Owens v. Novae, LLC.

357 Ga.App. 240

850 S.E.2d 457

OWENS

v.NOVAE, LLC.

A20A1268

Court of Appeals of Georgia.

October 20, 2020

Stanley M. Lefco, Atlanta, for Appellant.

Torin D. Togut, for Appellee.

Markle, Judge.

After Justin Owens left Novae, LLC, the company he had formed with Reco McDaniel and several others, Novae filed suit against him for breaching the operating agreement. The trial court denied Owens's motion for summary judgment, and Owens filed this interlocutory appeal, arguing that he did not breach the agreement and that Novae had not shown it suffered any lost profits. For the reasons that follow, we affirm in part and reverse in part.

In order to prevail on a motion for summary judgment under OCGA § 9-11-56, [Owens], as the moving party, must show that there exists no genuine issue of material fact, and that the undisputed facts, viewed in the light most favorable to the nonmoving party, demand judgment as a matter of law. Moreover, on appeal from the denial or grant of summary judgment the appellate court is to conduct a de novo review of the evidence to determine whether there exists a genuine issue of material fact, and whether the undisputed facts, viewed in the light most favorable to the nonmoving party, warrant judgment as a matter of law.

(Citation and punctuation omitted.) In/Ex Systems, Inc. v. Masud , 352 Ga. App. 722, 723 (2), 835 S.E.2d 799 (2019).

So viewed, the record shows that, in 2014, Owens and McDaniel formed Novae, a multi-level marketing company that provides financial education and direct sales of products to its customers and members. Customers pay monthly subscription fees to access the products and training opportunities and earn money by selling the products themselves and bringing in other subscribers.

Owens was the vice president of sales, and his duties included overseeing development of new products, creating and managing vendor relationships, directing distribution of products, overseeing independent sales representatives, hiring and training sales employees, and ensuring customer satisfaction. The operating agreement required the members to (1) devote time and attention to the business and to carry out their duties; (2) maintain a duty of loyalty that prevented them from entering into any competing business; and (3) maintain the confidentiality of company information.

Over the next few years, Owens brought new products and services into the business. But in 2016, due in part to a reduction in sales, McDaniel arranged a joint venture with another marketing company called myEcon. MyEcon did not market all of the products Novae had offered. As part of the agreement, myEcon guaranteed Novae profits of $20,000 a month for the first year, to be divided among McDaniel, Owens, and another member.

In 2017, Owens started to have concerns about McDaniel's leadership of Novae and the financial structure of the company, and he requested an audit of the company's books. Around this same time frame, McDaniel complained that Owens was not performing his duties as the vice president of sales, and he spoke with Owens about the issue. Owens informed him that he was not being paid enough because his income was subject to a monthly cap, and consequently he would limit his input into the company as well.

The audit Owens requested was never completed, and Owens decided to leave Novae in August 2017. A few weeks before he informed Novae that he was leaving, Owens signed up as a customer of IML, another multi-level marketing company that provided education and training in foreign currency exchange.

Novae filed a breach of contract suit against Owens, alleging that he breached the operating agreement by failing to complete his duties as vice president of sales, and by working for a competing company, soliciting Novae members to do the same, and revealing confidential information about Novae's compensation plan and marketing strategy. In the complaint, Novae sought declaratory and injunctive relief, as well as lost profits and attorney fees.¹

Owens moved for summary judgment, arguing that he did not breach the agreement and contending that the claim for lost profits was purely speculative. Owens did not otherwise address the claim for injunctive relief. In support of his motion, Owens submitted affidavits from various other members of Novae to show that he had performed his duties, that IML was not a competitor of Novae, and that Novae was losing money before it joined myEcon.

Novae responded with affidavits of other company members, detailing Owens's failure to complete his duties, stating that IML was a competitor of Novae, and alleging that Owens had solicited its members and divulged confidential information about Novae's finances. McDaniel also gave deposition testimony that he became dissatisfied with Owens's performance around May of 2017, and he spoke with Owens about his concerns. He explained that Owens did not oversee any new developments or create any vendor relationships between May and August of that year. Instead, Owens spent his time working on programs that benefitted his other companies. McDaniel further alleged that Owens disclosed his salary and other information about Novae's finances, and used trade secrets, such as how he learned to market the business, for the benefit of IML.² McDaniel then explained how IML was a competitor of Novae, basing his belief on the fact that both companies were multi-level marketers that provided training and seminars.

As to damages, McDaniel stated in his deposition that Novae lost $30,000 due to the decline in commissions, using June through September 2017 as a benchmark. He explained that he calculated that amount based on revenue for those months – $6,500 in June, $6,500 in July, $8,700 in August, and $7,600 in September – and the loss of the $20,000 monthly income from myEcon once Owens left the company in August 2017. He admitted, however, that the loss of revenue could have other causes, such as other members who had also left Novae. He also pointed to a t-shirt that Owens sold to Novae's customers that Owens offered for sale on his own websites after he left the company, and claimed that the money Owens earned from the sale of the shirts should be included as Novae's lost profits. Although McDaniel admitted that he could not determine how much Novae lost from t-shirt sales, he opined it was about $10,280.

In a subsequent affidavit, McDaniel averred that Novae had a history of profitability prior to Owens's departure, and that the company had lost $80,539.19 in revenue due to Owens's breach of the agreement. He submitted a spreadsheet he created that contained a list of numbers purporting to show that amount of lost profits.³

Novae also submitted various tax returns.⁴ For 2015, Novae listed a total income of $1,795,867 and a net income of $17,853. In 2016, Novae showed a total income of $1,230,108 and a net income of $4,838. For 2017, the total income was $357,171 with a net income of $28,247.

Following a hearing at which the trial court did not address the request for an injunction, the trial court denied the motion for summary judgment. It then certified its order for immediate review, and, after this Court granted the interlocutory application, this appeal followed.

On appeal, Owens argues that the trial court erred in denying his motion for summary judgment because he did not breach the agreement; the operating agreement does not permit recovery from a member for lost profits; and any claim of lost profits is purely speculative and based on hearsay.⁵ Although we conclude that there was a factual question regarding whether Owens was in breach, we agree that Novae failed to establish lost profits with reasonable certainty as is necessary to survive a motion for summary judgment as to these damages.

1. Before we consider the merits of Owens's arguments, we note that Owens's motion for summary judgment did not address the claims for declaratory or injunctive relief as alleged in the complaint. Although he did not style his motion as one for partial summary judgment on the issue of breach and damages, we look at the content of the motion and not its nomenclature. 9766, LLC v. Dwarf House , 331 Ga. App. 287, 289 (1), 771 S.E.2d 1 (2015).

In the complaint, Novae requested an injunction for breaches of the noncompete and confidentiality clauses. Owens proffered no argument regarding injunctive relief in his motion for summary judgment. At the hearing on the summary judgment motion, Owens asserted that Novae had not pursued its request for injunctive relief, but there is no other mention of the injunction during that hearing, nor was there a hearing on the merits of the request for injunctive relief. See OCGA § 9-11-65 (a) ; A & D Asphalt Co. v. Carroll & Carroll of Macon, Inc. , 238 Ga. App. 829, 830-831 (1), 520 S.E.2d 499 (1999) (trial court may, with parties’ permission, consolidate hearing on the merits of a breach of contract claim with request for injunctive relief); cf. Abel & Sons Concrete v. Juhnke , 295 Ga. 150, 156, 757 S.E.2d 869 (2014) (lack of notice to parties that trial court would consider injunction at the hearing on the motion for summary judgment prevented trial court from issuing one). And, notably, the trial court's order does not grant or deny the request for an injunction; there is no other order addressing an injunction in the record; and neither party has raised that issue on appeal. As a result, we construe Owens's motion as a motion for partial summary judgment as to breach and damages only, and conclude that the issue of injunctive relief remains pending before the trial court.⁶

With regard to Owens's argument that he was not in breach of the operating agreement, the trial court correctly found that there is conflicting evidence in the record, in the form of affidavits and deposition testimony, that creates a factual question as to whether Owens was in breach of the various contractual provisions. See Greenstein v. Bank of the Ozarks ...