Dyer v. Honea

• Decision Date: 15 November 2001
• Docket Number: No. A01A0991-A01A0993.
• Citation: 557 S.E.2d 20,252 Ga. App. 735
• Court: Georgia Court of Appeals
• Parties: DYER v. HONEA et al. Honea v. Dyer. Bailey v. Dyer.

557 S.E.2d 20

252 Ga. App. 735

DYER v. HONEA et al.

Honea v. Dyer.

Bailey v. Dyer.

Nos. A01A0991-A01A0993.

Court of Appeals of Georgia.

November 15, 2001.

Reconsideration Denied December 4, 2001.

Peevy & Lancaster, Gregory W. Lancaster, Lawrenceville, for Dyer.

Daniels & Taylor, Jerry A. Daniels, Lawrenceville, Webb & Lindsey, Jonathan J. Wade, Dennis L. Collins III, Atlanta, for Honea et al. Troutman Sanders, William M. Droze, Daniel S. Reinhardt, Atlanta, for Bailey.

MIKELL, Judge.

Pursuant to a contract executed on September 25, 1995, Hal C. Dyer purchased Joel's Restaurant & Catering ("the restaurant") in Gwinnett County for $60,000. The restaurant was owned by Joel's Fine Foods, Inc. ("JFFI"), a corporation closely held by Joel Honea ("J.Honea") and his father, Robert Honea ("R.Honea"). The closing was handled by the Honeas' long-time counsel and JFFI's registered agent, Wayne A. Bailey. During the closing, J. Honea and R. Honea each executed an affidavit averring that there were no liens or encumbrances against the restaurant. Dyer subsequently discovered numerous liens against JFFI and a security interest in the restaurant's equipment. He also determined that profit and loss statements on which he relied in making the purchase were inaccurate. After borrowing money to keep the restaurant afloat, Dyer finally closed it in December 1995 and sold its assets for $6,400.¹

Dyer then sued J. Honea, R. Honea, JFFI, Bailey, and Leslie J. Knight. Dyer alleged that Knight, a friend of J. Honea, represented himself as J. Honea's accountant and showed him financial data supporting the profit and loss statements at issue. Dyer further alleged that JFFI, through the Honeas, as well as the Honeas individually, intentionally misrepresented the restaurant's financial condition and that those misrepresentations induced Dyer to purchase the restaurant; that the Honeas, JFFI, and Knight conspired to defraud him; and that the corporate veil of JFFI should be pierced to permit holding the Honeas personally liable. In addition, Dyer asserted a breach of contract claim against the Honeas and JFFI based on their alleged failure to satisfy the restaurant's debts.

Finally, Dyer asserted a legal malpractice claim against Bailey. Dyer contended that Bailey persuaded him to discontinue using his own attorney and to retain Bailey to prepare the sales contract and the remainder of the closing documents. Dyer further alleged that Bailey should have known of the existence of the lien against the equipment and should have made Dyer aware of it. In support of this claim, Dyer attached the affidavit of George T. Smith, who concluded that Bailey had violated various Canons of Ethics, Directory Rules, and Standards of Conduct promulgated by the State Bar of Georgia in his representation of Dyer.

Dyer sought punitive damages against all defendants for the alleged fraud and conspiracy. The Honeas and JFFI, Bailey, and Knight each moved for summary judgment on all issues. The trial court granted Knight's motion, ruling that Dyer failed to offer credible evidence of Knight's fraud or his knowledge of any fraud. In Case No. A01A0991, Dyer appeals, and we affirm, but for the reason that Dyer failed to show justifiable reliance as a matter of law. The trial court denied the motion filed by the Honeas and JFFI. Only R. Honea appeals from that order. That case is docketed as Case No. A01A0992, and we affirm in part and reverse in part. The trial court also denied Bailey's motion, ruling that genuine issues of fact remained. Case No. A01A0993 is Bailey's appeal, and we affirm.

Case No. A01A0991

1. In his first enumeration of error, Dyer asserts that the trial court erred in granting summary judgment to Knight because material issues of fact remain on the claim of fraudulent misrepresentation. We disagree.

To prevail on summary judgment, the moving party must show that no genuine issues of material fact remain to be tried and that the undisputed facts, viewed in the light most favorable to the nonmovant, warrant judgment as a matter of law.² On summary judgment, we must construe the evidence and all reasonable inferences and conclusions that may be drawn from it most favorably to the nonmovant.³ So viewed, the evidence relevant to Dyer's claims against Knight shows the following: Knight operated a tax return preparation service located in the same shopping center as the restaurant. He had befriended J. Honea and permitted J. Honea to utilize his secretary and office equipment. Knight's secretary typed the profit and loss statements that J. Honea showed to Dyer when the two first met on August 2, 1995, to discuss purchasing the restaurant. The statements consisted of brief, one-page summaries of the profits and losses of the corporation for the years 1993 and 1994, as well as the last quarter of 1992. Dyer deposed that at the meeting, J. Honea "suggested that we get together with his accountant ... and I could ask the questions of the man who prepared" the statements.

On or about August 6, 1995, Dyer met with J. Honea and Knight. According to Dyer, Knight showed him documentation supporting the profit and loss statements and claimed that he had prepared the documents. Dyer deposed that Knight vouched for the profits and said the restaurant was a good business. Knight, however, deposed that he had never prepared any financial documents for the restaurant and did not review the documents at issue with Dyer. Knight claimed that he was unaware of the nature of the documents until he was sued.

Christine Sandquist, a waitress who was working at the restaurant when the meeting took place, deposed that before Dyer arrived, J. Honea and Knight were reviewing different financial statements with "different bottom line figures" and deciding which statement to show Dyer. However, on cross-examination, the waitress admitted that she was not paying close attention, did not hear any of their conversation, and did not know whether the different numbers represented different years.

As the moving party on a motion for summary judgment, a defendant may pierce the plaintiff's pleadings by demonstrating that there is no issue of material fact as to at least one essential element of the plaintiff's prima facie case.⁴ The five elements essential to a tort suit for damages resulting from a material misrepresentation constituting fraud are: (1) that the defendant made the representations; (2) that at the time he knew they were false; (3) that he made them intending to deceive the plaintiff; (4) that the plaintiff justifiably relied on the representations; and (5) that the plaintiff sustained the alleged loss and damage as the proximate result of their having been made.⁵ Accordingly, to survive summary judgment on his fraud claim against Knight, Dyer had to present some evidence of justifiable reliance.⁶ This he did not do.

In order for a genuine issue of material fact to exist as to justifiable reliance, there must be some evidence that the [plaintiff] exercised [his] duty of due diligence to ascertain the truth of the matter and to avoid damage. Although questions of due diligence often must be resolved by the trier of fact, that is not always the case. A party may fail to exercise due diligence as a matter of law.⁷

Assuming, without deciding, that Sandquist's deposition testimony raises an inference that Knight misrepresented the profitability of the restaurant, Dyer's fraud claim still fails, as he produced no evidence that his reliance on any alleged misrepresentation was reasonable. Dyer admitted that he conducted only a cursory review of the documents because he was "not great with figures" and it was "much easier to read" the one-page summaries. Despite his acknowledged difficulty comprehending financial statements, Dyer deposed that he neither requested copies of the documents nor sought out an accountant to review them. The evidence demonstrates conclusively that he took no action to independently verify the accuracy of the data allegedly presented by Knight. Such blind reliance precludes his fraud claim as a matter of law.⁸

2. Dyer next contends that material fact issues remain as to whether Knight conspired with J. Honea and R. Honea to conceal the true financial condition of the restaurant. However, as Dyer's conspiracy claim is dependent upon the viability of his fraud claim, it too must fail.

"A conspiracy is a combination of two or more persons to accomplish an unlawful end or to accomplish a lawful end by unlawful means."⁹ "The cause of action for civil conspiracy lies not in the conspiracy itself, but in the underlying tort committed against the plaintiff and the resulting damage."¹⁰ It follows that the trial court did not err in granting summary judgment to Knight on Dyer's conspiracy claim.

Case No. A01A0992

3. Dyer asserted claims of fraudulent misrepresentation, breach of contract, conspiracy, and piercing the corporate veil against R. Honea. On appeal from the order denying him summary judgment, R. Honea raises eight enumerations of error.

(a) First we address the fraud claim based on oral misrepresentations allegedly made by R. Honea before the closing. Viewed most favorably to Dyer, the evidence shows that R. Honea told Dyer that J. Honea had done "great things" with the restaurant and that it should continue to be "a very profitable business." Dyer asserted that R. Honea knew or should have known that his representations were false because he¹¹ had made loans totaling $92,972.98 to JFFI from 1992 through 1995 and he was JFFI's majority shareholder. Even assuming these representations were knowingly false and that they induced Dyer into purchasing the restaurant, Dyer is estopped from proving that he reasonably relied on them by the merger clause contained in the parties' contract.

A plaintiff claiming that he was fraudulently induced into entering into a contract may elect one of two remedies:...