Cushing v. Cohen
323 Ga. App. 497
| Ga. Ct. App. | 2013Background
- In the 1990s Ruben developed real estate loans funded by multiple investors via Palmetto Capital Corporation.
- Palmetto issued promissory notes to investors and, later, secured deeds to property; investors received unsecured Palmetto notes.
- Ruben pooled investor funds with bank funds in leveraged lending programs, creating three challenged loans totaling about $14.9 million from 141 investors plus bank funds.
- Palmetto and Ruben misrepresented the structure to investors, implying direct bank loans rather than Palmetto financing and secured participation.
- Developers defaulted in 2007, triggering investor losses and triggering tolling agreements and partial releases; litigation followed in Cherokee and related actions.
- Two separate trial courts ruled differently on whether the instruments were securities under Georgia law; one granted securities status, the other did not.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are the notes securities under Georgia law? | Cohen contends the notes are securities due to common enterprise and reliance on managerial efforts. | Cushing argues the notes are simply commercial loans, not securities. | Notes are securities under Georgia law. |
| Did the statute of limitations bar adult Cohens' Fairburn claims? | tolling agreement paused the period; flaws in dating the contract do not bar claims. | timing shows the claims expired before tolling began | Tolling preserved the Fairburn claims; not time-barred. |
| Did OCGA 9-2-61 toll the claims concerning Cushing's executive role? | renewal allowed continuation of substantially similar claims. | renewal needs identical scope; claims were not substantially same | Renewal tolling applied; claims tolled. |
| Did releases in the Restated Participation Agreement bar claims against Cushing? | releases were not intended to cover Palmetto officers' claims against Cushing. | consents and releases release Palmetto and officers including Cushing. | Plaintiffs did not release Cushing; releases did not bar his claims. |
| Did the trial court err denying summary judgment on breach of fiduciary duty? | there was fiduciary duty by Palmetto and Cushing; breach shown by conflicts and actions. | no fiduciary duty proven; individualized duties unclear. | Questions of fact exist; summary judgment denied. |
Key Cases Cited
- Golden Atlanta Site Dev. v. Nahai, 299 Ga. App. 646 (Ga. App. 2009) (Howey factors used to determine securities status)
- Dunwoody Country Club v. Fortson, 243 Ga. 236 (Ga. 1979) (Howey tests and investment contract interpretation)
- Rasch v. State, 260 Ga. App. 379 (Ga. App. 2003) (promissory notes with fixed interest may be securities)
- Hicks v. State, 315 Ga. App. 779 (Ga. App. 2012) (common enterprise and profits from promoter's efforts)
- Mosely v. State, 253 Ga. App. 710 (Ga. App. 2002) (securities definition includes investment contracts)
- Moss v. State, 209 Ga. App. 486 (Ga. App. 1993) (securities status of notes under state law)
- Securities & Exchange Comm. v. Unique Financial Concepts, 196 F.3d 1195 (11th Cir. 1999) (federal Howey framework applied to investment contracts)