The Georgia Court of Appeals holds Apportionment of Fault to Non-Parties Does Not Permit Apportionment of Damages

            On May 21, 2020, the Georgia Court of Appeals issued an opinion in the closely watched legal malpractice case of Alston & Bird, LLP v. Hatcher Management Holdings, LLC (“Hatcher II”).  The Court of Appeals’ construction of Georgia’s apportionment statute, O.C.G.A. § 51-12-33, may have important implications in tort litigation when defendants analyze joinder of non-parties and consider the utility of filing a notice of non-party fault.      

The Underlying Dispute

            In 2000 Maury Hatcher hired Jack Sawyer, then an Alston & Bird, LLP (“Alston”) partner, to form and represent a holding company that was intended to manage the Hatcher family real estate fortune, Hatcher Management Holdings, LLC (“HMH”).  Beginning in 2005, Maury embezzled money from HMH, taking more than $876,000 in compensation and $218,000 in distributions.  In 2008, suspecting that something was wrong, Maury’s family members asked for access to HMH’s books and records. Sawyer advised them that they had no right to any of HMH’s books and records despite clear provisions in the operating agreement stating otherwise, and he never advised them that Maury was required to make annual reports of all distributions.  On October 31, 2008, Maury redeemed his and his immediate family’s interests, paying himself $397,000 more than they were worth. In January 2009, Maury resigned as HMH’s manager, and he moved to Florida telling his family that he was effectively judgment proof.[1]

HMH’s Case Against Maury

            HMH and its members sued Maury in a separate action in 2009 alleging he breached his fiduciary duties.  In 2011, the trial court granted partial summary judgment in favor HMH finding Maury liable for breaches of his fiduciary and contractual duties under the operating agreement.  The trial court’s order was upheld on appeal.  Following a damages trial, in which Maury failed to participate, the trial court awarded over $4 million in damages.  HMH was unable to collect on that judgment. 

HMH’S Legal Malpractice Case Against Alston

            In 2012, after HMH prevailed on summary judgment against Maury, but before the Court of Appeals affirmed the trial court, HMH sued Alston for: (1) legal malpractice; (2) breach of fiduciary duty; (3) pre-judgment interest under O.C.G.A. § 13-6-13; and (4) attorney’s fees and litigation expenses under O.C.G.A. § 13-6-11.[2]  Alston filed a notice of non-party fault under O.C.G.A. § 51-12-33 (“apportionment notice”), and in an earlier interlocutory appeal, Hatcher I, the Court of Appeals reversed the trial court’s order striking Alston’s apportionment notice.

            At trial, the jury awarded HMH $697,614 in compensatory damages, $341,831 in prejudgment interest under O.C.G.A. § 13-6-13, and $1,096,561.48 in attorney’s fees and costs under O.C.G.A. § 13-6-11, for a total award of $2,136,006.48.  The jury apportioned 60% of the fault to Maury, a non-party, 32% to Alston, and 8% to HMH.  The trial court then reduced HMH’s award to $683,522.07, 32% of the total.

Alston’s Appeal

            In Hatcher II, Alston contended that the trial court erred by denying its motion for directed verdict and motion for judgment notwithstanding the verdict on the issue of proximate cause.  Notably, Sawyer admitted at trial that if he had he advised the members of their rights in 2008, before Maury redeemed his interests under the operating agreement, the non-managing members could have detected the fraud and mitigated their damages by stopping or claiming set-offs against Maury’s October 31, 2008 redemption.  The Court of Appeals affirmed the trial court’s denial of Alston’s motions, finding that there was sufficient evidence that Sawyer’s actions were the proximate cause of HMH’s loss.

            Alston also argued that the trial court erred by allowing the jury to consider pre-judgment interest under O.C.G.A. § 13-6-13.  The Court of Appeals agreed, finding that O.C.G.A. § 13-6-13 only applies in breach of contract actions. Because HMH only asserted tort claims, breach of fiduciary duty and legal malpractice, the panel reversed the trial court’s award of pre-judgment interest.

HMH’s Cross Appeal as to Apportionment of Damages

            In its cross-appeal, HMH argued that the trial court erred by reducing all of its damages by 68%.  The Court of Appeals agreed with HMH, finding that O.C.G.A. § 51-12-33 only permitted the trial court to reduce HMH’s compensatory damages by 8% and that it did not allow any reduction in HMH’s damages for attorney’s fees and costs under O.C.G.A. § 13-6-11.

            The Court of Appeals concluded that apportionment under O.C.G.A. § 51-12-33 did not apply to a fee and cost award under O.C.G.A. § 13-6-11 because those damages were wholly attributable to Alston, and claims under O.C.G.A. § 13-6-11 stand apart from the claims on which they are dependent.  By eliminating any apportionment against the fee recovery, the Court of Appeals reinstated the entire award of litigation fees and expenses totaling $1,096,561.48. 

            Further, when considering HMH’s compensatory damages, the Court of Appeals reasoned that:

  1.  O.C.G.A. § 51-12-33(a) only allows the trial court to apportion damages in a single defendant case against a plaintiff when a plaintiff is partially at fault;
  2. O.C.G.A. § 51-12-33(b) only permits the apportionment of damages among co-defendants; and
  3.  although O.C.G.A. § 51-12-33(f) permits the apportionment of fault against non-parties (as supported by Hatcher I), it does not permit the apportionment of damages to non-parties.

As a result, the Court of Appeals remanded with instructions to re-calculate the reduction of HMH’s $697,614 compensatory damages award by 8% rather than 68%.

Strategic Implications

            Given the potential impact of this ruling, further review or challenge is expected.  The Court’s analysis nullifies what many assumed was the legislature’s intent: allow apportionment of fault to non-parties, thus reducing potential damages awarded against party defendants.  While the opinion fully recognizes fault can be apportioned to non-parties, there is no discussion or analysis of how apportionment of fault will serve to defer the liability alleged against the defendant if such apportionment cannot reduce damages.  Will trials now be bifurcated with liability only phases where fault of all is considered before any damages are presented?  And even then, what calculus is used if not against damages awarded? 

         Should the holding stand, defendants now must rethink their assumptions about apportionment of damages.  In a case with only one defendant, filing a notice of apportionment will not result in any damages being apportioned, except in cases where the plaintiff is found partially at fault. Decisions not to add parties, instead hoping to rely on apportionment, may now need revisited. 

          This closely watched and long-awaited opinion is sure to cause much more discussion and analysis in the weeks to come.  Stay tuned for further updates. To read the Court of Appeals decision, please click here.

[1] The Court of Appeals did not address these statements or give a detailed procedural history of the separate suit between HMH and Maury, but additional facts are set out in the Final Order and Judgment in that case, Hatcher Management Holdings LLC et al. v. Hatcher et al. 2009CV179145, Fulton County Superior Court (March 5, 2013), and Hatcher I.  

[2] HMH also sought punitive damages, but those were not awarded and they were not germane to the Court of Appeals’ decision in Hatcher II.