex sold its technology to Textile for $3 million, structured as three $500,000 payments due at closing, on January 1, 2007, and December 31, 2007, with the remaining $1.5 million paid in quarterly installments based on Textile's future net income and profits. Textile agreed to cover Thermo-Flex's costs, including attorney fees, for enforcing the Agreement. The technology was sold "as is," with Thermo-Flex disclaiming all warranties to the extent permitted by Georgia law.

After paying the initial two installments, Textile discovered significant VOC issues in the technology and refused to make the final $500,000 payment, proposing changes to the profit-based installments. Thermo-Flex responded by suing for anticipatory breach, seeking $2 million in damages, interest, court costs, and attorney fees. Textile counterclaimed, alleging the technology was defective and successfully added third-party defendants for tortious interference and other claims.

The trial court granted partial summary judgment to Thermo-Flex, confirming Textile's anticipatory breach and awarding $500,000 plus interest for the unpaid installment. The court ruled Thermo-Flex could claim part of the $1.5 million if it proved how Textile could have profitably used the technology. Textile's counterclaim was dismissed, with the court stating that any oral representations regarding VOCs could not alter the written warranty disclaimers in the Agreement. The issue of attorney fees was left unresolved. Textile appealed, and the appellate court affirmed in part and vacated in part the trial court's ruling.

The trial court's grant of summary judgment in favor of Thermo-Flex for anticipatory breach of contract and against Textile's counterclaim for breach of contract was affirmed. Additionally, the court upheld the judgment of $500,000 plus interest against Textile for failing to make a December 31, 2007 installment payment. However, the ruling concerning $1.5 million in future net profit payments was vacated, allowing Thermo-Flex to seek the present value of this amount after a jury determination. Following remand, Textile satisfied the $500,000 judgment, prompting Thermo-Flex to seek attorney fees based on its recovery. Thermo-Flex claimed entitlement under OCGA § 13-1-11 due to a proper written demand, while Textile argued the demand failed to meet statutory notice requirements. The trial court found Thermo-Flex's demand substantially complied with OCGA § 13-1-11, granting summary judgment for attorney fees totaling $55,417.65. Mullinax and Technology Works also successfully moved for summary judgment against Textile’s cross-claims, with the court concluding these claims were legally insufficient. Textile appealed, challenging the trial court's decisions on summary judgment. The appellate court supported the trial court's ruling regarding compliance with attorney fee demand requirements, emphasizing that substantial compliance suffices under OCGA § 13-1-11.

Thermo-Flex issued a Demand Letter to Textile's counsel on January 9, 2009, which cited the attorney fees provision of their Agreement and stated Thermo-Flex's intent to enforce it. The letter specified that Textile could avoid attorney fees by paying the total outstanding balance of $2,000,000 within ten days of receipt. This amount included a $500,000 installment due on December 31, 2007, and $1.5 million in future profit-related payments. Textile did not pay within the stipulated time but later paid $500,000 plus interest after the court affirmed judgment in that amount on December 9, 2009. Thermo-Flex then sought $55,417.65 in attorney fees related to this recovery.

Textile contended that the Demand Letter did not comply with OCGA § 13-1-11 because it demanded the full $2 million instead of the $500,000 for which summary judgment had been awarded. Textile argued that only the $500,000 obligation had matured, and that Thermo-Flex would recover less than the face value of the $1.5 million obligation. However, the court found that Textile's anticipatory breach of contract accelerated the maturity of the total debt, allowing Thermo-Flex to demand the full amount. The court ruled that a demand notice remains valid even if the specified amount is uncertain until judicial determination, confirming that the Demand Letter adequately met the notice requirements by stating the total unpaid debt of $2 million. Consequently, there was no genuine issue regarding the Demand Letter's compliance, and the trial court properly granted summary judgment to Thermo-Flex for statutory attorney fees.

Textile contends that the trial court incorrectly granted summary judgment to Mullinax and Technology Works regarding its cross-claims for breach of warranty, fraud, negligent misrepresentation, breach of duty to principal, and indemnity. The court affirms the summary judgment on the breach of warranty and indemnity claims but finds genuine issues of material fact concerning the fraud, negligent misrepresentation, and breach of duty claims.

Textile argues that the trial court erred by concluding that its breach of warranty cross-claim against Mullinax and Technology Works was invalid due to the dismissal of its counterclaim against Thermo-Flex. Textile had previously conceded that summary judgment would be appropriate on this cross-claim if the counterclaim was affirmed, which it was. Consequently, Textile cannot alter its stance on appeal, as parties must adhere to the positions taken in the trial court.

Textile also argues that the trial court mistakenly ruled that it could not prove reasonable reliance for its fraud and negligent misrepresentation claims. The court based its ruling on the assumption that Mullinax and Technology Works could enforce a disclaimer provision in an Agreement that defined the "Seller" as Thermo-Flex. This assumption was erroneous because Mullinax and Technology Works were not parties to the Agreement and thus lacked standing to invoke its protections. The mere potential benefit from a contract does not confer rights to enforce it; a party must be a recognized third-party beneficiary. Neither Mullinax nor Technology Works claimed such status. Additionally, although agents of contracting parties may sometimes invoke disclaimers, this does not apply to non-party agents like Mullinax and Technology Works in this case.

Mullinax was not only acting as an agent for Thermo-Flex but also had a consultant relationship with Textile, earning $100,000 annually to provide expertise on the technology relevant to the Agreement. Given these circumstances, a jury could reasonably conclude that Textile relied on Mullinax's representations about the VOC levels in Thermo-Flex's technology, which led them to enter an "as is" purchase agreement. The court found genuine issues of material fact regarding reasonable reliance that should be resolved by a jury, thus the trial court erred in granting summary judgment to Mullinax and Technology Works on the fraud and negligent misrepresentation claims.

Textile also argued that the trial court incorrectly ruled its cross-claim for breach of duty to principal failed due to inability to prove proximate cause. The trial court held that signing the Agreement with a disclaimer severed the causal link between Mullinax's misrepresentations and Textile's damages. However, the court's conclusion was erroneous, as a jury could find that Mullinax's misrepresentations proximately caused Textile's damages. The presence of an intervening act does not sever causation if it was triggered by the defendant's conduct or could have been foreseen. Textile's decision to enter the Agreement was potentially influenced by Mullinax's misrepresentations, thus justifying a jury's evaluation of proximate cause.

Lastly, Textile contended the trial court erred in ruling its indemnity cross-claim did not meet common law requirements. Indemnity may arise by law, even without a contract, if an individual is compelled to pay damages due to negligence attributed to another's tortious act, allowing them to seek indemnity from the wrongdoer.

Textile is not held liable for any wrongdoing, nor does it have vicarious liability; its obligation to pay arises solely from its contract with Thermo-Flex. Consequently, common law indemnity principles are deemed inapplicable. The trial court appropriately granted summary judgment to Mullinax and Technology Works on the cross-claim for common law indemnity, as supported by relevant case law. The judgment is affirmed in part and reversed in part. Textile did not contest the trial court's calculation of attorney fees under OCGA § 13-1-11 or the amount awarded; its challenge focused solely on the fulfillment of preconditions for the fee award. Additionally, Textile abandoned any challenge concerning the trial court's ruling on its cross-claim for tortious interference with contract, as it presented no argument on that issue in its appellate brief. The argument posited by Mullinax and Technology Works regarding Textile's waiver of claims due to a disclaimer in the Agreement is based on the incorrect assumption that they were entitled to rely on that Agreement, despite not being parties or beneficiaries. Textile has not asserted any express or implied indemnification agreement with Mullinax and Technology Works.