Think Dev. Sys. v. Cloudious, LLC

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THINK DEVELOPMENT SYSTEMS, INC. v. CLOUDIOUS, LLC; and CLOUDIOUS, LLC; v. THINK DEVELOPMENT SYSTEMS, INC.

Nos. A23A1042, A23A1043

Court of Appeals of Georgia, Second Division

August 2, 2023

MERCIER, C. J., MILLER, P. J., and HODGES, J.

MERCIER, JUDGE.

Following a business dispute, Cloudious, LLC ("Cloudious") sued Think Development Systems, Inc. ("Think Development") for breach of contract, money had and received, breach of fiduciary duty, punitive damages, and attorney fees. Think Development answered and counterclaimed asserting claims for breach of contract, money had and received, unjust enrichment, and attorney fees. Cloudious subsequently moved for summary judgment on its claims and Think Development's counterclaims.

The trial court granted summary judgment to Cloudious on its breach of contract and breach of fiduciary duty claims, as well as on Think Development's counterclaim for attorney fees. As to all other claims, it denied summary judgment. The trial court also denied Cloudious's motion to strike an affidavit filed by Think Development.

In Case No. A23A1042, Think Development appeals the grant of summary judgment to Cloudious. Cloudious cross-appeals in Case No A23A1043, challenging the trial court's decision to (1) deny its motion to strike, and (2) deny its motion for summary judgment on Think Development's substantive counterclaims.^[1] For reasons that follow, we reverse the trial court's ruling in Case No. A23A1042, and we affirm in part and reverse in part the ruling in Case No. A23A1043.

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." OCGA § 9-11-56 (c). We review a trial court's summary judgment ruling de novo, construing the evidence and all reasonable inferences in favor of the nonmoving party. See Wright v. Cofield, 317 Ga.App. 285, 285 (730 S.E.2d 421) (2012).

So viewed, the record shows that Pulukottil Joy is the President and CEO of Think Development, a staffing service that places consultants with other businesses. In March 2006, Think Development entered into a service agreement with Cognizant Technology Solutions ("CTS") to provide computer programming and technology consultants to CTS. The agreement was updated in 2012 to include, among other things, references to CTS's "vendor qualification and due diligence processes," which Think Development was required to meet.

In 2016, Cloudious, another staffing and consulting service, approached Think Development about purchasing the CTS contract. Joy met with Cloudious's sole shareholders, Pascal Vinoth and Subash Yammada, who stated that they had contacts within CTS and could substantially grow the existing staffing relationship. Recognizing that his current business with CTS was minimal, Joy agreed to sell Think Development's interest in the CTS service contract to Cloudious pursuant to an asset sales agreement ("ASA") drafted by Yammada. As part of the sale, Cloudious agreed to pay Think Development:

(a) One Hundred Thousand Dollars ($100,000.00).

(b) 15% of the Gross Margin for proceeds of the contract during First Year. The payment is due half yearly.

(c) 10% of the Gross Margin from the proceeds of the contract during Second Year. The payment is due half yearly.

(d) 10% of the Gross Margin from the proceeds of the contract during Third Year. The payment is due half yearly.

The parties executed the ASA on November 7, 2016, at which point the service agreement between Think Development and CTS was to be transferred to Cloudious. To this end, Vinoth prepared a letter for Joy to send to CTS, stating:

This Letter shall confirm and ratify that, [Think Development] and Cloudious LLC have combined together as of today. Effective immediately, our combined firm will begin conducting its practice as Cloudious LLC. The merger is a joining of two extraordinary firms very similar in size and culture, with practice strengths that are highly complementary and will enable us to provide a new and broader set of services to you. We look forward to discussing those in more depth with you.

... We request you to transfer our existing [service agreement] to Cloudious LLC.^[2]

Joy sent the letter, and Vinoth assured Joy that because Vinoth had contacts within CTS, he would take over "everything from the inside." As Cloudious began making installments on the $100,000 payment, Joy anticipated that Think Development would have no further involvement in the CTS service agreement other than "receiving a percentage of the gross proceeds as set forth in the ASA." CTS, however, did not recognize Cloudious as an approved vendor until the end of 2018, impeding the transfer of the service agreement and preventing Cloudious from directly accessing CTS's portal to place, manage, and obtain payment for its consultants.

During the 2016 to 2018 time period, Think Development contacted CTS numerous times to expedite the transfer process. In the interim, Think Development and Cloudious agreed "that Cloudious would receive the benefit of [Think Development's] relationship with [CTS] until Cloudious qualified as a [CTS] vendor and the terms of the ASA could be put into effect." In exchange for an administrative fee, Think Development agreed to facilitate the placement of Cloudious-managed consultants at CTS, sign off on purchase orders for their work, and present their time sheets to CTS for payment. CTS paid Think Development for the consulting work, and, according to Joy, Think Development remitted payment to Cloudious as follows:

The process we initiated was that, except for the deduction towards the FIFTEEN percent (15%) we deducted from the gross proceeds received from [CTS], and the ONE Dollar ($1.00) for each billed hour reflected in the invoice we charged as an administrative fee, Cloudious receive[d] the remainder of the funds paid by [CTS] to [Think Development]. This is what we did for the seventeen (17) month period this process was in place, [and] Cloudious never complained or questioned the distribution of funds, or [Think Development] taking a percentage of the profits.

...

Under this interim arrangement, it was never contemplated that [Think Development] would simply transfer the funds paid by [CTS] to [Think Development] directly to Cloudious and Cloudious never made such a demand for such payment during this period[.]

After CTS approved Cloudious as a qualified vendor in late December 2018, Cloudious began receiving payments directly from CTS. Joy testified by affidavit that "Cloudious not only did not pay [Think Development] the agreed percentage of the funds received from [CTS] [as outlined in the ASA], Cloudious claimed for the first time that [Think Development] owed [Cloudious] funds." A dispute arose, as Cloudious asserted that Think Development was required, but failed, to forward to Cloudious "all payments [Think Development] received from [CTS]" following execution of the ASA.

In January 2019, Cloudious demanded that Think Development pay it over $500,000, the amount that, according to Cloudious, Think Development improperly retained from the CTS payments. When Think Development failed to remit this sum, Cloudious sued Think Development, alleging that Think Development breached the ASA by retaining the CTS payments, unjustly refused Cloudious's demands for payment, and breached its fiduciary duty to Cloudious by withholding payment. Think Development answered and counterclaimed, asserting that Cloudious breached the ASA by refusing to pay sums owed to Think Development and also failed to pay Think Development for Think Development-employed consultants that Cloudious placed with CTS.

Cloudious moved for summary judgment on its claims and Think Development's counterclaims, arguing that no genuine issues of material fact remained. It also moved to strike the affidavit filed by Joy. The trial court refused to strike the affidavit and denied the motion for summary judgment on Think Development's substantive counterclaims. But it granted Cloudious summary judgment on its claims for breach of contract and breach of fiduciary duty, concluding that Think Development breached its obligations to Cloudious by failing to immediately transfer the CTS service agreement and by not remitting to Cloudious all payments made by CTS. The trial court also granted Cloudious summary judgment on Think Development's request for attorney fees and litigation expenses pursuant to OCGA § 13-6-11. These cross-appeals followed.

Case No. A23A1042

1. In several claims of error, Think Development argues that the trial court erred in granting Cloudious summary judgment on Cloudious's breach of contract and breach of fiduciary duty claims. We agree.

(a) The trial court found that, as a matter of law, Think Development breached the ASA because Think Development warranted that it had the ability to immediately transfer the CTS service agreement to Cloudious, but was unable to do so. It is true that, through the ASA, Think Development agreed that it had taken all necessary steps to consummate the sales transaction, that the CTS service agreement would be transferred and assigned to Cloudious at the closing of the sale, and that the service contract would at that time be "in full force and effect." The parties learned however, that Cloudious could not fully take over the contract until it had been approved as a vendor by CTS. Joy averred that once this issue became clear, Think Development and Cloudious agreed to alter their business relationship until Cloudious received its vendor approval and the "terms of the ASA...