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The Legal Doctrine of ‘res Judicata’ and How to Avoid Having It Derail Your Georgia Breach of Contract Case

Poole Huffman, LLC

In any commercial agreement, one enters into the agreement confident in the belief that it will be productive and beneficial to both sides. Unfortunately, that doesn’t always happen. Sometimes, business relationships break down, and litigation is the result. If you find yourself in a failed business relationship that has reached (or is headed toward) litigation, it is important to have skilled Georgia business litigation counsel representing you, both to help you pursue your claims and to defend against the claims of your opposition.

One recent example of a lawsuit that resulted from a business relationship disintegration was a real estate investment LLC that was created to own and operate certain commercial real estate properties in the Buckhead area of Atlanta. The two members of the LLC established an operating agreement in 1995. Eighteen years after its creation, the LLC sold its last asset and planned to distribute its proceeds and dissolve.

A dispute arose regarding the distribution of those proceeds, and that dispute led to litigation. In the first case, a former member of the LLC sued and won a $625,000 judgment. In the case recently before the Court of Appeals, the LLC and its member had sued the former member in pursuit of a declaratory judgment from the court regarding the proper distribution of the LLC’s proceeds. The defendant countersued for breach of contract and breach of fiduciary duty. While the plaintiffs were able to persuade the trial judge to grant a summary judgment in their favor on the defendant’s counterclaims, the appeals court concluded that the former member should be allowed to go forward with his case.

The crux of the former member’s case was that the member had devalued the LLC’s property by the way in which it chose to sell off those properties. The LLC and current member argued that the former member’s claims were resolved through the judgment in the first litigation action. This rule that precludes certain types of lawsuits is called ”res judicata.” The appeals court explained that the rule of res judicata only applies, though, if the causes of action in both lawsuits are identical.

In this situation, the causes of action weren’t identical. Both claims involved accusations by the former member asserting mismanagement and devaluation of LLC property. The difference was, though, that the second case only covered mismanagement and devaluation that occurred after the resolution of the first case, while the first action obviously only covered mismanagement and devaluation that took place before. That meant they were not identical, and those differences in the former member’s claims meant that he was entitled to go forward with his counterclaims.

Any commercial dispute can have a dramatic impact on your business, especially if the dispute involves litigation and the potential for an award of a substantial sum in damages. Whether you are the business that filed the lawsuit or are the one defending against the lawsuit, it is vitally important that you have the kind of knowledgeable and skillful litigation counsel that a business like yours needs to protect its interests. The diligent and zealous Atlanta business litigation attorneys at Poole Huffman, LLC are here to help. Our attorneys spent many years crafting litigation strategies to protect and safeguard our clients’ interests. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation.

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