Articles Posted in Business Torts

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Profits Article.jpgOn this blog site, we have written about the difficulties that Georgia law creates for employers who want to recover punitive damages related to their breach of contract claims. Today we will briefly discuss another area that seriously affects the economic viability of both large and small businesses: recovering lost (anticipated) profits due to another party breaching your contractual agreement. Understandably, recovering lost profits may seem straightforward to you, but Georgia courts don’t see it that way. As we have said before, In Georgia, you need a good lawyer to navigate the tricky issues pertaining to breach-of-contract claims, including the difficulties associated with recovering lost profits, which you may be legally entitled to.

Here’s the problem: The Georgia Court of Appeals feels that “ordinarily, anticipated profits are too speculative to be recovered.” However, the term ordinarily, used by the Court, does not mean anticipated profits are never recoverable. There are circumstances that may allow you to recover anticipated (lost) profits when a person breaches a contractual agreement made with you.

Ask yourself the following questions, because if you call us based on this entry and/or others, we are going to definitely ask you the following questions, and many more:

1. Is your business established? That is, how long have you been around? Typically, new businesses have a much harder time recovering lost profits because many do not have “definite, certain, and reasonable” data to support their claim for lost profits. That means, to Georgia courts, your profits lean more towards being speculative than certain, so recovery may be more difficult.

Ask yourself: if my business has been around for only one year, or two, can I really claim that, had the other party not breached our contract, my profits were almost certain? If the answer is yes, then a few counters would be: how do you know? where is the consistent data? Aren’t the first 0-5 years extremely volatile, profit-wise, for businesses? Evidently, young businesses have it tough in this area of recovery.

2. Even if you own an established business and have definite, certain, and reasonable data to demonstrate lost (anticipated) profits, Georgia courts (and we) still want to know: At the time you and the other party entered into the contract, which was eventually breached, did the breaching party understand that breaking the contract would produce negative economic consequences for your business? Again, due to the confusing nature of this issue, focus on what was understood at the time you entered into the contract.

For example, you may have had a significant event that was dependent on your contractual agreement being executed in a “time-of-the-essence” manner. Did the breaching party know that? Did you make that known in the contract? Or, was it an oral agreement, which would involve entirely different legal issues regarding proof of the understanding.

Notably, the two above-mentioned issues do not have to be proven with mathematical certainty. But your lawyer must:

1. Show the probable gain [profits], with great specificity;
2. Show the expenses incurred in realizing such profits, with great specificity; and 3. Demonstrate that the lost (anticipated) profits incurred are directly related to the acts of the party who breached the contract.

As you can read, the situation is complex, and the above-mentioned are just a few of the issues and questions that must be properly analyzed.

Simply put, contract disputes are difficult. Find a good lawyer who understands how to maximize your total recovery.
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contract.jpgAlmost everyone in our country is affected by contract agreements. And people and businesses break those agreements all the time. That’s reality. And when someone or a business fails to perform as he or she promised, in accordance with a contract, clients seem to always ask: can I recover more money as punishment for the reproachable manner in which our contract was breached? The answer, in Georgia: maybe.

The Georgia code expressly states “[u]nless otherwise provided by law, exemplary damages shall never be allowed in cases arising on contracts.” O.C.G.A. § 13-6-10. (Exemplary damages are commonly referred to as punitive damages, a penalty [punishment] imposed against the wrong-doer to deter future, similar conduct.)

As you can read, the Georgia code disfavors punitive damages for breach of contract actions, and the Georgia courts have agreed. But, there exists avenues other than stating your claim as a breach of contract, in order to maximize your recovery if punitive damages seem warranted. You may be able to claim that the person who breached your contract committed a civil tort against you.

A civil tort is an unlawful violation of a private right other than a breach of contract, generally. That means the wrong-doer must breach an independent duty created by statute or common law that, importantly, was owed to you. And that breach of duty must be the actual or proximate cause of your injury (damages). So if a person or business committed a civil tort against you arising out of a contract, then, punitive damages may be possible, under Georgia’s civil tort statute, O.C.G.A. § 51-12-5.1.

For example, if a a person keeps a car without paying rental fees owed to you by contract, Georgia courts have reasoned that the civil tort of conversion may be claimed against that wrong-doer (and punitive damages possible), since he or she is unlawfully in possession of your property, after defaulting on payment. Or, maybe fraud or deceit was committed against you in the context of a contract agreement. Or, maybe a third party (stranger to the contract) interfered with your contractual rights and thus caused your contract to be terminated.

The above-mentioned civil claims are complex, but nevertheless they are tort claims, and while they may arise out of a contract dispute, these type of claims carry with them an independent cause of action that “may” entitle you to punitive damages. Ultimately, the substance of your claim–as “truly” being a tort claim rather than being a breach of contract claim in disguise–will determine if punitive damages are on the table, in Georgia.

(You must always be mindful that punitive damages, in Georgia, can be difficult to recover because the conduct in question must be more than merely negligent conduct or even grossly negligent. Generally, the conduct must be intentional or willful, or demonstrate a complete want of care that would lead an ordinary person to presume that the wrong-doer had a conscious disregard for the consequences of his or her action[s].)

You definitely need a good lawyer when dealing with breach of contract issues because whether or not punitive damages are possible, a good lawyer still must evaluate issues such as liquidated damages provisions (O.C.G.A. § 13-6-7); mitigation of damages (O.C.G.A. § 13-6-5); recovery of lost profits; and recovery of actual, remote, or consequential damages, amongst many other considerations.

Every case is different. So your recovery will depend on a good lawyer who can apply the unique facts of your case to the multiple facets of Georgia law.
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Judge.jpgIn Georgia, and everywhere, as too many employers know, employees solicit (attempt to steal) clients from their former employer. There exist obvious and significant financial and professional incentives for employers to prevent this from happening. The answer is a well drafted non solicitation agreement, amongst other safeguards. The problem is that many non solicitation agreements are poorly drafted, because whoever drafted the agreement failed to take into account applicable, and stringent, Georgia laws. In the world of non compete/solicitation agreements, Georgia law is notorious for being extremely unfavorable to employers. And although the Georgia legislature passed employer-friendly legislation (HB 173) in this area, and Governor Sonny Perdue signed that legislation into law, voters must still amend the Georgia Constitution so that the legislature has the power to make HB 173 actual law. That may be difficult.

Regardless, Georgia courts, currently, strictly construe non solicitation agreements. That means: if any potion of your non compete/non solicitation agreement is held to be invalid, the entire agreement is void.

We have written about non compete and non solicitation agreements before on this blog. Today, we are writing this entry to give you a few considerations when reviewing or attempting to draft your own non solicitation clause, although we highly recommend that you seek a good lawyer who has experience in this area to help you with drafting these types of agreements; the stakes are too high to rely on a poorly drafted agreement made by someone who is not familiar with Georgia law.

Some considerations:

The law: “Georgia law is clear that unless the non-solicit covenant pertains to those clients with whom the employee had a business relationship during the term of the agreement, the non solicit covenant must contain a territorial restriction.” Trujillo v. Great Southern Equipment Sales, LLC, citing Advance Technology Consultants v RoadTrac, 250 Ga. App 317.

In Trujillo (the above-mentioned case) the employer illegally expanded the class of prohibitve clients by stating, within the non solicitation clause, that

“the non-solicitation restriction set forth in this Section 2 is specifically limited to Customers of Employer with whom Employee had contact… or about whom Employee had a confidential or proprietary information becasue of his/her position with Employer.”

As you can read, the employer started off great, by restricting the scope of the clause to clients that the employee truly had contact with. But then the non solicitation clause went awry of strict Georgia law, by stating that the employee could not solicit clients that he or she had gained confidential or proprietary information about, by merely working for the employer. While you may think that’s a reasonable restriction, Georgia courts do not.

The Trujillo court reasoned that the language pertaining to confidential and proprietary information did not constitute a valid confidentiality provision or a “reiteration” of the confidentiality clause found in Trujillo’s contract. Rather that language, in the Court’s opinion, constituted an impermissible attempt by the employer to broaden the class of customers (clients) whom Trujillo could not solicit. As a result, the court stated–and this is what really hurts employers– “because the non-solicitation clause was unenforceable, the non competition clause included in the agreement was likewise unenforceable.” That’s a result that you as an employer do not want.

What lessons can be learned? First, get a good lawyer that knows Georgia law in the area of non compete non solicitation agreements. Second, regardless if you’re an attorney or not, don’t try to be “slick” when drafting these agreements. The Trujillo court made it clear: just because you do not use the red-flag term all clients does not mean that you can avoid the harsh and scrutinizing results of Georgia law. Moreover, understand fully that if you decide to use broad language such as all clients, strongly consider placing a geographical limitation within the non solicitation clause.

Additionally, understand that non solicitation agreements do not mean that a client cannot solicit your employee– this area of law is tricky and involves other complex legal issues.

Ultimately, when you attempt to use a non solicitation agreement against an employee to protect your business interest, your success will depend on the facts of your case as applied to Georgia law. You need a good lawyer.
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