Reaugh v. Inner Harbour Hosp., Ltd., A94A0258

• Decision Date: 10 June 1994
• Docket Number: No. A94A0258,A94A0258
• Citation: 447 S.E.2d 617,214 Ga.App. 259
• Parties: , 93 Ed. Law Rep. 1011, RICO Bus.Disp.Guide 8674 REAUGH v. INNER HARBOUR HOSPITAL, LTD. et al.
• Court: Georgia Court of Appeals

Page 617

447 S.E.2d 617

214 Ga.App. 259, 93 Ed. Law Rep. 1011,

RICO Bus.Disp.Guide 8674

REAUGH v. INNER HARBOUR HOSPITAL, LTD. et al.

No. A94A0258.

Court of Appeals of Georgia.

June 10, 1994.

Reconsideration Dismissed July 29, 1994.

Reconsideration Denied July 29, 1994.

Certiorari Denied Dec. 2, 1994.

Lovett & Hicks, William E. Hicks, Frederick V. Massey, Dublin, for appellants.

Long, Weinberg, Ansley & Wheeler, Marvin A. Devlin, Johnathan T. Krawcheck, Atlanta, for appellees.

BEASLEY, Presiding Judge.

From January 14, 1985, until November 21, 1986, plaintiff Reaugh participated in a treatment program operated by defendant Inner Harbour Hospital, Ltd., f/k/a Anneewakee, Inc. We refer to defendant as Anneewakee, since that was its name at the time of the events giving rise to this suit. On January 30, 1988, she reached the age of majority. On December 3, 1991, she filed the present complaint against Anneewakee and others. Anneewakee was a Georgia corporation which provided medical, psychiatric, and educational counseling treatment to student admittees through a vocational program in a wilderness setting.

Plaintiff's parents and Anneewakee entered into an agreement pursuant to which plaintiff was admitted as a participant in the Anneewakee program. The agreement contained a release under which her parents, and purportedly plaintiff as "participant," released Anneewakee from any and all claims, causes of actions, or damages that the participant and her parents jointly or individually might have or acquire against Anneewakee arising out of any injury, damage, or loss sustained by them. The agreement also contained a covenant not to sue employing similar language. In addition, the agreement contained a merger clause.

In the complaint, as amended, plaintiff alleged that defendants violated Georgia laws by engaging in, and conspiring to conceal, one or more of the following acts: assault, battery, false imprisonment, mental cruelty, charging plaintiff's family for services not actually rendered or fully performed as claimed in the billings for medical care and psychiatric counseling, interrupting communications in order to control information about physical abuse and mental cruelty, theft, misrepresentation, and fraud and deceit.

She seeks a recovery against defendants for damages resulting from their wrongful acts. In counts 1 through 5 of her complaint, she has asserted claims against defendants for violations of the Georgia Racketeer Influenced & Corrupt Organizations Act ("RICO"), breach of third-party beneficiary contract, breach of written contract, fraud, and breach of fiduciary duty.

Plaintiff charges defendants with engaging in a pattern of racketeering activity involved, but not limited to, mail fraud and violations of Georgia law elsewhere alleged in the complaint.

Plaintiff testified that Anneewakee did not provide her with psychological counseling, dental care, and educational assistance for which her parents were billed. She also testified that she was subjected to dehumanizing acts and forced to engage in extremely strenuous labor for which she was not compensated. She submitted evidence that Anneewakee employees were convicted of committing sexual offenses against participants in the program. She also submitted affidavits of other participants, who testified that they had been sexually abused at Anneewakee, that they spent most of their time doing unpaid labor for Anneewakee's benefit, and that Anneewakee failed to provide classroom instruction and therapy sessions for which it billed.

The trial court granted Anneewakee's motion for summary judgment. The court ruled that plaintiff's breach of third-party beneficiary and written contract claims are barred by the release and because her parents, not she, paid for the services which were supposed to have been rendered under the contract. Although plaintiff argues that the release violates public policy, the court ruled that plaintiff had put forth no public policy that it violates. The court concluded that her claim of fraudulent inducement is barred by the merger clause, because she elected to affirm the contract and sue for damages rather than rescind it. The court ruled that any personal injury claims are barred by the two-year statute of limitation in OCGA § 9-3-33. The court disposed of plaintiff's RICO claim by concluding that it is "without merit and subject to summary judgment."

1. Plaintiff contends that her claims are not governed by OCGA § 9-3-33, which requires actions for "injuries to the person" to be brought within two years after the right of action accrues.

OCGA § 9-3-33 is a general statute of limitation. Daniel v. American Optical Corp., 251 Ga. 166, 168(1), 304 S.E.2d 383 (1983). As such, it is inapplicable to plaintiff's RICO, fraud, and ex contractu counts. As argued by plaintiff, these counts are governed by statutes of limitation specifically applicable to each. OCGA § 16-14-8 provides a five-year statute of limitation to criminal and civil RICO actions. OCGA 9-3-24 sets a six-year statute of limitation for all actions upon simple contracts in writing. OCGA § 9-3-31 imposes a four-year statute of limitation on actions for fraud. See Frost v. Arnaud, 144 Ga. 26, 29(1), 85 S.E. 1028 (1915). There is no statute of limitation otherwise applicable to plaintiff's count alleging breach of fiduciary duties. In this count, she seeks recovery for Anneewakee's failure to provide services for which her parents were billed, and for the crimes and offenses committed against her. To the extent that this count seeks recovery for the latter, it is barred by OCGA § 9-3-33. The scope of this statute is determined by the nature of the injury sustained rather than by the legal theory underlying the claim for relief. Daniel, supra.

2. Plaintiff argues that the release and covenant not to sue are unenforceable, void, and against public policy.

We agree that where, as here, parents have entrusted the care, custody, and control of a child to a third party who is contractually obligated to provide medical and educational services to the child, it would be contrary to public policy to allow that party to exculpate itself from liability for harm to the child resulting from that party's failure to provide such services. ¹ "Where the performance of a contractual condition would be contrary to the health, safety or welfare of others, it may be considered unenforceable. [Cits.]" Tidwell Homes v. Shedd Leasing Co., 191 Ga.App. 892, 895(3), 383 S.E.2d 334 (1989); see also Porubiansky v. Emory Univ., 156 Ga.App. 602, 275 S.E.2d 163 (1980), aff'd Emory Univ. v. Porubiansky, 248 Ga. 391, 282 S.E.2d 903 (1981).

3. Plaintiff argues that as an intended third-party beneficiary of the contract between her parents and Anneewakee, she is entitled under OCGA § 9-2-20(b) to recover the reasonable value of the services it failed to provide.

In reliance upon Rose v. Hamilton Med. Center, 184 Ga.App. 182, 361 S.E.2d 1 (1987), Anneewakee argues that plaintiff is not entitled to such a recovery, because the right to recover the monies paid by plaintiff's parents belongs to them and not to her. Anneewakee's reliance upon Rose is misplaced because Rose involved a tort claim. This case involves a claim for breach of contract by an intended third-party beneficiary. OCGA § 9-2-20(b) states that "[t]he beneficiary of a contract made between other parties for his benefit may maintain an action against the promisor on the contract." This is an exception to the general rule that an action on a contract is brought by a party to it. See Somers v. Avant, 244 Ga. 460, 463, 261 S.E.2d 334 (1979). The remedies available to the beneficiary are exactly the same as would be available to him if he were a contractual promisee of the performance in question. 4 Corbin on Contracts, § 810, p. 230 (1951). We therefore hold that the trial court erred in granting Anneewakee's motion for summary judgment on this claim.

4. Plaintiff insists that she may pursue her claim for fraud in the inducement.

In moving for summary judgment, Anneewakee argued that plaintiff could not avoid operation of the release and covenant not to sue by claiming fraudulent inducement, because she had not sought to rescind the agreement but rather had affirmed it by suing for breach, and it contained a valid merger clause. See Flair Fashions v. SW CR Eisenhower Drive, 207 Ga.App. 78, 79, 427 S.E.2d 56 (1993).

"A contract may be rescinded at the instance of the party defrauded; but, in order to rescind, the defrauded party must promptly, upon discovery of the fraud, restore or offer to restore to the other party whatever he has received by virtue of the contract if it is of any value." OCGA § 13-4-60. Plaintiff asserts that she has received nothing of value to be tendered by her so as to affect a rescission, which Anneewakee contests.

Anneewakee's reliance upon the merger clause is misplaced. That clause states, "There are no promises, terms, conditions or obligations other than those contained herein and therein. With respect to the subject matter hereof, these agreements super[s]ede all previous communications, representations or agreements whether verbal or written, between the parties hereto." Plaintiff's fraud claim is predicated on Anneewakee's false representations that services called for by the agreement would be afforded to plaintiff, as well as Anneewakee's charging plaintiff's account daily psychiatric costs not given. The merger clause does not bar such claims.

We thus conclude that the court erred in granting summary judgment to Anneewakee on plaintiff's fraud claim.

5. Finally, plaintiff contends that the court erred in granting Anneewakee's motion for summary judgment on her RICO claim.

The trial court in its order did not explain the basis for this ruling on this claim. We look to the arguments advanced by Anneewakee in support of it.

(a) Anneewakee's primary argument is that...