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Legacy Academy, Inc. v. Mamilove, LLC

Supreme Court of Georgia

April 20, 2015


Certiorari to the Court of Appeals of Georgia -- 328 Ga.App. 775.

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

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

Greenberg Traurig, Ernest L. Greer, Michael J. King, amici curiae.

THOMPSON, Chief Justice. Benham, Hunstein, Melton, Nahmias and Blackwell, JJ., and Judge Ural Glanville concur. Hines, P. J., not participating.


Page 869

Thompson, Chief Justice.

This appeal arises out of an action brought by the owner of a franchise, Mamilove, LLC, and its officers, Michele and Lorraine Reymond (collectively " the Reymonds" ), in which they sought rescission of a franchise agreement and damages for claims related to their negotiations for, and ultimate purchase of, a daycare franchise. The named defendants are the franchisor, Legacy Academy, Inc., and its officers, Frank and Melissa Turner (collectively " Legacy" ).

A review of the evidence presented at trial demonstrates that in 2001, Michele and Lorraine Reymond, sisters, approached the Turners and expressed an interest in purchasing a Legacy Academy Center daycare franchise. Michele testified that in July 2001, Legacy gave her and her sister an earnings claim purporting to state the historical earnings of existing franchisees. This earnings claim reflected that in the first two years after purchasing a franchise, a franchisee could expect to receive net income of $260,000 and $440,000, respectively. The Turners also discussed with the sisters an available property on Old Peachtree Parkway, suggesting it would be a good location for their franchise.

Subsequently, the Reymond sisters created Mamilove, LLC, an entity established for the purpose of holding title to the real property upon which they intended to build their Legacy Academy franchise and the building and personal property used in the operation of their franchise. In September 2001, Michele, who had a master's degree in [297 Ga. 16] business administration and was working for a large corporation, and Lorraine, who was working for WebMD, again met with the Turners and were given an offering circular and a franchise agreement (the Agreement) for their signature. They signed the Agreement the same day without reading either it or the offering circular. Ten years later, they brought the action at issue in this appeal,

Page 870

alleging that Legacy fraudulently induced them to sign the Agreement by providing false information about the historical earnings of existing Legacy Academy franchisees.[1] They sought to rescind the Agreement and to recover damages for claims based on allegations of fraud, negligent misrepresentation, and violation of both OCGA § 51-1-6[2] and the Georgia Racketeer Influenced and Corrupt Organizations Act (" RICO" ),[3] OCGA § 16-14-1 et seq. A jury trial ensued, and after the close of evidence, the trial court denied Legacy's motion for directed verdict as to all of the Reymonds' claims.[4] The jury found in favor of the Reymonds, issuing a general verdict awarding them $750,000 in compensatory damages, $375,000 in additional RICO damages, and $30,000 in costs of litigation. Legacy appealed, raising various challenges, including a challenge to the trial court's ruling on its motion for directed verdict. The Court of Appeals affirmed, Legacy Academy, Inc. v. Mamilove, LLC, 328 Ga.App. 775 (761 S.E.2d 880) (2014), and we granted a writ of certiorari to determine whether the Court of Appeals erred when it affirmed the trial court's denial of a directed verdict on the Reymonds' claims for rescission, fraud, negligent misrepresentation, and violation of the Georgia RICO statute. Because we find Legacy was entitled to a directed verdict as to these claims, we reverse the decision of the Court of Appeals in part.

1. A motion for directed verdict may be granted only where the evidence demands the particular verdict and fails to disclose any material issue for jury resolution. See OCGA § 9-11-50 (a). Legacy [297 Ga. 17] argues the trial court erred by denying its motion for directed verdict on the claim for rescission based on fraudulent inducement because this claim was precluded as a matter of law by the Reymonds' failure to read the Agreement.

" In general, a party alleging fraudulent inducement to enter a contract has two options: (1) affirm the contract and sue for damages from the fraud or breach; or (2) promptly rescind the contract and sue in tort for fraud." Ekeledo v. Amporful, 281 Ga. 817, 819 (1) (642 S.E.2d 20) (2007). Having elected to seek rescission and pursue a claim for fraud, the Reymonds were required to prove that Legacy through misrepresentation, act, or artifice intentionally induced them to sign the Agreement and that they justifiably relied on the misrepresentation, act, or artifice, being " reasonably diligent in the use of the facilities at [their] command." Lewis v. Foy, 189 Ga. 596, 598 (6 S.E.2d 788) (1940). See Markowitz v. Wieland, 243 Ga.App. 151, 153 (532 S.E.2d 705) (2000). They attempted to meet their burden through the presentation of evidence showing ...

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