Naffis v. Tzavaras

358 Ga.App. 560

855 S.E.2d 750

NAFFIS

v.TZAVARAS.

A20A1970

Court of Appeals of Georgia.

February 24, 2021

Alexander P Levorse Levorse, Atlanta, for Appellant.

Cary Ichter, Atlanta, William Daniel Davis, for Appellee.

Gobeil, Judge.

Darius Naffis, M.D., appeals from the trial court's order granting George Tzavaras's motion for partial summary judgment, in Naffis's lawsuit seeking to collect damages from Tzavaras based on the terms of a promissory note representing a debt between the parties.¹ The trial court ultimately found that the consideration for the promissory note was at least partially illegal, based on Naffis's alleged extortion, and thus the note was unenforceable. On appeal, Naffis argues that the trial court erred in granting summary judgment to Tzavaras because genuine issues of material fact remain concerning (1) whether extortion actually occurred in the execution of the promissory note and, if so, (2) whether an exception applied to render Naffis's conduct legal. For the reasons set forth below, we reverse the trial court's judgment.

On appeal, we review the trial court's summary judgment ruling de novo and "construe the evidence and all reasonable inferences therefrom in the light most favorable to [Naffis as] ... the nonmovant." Hindmon v. Virgil's Food Mart, Inc. , 252 Ga. App. 732, 732, 556 S.E.2d 135 (2001). Summary judgment is appropriate only if no genuine issues of material fact remain concerning the nonmovant's claims. See id. at 732-733, 556 S.E.2d 135.

So viewed, the record shows that Tzavaras was married to Naffis's daughter from November 2004 until February 2019. During the marriage, Naffis entrusted Tzavaras with at least $1.5 million to invest. Naffis expected the arrangement to produce "income and modest growth" for himself, as well as provide Tzavaras with a source of income, in the form of commissions, as a way to support Naffis's daughter and grandchildren. Naffis received "some distributions" from Tzavaras, but never received tax forms to document any supposed gains from the investments despite repeated requests.

In August 2014, Tzavaras and Naffis's daughter moved to Atlanta. Tzavaras wished to purchase a house in Fulton County, and asked Naffis to buy the house and later sell it to Tzavaras after Tzavaras was able to arrange financing. Naffis spent $310,000 on the house, and another $60,000-$70,000 in repairs and improvements at Tzavaras's request. Tzavaras never purchased the house from Naffis as promised.

In October 2016, following Naffis's "growing suspicions" about Tzavaras's behavior with respect to Naffis's money, Tzavaras voluntarily delivered to Naffis an "Acknowledgment of Debt" document, confirming that Tzavaras was indebted to Naffis in the amount of $1,934,000. Tzavaras acknowledged that Naffis "shall be authorized to enter an uncontested, default judgment" against him, should the debt not be paid in full by May 1, 2017.

Naffis delivered the debt acknowledgment to his attorney, who drafted a promissory note (the "Note") formally embodying Tzavaras's obligation. The Note, which was signed by Tzavaras in the presence of an attorney on January 5, 2017, repeats that Tzavaras had agreed to pay Naffis the principal balance of $1,934,000, with six and one half percent interest per annum, until maturity on May 1, 2017, and then twelve percent interest per annum thereafter. According to Naffis, as of the timing of the filing of the lawsuit, Tzavaras had not paid any of the debt owed.

In December 2018, Naffis filed suit against Tzavaras on the Note. The complaint explains the existence of the Note, then states:

Among other things, the consideration for the Note was the forbearance of Dr. Naffis in filing criminal charges, and initiating a civil suit against Tzavaras, arising out of Tzavaras’[s] embezzlement, misappropriation, fraud and defalcation in receiving and misusing or misappropriating funds for Dr. Naffis which Tzavaras as a fiduciary was entrusted to invest for Dr. Naffis.

The complaint alleges that Tzavaras embezzled or misappropriated the money entrusted to him and that Tzavaras failed to return to Naffis "any of the funds entrusted to him, despite numerous requests by Dr. Naffis."

Based on Tzavaras's failure to pay the debt by May 1, 2017, Naffis calculated that, in addition to the principal amount, Tzavaras owed him $391,489.41 in interest as of the day of filing the complaint, and $635.84 per day thereafter based on the 12 percent interest rate set froth in the promissory note. Naffis also sought attorney fees as laid out in the Note, and pursuant to OCGA § 13-6-11.

Tzavaras answered the complaint, asserting among other things that the consideration for the Note was illegal, in that Naffis threatened to criminally prosecute Tzavaras if he refused to sign the Note. Such threat, Tzavaras asserted, amounted to extortion, which would render the Note unenforceable. In his answer, Tzavaras set forth his own version of events, claiming that he ran a successful investment coaching business, yet had modest personal success in investing. Tzavaras asserted that he warned Naffis of the risks of investing, yet Naffis was insistent. Tzavaras stated that he generated approximately $230,000 for Naffis in the first several years of the arrangement, but he then began to lose money. He claimed that Naffis threatened to file criminal charges against him, and has defamed him in a way that was damaging to Tzavaras's business. Tzavaras filed a counterclaim against Naffis alleging extortion and defamation, which he later withdrew without prejudice.

The parties engaged in discovery, and, in May 2019, Tzavaras filed a motion for partial summary judgment. As in his answer, Tzavaras argued that the consideration for the Note was based on extortion, and thus the Note was unenforceable. Naffis responded in June 2019, arguing Tzavaras delivered the Acknowledgment of Debt to him voluntarily and without threat. Additionally, the Georgia statute governing extortion, OCGA § 16-8-16 (c), provides an exception if the party agreeing to forgo criminal prosecution in exchange for a promise to pay money has an honest belief that the money is owed to him as restitution for harm done. Because Naffis has an honest claim² to the principal balance set forth in the Note, he argued, the consideration for the Note, which included a promise to forgo criminal prosecution of Tzavaras, was not illegal and the Note was enforceable.

On July 30, 2019, over a month after filing his summary judgment motion, Tzavaras filed a "Notice of Filing Affidavit of Cary Ichter." The attached affidavit stated that Ichter was Tzavaras's attorney, and he had received two documents from Naffis in discovery that he wished to submit. The affidavit did not attempt to explain any other context for the documents. The first document purports to be a business document from "Tzar Capital Inc." and shows that on October 15, 2010, Tzavaras and Naffis executed an "Addendum to the Agreement for the Management of Capital on behalf of Darius Naffis M.D. dated 3/20/10." The document then states that $22,785.52 in distributions have been paid through October 15, 2010; new capital in the amount of $1,200,000 was being invested; and the "Total Capital Invested" was $1,500,000. This document is signed by Tzavaras and Naffis. The second document has no date and is titled simply "Distribution(s)." It shows a list of figures purporting to be distributions on various dates between October 15, 2010, and June 10, 2012. There are handwritten notes adding up the distributions for each year, totaling $237,287.14.

On February 3, 2020, Tzavaras filed a reply in support of his motion for summary judgment. Relying on the two documents described above that were attached to Ichter's affidavit, and on Naffis's own affidavit, Tzavaras argued that Naffis could not have an honest claim to the $1,934,000 principal set forth in the Note because he had admitted to receiving some of the initial $1.5 million investment back, and the distribution document showed that the amount of distributions totaled more than $230,000. Additionally, the principal amount of the Note included more than $350,000 owed to Naffis based on his purchase of the Fulton County house for Tzavaras, yet Naffis still owned the house and could sell it at any time to recoup the money spent. Thus, Naffis could not have an honest claim to both title in the house and money from Tzavaras for repayment of the house. Accordingly, Tzavaras argued that no reasonable factfinder could conclude that Naffis honestly believed the Note was restitution or indemnification, rendering the consideration illegal.

The hearing took place four days later on February 7, 2020. Naffis objected to the Ichter affidavit and the inclusion of the documents attached thereto in the court's consideration of Tzavaras's motion for summary judgment, because Tzavaras's had failed to attach the affidavit to the motion for summary judgement as required by OCGA § 9-11-6 (d). Additionally, although Tzavaras could have asked the court to consider a late-filed affidavit, he had not done so.

After taking the issues under consideration, the trial court issued an order granting summary judgment to Tzavaras. The court ultimately concluded that the consideration for the Note was based on extortion, as Naffis admitted in the complaint that the consideration for the Note included a promise to forgo criminal prosecution of Tzavaras. Additionally, the trial court concluded that no reasonable factfinder could conclude that Naffis had an honest, good faith claim to all of the debt laid out in the Note, so the exception argued by Naffis did not apply. The court pointed to three categories of damages sought by Naffis which exceeded his actual damages.

First, the court found that Naffis's claim to the approximately $370,000 to $380,000 spent to purchase and renovate the Fulton house in his own name exceeded Naffis's actual damages because Naffis still owned title to the...