Collins Entertain v. Leisure Times Tech ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
COLLINS ENTERTAINMENT
CORPORATION, a South Carolina
Corporation,
Plaintiff-Appellant,
v.
DREWS DISTRIBUTING, INCORPORATED,
No. 98-1083
Defendant-Appellee,
and
LEISURE TIME TECHNOLOGIES,
INCORPORATED, formerly known as
US Games Incorporated,
Defendant.
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-96-3398-6-13)
Argued: January 26, 1999
Decided: March 9, 1999
Before NIEMEYER, LUTTIG, and MICHAEL, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Eric Steven Bland, BLAND & NEEDLE, L.L.P., Colum-
bia, South Carolina, for Appellant. Arthur Camden Lewis, LEWIS,
BABCOCK & HAWKINS, L.L.P., Columbia, South Carolina, for
Appellee. ON BRIEF: Mary G. Lewis, LEWIS, BABCOCK &
HAWKINS, L.L.P., Columbia, South Carolina, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Collins Entertainment appeals a directed verdict entered by the dis-
trict court in its suit against Drews Distributing alleging tortious inter-
ference with contract and unfair trade practices under South Carolina
law. Because we agree with the district court that Collins failed to
present sufficient evidence in support of either claim, we affirm.
I.
Appellant Collins and appellee Drews are both in the gambling
business and compete to distribute in South Carolina the wildly popu-
lar gambling machine called Pot-O-Gold.1 Leisure Time Technologies
(formerly U.S. Games)2 sells Pot-O-Gold to distributors.
In 1992, Collins became Leisure Time's exclusive distributor of
Pot-O-Gold in South Carolina, subject to a quarterly quota, violation
of which would allow Leisure Time either to terminate the distribu-
tion contract or to change Collins' rights to those of a non-exclusive
distributor. Collins used the Pot-O-Gold machines both for resale
(distribution) and for its "routes," locations where it would install and
maintain its own machine. Beginning in the third quarter of 1993,
_________________________________________________________________
1 According to counsel for Drews, the machine's popularity likely
results from it having "lots of lights" and little balls that "drop down and
go ``ding, ding, ding.'"
2 For simplicity, we refer to this company throughout as Leisure Time.
2
Collins admittedly was in violation of its quota by not purchasing any
Pot-O-Golds. Rather than terminate its contract with Collins, how-
ever, Leisure Time, on October 8, 1993, merely changed Collins' sta-
tus to that of a non-exclusive distributor.
Meanwhile, at two gambling-industry conventions in 1993 (prior to
October), Leisure Time, in an effort to find a more reliable distributor,
discussed with Drews the possibility of Drews distributing Pot-O-
Gold in South Carolina. The evidence shows that Leisure Time
approached Drews and that Drews did not then know the nature of
Collins' arrangement with Leisure Time. Hugh Andrews, president of
Drews, testified to this effect in describing a conversation at one of
the conventions:
[They] asked would we be interested in being a distributor.
And I said, "Well, y'all already got a distributor."
...
They said, "well, Mr. Collins is not buying his quotas or he
hasn't bought anything from us in a long time. We don't
think he's going to buy anything from us and we were won-
dering if you'd consider being our distributor." I said, "well,
if that ends up being the case, let me know and we'll talk
about it."
J.A. 231. See J.A. 327 (Thomas Klingel, official of Leisure Time,
stating that "I brought it up with Hugh"). Drews' Vice President testi-
fied similarly: "We were in a conversation at a trade show most
likely, and [Mort Ansky of Leisure Time] had discussed that he had
a contract with Fred [Collins]. I was interested in purchasing at some
point during that time and, you know, we never got to the point of try-
ing to send a purchase order or me actually going to try to buy the
games." J.A. 175-76.
These preliminary discussions with Drews were materializing into
full negotiations by early October (about the time that Leisure Time
was changing Collins' status to that of a non-exclusive distributor),
and they matured into a purchase by Drews of some Pot-O-Golds in
3
late October 1993 and an exclusive-distributorship contract signed in
early November.
In the exclusive distributorship contract with Drews, Leisure Time
included a carve-out granting Collins a right to purchase machines for
its routes. Officials from Drews admit to having been surprised over
this reservation, but they ultimately agreed to it, reasoning that not
only would Collins not be distributing, but Drews also would not be
losing potential sales to Collins for its routes because Collins likely
would never make such purchases from its arch-rival. Further, Drews
had reason to believe that not even sales by Leisure Time for Collins'
routes would occur. As Mr. Andrews subsequently testified, Leisure
Time had told him during negotiations in the fall of 1993 that it had
cancelled Collins' contract.3 And Andrews' testimony was corrobo-
rated by an October 11, 1993, letter to Drews from Mort Ansky of
Leisure Time in which Ansky, referencing a meeting of a few days
before at which the two companies had agreed to a distributorship
arrangement, wrote "I am in the process of having the attorneys draft
a letter to any former commitments that we have made in the past."
In November 1995, Drews and Leisure Time renewed, with similar
terms, their exclusive-distributorship agreement. However, beginning
in the spring of 1995, Collins had resumed purchasing Pot-O-Golds
from Leisure Time, at least some of which were for resale. By Col-
lins' admission, "Leisure Time did not hesitate in selling games" to
it, at least not until sometime in 1996, when Leisure Time's inconsis-
tent obligations to Drews and Collins became known.
The revelation that Leisure Time was selling Pot-O-Golds to Col-
lins notwithstanding Leisure Time's exclusive distributorship with
Drews predictably caused dissension, and in 1996, Collins sued both
Drews and Leisure Time, and Drews sued Leisure Time. Collins
_________________________________________________________________
3 In the related case of Drews Distributing, Inc. v. Leisure Time Tech-
nologies, Inc. (D. S.C. 1997), the same district court judge, after a bench
trial, found that "Leisure Time continually withheld from Drews material
facts regarding the true nature of Collins' relationship with Leisure Time
and Leisure Time's awareness of Collins' sales of its machines in South
Carolina." The appeal, argued December 1, 1998, is pending before this
court. Docket No. 97-2391.
4
alleged that Leisure Time breached the non-exclusive (post-October
1993) distributorship agreement, that Drews tortiously interfered with
Collins' distributorship agreement, and that both Leisure Time and
Drews violated the South Carolina Unfair Trade Practices Act
("SCUTPA"). S.C. Code § 39-5-20. Collins also brought federal
claims of antitrust violations and price discrimination, which it later
withdrew. The district court retained the case under supplemental
jurisdiction.
After trial, the district court directed a verdict for Drews. As to tor-
tious interference with contract, the court held that there was "no or
insufficient evidence to show that Drews had any knowledge of [the]
contract [between Leisure Time and Collins]" and "absolutely no evi-
dence that there was an intentional procurement of a breach." As to
SCUTPA, the court found "no evidence of any deception." The same
day, a jury concluded that Leisure Time had breached its contract
with Collins, but awarded zero damages.
Collins appealed the directed verdict. A motions panel of this court
subsequently denied Drews' motion to dismiss the appeal as untimely.
II.
Collins primarily, and almost exclusively, argues that Drews tor-
tiously interfered with its exclusive distributorship agreement with
Leisure Time prior to October 8, 1993, causing Leisure Time to
change Collins' distributorship status from exclusive to non-exclusive
on that date. Because this change in status was not a breach of Col-
lins' contract with Leisure Time, Collins cannot prevail on this argu-
ment. Collins also argues, albeit sporadically, that, after October 8,
Drews tortiously interfered with Collins' non-exclusive agreement.
Under federal law, see Mattison v. Dallas Carrier Corp., 947 F.2d 95,
99 (4th Cir. 1991), a directed verdict is proper unless the party oppos-
ing such a motion has presented at trial "substantial evidence which
shows a probability and not a mere possibility of proof," Bailey v.
County of Georgetown, 94 F.3d 152, 157 (4th Cir. 1996) (citation
omitted). Because Collins failed to present "substantial evidence" that
Drews tortiously interfered with Collins' agreement with Leisure
Time after October 8, Collins cannot prevail on this argument either.
5
First, Collins could not prevail on its chief argument even if its fac-
tual contention against Drews were true. For tortious interference with
contract is only possible when that interference has caused an under-
lying contractual breach. See Collins Music Co. v. Smith, 503 S.E.2d
481, 482 (S.C. App. 1998) ("The nexus between the two causes of
action is the breach of the contract, for . . . breach of the contract is
an element of both causes of action."); Bocook Outdoor Media, Inc.
v. Summey Outdoor Advertising, Inc., 363 S.E.2d 390, 394 (S.C. App.
1987) ("[T]he alleged act of interference must influence, induce, or
coerce one of the parties to the contract to abandon the relationship
or breach the contract."), overruled on other grounds, O'Neal v.
Bowles, 431 S.E.2d 555 (S.C. 1993).
Collins repeatedly argues that Drews interfered prior to October 8,
1993, and caused Leisure Time to change Collins' status to that of a
non-exclusive distributor. See Appellant's Br. at 21 ("But for the
intentional interference by Drews with Collins Entertainment's con-
tractual relationship with Leisure Time throughout 1993, Collins
Entertainment would have continued to meet its quarterly minimum
purchase requirements [and] retained its exclusive right to market and
sell the Pot-O-Gold machine. . . .") (emphasis added); id. ("Drews
interfered with Collins Entertainment's exclusive distributorship
agreement that was in effect from May 3, 1992 through October 8,
1993. . . .") (emphasis added); id . at 24 (Drews conspired with Leisure
Time to have Leisure Time terminate its exclusive distributorship
agreement with Collins . . . .") (emphasis added). At oral argument,
counsel for Collins made similar statements three separate times, con-
cluding his argument with the observation that "[o]ur case against
Drews . . . concerns January '93 up to [ ] October 8, '93."
But Leisure Time's change of Collins' status on October 8, 1993,
was not a breach, nor has Collins so alleged or argued. If anything,
Collins was in breach for not meeting its quota. See Appellant's Br.
at 9 ("Leisure Time exercised its rights under the Agreement to mod-
ify Collins to a non-exclusive basis."); J.A. 25 (Collins' complaint,
stating that "[t]he default [by Collins] resulted in a modification of the
Distributorship Agreement"). Thus, in effect, Collins argues that
Drews, by intentionally procuring action that was not a breach of con-
tract, committed a tort that cannot occur absent a breach. Collins itself
inadvertently calls attention to this fatal defect in its argument:
6
Collins [sic] claim for breach of contract against Leisure
Time was for Leisure Time's breach of its non-exclusive
distributor agreement after October 8, 1993. Conversely, its
tortious interference with existing contractual relations
claim asserted against Drews was for interference with Col-
lins' exclusive distributor agreement prior to October 8,
1993.
Appellant's Rep. Br. at 6 (emphases added). Because intentionally
procuring a non-breach does not -- indeed cannot-- amount to tor-
tious interference with contract, the district court correctly entered a
directed verdict for Drews.
At one point in oral argument Collins contended, notwithstanding
its virtually exclusive emphasis on Drews' and Leisure Time's pre-
October 8, 1993, conduct, that its claim of tortious interference actu-
ally had "two components," the first discussed above and the second
relating to post-October 8 conduct by Drews -- particularly Drews'
late-October purchase from Leisure Time and the November signing
of the distributorship agreement. Cf. Appellant's Rep. Br. at 4 (refer-
ring to "Drews' conduct of having interfered with Collins' exclusive
and non-exclusive agreements with Leisure Time").
A directed verdict was likewise justified as to this second "compo-
nent." The elements of tortious interference with contract are "(1) the
existence of a contract; (2) the wrongdoer's knowledge of the con-
tract; (3) the intentional procurement of the breach; (4) the absence
of justification; and (5) resulting damages." Todd v. South Carolina
Farm Bureau Mut. Ins. Co., 336 S.E.2d 472, 473 (S.C. 1985). Failure
on any of these elements is fatal, and Collins failed to present sub-
stantial evidence in support of at least three.
First, Collins cannot satisfy element (2) because Drews lacked any
significant knowledge of Collins' distributorship agreement,
particularly after October 8. The evidence overwhelmingly suggests
that Drews thought Leisure Time had cancelled its contract with Col-
lins or, at most, had a contract allowing Collins to purchase only for
its routes. Of course, Leisure Time had not cancelled its contract with
Collins; nor did Leisure Time have a contract with Collins only
allowing purchase for Collins' routes.
7
Second, Drews could not have intentionally procured the breach of
a contract that it did not know about, and thus cannot satisfy element
(3). Even if it had known about the contract, the overwhelming evi-
dence shows, as the district court found, that Leisure Time sought out
Drews, not vice versa.
Third, even if Drews knew about the contract and intentionally pro-
cured its breach, Drews had the justification of legitimate competi-
tion, and thus Collins cannot satisfy element (4). Drews essentially
said to Leisure Time, at most, "Give us the contract. We can do better
than Collins." The law encourages such competitive conduct. In
Waldrep Bros. Beauty Supply, Inc. v. Wynn Beauty Supply Co., Inc.,
992 F.2d 59 (4th Cir. 1993), which involved a claim of tortious inter-
ference with contract under South Carolina law, we held that
"[b]usiness rivalry that promotes lower prices, better products, or
more efficient services is justified . . .," and explained that, although
malicious interference with a contract is not justified, "it is altogether
legitimate for a provider of services to persuade potential purchasers
of those services that it can do the superior job." Id. at 63. That is, at
most, what occurred here. Although Collins suggests that Drews went
beyond legitimate competition and urged Leisure Time not to fill Col-
lins' orders, it has offered no evidence of such conduct.
III.
Our disposition of Collins' claim of tortious interference with con-
tract also effectively disposes of its SCUTPA claim against Drews. A
violation of SCUTPA requires, inter alia, some "unfair or deceptive
act or practice." Columbia East Assoc. v. Bi-Lo, Inc., 386 S.E.2d 259,
263 (S.C. App. 1989). The district court found "no evidence of any
deception," and Collins has not pointed us to any on appeal, other
than its own conjecture. In any case, Collins' SCUTPA claim merely
reiterates its failed arguments for tortious interference. See Appel-
lant's Br. at 25 ("[I]t is unethical when two parties combine and enter
into a contract, while knowing that one of the parties has already
entered into a valid contract with another party that is ongoing, and
in effect take actions to divest the first contracting party of its rights
under the agreement."). Absent substantial evidence that Drews knew
about and intentionally procured the breach of Collins' contract with
Leisure Time (whether exclusive or non-exclusive), and did so with-
8
out justification, there is no basis for any rational jury to find that
Drews did anything unfair or deceptive.
Accordingly, the judgment of the district court is affirmed.
AFFIRMED
9