Lawson v. Harris Culinary Enters., LLC

• Decision Date: 21 October 2011
• Docket Number: 1091751.
• Citation: 83 So.3d 483
• Parties: Mitzi LAWSON v. HARRIS CULINARY ENTERPRISES, LLC, et al.
• Court: Alabama Supreme Court

83 So.3d 483

Mitzi LAWSON

v.HARRIS CULINARY ENTERPRISES, LLC, et al.

1091751.

Supreme Court of Alabama.

Oct. 21, 2011.

John B. Baugh, Florence, for appellant.

A. Stewart O'Bannon III of O'Bannon & O'Bannon, L.L.C., Florence; and Troy A. Skipworth of Harris & Skipworth, P.C., Florence, for appellees.

SHAW, Justice.

Mitzi Lawson, a defendant below, appeals from a $500,000 judgment in favor of Harris Culinary Enterprises, LLC (“HCE”), John C. Harris III (“Clinton”), and John C. Harris, Jr. (“John”), the plaintiffs below (hereinafter sometimes referred to collectively as “the Harrises”), on their fraud claims related to their purchase of a restaurant franchise. We reverse and render a judgment in favor of Mitzi.

Facts and Procedural History

At all times pertinent to the events giving rise to the underlying action, Mitzi was married to her codefendant, Sims Lawson. Following his marriage to Mitzi, Sims, an accountant, formed SYM, Inc. (“SYM”), also a codefendant in the underlying action, for the purpose of operating a “Fox's Pizza Den” restaurant franchise in Killen (“the Killen franchise”). Sims is president of SYM. Sims purchased a building in which to operate the Killen franchise; that building was titled solely in Mitzi's name.

At some time before the events giving rise to their present claims, John and Clinton formed HCE, an Alabama limited liability company, for the purpose of operating pizza-restaurant franchises. Although both John and Clinton are members of HCE, Clinton was designated as the “managing member.”

In March 2007, the Harrises entered into negotiations with Sims to purchase the Killen franchise. According to the Harrises, in an apparent attempt to secure a higher purchase price, Sims purportedly generated false financial reports evidencing higher gross sales and profits for the Killen franchise than were actually realized. Upon review of the purported falsified reports, the Harrises increased their initial offer and, in May 2007, ultimately purchased the Killen franchise. As a condition of the sales agreement, the Harrises entered into a one-year lease agreement to continue operation of the Killen franchise in its then current location.

In August 2007, the Harrises initiated the underlying action, alleging that, as a result of Sims's presentation to them of falsified reports, they had been induced to purchase the Killen franchise and to enter into the lease agreement, suffering damage as a result. Their complaint, which charged SYM, Sims, and Mitzi under several theories of fraud, specifically indicated that Mitzi was being sued “as owner and lessor of the [building]” in which the Killen franchise was located. In response to the Harrises' complaint, Mitzi moved both to dismiss any claims asserted against her in that pleading and, subsequently, for a summary judgment in her favor on the ground that the complaint did not allege—and that there was no evidence to support—a claim that Mitzi had made any representation, false or otherwise, to the Harrises. The trial court denied both motions.

The matter proceeded to a bench trial on July 13, 2010, at which neither Sims nor SYM (nor a representative for either) appeared to defend against the Harrises' claims.¹ During that proceeding, the trial court heard ore tenus evidence from Clinton and John, from Mitzi, and from David Holcombe, a former employee of SYM, who had worked at the Killen franchise.

Clinton testified that, as a result of his past experience in the “pizza business,” the Harrises began looking at pizza-restaurant franchise opportunities. After learning about and investigating opportunities available with Fox's Pizza Den, the Harrises ultimately purchased a Fox's Pizza Den franchise and opened an initial location in Petersville (“the Petersville franchise”). Because of the profitability of that initial location, the Harrises began seeking another Fox's Pizza Den franchise, which they ultimately purchased and opened in Muscle Shoals (“the Muscle Shoals franchise”).

At the time the Harrises were expanding their operations, according to Clinton, John encountered Sims at a funeral they were both attending, and the Harrises were apprised of the possibility of purchasing the Killen franchise from Sims. Clinton subsequently went to inspect the Killen franchise. According to Clinton, he received a tour of the building in which the Killen franchise was located and an explanation of its business practices. Clinton indicated that Mitzi was present during these activities but that “[s]he was quiet.” Clinton indicated that, at the conclusion of his tour, he requested the “sales numbers” associated with the Killen franchise. After receiving records evidencing the sales receipts for the Killen franchise through December 2006, which evidenced monthly average sales of $20,000, Clinton indicated to Sims that he was no longer interested in purchasing the Killen franchise because the sales figures “were too low....”

Clinton stated that once he relayed his disinterest based on the disappointing sales numbers, Sims contacted John and further negotiation ensued, which culminated in an initial offer by the Harrises to purchase the Killen franchise. SYM, however, rejected that initial offer, and additional negotiation occurred, which ultimately resulted in an agreement for the Harrises to purchase the Killen franchise.

Clinton testified that, during the course of the negotiations immediately preceding the purchase agreement reached by the parties, Sims represented to the Harrises that the sales numbers for the Killen franchise were increasing and that they were better than the initial sales numbers that had been provided to the Harrises. Specifically, according to Clinton, Sims

“[told them] that since bridge construction [on the adjacent Shoals Creek Bridge] had ended in December of 2006, ... [the Killen franchise's] average sales had increased from the twenty thousand average we were shown going through December 2006 to—steadily to an average of thirty thousand in March of 2007.”

Clinton further stated that the Harrises were initially provided “a printout” evidencing the allegedly increasing sales numbers for January 2007, February 2007, and March 2007. Clinton testified that documentation was provided “by [Sims]” and was presented “[o]n behalf of the corporation.” ² Clinton was unable to identify any documentation that had been provided to the Harrises by Mitzi. He further acknowledged that, during the negotiation period, Mitzi never made a single statement to the Harrises nor answered any question that they might have asked.

Clinton indicated that, upon the Harrises' request for further supporting documentation, Sims also provided sales-tax records for January 2007, February 2007, and March 2007. According to Clinton, the information provided by Sims verified Sims's claims that sales for the Killen franchise had steadily increased from December 2006 through March 2007. Clinton indicated that, based on that information, the Harrises entered into final negotiations for the purchase of the Killen franchise. Clinton noted that only Sims was involved in the negotiations associated with the sale of the Killen franchise and with regard to the lease of the building where the franchise was located. ³ He further acknowledged that only Sims, in his capacity as president of SYM, signed the sales contract transferring the Killen franchise to the Harrises.

However, Clinton indicated that, with regard to the lease, Sims asserted that he was handling the negotiations on behalf of Mitzi, who, Sims indicated to the Harrises, was actually the sole owner of the building. As with the sales negotiations, Clinton confirmed that Mitzi apparently signed the lease agreement outside his presence, and he never had a single discussion with her regarding the lease terms Sims had negotiated. Nonetheless, Clinton stated that he was instructed to make the lease payments directly to Mitzi. Clinton further testified that, with regard to the lease transactions, no misrepresentations were made to the Harrises.

Following the sale, the Harrises took possession of the Killen franchise and Mitzi's building on May 14, 2007. Clinton indicated that, following the transfer, the Killen franchise averaged $4,000 to $5,000 per week, which numbers, he said, “were not in keeping with [Sims's] representations.” In fact, Clinton noted, the numbers were more in line with the initial sales numbers provided to the Harrises (those evidencing the sales numbers for the Killen franchise in late 2006), which Clinton had deemed to be too low to justify the purchase of the Killen franchise. Specifically, according to Clinton, $20,000 was too low a monthly sales figure for a pizza franchise to operate profitably.

Clinton stated that, in accordance with the purchase of the franchise, he had been provided “the card necessary to access ... the computers at the Killen [franchise].” ⁴ Although the only access card provided the Harrises was issued in Mitzi's name, Clinton testified that Sims actually gave him the computer-access card. Clinton then had an employee use the accounting software still loaded on one of the computers at the Killen franchise to produce a report of the sales numbers beginning in January 2007. According to Clinton, the report generated by that search confirmed “[t]hat the store sales average never went over [$20,000] a month.” ⁵

Clinton acknowledged that the Harrises had no evidence indicating that Mitzi “had anything to do with [the] documents Sims gave [the Harrises].” As to evidence indicating Mitzi's involvement in the Killen franchise, Clinton pointed to the fact that Mitzi had been responsible for handling payroll at the Killen franchise and that, as evidenced by the computer-access card issued in her name, Mitzi had access to the computer system used at the Killen franchise. ⁶ Once the Harrises became aware of the discrepancy in the reported earnings versus the actual...