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Legacy Acad., Inc. v. Mamilove, LLC

Court of Appeals of Georgia

July 16, 2014

LEGACY ACADEMY, INC. et al.
v.
MAMILOVE, LLC et al

Page 881

Reconsideration denied July 31, 2014 -- Cert. applied for.

Fraud, etc. Gwinnett Superior Court. Before Judge Hamil.

C. David Joyner, Gregory, Doyle, Calhoun & Rogers, Stuart L. Sims, Charles L. Bachman, Jr., for appellants.

Ichter Thomas, Cary Ichter, W. Daniel Davis, for appellees.

ELLINGTON, Presiding Judge. Phipps, C. J., Barnes, P. J., and McFadden, J., concur. Andrews, P. J., Ray and McMillian, JJ., concur in part and dissent in part.

OPINION

Page 882

Ellington, Presiding Judge.

In this case involving a dispute arising from a daycare center franchise agreement, a Gwinnett County jury rendered a verdict in favor of the plaintiffs, franchisee Mamilove, LLC and its officers, Michele Reymond and Lorraine Reymond (collectively, " Mamilove" ), and against the franchisors, Legacy Academy, Inc. and its officers, Frank and Melissa Turner (collectively, " Legacy" ). The superior court denied a motion for new trial filed by Legacy, and Legacy appeals from the court's judgment on the verdict and from its order on the motion for new trial. Legacy contends that the trial court erred in rejecting its argument that Mamilove's claims were barred as a matter of law, in denying its motion for a directed verdict on all of the claims, in excluding certain evidence, and in denying its motion for new trial. Finding no error, we affirm.

Viewed in favor of the jury's verdict,[1] the evidence presented showed the following facts. In 2001, sisters Michele and Lorraine Reymond entered into discussions with Frank and Melissa Turner about opening a Legacy Academy daycare franchise. In July 2001, the Turners gave the Reymonds a pro forma earnings claim in the form of an income and expense statement (hereinafter, the

Page 883

" earnings claim" ) that was purportedly based upon the actual income and expenses of Legacy franchises that were then in operation. According to the earnings claim, a new franchisee would have approximately $260,000 in net income after the first year of operation and approximately $440,000 in net income after each of the second and third years. Relying upon the earnings claim, the Reymonds decided to open a Legacy franchise. The Turners showed the Reymonds property on Old Peachtree Road in Gwinnett County, and the Reymonds agreed to build their daycare center there.

On September 13, 2001, the Reymonds met with the Turners, who gave them a 17-page " Franchise Offering Circular for Prospective Franchisees for Non-Registration States" (the " franchise circular" ) and a 37-page, 25-year Franchise Agreement (the " franchise agreement" ). The Reymonds did not have time to read the documents or consult with an attorney before signing them, however, because the [328 Ga.App. 776] Turners " pressured" them, telling them with " a sense of urgency" that they had to sign the documents that day or other franchisees would " take" the Old Peachtree Road location and it could be months before another location became available. As a result, the Reymonds signed the circular, the agreement, and an amendment to the agreement. The Reymonds also paid Legacy a $30,000 franchise fee.

The Turners subsequently informed the Reymonds that they could not build their center at the Old Peachtree Road location after all, purportedly because of " issues with the zoning" of that property. Several months later, in February 2002, the Reymonds executed an agreement to purchase 2.6 acres of land in Sugar Hill from the Turners[2] and a contract with a construction company owned by Frank Turner, Commercial Contractors Enterprises (" CCE" ), to build a daycare center on that property. At the October 2002 closing, the Reymonds gave CCE a $40,000 check to be applied to the building's construction costs, executed two bank notes totaling $1,884,450 to pay for the property and the construction of the building, and signed a $200,000 promissory note in favor of CCE. Frank Turner told them that execution of the note was required to reimburse CCE for " equity" it allegedly contributed to assist with the closing of the bank loans and that they had to sign the note " or the whole deal would fall through." Ultimately, the Reymonds invested more than $2.2 million in the franchise and daycare center.

The Reymonds opened their daycare center in November 2002 and, by the end of its first year of operation, they had lost $212,300. Although they recorded net earnings of $103,692 in 2004 and $66,507 in 2005, those amounts were still far less than the $440,000 in annual profits that the other franchisees had earned, according to the earnings claim the Reymonds had received from the Turners.[3] The Reymonds repeatedly attempted to discuss with the Turners their concerns regarding the business' inability to enroll more children and its poor financial performance, but the Turners " berated and badgered" them in response, telling them that they were doing something wrong and that the lack of income was their fault for accepting part-time enrollees, charging tuition that was too low, not marketing [328 Ga.App. 777] the center enough, etc.[4] In addition, the Turners contributed to the center's poor performance by opening two more daycare center franchises within five miles of Mamilove's center between 2006 and 2008. When the

Page 884

Reymonds tried to consult with other franchisees to compare their financial performance, the others refused to participate due to Legacy's policy of discouraging the franchisees from discussing the financial performance of their daycare centers with each other.

In 2008, five of Legacy's franchisees jointly left the franchise and sued Legacy and the Turners.[5] While talking to some of these franchisees about their complaints against Legacy and the Turners, the Reymonds found out information that, combined with Mamilove's poor financial performance, caused them to decide to terminate their Legacy franchise agreement. As a result, in August or September 2010, Mamilove stopped paying Legacy the monthly five percent royalty fees and one percent advertising fees required by the agreement. Then, on September 2, 2010, the Reymonds' attorney sent a letter to the Turners notifying them that the Reymonds intended to terminate the franchise agreement, effective October 1. According to the letter, the Reymonds believed that Legacy had violated certain rules of the Federal Trade Commission (the " FTC Rules" ) by, inter alia, failing to timely provide them with the franchise circular and agreement and making an earnings claim that was prohibited by the FTC. In addition, the Reymonds asserted that the strength of the Legacy " brand" had been severely reduced due to the fraud committed by the Turners that resulted in the 2008 litigation by the other franchisees and the " bad will" that resulted.[6]

In November 2010, Mamilove filed suit against Legacy, asserting a claim under OCGA § 51-1-6 that was based upon Legacy's violations of the FTC Rules,[7] a claim that Legacy violated Georgia's RICO Act,[8] and claims for fraud, negligent misrepresentation, and rescission.[9] [328 Ga.App. 778] Legacy answered the complaint and filed a breach of contract counterclaim based upon Mamilove's failure to pay it royalty and marketing fees due under the franchise agreement after August 2010. The parties filed cross-motions for summary judgment on the opposing claims, and the trial court denied the motions.

At trial, Mamilove presented the evidence outlined above, as well as evidence that the earnings claim the Reymonds received from the Turners in the summer of 2001 was, in fact, fraudulent. The evidence showed that the earnings claim was not a historical representation of the actual revenues and expenses of the existing Legacy franchises, as the Turners had claimed, but was, instead, mere speculation based upon assumptions regarding the total revenues and expenses a franchise might experience.

In addition, Mamilove presented the testimony of four former Legacy franchisees. Patricia Williams, who opened the first Legacy daycare center franchise in November 1998, lost over $283,000 in her first year of operation and lost another $147,000 in the second year. She provided her financial statements to Frank Turner in March 2000 -- over a year before the Turners gave the Reymonds the earnings claim that was supposedly based on the performance of Williams' center and the other franchises. Another franchisee, Tim Paulus, testified that he was considering opening a Legacy franchise in the summer of 2001, and Frank Turner gave him an earnings claim that was very similar to the one the Turners gave to the Reymonds around the same time. As with the Reymonds, Turner told Paulus that the earnings claim was based on the actual

Page 885

performance of the existing Legacy franchises. The other two franchisees, Ann Weaks and Bobby Vatalaro, testified that, when they contacted Legacy about opening a franchise, the Turners gave them an earnings claim similar to that given to Paulus and the Reymonds and told them that the figures shown were not merely estimations or projections but were based on the actual revenues and expenses of existing Legacy franchises. In reliance on the earnings claim, each franchisee decided to open a daycare center. According to Weaks, she and the Turners had agreed on a location for her daycare center before she signed the franchise agreement, but the Turners called her one day and told her that she had to sign the agreement immediately and pay the $40,000 franchise fee or she would lose the location to another franchisee. As with the Reymonds, when Weaks arrived at the Legacy office, she was [328 Ga.App. 779] given a franchise agreement to sign immediately, without an opportunity to read it beforehand. Similarly, Vatalaro testified that, before he had chosen a location for his center, Frank Turner unexpectedly called him and offered him a location, telling him that he had to commit to it within 24 hours because there was " a long list of people" who wanted the property. Both Weaks and Vatalaro testified that their franchises lost hundreds of thousands of dollars between 2004 and 2009. And, as with the Reymonds, when Weaks complained about the losses to the Turners, they told her that other daycare franchises were " doing fine" and that it was her fault that her center was not succeeding.[10]

Testifying in their defense, the Turners denied that they or anyone on Legacy's behalf had given the Reymonds an earnings claim for the franchise before the Reymonds signed the franchise agreement on September 13, 2011. The Turners also claimed, inter alia, that they had given the Reymonds the franchise circular prior to September 13, and Frank Turner denied that he had ever promised the Reymonds that they could build a center at the Old Peachtree Road location. Finally, they denied that they had pressured or otherwise prevented the Reymonds from reading the franchise agreement before signing it.

Based upon the evidence presented, the jury rendered a general verdict in favor of Mamilove on all of its claims and awarded it $750,000, plus $350,000 in damages based upon the RICO violations, and $30,000 in attorney fees. The jury also found that Frank and Melissa Turner were personally liable for the judgments. In addition, the jury found in favor of Mamilove on Legacy's breach of contract counterclaim. The court entered judgment on the verdict.[11]

1. On appeal, Legacy contends that the trial court erred in denying it summary judgment on Mamilove's claims based upon the expiration of the statute of limitation periods for the claims. It has abandoned this issue, however.

Generally,

[a]fter verdict and judgment, it is too late to review a judgment denying a summary judgment, for that judgment becomes moot when the court reviews the evidence upon the trial of the case. Where a motion for summary judgment is overruled on an issue and the case proceeds to trial and the [328 Ga.App. 780] evidence at the trial authorizes the verdict (judgment) on that issue, any error in overruling the motion for summary judgment is harmless.

(Punctuation, footnotes and emphasis omitted.) ALEA London Ltd. v. Woodcock, 286 Ga.App. 572, 575 (1) (649 S.E.2d 740) (2007). However,

if the legal issues raised and resolved in denying the motion for summary judgment were not considered at trial, then the denial of the motion is not rendered moot by the verdict and judgment. Under such circumstances, a party may appeal the denial of summary judgment as part of the party's direct appeal from the final judgment, and the denial will be reviewed and

Page 886

determined by this Court. See OCGA ยง ...

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