On March 23, 2016, the Supreme Court of Georgia released 16 opinions, of which two are within the scope of our coverage. Summaries of the opinions and cases are set forth below.
S15G1205 Fulton County Board of Education, et al. v. Thomas
In a unanimous opinion by Justice Hunstein, the Supreme Court of Georgia held that a claimant who sustained an employment-related injury was entitled to compensation calculated to include work in the same line of employment for another employer during the statutory 13-week time period. The Court affirmed the judgment of the Court of Appeals, explaining “[u]nder the circumstances presented here, we agree with the Court of Appeals’ conclusion….”
Thomas was a school bus driver, who also drove new school buses from Atlanta to other parts of the country during the summer of 2011. She was injured shortly after the next school year started. The question was how to calculate her “average weekly wage” for workers’ compensation purposes: Does it include the money she earned driving buses for another employer during the summer?
O.G.G.A §34-9-260(1) provides that the average weekly wage includes money earned “in the employment for which he was working at the time of the injury, whether for the same or another employer, during substantially the whole of 13 weeks preceding the injury….” Here, Foster worked a bus driver for two employers sequentially during that 13 week period. While the Court of Appeals looked at the issue under its “concurrent similar employment” doctrine, the Supreme Court started from the premise that the statute used the word “employment,” not “employer.” It follows that the nature of the work controls.
The Supreme Court noted, “[T]he reported cases have, until now, uniformly involved circumstances in which the claimant was simultaneously employed with multiple employers at the time the injury occurred.” (Emphasis in original) It explained that the word “concurrent” does not appear in the statute, however, so there is “no basis in the text of the statute for requiring such simultaneity as an absolute condition to the doctrine’s application.” Instead, only “a ‘concurrence’ of similar jobs within the 13-week period” is required.
S15G1780 Georgia Department of Labor v. RTT Associates, Inc.
In a unanimous opinion by Justice Benham, the Supreme Court of Georgia held that a state agency’s actions in the course of administering a contract did not waive the State’s sovereign immunity. The Court reversed the decision of the Georgia Court of Appeals, which found that sovereign immunity had been waived by the agency’s conduct.
The 1983 Georgia Constitution waives the State’s sovereign immunity for “any action ex contractu for breach of any written contract … entered into by the state or its departments or agencies.” Ga. Const. of 1983, Art I, Sec. II, Par. IX (c). The Department of Labor and RTT entered into such a written contract that contained, among other things, provisions requiring that changes be in writing and integrating all but RTT did not perform its obligations before the contract time expired. The Department did not terminate the contract immediately, but it ultimately did so and claimed against RTT’s performance bond. RTT filed suit for breach of contract, the trial court ruled in favor of the Department, and the Court of Appeals reversed.
The Supreme Court held that the Department’s conduct did not result in a waiver of sovereign immunity: “Even if the parties’ conduct after the expiration of the contract could be found to demonstrate an agreement between the parties to perform under the original contract, as a matter of law neither that conduct nor the internal documents created by DOL after the contract expired establishes a written contract to do so. Without a written contract, the state’s sovereign immunity from a contract action is not waived.”
The Court noted that the Court of Appeals erred in applying contractual cases involving private parties to state contracts. Insofar as a written contract is required for a waiver of sovereign immunity, so is a written contract modification. In addition, the Court disapproved or distinguished other cases on which RTT relied.
The Court explained that sovereign immunity and the constitutional requirement that state contracts and their modifications be in writing was designed to protect the state’s finances and to preclude the state from being assessed or exposed to unanticipated damages. As a result, the conduct of state employees, particularly after the expiration of the contract term, was not a basis for finding a waiver of the state’s sovereign immunity.
On May 9, 2016, the Supreme Court of Georgia issued nine opinions, of which two are within the scope of our coverage. Summaries of the opinions and cases are set forth below.
S16A0177 Williford v. Brown
Although this case involves the application of family law, the Supreme Court’s decision also addresses a question of appellate jurisdiction. In a unanimous opinion by Justice Nahmias, the Supreme Court of Georgia held that it, rather than the Court of Appeals, should decide whether the “novel equitable remedy” sought was available under Georgia law. Holding that such relief is not available, the Court affirmed the trial court’s ruling on the merits. The Court observed, however, that the claimant expressly asked the trial court to craft a remedy using its equitable powers; that meant that the case came within the Court’s traditional equitable jurisdiction.
Significantly, the Court noted that the newly enacted Appellate Jurisdiction Reform Act of 2016 changes its traditional equitable jurisdiction. It explained that the Act vests the Court of Appeals with “appellate jurisdiction over ‘[a]ll equity cases, except those cases concerning proceedings in which a sentence of death was imposed or could be imposed and those cases concerning the execution of a sentence of death, as well as other categories of civil cases that currently come directly to this Court.” The Supreme Court will review such cases “only by writ of certiorari or if the Court of Appeals is evenly divided or certifies a question here.” As a result, the Act will likely cause “the need for Georgia’s appellate courts and appellate litigants to engage in many intricate jurisdictional analyses” of the sort presented in this case to “dissipate as of January 1, 2017.”
S16A0294 GeorgiaCarry.Org, et al. v. Atlanta Botanical Garden, Inc.
In a unanimous opinion by Justice Hunstein, the Supreme Court of Georgia held that the trial court improperly dismissed claims for declaratory and injunctive relief brought by the holder of a Georgia weapons carry license unhappy with the policy of the Botanical Garden.
Phillip Evans twice wore a handgun in a waistband holster to the Garden, but was stopped the second time and eventually escorted from the premises. He filed suit contending that O.C.G.A. § 16-11-27(c) authorizes him—and others similarly situated—to carry a weapon in the Garden. He sought declaratory relief to the effect that the Garden could not prohibit him from carrying a weapon and injunctive relief prohibiting the Garden from banning the carrying of weapons by licensees. The trial court dismissed the action, but the Supreme Court reversed in part and affirmed in part.
The Supreme Court rejected the contention that declaratory relief was inappropriate simply because the claim touched on a question of criminal law. The claim did not come from one whose criminal conduct was complete, who had been charged, or who had been convicted. In addition, it was not based on speculation because the Garden had already enforced its ban against Evans. Finally, the declaratory judgment claim would not require the Garden to act in a particular way. The practical effect of the claim was to seek a declaration of rights to the effect that Evens and other licensees may carry their weapons in the Garden.
The Supreme Court also held that a claim for an injunction that would prohibit the Garden from banning licensed individuals from carrying weapons within it was properly stated. Injunctive relief would not lie to prevent the Garden, a private party, from causing an arrest or prosecution of someone like Evans.
On Tuesday, April 26, 2016, the Supreme Court of Georgia issued 13 opinions, of which three are within the scope of our coverage. Summaries of the opinions and cases are set forth below.
S15G1206 Kliesrath, et al. v. Davis, et al.
In a unanimous opinion by Chief Justice Thompson, the Supreme Court of Georgia vacated the judgment of the Georgia Court of Appeals, holding that it lacked jurisdiction to consider a direct appeal arising from the trial court’s denial of summary judgment to police officers asserting defenses of official and qualified immunity. As the court explained, in its March 25, 2016 decision in Rivera v. Washington, it concluded that any such appeals cannot proceed via direct appeal because they are interlocutory. Instead, any appeal from such a ruling must go through the interlocutory procedure of O.C.G.A. § 5-6-34(b). Accordingly, the Court of Appeals should have dismissed the appeal.
S15G1885 McKinney, et al. v Fuciarelli
In a unanimous opinion by Chief Justice Thompson, the Supreme Court reversed the decision of the Georgia Court of Appeals, holding that a taxpayer retaliation lawsuit brought under the Georgia Taxpayer Protection Against False Claims Act, O.C.G.A. §§ 23-3-122(b)(1) of which states that a civil action may be brought “upon written approval by the Attorney General,” requires such approval.
Fuciarelli was dismissed from his positions as assistant vice president for research and dean of the graduate school at Valdosta State University after he criticized the school for failing to comply with “laws, rules and regulations.” After the Board of Regents affirmed the University’s decision, Fuciarelli filed suit against University officials in their individual and official capacities under, among other things, the Taxpayer Protection Act. The trial court dismissed the Taxpayer Protection Act individual capacity claim on the ground that Fuciarelli did not obtain the Attorney General’s approval before filing suit, but the Court of Appeals reversed.
The Supreme Court reversed, concluding that the words “this article” apply to all claims under the Act, even those personal to the claimant, like Fucianelli’s. Accordingly, Fucianelli’s claim required Attorney General approval. The court rejected the contention that it would be absurd to read the statute that way. Whether the Attorney General should be put in the position of approving or disapproving an action against the State was a policy question for the Legislature to answer. Instead of answering that policy question, the court’s ruling “simply requires deference to the legislative prerogative of the General Assembly and adherence to the plain language of the TPAFCA.”
S16A0559 Clark v. Deal, et al. (and vice versa)
In an opinion by Justice Melton, the Supreme Court of Georgia held that Governor Deal had the right to appoint three new judges to the Georgia Court of Appeals and rejected the contention that the seats had to be filled by general election. When the General Assembly created the new seats, it provided that the term of the new judgeships would run from “January 1, 2016, and continuing through December 31, 2018, and until their successors are elected and qualified.” The court noted that, because the judges had already been sworn in, the only viable claim was one in quo warranto, but that claim failed.
While other portions of the 1983 Georgia Constitution call for the election of Court of Appeals judges, Art. VI, Sec. VII, Par. III of that Constitution “expressly” authorizes the filling of vacancies by appointment. The “appropriate rules of construction and the historical record” indicate that newly created seats count as a vacancy. Under the ordinary meaning of vacancy as “a public office without an incumbent,” the newly created seats were vacant. The court rejected the contention that only the vacancies listed in OCGA § 54-5-1 can be filled by appointment, reasoning that the drafters of the 1983 Constitution “appear to have intended that the term ‘vacancy’ be interpreted in a broad sense, as they gave the term no limitations.”
With respect to the historical record, when the Court of Appeals was expanded from six to seven members in 1960, and from seven to nine members in 1961, Governor Vandiver filled the newly created seats by appointment. Newly created seats were also filled by appointment when created in 1996 and, again, in 1999.
Justice Benham dissented, reasoning that “[a] newly created position cannot logically have an unexpired term that can be filled by appointment.” Accordingly, he believed that the seats should be filed through a general election.
On March 25, the Supreme Court of Georgia issued six opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.
S15G0887 Rivera v. Washington
S15G1092 Forsyth County v. Appelrouth, et al.
In a unanimous opinion by Presiding Justice Hines, the Supreme Court of Georgia held that a direct appeal from a trial court’s denial of a motion to dismiss on sovereign, qualified, or quasi-judicial grounds is not available. Instead, it reaffirmed the rule that the proper way to obtain appellate review of such a trial court ruling is to ask the trial court for a certificate of immediate review then file an application for interlocutory review. In these consolidated cases, the Court affirmed the decisions (Rivera: Appelrouth) of the Georgia Court of Appeals, but found them to be based on “flawed analyses.”
In Rivera’s case, Washington sued Rivera and her administrative assistant for issuing a warrant for failure to pay a fine that he already had paid. The trial court denied their motion to dismiss on sovereign and quasi-judicial grounds. Rather than seek an application for interlocutory appeal, Washington filed a direct appeal under the collateral order doctrine, relying on Board of Regents &c. of Ga. v. Canas, 295 Ga. App. 505, 672 S.E. 2d 471 (2009).
In Appelrouth’s case, Appelrouth sued Forsyth County and a neighboring landowner alleging that they were responsible for damage to his property. The neighboring landowner cross-claimed against the County, which sought to dismiss both the suit and cross-claim on sovereign immunity grounds. The trial court denied the County’s motion, and the County filed a direct appeal, relying on Canas just like Rivera had done.
In both cases, the Court of Appeals dismissed the appeal, reasoning that, because the trial court did not make a conclusive determination on the claim of immunity, Canas did not apply.
The Georgia Supreme Court noted that direct appeals are authorized only from a trial court’s final judgment, which means “the case is no longer pending in the court below.” Sosniak v. State, 292 Ga. 35, 36, 734 S.E. 2d 362(2012). The denial of a motion to dismiss on immunity grounds means that the case remains pending in the trial court. Accordingly, unless an exception applies, a direct appeal is not authorized.
The collateral order doctrine does not provide the basis for a direct appeal from rulings like these. The Court explained,
“[T]he collateral order doctrine reflects a practical rather than a
technical construction of [the] statutes [governing appellate
jurisdiction], one that recognizes that a very small class of
interlocutory rulings are effectively final in that they finally
determine claims of right separable from, and collateral to,
rights asserted in the action , too important to be denied review and
too independent of the cause itself to require that appellate
consideration be deferred until the whole case is adjudicated.”
(Quoting State v. Cash, 298 Ga. 90, 92-93, 799 S.E. 2d 603 (2015)).
The Supreme Court noted that it had “specifically declined” to follow the federal rule allowing for direct appeals from rulings denying motions to dismiss based on qualified immunity. See Turner v. Giles, 264 Ga. 812, 450 S.E. 2d 421 (1994). The Court of Appeals’ decision in Canas, which was premised on the collateral order doctrine, reflected federal practice. The Supreme Court overruled Canas “to the extent that it applied the collateral order doctrine to the immunity claim therein” as well as a multitude of other decisions of the Court of Appeals that allowed direct appeals under the collateral order doctrine for claims of sovereign, official, qualified, or other immunity.
For cases involving immunity claims, the Court explained that, in Turner v. Giles, it had recommended that “except in clear cases, the trial courts issue a certificate of immediate appealability under OCGA 5-6-34(b) for interlocutory orders denying dismissal or judgment on the basis of qualified immunity.” 264 Ga. at 813-14. It reiterated, “[C]ourts should address motions on immunity issues as early as practicable and, if there is any substantial question, permit an interlocutory appeal to proceed.”
S15G1183 Georgia Dep’t of Behavioral Health and Developmental Disabilities, et al. v. United Cerebral Palsy of Georgia, Inc., et al.
In a unanimous opinion by Justice Nahmias, the Supreme Court of Georgia held that providers and recipients of Medicaid services dissatisfied with their reimbursement rates and the services available had to exhaust the agency administrative review process before filing suit. It reversed the decision of the Georgia Court of Appeals, which held that an alleged lack of notice relieved the plaintiff providers and recipients of their obligation to follow the administrative review process.
Rather than following the administrative review process, providers and recipients of Medicaid services filed suit claiming that the agency failed to follow the required procedure before reducing the reimbursement rates paid to providers and limiting the services available to the recipients. The trial court dismissed the claims for failure to exhaust administrative remedies, but the Court of Appeals reversed.
The Supreme Court observed that the General Assembly saw the need for and provided “a robust administrative review process to address complaints — which the statute refers to as ‘appeals’ — by providers and recipients of Medicaid services, including disputes concerning reimbursement rates and service limitations.” That process provides for a hearing before an administrative law judge, followed by an appeal to the Commissioner of Community Health. It further allows for judicial review, “but only if the aggrieved party first ‘exhausts all the administrative remedies provided.”
The Supreme Court observed that the failure to exhaust administrative processes “ordinarily precludes judicial review.” That administrative process has benefits of its own. It protects the agency’s authority and allows it to correct its own mistakes. In addition, when judicial review begins, it does so with the benefit of a complete administrative record informed by agency expertise. Finally, the administrative process might resolve the claims.
“This Court has never recognized a wholesale exception to the exhaustion doctrine for alleged procedural errors by an administrative agency.” Instead, “generally speaking, procedural issues are subject to the exhaustion requirement just like substantive issues.”
Finally, after noting that the Court of Appeals relied on, among other things, Chatham County Bd. Of Tax Assessors v. Emmoth, 278 Ga. 144, 598 S.E. 2d 595 (2004), the Supreme Court disproved of any reading of Emmoth “suggest[ing] that a plaintiff need not exhaust administrative remedies whenever an administrative body has given her a notice of its decision without including statutorily required language regarding how to seek administrative review of that decision.”
On March 21, the Supreme Court of Georgia issued 10 opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.
S15G1177 Georgia Farm Bureau Mutual Insurance Co. v. Smith et al.
In a unanimous decision by Chief Justice Thompson, the Supreme Court of Georgia held that lead-based paint was not a “pollutant” within the terms of a commercial general liability policy (CGL) covering residential rental property. The Court reversed the decision of the Georgia Court of Appeals.
The case arose from a lawsuit filed by the mother of a child against her landlord seeking damages allegedly sustained by the daughter as the result of the ingestion of lead-based paint. The landlord sought a defense and coverage under his CGL policy covering the premises, and the carrier sought a declaratory judgment on the scope of its obligations. The carrier contended that, among other things, the CGL policy’s pollution exclusion clause relieved it of any obligation to defend and indemnify the landlord. In pertinent part, the policy excluded “pollution” from the scope of its coverage, and it defined a “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.”
The trial court granted summary judgement to the carrier, holding that the pollution exclusion applied. The Court of Appeals, however, reversed, concluding that the exclusion was ambiguous in that a reasonable insured might have understood the exclusion to apply to certain forms of industrial pollution, rather than the ingestion of lead-based paint in a residence. It then construed the ambiguous provision against the insurer.
The Supreme Court reversed, holding that the exclusion was not ambiguous. It noted that the CGL policy “contains an absolute pollution exclusion clause which precludes any recovery for bodily injury or property damage resulting from exposure to any pollutant.” (emphasis in original) That “absolute” exclusion “substantially broadened” its application, came into practice in the mid-1980’s, and has been the subject of conflicting judicial decisions since then. The Georgia courts had, however, “repeatedly applied these [pollution exclusion] clauses outside the context of traditional environmental pollution.” In addition, the Georgia courts had applied the exclusion to pollutants that were not “explicitly named in the policy.” Thus, while lead-based paint was previously unaddressed, it fit within the Georgia courts’ treatment of the exclusion.
In Reed v. Auto-Owners Ins. Co., 284 Ga. 286, 667 S.E. 2d 90 (2008), the Court held that the same exclusion covered carbon monoxide within a rental home. It noted that Reed “controls the manner in which pollution exclusions in CGL policies are to be construed by the courts of this State.” Its approach, which looks at the plain language of the policy, governed here.
S15A1442 Gebrekidan v. City of Clarkston
In a unanimous decision by Justice Nahmias, the Supreme Court of Georgia held that the Georgia laws governing coin operated amusement machines (COAM) and businesses preempted those of the City. It reversed the judgment of the trial court, holding that the “direct effect” of the local ordinance was to “ban COAMs … where the State of Georgia allows them,” something that a local law cannot constitutionally do.
The City of Clarkston cited Gebrekidan for operating “coin-operated amusement machines in [a] retail store selling packaged beer, malt beverages and wine” in violation of a City ordinance. She asserted that Georgia Law preempts the City ordinance, but the municipal court and the Superior Court of DeKalb County denied her motion to dismiss. She was found guilty and fined.
Under the Uniformity Clause of the Georgia Constitution, general laws are to operate uniformly throughout the State with no special or local laws to duplicate them, “except that the General Assembly may by general law authorize local governments by local ordinance or resolution to exercise police powers which do not conflict with general laws.” Ga. Const. of 1983, Art. III, Sec. VI, Par. 4(a). Under implied preemption, the General Assembly’s intention can be inferred from the “comprehensive nature of the regulatory scheme.”
With respect to the “except” clause, the Court explained, “Where a comprehensive general law authorizes local legislation only on particular matters, … local ordinances that regulate matters outside the scope of that specific authorization do not come under the ‘except’ provision and remain impliedly preempted.” And, even where the General Assembly authorizes local legislation, the local laws cannot conflict with the general law.
The Supreme Court held that the local ordinance was impliedly preempted by O.C.G.A. §§ 50-27-70 through 50-27-104. It noted that, while there was an exception to Georgia’s criminal laws for certain coin operated games, that activity was otherwise “comprehensively regulated” by the statute. The Court stated, “In sum, the COAM laws, the text of which (aside from annotations) fills more than 35 pages of the Georgia Code, establish by general laws precisely the sort of comprehensive statutory scheme regulating a subject — COAMs and COAM businesses — on a statewide basis that we have previously found gives rise to implied preemption of local ordinances on the same subject.”
The Court rejected the City’s contention that its ordinance regulated the trade in and consumption of alcohol, not COAMs. It explained, “[I]n the preemption context it is not the reason for or purpose behind a local ordinance that controls. The proper focus is on the subject and operation of the general and local laws.” Finally, it held that the City’s ordinance does not fit within the exception because no general law authorized its promulgation, observing that the General Assembly “did not authorize local governments to flatly prohibit alcoholic beverage licenses from allowing COAMs on their premises or to penalize such businesses for doing so.”
On March 7, 2016, the Supreme Court of Georgia issued 20 opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.
S15G1007 Ames et al. v. JP Morgan Chase Bank NA, et al.
In a unanimous opinion by Justice Nahmias, the Supreme Court of Georgia held that residential borrowers challenging the non-judicial foreclosure sale of their property lacked standing to challenge the assignment of the security deed to that property. The court affirmed the decision of the unreported decision of the Georgia Court of Appeals.
When the Ameses purchased the property, they executed a security deed in favor of Washington Mutual Bank (WaMu). WaMu later went into receivership, and its interest was transferred to the Federal Deposit Insurance Commission. The FDIC then transferred the property to Chase, giving Chase a power of attorney to transfer any realty acquired to Chase. That power of attorney was time-bound and subject to “automatic revo[cation].” After the term of the power of attorney expired, Chase assigned the Ameses’ property to itself. When the Ameses defaulted, Chase initiated non-judicial foreclosure proceedings, which the Ameses sought to block in both Georgia state court and federal court in Florida challenging, among other things, the validity of the assignment.
The state trial court dismissed the Ameses’ challenge to the assignment, holding that they lacked standing, and they appealed. The federal court dismissed their action, and the Eleventh Circuit affirmed, holding, under Georgia law, that the Ameses lacked standing.
The Eleventh Circuit acted before the Georgia Supreme Court did, making the preclusive effect of that federal judgment an issue to be addressed.
The Supreme Court noted that, in their federal lawsuit, the Ameses asserted both federal question and diversity jurisdiction. Reasoning that the preclusive effect in diversity cases follows federal law, and noting that Florida law and federal law were “not incompatible” on the point, the court held that the Ameses lacked standing. It observed that, under both Florida and federal law, a pending appeal does not deprive a lower court judgment of its preclusive effect. The court held that the Eleventh Circuit’s judgment was binding on the Ameses.
While the Ameses lacked standing, their claims implicated the interests of “many other debtors, secured creditors, and assignees of those security deeds that are affected by this legal issue.” The Georgia Court of Appeals had held that others in the position of the Ameses lacked standing to challenge the assignment of their mortgages in Montgomery v. Bank of America, 321 Ga. App. 740 S.E. 2d 434 (2013), and Jurden v. HSBC Mortgage Corp., 330 Ga. App. 179, 765 S.E. 2d 440 (2014). Neither of those holdings was presented to the Supreme Court, so the court undertook to answer the question because of the importance of the issue.
In concluding that borrowers in a position like the Ameses lack standing to challenge the assignment of their mortgage, the Supreme Court observed that, while the courts are split, it was applying the law of Georgia. It noted that the assignment did not breach a duty owed to the Ameses under the law or the security deed. Georgia law “expressly authorizes the assignment of security deeds.” The Ameses’ deed “explicitly conveyed [their] property to WaMu and its ‘successors and assigns.’” As for the assignment, the Ameses were not a party to it, and they could be a third-party beneficiary to it only in part. While the Ameses might acquire new rights as the result of the assignment, they could vindicate only those new rights, not challenge the validity of the assignment.
The court explained that, if the Ameses had a problem with the assignment, they should tell the assignor, the FDIC. The FDIC could then have “intercede[d] to assert any rights that it believe[d] it ha[d].”
Finally, the Supreme Court rejected the Ameses contention that Chase failed to comply with O.C.G.A. § 44-14-1629a), which governs notice and the procedure for planned foreclosure sales. It noted that the statute does not require that the party providing notice be the secured creditor, nor does it give the debtor a “mechanism … to assert claims that the (potentially unnamed) secured creditor does not actually have a validly assigned deed.” The court explained, “Because Chase recorded its assignment as required and the Ameses have not brought a distinct challenge under this statute, we need not decide whether § 44-14-162(b) could ever provide a debtor with standing to challenge a foreclosure based on an unrecorded or facially invalid assignment.”
S15A1684 Atlanta Development Authority d/b/a Invest Atlanta v. Clark Atlanta University, Inc.
In a unanimous opinion by Presiding Justice Hines, with Justice Benham not participating, the Supreme Court of Georgia held that restrictions in a deed transferring property from Clark Atlanta University to Morris Brown College were valid and enforceable. It affirmed the ruling of the trial court, which found the provisions valid and enforceable.
In 1940, Clark Atlanta transferred three adjoining parcels of property totaling some 13 acres to Morris Brown College subject to the condition that the property would be used for “educational purposes, to wit: Undergraduate work in the fields of Arts and Sciences, except that nothing in this clause is to be construed as prohibiting [MBC] from offering graduate courses in Theology, if it chooses to do so.” The deed also provided for the reversion of the property to Clark Atlanta “or its successors” “if at any time the said [MBC] shall cease to use said property for the particular educational purposes above set forth ….”
In August 2012, Morris Brown College filed for bankruptcy under Chapter 11. In 2014, Morris Brown College asked the bankruptcy court for permission to sell part of its campus, including the property acquired in 1940, to Invest Atlanta. The bankruptcy court approved the sale, subject to the caveats that Morris Brown College could transfer only “whatever interest it has” and that Invest Atlanta could accept title only “subject to any alleged interest held and recorded by CAU.”
Clark Atlanta filed suit seeking to enforce the reverter clause, and Invest Atlanta moved to dismiss the complaint. In denying the motion to dismiss, the trial court held that the Restriction was valid, it applied to all three parcels of the property, and the proposed sale was not an appropriate use of the property. Invest Atlanta sought an interlocutory appeal, which the Supreme Court granted.
The Supreme Court held that the Deed’s restriction on use and reverter were valid and enforceable. While restrictions on alienation like this are generally invalid, this restriction was one in favor of a charitable entity for charitable purposes. The court explained, “Public policy favors giving the donor’s distinct charitable interest [in the perpetual use of the property for the designated purpose] greater weight than general prohibitions against the remoteness of vesting and restrictions on alienation.” The deed unambiguously applied to all three of the transferred parcels. In sum, “the structure and language of the Deed reflects the parties’ clear intent that the Property, in toto, comprise a donation to MBC of a unified tract of land for the one and only purpose expressed in the Deed, i.e., for the particular aspects of education set forth therein.”
The Supreme Court also concluded that Morris Brown College’s sale of the property was not within the range of allowable educational purposes. The Deed’s language limited the potential scope of allowable “educational use” to specific fields of study. In addition, the reversion was triggered when the property was used for a purpose other than “for the particular educational purposes above set forth.” The sale of the property, transforming it into proceeds that might be put to use for educational purposes, would still have to be for the specified educational purposes. “Moreover, once the property is alienated, MBC loses control over it for any purpose, and as to the sale proceeds, their use and eventual exhaustion would be pragmatically impossible to monitor in regard to any question of application of the Restriction and the Reverter.” In sum, Clark Atlanta has a valid reversionary interest in the property.
On February 22, 2016, the Supreme Court of Georgia issued 12 opinions, of which two are within the scope of our coverage. Summaries of the cases and opinions are set forth below.
S15Q1445 PNC Bank, N.A. v. Smith, et al.
In a unanimous opinion by Justice Melton, the Supreme Court of Georgia responded to two questions of Georgia law certified to it by the U.S. District Court for the Northern District of Georgia relating to a lender’s ability to pursue a deficiency claim against the guarantors of a commercial obligation. Justice Nahmias joined the opinion in full, but concurred to express his “concern about where today’s decision may lead.”
The underlying case arose from the default of Hochston Town Center, LLC, on its obligation to PNC. The debt was guaranteed by Smith and others, and, after a foreclosure sale, PNC pursued them for the deficiency. PNC relied on language in the guarantee agreements in which the guarantors waived certain defenses to the claim, including any based on “’antideficiency law or any law which prevents [PNC] from bringing any action, including claim for deficiency against [the guarantors], before or after [PNC’s] completion of any foreclosure action….”
O.C.G.A. § 44-14-161 provides in part that, when real estate is sold on foreclosure, no action may be taken to obtain a deficiency judgment unless the party instituting the foreclosure reports the action within 30 days of the sale and obtains judicial confirmation and approval. The first certified question asked whether compliance with § 44-14-161 is a condition precedent to the lender’s ability to pursue a guarantor for a deficiency after a foreclosure sale.
The Supreme Court held that compliance was a condition precedent. In 1973, the court held that, for the purposes of § 44-14-161, sureties were to be treated as debtors and are entitled to receive notice of the confirmation proceedings and an opportunity to contest approval of the sale before being held responsible for any deficiency. The court reasoned that such notice to both debtors and sureties was consistent with the purpose of the confirmation statute, “to limit and abate deficiency judgments in suits and foreclosure proceedings on debts.” First Nat. Bank & Trust Co. v. Kunes, 288 Ga. 888, 889-91, 199 S.E. 2d 776 (1973). It followed Kunes to answer the first question.
The second certified question was whether a guarantor can waive the condition precedent in their guarantee agreements. The Supreme Court held that they can, pointing to the decisions of the Georgia Court of Appeals in HWA Properties, Inc. v. Community & Southern Bank, 322 Ga. App. 877, 746 S.E. 2d 609 (2013), and Community & Southern Bank v. DCB Investments, LLC, 328 Ga. App. 605, 760 S.E. 2d 210 (2014). The Supreme Court agreed, noting, “This result creates an appropriate balance between the statutory protections of the confirmation statute and the freedom of a guarantor to enter contracts deemed beneficial.”
In his concurring opinion, Justice Nahmias noted that Kunes was “a reasonable interpretation of “ § 44-14-161 that gave rise to a workable rule and is entitled to stare decisis effect given that it is now more than 40 years old. He agreed that judicial confirmation is a condition precedent to deficiency actions that guarantors can waive. Justice Nahmias noted, though, “Given Kunes equation of guarantors, sureties, and borrowers, it would seem to follow that borrowers too can waive the protections the confirmation statute affords them.” If so, “virtually every security deed in Georgia will include such a waiver, and the confirmation requirement of § 44-14-161 could become a dead letter.” Justice Nahmias suggested that, if borrowers are to be protected from deficiency claims and judgments, “the legislature should consider regulating or prohibiting such contractual waivers by borrowers (and perhaps guarantors as well).”
S15A1638 TDGA, LLC v. CBIRA, LLC, et al.
In a unanimous opinion by Justice Melton, the Supreme Court of Georgia held that, while sovereign immunity barred a quiet title action against agencies of the State of Georgia, O.C.G.A. §§ 23-3-60, et seq., provides a mechanism for quieting title against all potential claimants including the State. Justice Nahmias concurred in full, but wrote separately to “note that there is a second type of proceeding in rem to quiet title where the State or its agencies may have claims, as well as another argument that supports the Court’s conclusions.” Justice Blackwell joined in Justice Nahmias’ concurrence.
The dispute arose from TDGA’s attempt to vest title to property that it purchased from anther entity, which acquired it at a tax sale. TDGA followed the foreclosure proceedings set out in O.C.G.A. §§ 48-4-45, 46, providing notice to the Georgia agencies that held tax liens. After the foreclosure, TDGA filed a quiet title action naming the State agencies as parties; those agencies, which had not released their tax liens, invoked sovereign immunity. The trial court held that the suit was barred, relying on Ga. Dept. Nat’l Res. v. Ctr. for Sustainable Coast, 294 Ga. 593, 755 S.E. 2d 184 (2014).
The Supreme Court affirmed the trial court’s judgment. It noted that, “in the greatest general sense, the State and its agencies are immune from suit unless the legislature specifically states otherwise.” Given that “[n]either the statutory provisions regarding foreclosure of the right of redemption nor conventional quiet title actions contain an explicit waiver of sovereign immunity,” the State agencies were immune from TDGA’s quiet title action.
The court noted, however, that O.C.G.A. § 23-3-60, which operates in rem against the piece of property, does not constitute “an action against the State or any other person or entity.” In such an action, persons claiming an interest in the property, including State agencies, must affirmatively assert their claim. The court observed that this procedure solved a nettlesome problem: “[T]he State cannot assert title to otherwise privately held land simply by issuing an edict or imposing a lien that cannot be effectively challenged and impairs the marketability of the property. In rem quiet title actions, in which the property is the only defendant and sovereign immunity is not applicable, prevent this problem.”
In his concurring opinion, Justice Nahmias first pointed to the “little-known and now little- used Land Registration Law of 1917,” codified as part of the Property Code at O.C.G.A. §§ 44-2-40 to 44-2-253, instead of in the Equity Code. The in rem action created by that law contains statutory language that is both “broad and expressly includes the State.” See O.C.G.A. § 44-2-83. Unlike conventional quiet title actions, the text of the Land Registration law makes it “apparent … that the General Assembly intended that any claims the State may have to the land at issue would be subject to adjudication by the court.”
Justice Nahmias noted further that the remedy created by O.C.G.A. §§ 23-1-60, -61, is “expressly in rem” and its scope operates “against all the world”, governing “all adverse claims” to the property. Even though the State is not specifically mentioned within the range of potential claimants, “interpreting the Quiet Title Act to exclude claims that the State raises or could raise would contradict the statute’s against-all-the-world scope and purpose.”