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Court Rejects Lawsuit Against Franchisor After Franchisee’s Owner Absconds $1 Million from Korean Investors.

Korean to English legal translation services are often needed in commercial real estate litigation with Korean-language evidence.  In New Star Realty, Inc. v. Jungang Pri USA, LLC, the respondent, a real estate investment company, sued the petitioner and other parties for negligence and attorney’s fees arising out of a commercial real estate transaction gone wrong. In the underlying suit, the respondent alleged that the petitioner’s franchisee misappropriated escrow funds intended as earnest money for the subject real estate transaction and that the petitioner was therefore vicariously liable for its franchisee’s actions. The respondent also alleged that the petitioner failed to properly screen and select the franchisee owner, failed to provide adequate training and education, and failed to properly supervise the franchisee’s handling of the escrow account.

Korean to English Certified Translation of Evidence

In 2006, the petitioner, a franchisor (New Star Realty, Inc.), entered into a franchise agreement with its franchisee (New Star California), which gave the franchisee exclusive rights to its brand name, logos, and proprietary information related to the representation of clients in commercial and residential real estate transactions. At one point, the franchisee had as many as 50 real estate agents. One of the top agents, who was also the company’s vice president (“V.P”), was a managing member in the respondent company. The respondent company was also owned by the V.P.’s brother, who lived in Korea.

The franchisee’s owner recommended that a certain parcel of land was a good investment to the V.P. The V.P. conferred with her brother in Korea, and they agreed to invest in the deal. The franchisee owner informed the V.P. that they would need to despot a sum of $1 million as earnest money. The franchisee owner subsequently sent the V.P. an email in Korean which, the court explained, when translated into English, stated that the $1 million of earnest money would be kept in the franchisee’s escrow account.

A series of delays occurred and the real estate transaction did not close as planned. When the V.P. asked for the return of the $1 million in escrow, the franchisee owner assured her that the deal would close. However, unbeknownst to the V.P. and her brother in Korea, the owner had absconded the $1 million and spent the funds on another development deal. When the franchisor learned about the missing funds, it immediately terminated its franchise agreement with the franchisee along with all business operations tied to the franchisee.

The franchisee owner was eventually convicted of felony theft, sentenced to prison for 10 years, and ordered to return the $1 million in stolen escrow funds.

Respondent Files Civil Suit-Wins at Trial.

The respondent subsequently filed a lawsuit against the franchisee and the franchisor for negligence and seeking $1 million in damages as well as attorneys’ fees and costs.

At trial, the respondent argued that the franchisor was vicariously liable for the franchisee’s negligence regarding the loss of the $1 million in stolen escrow funds. The respondent also argued that the franchisor failed to properly select the franchisee’s owner and failed to properly train, hire, and supervise the franchisee’s employees. After the close of evidence, the jury returned a verdict in favor of the respondent company and awarded the company in excess of $1 million in damages. The petitioner filed a motion for judgment notwithstanding the verdict, which the trial court denied. The petitioner then filed an appeal with the Court of Appeals of Georgia alleging that the trial court erred in denying the judgment notwithstanding the verdict.

Court of Appeals Reverses Trial Court’s Decision.

On appeal, the court held that the trial court should have granted the petitioner’s motion for judgment notwithstanding the verdict. The court held that the evidence did not support an agency relationship between the franchisee and the franchisor because the franchise agreement did not contain any language giving the franchisor supervisory duties or control of the franchisee’s day-to-day operations. Among the many facts the court considered was the testimony of the franchisee’s owner (who was convicted of felony theft), that the individual franchisees could seek advice from the franchisor, but that they made their own decisions regarding real estate transactions and such transactions did not require approval from the franchisor.

As to the argument that the franchisor was liable under the doctrine of apparent agency, the court did note that the franchisee’s owner testified that the franchisee tried to make the public believe that the franchisor and the franchisee were the “same company.” In fact, there was testimony that in the Korean language, the names of “New Star California” and “New Star Georgia” were essentially interchangeable. However, the court also found that there was no evidence that the respondent justifiably relied on the apparent agency relationship or that the reliance caused injury. In addition, the court held that the franchisor could not be held liable for the negligent hiring, training, or supervision of the franchisee’s employees because the franchisor was not the employer and had no control of the franchisee’s day-to-day operations.

The case is New Star Realty, Inc. v. Jungang Pri USA, LLC, Court No. A18A0777 decided on June 22, 2018 by the Court of Appeals of Georgia.

Contact legal translation company All Language Alliance, Inc. to retain court-certified Korean interpreters for legal depositions, and to obtain certified legal translation of evidence from Korean, Chinese, Russian, Portuguese, Spanish, Arabic, Hebrew, German, and other languages to English.

**This legal document translation blog post should not be construed as legal advice. You should always consult an attorney regarding your specific legal needs.

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