United States Court of Appeals,
Eleventh Circuit.
No. 94-8355.
SHIPSTON ASSOCIATES, Plaintiff, Counter-Defendant, Appellee,
Cross-Appellant,
Roderick Cushman, Cushman Family Trust C, by Milton Hecht,
Plaintiffs-Appellees, Cross-Appellants,
v.
ESSELTE PENDAFLEX CORPORATION, Defendant, Cross-Claimant, Cross-
Defendant, Appellant, Cross-Appellee,
NationsBank of Georgia, N.A., f/k/a Citizens & Southern National
Bank, Defendant, Cross-Defendant, Counter-Claimant, Cross-Claimant,
Third Party Plaintiff, Appellant, Cross-Appellee,
John J. O'Connor, Third Party Defendant, Appellant.
Feb. 12, 1996.
Appeals from the United States District Court for the Northern
District of Georgia. (No. 1:92-cv-718-JTC), Jack T. Camp, District
Judge.
Before TJOFLAT, Chief Judge, BIRCH, Circuit Judge, and HENDERSON,
Senior Circuit Judge.
TJOFLAT, Chief Judge:
This appeal involves a sale-leaseback transaction gone awry.
The parties appeal from the final judgment of the District Court
for the Northern District of Georgia, granting in part and denying
in part the parties' motions for summary judgment. For the reasons
set forth below, we affirm the district court in part and reverse
in part.
I.
A.
The essential facts are not in dispute. In 1967, Dymo
Industries, the predecessor of appellant Esselte Pendaflex Corp.
(collectively "Esselte"), entered into a deal with Dursley
Properties ("Dursley") for the sale and leaseback of a factory site
in Augusta, Georgia. Esselte sold the site to Dursley and promptly
leased it back, executing a twenty-five-year lease. Dursley
borrowed the purchase money from institutional investors; the loan
was structured so that it would be paid off by Esselte's lease
payments and a balloon payment due from Dursley at the end of the
lease term. The investors contracted with Citizens and Southern
National Bank, now NationsBank (the "Bank"), to collect the
payments due on the loan to Dursley; for performing this service,
the Bank would receive a fee of $300 per year. Dursley secured
these payments by giving the Bank a security deed (which, under
Georgia law gave the bank legal, but not equitable, title to the
property). See Trust Co. v. Mobley, 40 Ga.App. 468, 150 S.E. 169,
173 (1929).
At the conclusion of the foregoing transactions, Dursley sold
its equitable interest in the property to appellee Shipston
Associates ("Shipston"), a limited partnership. Shipston expressly
assumed Dursley's obligations under the lease, but not Dursley's
obligation to satisfy the loan from the investors.1
B.
This diversity action arises out of the Bank's sale of the
property to Esselte in October 1991. The 1967 agreements
specifically gave the Bank the power to sell the property to the
1
Under the security deed to the Bank, the Bank was appointed
agent and attorney-in-fact for Shipston. As such, the Bank had
the authority to accept Esselte's rent payments and to entertain,
as Shipston's agent, any offer Esselte made to purchase the
property.
lessee under certain conditions. The parties disagree over whether
those conditions were present.
The lease provided that Esselte could offer to purchase the
property during the first quarter of 1992:2
22.3 Lessee's Offer to Purchase. Lessee shall, after January
1, 1992, but on or before March 1, 1992, make a written offer
to lessor [the Bank] to purchase the Premises and the
Equipment on January 30, 1992 for cash in the amount of
$107,839.45 [the balloon payment due the institutional
investors].
Upon receipt of an offer, the Bank was required to communicate the
offer to Shipston, who could either accept the offer, or reject it
and tender the balloon payment to the investors. Whether or not
Esselte made an offer to purchase during the first quarter of 1992,
Esselte had the right to renew its lease prior to January 1, 1992,
for a five-year term at a below-market rate.3
Ignoring section 22.3 of the lease, Esselte communicated an
offer to buy the property to the Bank on July 19, 1991. The Bank
was reluctant to entertain the offer until Esselte's attorney, John
O'Connor, provided an "opinion of counsel" to the Bank. The
opinion stated that Esselte's offer "conform[ed] to the
requirements of the [Bank's Security] Deed and the lease" between
Esselte and Dursley, and that the Bank could properly entertain the
2
Under the lease, Esselte could also make an offer to
purchase the property at other times, but those provisions are
not at issue in this case.
3
The lease also provided that Esselte could renew the lease
for up to five additional five-year terms, provided that Esselte
gave Shipston notice on or before January 1 of the renewal
period. The rent for the original 25-year term of the lease was
$84,044.63 per year. The rent for the first five-year renewal
term would have been $26,512.50 per year, and for subsequent
renewal terms $15,907.50 per year.
offer. Without obtaining Shipston's acceptance of the offer, the
Bank agreed to the sale; on October 1, 1991, it transferred the
property by warranty deed to Esselte for $162,938.38, which the
Bank paid to the institutional investors as the final payment due
on the loan to Dursley. At that time, the property was worth over
$1.9 million, according to Esselte's appraiser.
Then came the inevitable. Roderick Cushman, a partner in
Shipston, contacted the Bank in January of 1992 to inquire about
the status of the property. The Bank informed him that the
property had been sold. Cushman contacted Esselte and demanded
that the property be conveyed back to Shipston. Esselte refused,
and Shipston instituted this action against Esselte and the Bank.
II.
Shipston's complaint contained seven claims for relief; only
two are pertinent to this appeal.4 The first claim asked that the
district court set aside the conveyance from the Bank to Esselte
and order Esselte to surrender possession of the property and pay
back rent and incidental damages. The second claim sought monetary
relief against the Bank and Esselte for the expenses Shipston
incurred in regaining the property from Esselte.
In response, Esselte and the Bank denied liability and
contended that the Bank's conveyance to Esselte was authorized by
the security deed and the lease and was therefore valid.
Esselte cross-claimed against the Bank, contending that, if
the district court set aside the conveyance of the subject
4
These claims were actually set forth in Shipston's amended
complaint, which we refer to herein as the "complaint."
property, the Bank would be liable for breaching the warranties
contained in the warranty deed that the Bank had given Esselte and
for the purchase price Esselte had paid for the property.
The Bank counterclaimed against Shipston and cross-claimed
against Esselte, seeking a declaratory judgment upholding the
conveyance to Esselte.5 Alternatively, assuming that the court set
aside the conveyance, the Bank sought indemnification from Esselte
for any damages that might be assessed against it in favor of
Shipston.
The parties' reciprocal discovery established the facts in
Part I.A., supra. Because those facts were not in dispute in any
material respect, the parties filed cross motions for summary
judgment on all issues.
The district court, in a dispositive order, granted Shipston's
motion and set aside the Bank's conveyance to Esselte, provided
that Shipston pay Esselte $62,138.69.6 The court denied, however,
Shipston's claim against Esselte and the Bank for the expenses it
incurred in obtaining this relief.7
5
This declaratory relief was essentially the same relief the
Bank sought in its answer to Shipston's complaint. In addition
to filing a counterclaim and cross-claim, the Bank instituted a
third-party proceeding against Esselte's attorney, John O'Connor.
The Bank's claims against O'Connor are not before us.
6
The sum of $62,138.69 is the amount of the balloon payment
($107,839.45) due the institutional investors minus Shipston's
damages as stipulated by the parties. Part of the damages as
stipulated was $42,204.61 in accrued rent from July 1, 1992 (the
date the original 25-year lease expired), to December 31, 1993
(an arbitrary date selected by the parties to calculate the
stipulated damages). Thus, one issue here is Esselte's liability
to Shipston for rent accruing after December 31, 1993.
7
The court denied Shipston's claim against the Bank on the
ground that the provisions of the security deed protected the
Esselte moved the court to reconsider its rulings and to
uphold the conveyance. The court denied Esselte's motion, but,
apparently believing that Esselte was entitled to equitable relief
under the circumstances, amended its dispositive order to give
Esselte a five-year renewal of its lease, effective July 1, 1992,
at the rent stipulated in the lease.
Following the entry of final judgment, Esselte appealed all of
the district court's rulings against it; Shipston cross-appealed
the district court's rulings granting Esselte a renewed lease and
denying its claims for damages against both Esselte and the Bank.
III.
We review the district court's grant of summary judgment de
novo, applying the same legal standards that bound the district
court. Reserve, Ltd. v. Town of Longboat Key, 17 F.3d 1374, 1377
(11th Cir.1994), cert. denied, --- U.S. ----, 115 S.Ct. 729, 130
L.Ed.2d 633 (1995). In making this determination, we view all
evidence in the light most favorable to the non-moving party.
Sammons v. Taylor, 967 F.2d 1533, 1538 (11th Cir.1992). Summary
judgment is appropriate in cases in which there is no genuine issue
of material fact. Fed.R.Civ.P. 56(c).
A.
The district court found that the conveyance from the Bank to
Esselte was invalid, and set it aside. In so doing, the court
found that the Bank exceeded its authority under the security deed,
Bank from liability for conveying the property without Shipston's
permission. The court rejected Esselte's claim against the Bank
for breach of warranty on the same theory: the security deed
rendered the warranty deed unenforceable against the Bank.
and that Esselte had constructive, if not actual, knowledge that
the Bank had no authority to convey the property. Because Esselte
knew that the conveyance was unauthorized, the court reasoned, it
should not get the benefit of the conveyance.
Setting aside the conveyance has two consequences. First,
because the court set aside the warranty deed, Esselte has no claim
to damages for breach of the warranties in the deed. Esselte knew
the warranties were invalid, and though under Georgia law the
buyer's knowledge does not necessarily serve to nullify the
warranties in a warranty deed, see Currin v. Milhollin, 53 Ga.App.
270, 185 S.E. 380, 381 (1936), we treat the deed as inoperative.
For our purposes, then, the deed never existed, and there are no
warranties to breach. We therefore affirm the district court's
granting of summary judgment on Esselte's breach of warranty claims
against the Bank.
The second effect of setting aside the conveyance is that,
since Shipston has owned equitable title to the property since
1967, Shipston is now entitled to the rent accruing on the property
from the expiration of the original lease term on June 30, 1992, to
the present. After the parties stipulated to damages, the district
court ordered Shipston to pay Esselte $62,138.69, and further
ordered Esselte to deliver to Shipston a limited warranty deed upon
receipt of that payment. We agree that Esselte must tender to
Shipston the fair rental value of the property from December 31,
1993, to the present. The $62,138.69, however, should be held as
a credit against any amount owed Shipston by Esselte. In the
unlikely event that the fair rental value of the property for the
last two years is less than $62,138.69, Shipston must give Esselte
a refund of the difference. Shipston may then record its title to
the property. We affirm in part this aspect of the district
court's judgment and reverse it in part.
B.
The district court also reconstructed the transaction as if
Esselte had exercised its option to renew the lease for the first
five-year term. The court recognized that ordinarily Esselte would
have lost this option by not exercising it. But because Esselte
could not have exercised the option after purchasing the property,
the court gave Esselte a five-year lease on Shipston's property.
We disagree with the district court's disposition. Esselte
should not receive the benefit of a renewed, below-market lease.
Esselte was not able to exercise the lease option because Esselte
wrongfully induced the Bank to sell the property by having its
attorney misrepresent the Bank's contractual authority. Esselte
cannot now claim injury when it caused the injury in the first
instance. The district court's amended order is therefore reversed
insofar as it grants Esselte the renewed lease.
C.
The district court found that the Bank was not liable to any
party for damages, costs, or attorneys' fees because section
8.01(d) of the security deed shielded the Bank from all liability
for any actions taken in reliance on an opinion of counsel. The
district court construed the provision broadly, finding that the
Bank was entitled to rely on the opinion of Mr. O'Connor, Esselte's
counsel, in deciding whether or not to convey the property to
Esselte in July 1991, and thus that section 8.01(d) precluded the
Bank's liability to any party.
We disagree with the district court's conclusion. The Bank
knew that the agreements gave it limited power to sell the
property, and knew, or should have known, that the sale to Esselte
in October of 1991 was in violation of the Bank's agreement with
Shipston. No reasonable bank would have relied on an opinion of
counsel that said otherwise.
Further, the Bank owed a fiduciary duty to Shipston, acting
as agent and attorney-in-fact for the partnership. Georgia law
permits recovery of attorneys' fees against a fiduciary for causing
the beneficiary unnecessary trouble and expense. See Citizens &
Southern Nat'l Bank v. Haskins, 254 Ga. 131, 327 S.E.2d 192, 200
(1985). The Bank's carelessness in selling the property to Esselte
certainly caused Shipston much unnecessary trouble and expense. We
therefore reverse the order insofar as it denies Shipston recovery
from the Bank for attorneys' fees and expenses.
IV.
In summary: (1) we affirm the granting of summary judgment as
to Esselte's breach of warranty claims; (2) Esselte must pay
Shipston the difference between the fair rental value of the
property from January 1, 1994, to the date of the entry of this
order and $62,138.69, the amount the district court ordered
Shipston to pay Esselte; (3) we reverse the district court's
granting of a renewed lease to Esselte, and hold that Shipston owns
the property free of any leases or other encumbrances; and (4) we
reverse the district court's order and hold that Shipston may
recover its litigation expenses from the Bank. We find no error in
the remainder of the district court's order, and so affirm those
parts not mentioned above without further discussion.
It is so ORDERED.