Court Watch

The Georgia Supreme Court recently reversed a jury verdict that an intermediate appellate court had affirmed against a franchisor, in Legacy Academy, Inc. v. Mamilove, LLC, 771 S.E.2d 868 (2015). (The appellate case ' Legacy Academy, Inc. v. Mamilove, LLC, 328 Ga.App. 775 (2014) ' was discussed in the February 2015 Court Watch.) The Georgia Supreme Court simply affirmed two principles common to many franchise disputes: 1) The presence of an integration clause makes it impossible to sue on promissory fraud that is made outside the four corners of the agreement; and 2) the presence of “disclaimer” clauses (i.e., no representations have been made as to earnings) make it impossible for a franchisee to reasonably rely on something like earnings claims. Another holding of the court was that proof that the franchisor forced the franchisee to sign the agreement on the day presented without the ability to read it was insufficient to excuse the franchisee from reading the agreement unless there was proof that the franchisor committed fraud that prevented the franchisee from reading the contract.

What is interesting about the decision is what was not discussed, given the intermediate appellate court's opinion. The court of appeals held that the merger and integration clauses could not operate to bar the claims if the contract was rescinded, citing the Georgia Supreme Court decision in City Dodge v. Gardner, 208 S.E.2d 794, 798 (1974) (“If the contract is invalid because of the antecedent fraud, then the ' disclaimer provision therein is ineffectual since, in legal contemplation, there is no contract between the parties.”). The Georgia Supreme Court in Legacy Academy attempted to distinguish City Dodge in footnote 7 of its opinion by claiming that there was no evidence from which a jury could have determined that plaintiffs were entitled to rescind. However, it appears that the basis for the determination was the absence of the merger and disclaimer clauses themselves. There was evidence that the plaintiffs had been given earnings claims, which might be actionable in the absence of such clauses.