Willis v. First Data POS, Inc.

• Decision Date: 21 June 2000
• Docket Number: No. A00A1502.,A00A1502.
• Citation: 536 S.E.2d 198,245 Ga. App. 121
• Parties: WILLIS et al. v. FIRST DATA POS, INC.
• Court: Georgia Court of Appeals

536 S.E.2d 198

245 Ga. App. 121

WILLIS et al. v. FIRST DATA POS, INC.

No. A00A1502.

Court of Appeals of Georgia.

June 21, 2000.

Reconsideration Denied July 14, 2000.

Certiorari Granted October 27, 2000.

King & Kroft, F. Carlton King, Jr., Atlanta, Arnold J. Wolf, for appellants.

Sutherland, Asbill & Brennan, Thomas A. Cox, Kristen J. Indermark, Atlanta, for appellee.

ELDRIDGE, Judge.

Joe Willis, Dan Gordon, Jim Javors, and Daniel Johnston ("the Willis group") sued First Data Pos, Inc. for misrepresentation, breach of contract, and violation of the Georgia Racketeer Influenced & Corrupt Organizations Act, arising from the purchase of their stock in the software development company, COIN Banking Systems, Inc. On April 23, 1999, the trial court granted summary judgment on all theories of liability. We find under each theory of civil fraud and breach of contract that the trial court properly granted summary judgment because of the language of the Stock Purchase Agreement. However, there exists a material issue of fact as to RICO, because there is no defense of justifiable reliance or of "merger" in criminal fraud. Accordingly, as to the RICO claim, we reverse.

In 1991, First Data approached the owners of Retail Interact, a California developer of software, and persuaded its stockholders to sell out this prosperous company with current year profits and sales on the books that required future performance; the inducement for sale of their stock was upfront cash, employment for several years, and an additional contingent consideration over three years based upon increased sales by Retail Interact. Promises of combined product sales and investing resources in Retail Interact to enhance the company's products and substantially increase sales were orally made but were carefully excluded from the Stock Purchase Agreement.

However, once First Data owned Retail Interact, all of the 1991 sales revenue by Retail Interact was shown as profit in that year by accrual accounting, instead of part performance accounting. Also, future expenses of performance of such sales were not accrued. Such deceptive accounting practices created inaccurate profits on the books and artificially inflated First Data's profits as the parent company.

Such future costs as they were incurred would have forced a loss in 1992 on the books of First Data, unless it could show a substantial increase of profits from some other source than Retail Interact to offset such expenses, because to grow Retail Interact's revenue would trigger the additional consideration being owed to the former stockholders under the Stock Purchase Agreement.

COIN showed an annual rate of revenue increase of 40 percent between 1989 and 1992 and was a prime target for First Data's buyout of stock to provide profits in 1992. In the November-December 1992 period alone, COIN had actual sales of over $4,000,000, and prior to the stock sale, it projected sales for this period at $2,000,000. First Data orally promised the Willis group the investment of resources and personnel into COIN to make it grow; First Data paid cash up front for the stock, promised jobs for three years, and agreed to pay additional consideration contingent on COIN attaining certain revenue levels in the last two months of 1992 and the next three years, as it had with Retail Interact. On October 30, 1992, First Data purchased the stock of the Willis group through the use of an artfully crafted Stock Purchase Agreement that had the illusion of the oral promises of resource contribution; however, in the agreement, First Data reserved the power to terminate COIN's operations without committing to invest any additional assets or personnel, which legally negated such oral promises and would protect it from any civil fraud or breach of contract actions. The Stock Purchase Agreement also contained a merger agreement that legally negated all prior commitments of resources.

As soon as First Data gained control of COIN, it changed the method of accounting to show on its and COIN's books the 1992 sales as substantial profits in 1992 by accruing the revenue from sales, but not the expense for performance of the 1992 sales and not allocating future expenses, necessary expenses, and costs for personnel to perform these 1992 software sales. It also kept costs in 1993 at a bare minimum. The inability of COIN to perform the 1992 sales of service in installing the software and a delay in installation in 1993 had a chilling effect on future sales by COIN, so that the contingency for additional compensation could not occur as in the situation with Retail Interact. To prevent a loss, First Data kept the costs below the contract performance levels. Held:

1. Plaintiffs' first enumeration of error is that the trial court erred in granting summary judgment on their tort fraud action. We find that the express terms of the Stock Purchase Agreement were intentionally crafted by First Data to protect it from tort fraud liability. This agreement was crafted with a merger clause and in such contract terms that a reasonable, prudent person exercising due diligence for their own protection in reading the contract should have known that any promises of resource allocation to COIN made by First Data orally were a mere illusion; that First Data possessed at all times the power to pull the plug on COIN; and that there could be no reasonable reliance on the false representations prior to execution and made to induce the stock sale, because such were refuted by the contract itself. See Estate of Farkas v. Clark, 238 Ga.App. 115, 119(1), 517 S.E.2d 826 (1999); Kaye v. Ryland Group, 228 Ga. App. 742, 743, 492 S.E.2d 729 (1997).

From the record it is clear that First Data in its oral representations made in person and by telephone, and representations by mail to the Willis group promised to make substantial contributions to the development of COIN to induce the Willis group to sell their stock at below market value for cash and contingent consideration. However, the merger clause in the Stock Purchase Agreement negated such fraud in the inducement. Estate of Farkas v. Clark, supra at 117-118, 517 S.E.2d 826; see also Kaye v. Ryland Group, supra at 743, 492 S.E.2d 729. Therefore, in tort fraud, the Willis group had no cause of action. Willis v. Brooks & Thomas Motor Co., 101 Ga.App. 248, 113 S.E.2d 403 (1960).

Although the contract had some terms that gave the illusion of a commitment to make the necessary, reasonable, and promised resources available to COIN, i.e., the Covenant Not to Compete, First Data retained the express power under the clear terms of the contract to starve COIN of resources and to pull the plug on COIN if it wished. Thus, the Willis group failed to exercise ordinary care for its own protection as a matter of tort fraud by entering into a contract that expressly gave First Data the right, discretion, and power to do the opposite of what it orally promised to do. Thus, no reasonable reliance could exist as a matter of civil law. See Boynton v. State Farm &c. Ins. Co., 207 Ga.App. 756, 757, 429 S.E.2d 304 (1993).

2. Plaintiffs contend that the trial court erred in finding no breach of contract or breach of duty of good faith and fair dealing in granting the summary judgment. We do not agree. Again, First Data carefully crafted the Stock Purchase Agreement to protect itself from this very action by the wording of the agreement. There was neither a breach of contract nor a breach of duty of good faith and fair dealing, because the agreement expressly denied such duties. The agreement had no provision that was enforceable regarding specific levels of resources, personnel, or investment in COIN by First Data that would affect the additional consideration and gave full power and discretion to First Data to make such decisions. In fact, although the Willis group were employees for three years, they had no control or authority to hire more personnel or make investments in COIN to perform the 1992 sales or any future sales of software.

First Data, under the terms of the agreement, had no duty of good faith and fair dealing regarding the contingent consideration, and no implied duty of reasonable diligence arose from this contract, because such duty would conflict with the express term of the agreement, negating such duties. The Willis group conveyed all of its ownership interests. The Willis group received some, although inadequate, fixed consideration. There existed a need for First Data to exercise discretion, and therefore, no implied duty of fair dealing arose. See Higginbottom v. Thiele Kaolin Co., 251 Ga. 148, 151(1), 304 S.E.2d 365 (1983); Palmer Brick Co. v. Woodward, 138 Ga. 289, 299(3)(d), (e), 75 S.E. 480 (1912); DPLM, Ltd. v. J.H. Harvey Co., 241 Ga.App. 219, 224-225(2), 526 S.E.2d 409 (1999); Hodges v. Ga. Kaolin Co., 108 Ga.App. 115, 118(1), 132 S.E.2d 86 (1963).

First Data, in writing the contract, expressed a clear intent that it would have no express or implied duty to contribute to the resources of COIN or to hire necessary personnel. Thus, the express terms of the contract negated First Data's duty under Georgia law of good faith and fair dealing. West v. Koufman, 259 Ga. 505, 506, 384 S.E.2d 664 (1989); Jackson Elec. Membership Corp. v. Ga. Power Co., 257 Ga. 772, 774(1), 364 S.E.2d 556 (1988). Any pre-agreement promises as to resources vanished and were eliminated by the merger provision when the Stock Purchase Agreement was executed by all parties.

3. Plaintiffs contend that the trial court erred in granting summary judgment on their RICO claim. We agree and reverse.

(a)

Theft by deception and civil fraud have different elements and are not necessarily proved by the same evidence. See Robinson v. State, 198 Ga.App. 431, 433, 401 S.E.2d 621 (1991). Theft by deception is committed when a person "obtains property by any deceitful means or artful practice with the intention of

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