Legacy Academy, Inc. v. Mamilove, LLC
328 Ga. App. 775
| Ga. Ct. App. | 2014Background
- Franchisees Michele and Lorraine Reymond signed a 25-year Legacy Academy franchise agreement in 2001 after receiving an earnings claim; they later alleged the earnings claim was fraudulent and that they were pressured to sign without reading the contract.
- Legacy announced zoning issues prevented building at the chosen Old Peachtree Road site, prompting the Reymonds to purchase land in Sugar Hill and finance construction via CCE, with personal and company funds exceeding $2.2 million.
- The Reymonds opened the center in 2002; performance fell short of the claimed profits, leading to disputes and Legacy’s internal franchise expansion nearby that allegedly harmed Mamilove’s center.
- In 2010 the Reymonds terminated the agreement, stopped royalties, and sued Legacy for FTC Rule violations, RICO, fraud, negligent misrepresentation, and rescission; Legacy counterclaimed for breach of contract.
- The jury returned a general verdict in favor of Mamilove on all claims, awarding substantial damages and attorney fees, and found Frank and Melissa Turner personally liable; the court denied Legacy’s motions, and the case proceeded through post-trial rulings and a majority opinion with a partial dissent.
- The dissent challenges the rescission ruling and related fraud reliance, arguing that a merger clause should bar pre-contractual misrepresentations as a matter of law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether rescission was properly denied given lack of pre-signing reading | Mamilove relied on pre-signing fraud evidence; the Reymonds were prevented from reading the contract. | Reymonds could have read the contract; merger clause bars pre-contract representations | Rescission upheld; fraud and reliance triable issues supported by evidence |
| Whether merger clause precludes justifiable reliance on pre-contractual misrepresentations | Merger clause does not bar reliance where fraud vitiates the contract | Merger clause bars reliance on pre-contractual statements when contract remains valid | Merger clause did not defeat rescission and tort claims because rescission invalidates contract; reliance question for jury |
| Whether FTC Rule disclosures create a private OCGA 51-1-6 claim | FTC Rule violations constitute a legal duty under OCGA 51-1-6 | FTC rules do not create private causes of action | OCGA 51-1-6 claim viable; FTC rules do not provide private action but can support common-law duty breach |
| Whether the directed verdict on fraud/negligent misrepresentation/RICO was proper given merger clause | Evidence supports reliance on fraudulent earnings claim despite merger clause | Disclaimers/pre-contract terms bar such claims when contract remains valid | Directed verdict not warranted; evidence supported jury’s finding on these claims |
| Whether new-trial based on newly discovered evidence was properly denied | New trial motion based on newly discovered evidence properly denied |
Key Cases Cited
- Novare Group v. Sarif, 290 Ga. 186 (Ga. 2011) (pre-contractual misrepresentations cannot override valid merger terms; reliance issue for jury)
- City Dodge v. Gardner, 232 Ga. 766 (Ga. 1974) (merger clause cannot bar fraud claims when contract is invalid due to antecedent fraud)
- First Data POS v. Willis, 273 Ga. 792 (Ga. 2001) (merger clause precludes deceit claims where contract remains valid)
- W. R. Grace & Co.-Conn. v. Taco Tico Acquisition Corp., 216 Ga. App. 423 (Ga. 1995) (disclaimers do not support justifiable reliance when contract terms contradict oral representations)
- Campbell v. Citizens & Southern Nat. Bank, 202 Ga. App. 639 (Ga. 1992) (pre-contractual statements cannot vary terms of a written agreement under merger clause)