Article courtesy of Jeff Dutson of King & Spalding
The Georgia Court of Appeals reversed in part a grant of summary judgment finding that there was a genuine issue of material fact existed as to whether an officer misrepresented a company’s financial position and whether the lenders justifiably relied on information provided by the officer that allegedly misrepresented company’s financial position—thus, precluding summary judgment on the lenders’ fraud claim.
Rubenstein v. Palatchi, 359 Ga.App. 139 (Ga. Ct. App. 2021).
Over several years, David Rubenstein, his wife, and mother (collectively, the “Rubensteins”) lent over $1 million combined to General Financial, Inc. (“GFI”), a company owned and operated by a married couple (the “Palatchis”) that made high interest loans to active military personnel. After GFI defaulted on the loans, the Rubensteins sued alleging conversion, breach of fiduciary duty, fraud, and conspiracy to commit fraud—seeking punitive damages, attorney fees, and litigation expenses. The trial court granted summary judgment to the Palatchis on all claims, and the Rubensteins appealed.
The Georgia Court of Appeals (the “Court”) affirmed the award of summary judgment as to the wife, Jennifer Gold-Palatchi, but reversed the trial court’s ruling on the claims for fraud, punitive damages, attorney fees, and litigation expenses against the husband, Sabetay Palatchi. The Court affirmed the grant of summary judgment as to conversion, breach of fiduciary duty, and conspiracy claims. The Court noted that generally money is not the type of personal property subject to a conversion claim as it would need to be a specific and identifiable fund. The Court also noted that “no fiduciary duty typically arises between a borrower and lender.” Simply having trust and confidence in a business partner’s integrity does not rise to the level of a required confidential relationship. The Court found, however, that there were questions of fact regarding potential fraud committed by Mr. Palatchi due to various purported conversations regarding the financial health of GFI. Mr. Palatchi’s wife, however, was not alleged to have made any similar statements and thus the conspiracy claim, as against the couple, could not stand. Since there was a question of fact regarding the fraud claim, the claims for punitive damages, attorney fees, and litigation expenses could stand as to Mr. Palatchi—but not Ms. Palatchi.