Network Computing Services Corp. v. Cisco Systems, Inc. , 152 F. App'x 317 ( 2005 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-2166
NETWORK COMPUTING SERVICES CORPORATION,
Plaintiff - Appellant,
versus
CISCO SYSTEMS, INCORPORATED,
Defendant - Appellee,
and
MARK ANTHONY MARTIN, III; CAROL JAWORSKI;
WOODY SESSUMS; JOHN DISPENETTE; SCOTT SAWYER,
Defendants,
WILLIAM P. CHARPING; JOHN DOE 1-25,
Counter-Defendants.
-----------------------------------
IMPACT INTERNATIONAL FOUNDATION; PRINTER
PROJECTS CORPORATION; PC GENIUS INCORPORATED;
SOVEREIGN GROUP, INCORPORATED; SOVEREIGN GROUP
MARKETING LTD; WORLD MISSION CENTRE,
Movants.
No. 04-2213
NETWORK COMPUTING SERVICES CORPORATION,
Plaintiff - Appellee,
versus
CISCO SYSTEMS, INCORPORATED,
Defendant - Appellant,
and
MARK ANTHONY MARTIN, III; CAROL JAWORSKI;
WOODY SESSUMS; JOHN DISPENETTE; SCOTT SAWYER,
Defendants,
WILLIAM P. CHARPING; JOHN DOE 1-25,
Counter-Defendants.
-----------------------------------
IMPACT INTERNATIONAL FOUNDATION; PRINTER
PROJECTS CORPORATION; PC GENIUS INCORPORATED;
SOVEREIGN GROUP, INCORPORATED; SOVEREIGN GROUP
MARKETING LTD; WORLD MISSION CENTRE,
Movants.
Appeals from the United States District Court for the District of
South Carolina, at Columbia. Joseph F. Anderson, Jr., Chief
District Judge. (CA-01-281-3)
Argued: September 21, 2005 Decided: November 1, 2005
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Before WIDENER, NIEMEYER, and MICHAEL, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Stephen G. Morrison, NELSON, MULLINS, RILEY & SCARBOROUGH,
L.L.P., Columbia, South Carolina, for Appellant/Cross-Appellee.
Henry L. Parr, Jr., Wallace K. Lightsey, WYCHE, BURGESS, FREEMAN &
PARHAM, P.A., Greenville, South Carolina, for Appellee/Cross-
Appellant. ON BRIEF: Robert H. Brunson, NELSON, MULLINS, RILEY &
SCARBOROUGH, L.L.P., Charleston, South Carolina, for
Appellant/Cross-Appellee. William M. Wilson, WYCHE, BURGESS,
FREEMAN & PARHAM, P.A., Greenville, South Carolina, for
Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
Network Computing Services Corp. (NCS) appeals the
district court’s grant of summary judgment in favor of the
defendants, Cisco Systems, Inc. (Cisco) and others, on NCS’s claims
for violation of the South Carolina unfair trade practices statute
and for common law fraud. NCS also appeals the district court’s
order sanctioning NCS for discovery violations, and Cisco cross-
appeals on this issue. We affirm the district court’s grant of
summary judgment and decline to reach the sanctions issue.
I.
A.
Cisco makes networking equipment, which it sells to
customers either directly or through distributors, called
resellers. NCS distributes networking equipment and provides
consulting services for installation and maintenance of that
equipment. Prior to 1998 NCS primarily sold products made by 3Com
Corp., a Cisco competitor. In May 1998 NCS and Cisco executed a
written, one-year contract under which NCS agreed to become one of
Cisco’s many South Carolina resellers. NCS agreed to purchase
computer products from Cisco at a discount rate tied to the volume
of Cisco products that the parties projected NCS would sell. Under
the contract NCS’s projected sales volume for the contract year was
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$5 million. Either party could terminate the contract on 30 days
written notice.
NCS alleges that, despite Cisco's contractual obligation
to NCS, Cisco took advantage of sales leads that NCS supplied and
then told several potential customers to do business with other,
favored Cisco distributors instead of NCS. NCS suffered when these
customers went elsewhere. In addition, NCS contends that Cisco
repeatedly broke its oral “promise[] to make [NCS] the ‘go to’
reseller” in the state. Appellant’s Br. at 35. For example,
during 1998 the State of South Carolina solicited bids from
manufacturers, or their authorized distributors, for the sale of
computer network equipment to state agencies. Cisco authorized NCS
to be one of its distributors so that NCS could be listed on this
contract. In violation of an alleged oral promise to make NCS the
only officially listed distributor, Cisco authorized several other
companies to serve as distributors. As a condition of listing NCS
with the State, Cisco also required NCS to agree not to be listed
as an official distributor of any of Cisco’s competitors.
Cisco denies that these conditions were unfair in any
way. More generally, Cisco denies responsibility for NCS’s loss of
customers and contends that NCS’s problems were of NCS’s own
making. Cisco also points out that NCS never stopped selling 3Com
products after commencing the Cisco distributorship and that Cisco
never required NCS to do so under the contract.
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NCS served as a Cisco reseller for 18 months until Cisco
terminated the contract. In that time NCS ordered and received
approximately $225,000 worth of Cisco products. NCS paid Cisco
approximately $26,000, but did not pay the balance.
B.
NCS sued Cisco in the U.S. District Court for the
District of South Carolina, complaining that Cisco lured NCS into
the distributorship through deliberate misrepresentation of the
profits to be earned and that Cisco undermined NCS’s ability to
perform its contractual duties. The case was referred to a
magistrate judge, and Cisco moved for summary judgment. NCS
voluntarily dropped its federal claim under the Sherman Antitrust
Act, 15 U.S.C. §§ 1-2, as well as its state law claims for civil
conspiracy, tortious interference with contract, and trade secrets
misappropriation. The magistrate judge concluded that there were
triable issues on whether Cisco’s conduct breached an implied
contractual duty of good faith and fair dealing, but rejected
NCS’s theory that there was an oral contract between the parties
going beyond their written agreement. Further, the magistrate
judge found triable issues regarding NCS’s claims for common law
fraud, fraud in the inducement, and violation of the South Carolina
Unfair Trade Practices Act (SCUTPA), S.C. Code § 39-5-20.
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Cisco objected to these recommendations of the magistrate
judge, leading the district court to determine the pertinent issues
de novo. The district court held that the written breach of
contract claim raised a triable issue “as to whether Cisco
deliberately discouraged companies from doing business with NCS (or
gave information that NCS provided to other resellers to steer
business away from NCS).” J.A. 718. However, after concluding
that there were no triable issues on NCS’s theories of breach of
oral contract, SCUTPA, or fraud, the district court granted summary
judgment to Cisco (and the other defendants) on these claims. The
parties thereafter agreed to a partial settlement in which NCS
dismissed with prejudice all of its claims except for (1) violation
of SCUTPA and (2) common law fraud and fraud in the inducement.
NCS now appeals the district court’s rulings on these surviving
claims.
As the case proceeded, a bitter discovery dispute arose.
The magistrate judge ordered NCS and its chief executive, William
Charping, to produce a customer list or submit an affidavit
attesting that NCS could not compile such a list. By affidavit
Charping denied the existence of certain documents and asserted
that NCS previously produced its customer list as part of a
production in September 2001. The magistrate judge then ordered
NCS to produce the materials at issue or specify where they were
located in documents already produced. NCS finally produced
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several documents, including a customer list, that Cisco asserted
had never previously been produced and whose existence Charping and
NCS had previously denied. Alleging that NCS’s response to
numerous discovery orders was unsatisfactory, Cisco moved to
dismiss as a sanction for the discovery violations. This motion
was first considered by the magistrate judge, who recommended that
a monetary sanction be imposed against NCS. The district court
decided that a monetary sanction would be an insufficient deterrent
against NCS’s misconduct under the circumstances. Accordingly, in
an opinion published at 223 F.R.D. 392 (D.S.C. 2004), the district
court determined that the jury would be instructed about NCS’s
misconduct if the case went to trial. The specific instruction
that would be used was included in the opinion. NCS appeals the
sanction, and Cisco contends in a cross-appeal that the district
court should have considered whether the proper sanction was
dismissal.
II.
Summary judgment is appropriate when “the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(c). We review
a district court’s grant of summary judgment de novo. Sunrise
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Corp. of Myrtle Beach v. City of Myrtle Beach, 420 F.3d 322, 327
(4th Cir. 2005). Although all justifiable inferences are drawn in
favor of the party opposing summary judgment, “[c]onclusory or
speculative allegations do not suffice” to create a genuine issue
of material fact. Thompson v. Potomac Elec. Power Co., 312 F.3d
645, 649 (4th Cir. 2002) (punctuation omitted).
A.
To prevail on a SCUTPA claim, the plaintiff must show by
a preponderance of the evidence “(1) that the defendant engaged in
an unlawful trade practice, (2) that the plaintiff suffered actual,
ascertainable damages as a result of the defendant’s use of the
unlawful trade practice, and (3) that the unlawful trade practice
engaged in by the defendant had an adverse impact on the public
interest.” Havird Oil Co. v. Marathon Oil Co., 149 F.3d 283, 291
(4th Cir. 1998). The third element may be satisfied by proof of
“facts demonstrating the potential for repetition of the
defendant's actions.” Daisy Outdoor Advertising Co. v. Abbott, 322
S.C. 489, 493, 473 S.E.2d 47, 49 (1996). “Plaintiffs . . .
generally have shown potential for repetition in two ways: (1) by
showing the same kind of actions occurred in the past, thus making
it likely they will continue to occur absent deterrence . . . or
(2) by showing the company's procedures create a potential for
repetition of the unfair and deceptive acts.” Id. at 496, 473
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S.E.2d at 51 (citations omitted). In focusing on the defendant’s
past actions, South Carolina courts have looked at the harm to the
people of South Carolina caused by the challenged practice. “The
legislature intended in enacting the UTPA to control and eliminate
the large scale use of unfair and deceptive trade practices within
the state of South Carolina.” Noack Enters., Inc., v. Country
Corner Interiors, 290 S.C. 475, 477, 351 S.E.2d 347, 349 (S.C. Ct.
App. 1986) (punctuation omitted). Public harm “must be proved by
specific facts.” Jefferies v. Phillips, 316 S.C. 523, 527, 451
S.E.2d 21, 23 (S.C. Ct. App. 1994).
With respect to the third SCUTPA element, NCS failed to
adduce evidence sufficient to create a genuine issue of material
fact regarding whether Cisco’s conduct caused harm to any member of
the South Carolina public. NCS offered three documents from
executives at companies who alleged that Cisco mistreated them in
various business transactions, but none of these documents can bear
the weight NCS places on them. One document is from the president
of a Florida corporation; another document is from the president of
an Arizona corporation. Neither document describes acts by Cisco
either in South Carolina or affecting South Carolina residents.
The third document is a letter from a lawyer for NCS recounting a
conversation he had with the president of a company in Gainesville,
Florida, that dealt with Cisco. According to the letter, Cisco
attempted to restrict the parameters of any bid this company might
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make on a potential contract with the College of Charleston in
South Carolina. This letter does not satisfy the statutory
requirement that the witness certify that an unsworn statement is
true by stating that it is “under penalty of perjury” or using
other language “substantially . . . [similar in] form.” 28 U.S.C.
§ 1746. In response to the lawyer’s request that the company
president “confirm by signing below that these statements convey an
accurate representation of some of the things that you advised us,”
J.A. 337, the president affixed his notarized signature under the
words “I CONFIRM.” The notary’s certificate simply means that the
president’s signature is authentic. It is not a substitute for
language indicating that the witness understood he risked
prosecution for perjury if he gave false testimony. Cisco
adequately objected to the letter’s admissibility in its challenge
to the magistrate court’s report. Thus, NCS cannot survive summary
judgment based on any of the three documents it presented.
Nor did NCS present “specific facts” indicating that
Cisco’s business procedures risked repeating “unfair and deceptive
acts.” There was no evidence, for example, that Cisco trained its
agents to make misleading representations to potential resellers or
that Cisco used a standard distribution contract that contained
falsehoods. NCS did not show that there was any real danger that
Cisco routinely deceived, or could have deceived, its business
partners. South Carolina courts have relied on such danger when
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they have found that a “company's procedures create a potential for
repetition of the unfair and deceptive acts.” See Daisy Outdoor
Advertising, 322 S.C. at 493-95, 473 S.E.2d at 49-51 (describing
prior cases).
Because NCS could not meet its burden on the public
interest element of its SCUTPA claim, summary judgment in Cisco’s
favor was proper.
B.
For claims of “fraud and deceit, based upon
representation,” such as those NCS asserts against Cisco,
[t]he following elements must be shown by clear, cogent
and convincing evidence: (1) a representation; (2) its
falsity; (3) its materiality; (4) either knowledge of its
falsity or a reckless disregard of its truth or falsity;
(5) intent that the representation be acted upon; (6) the
hearer’s ignorance of its falsity; (7) the hearer’s
reliance on its truth; (8) the hearer’s right to rely
thereon; (9) the hearer’s consequent and proximate
injury. Failure to prove any one of the foregoing
elements is fatal to recovery.
O’Shields v. S. Fountain Mobile Homes, Inc., 262 S.C. 276, 281, 204
S.E.2d 50, 52 (1974). “[F]raud may be based . . . on promises made
without an intention of performance.” Thomas & Howard Co. v.
Fowler, 225 S.C. 354, 358, 82 S.E.2d 454, 456 (1954). Breach of a
contractual promise alone is not enough to prove such fraud,
however. “Nonobservance of a promise may support an inference of
a lack of intent to perform only when it is coupled with other
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evidence.” Winburn v. Ins. Co. of N. Am., 287 S.C. 435, 441, 339
S.E.2d 142, 146 (S.C. Ct. App. 1985).
NCS argues that it proffered sufficient evidence from
which a reasonable jury could conclude that Cisco never intended to
help NCS sell the $5 million in Cisco products that the
distributorship contract indicated NCS would sell. But NCS does
not offer “other evidence” that goes beyond Cisco’s
“[n]onobservance of a promise.” Id. The district court did not
allow NCS to rest on the suggestion that, because Cisco did not do
all that it could have done to help NCS sell products after the
contract was executed, Cisco must have lacked intent to perform the
promise at the time the contract was executed. In so holding, the
district court correctly applied South Carolina law. See Winburn,
287 S.C. at 440, 339 S.E.2d at 146 (“The truth or falsity of a
representation must be determined as of the time it was made or
acted on and not at some later date. Inferences of fact, like
fullbacks on football teams, do not ordinarily run backward.”)
(citations omitted). Even if the inference was permitted, it would
fall short of the “clear, cogent and convincing” evidence of fraud
that South Carolina law demands. In sum, NCS could not meet its
burden on the fraud claims, and summary judgment in favor of Cisco
was proper.
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III.
We turn briefly to the sanctions issue. Because we
conclude that summary judgment was correctly granted to Cisco on
the only claims that NCS did not agree to settle, this case will
not proceed to a jury trial. Thus, there is no possibility that a
jury will receive the instruction that the district court crafted
as a sanction for NCS’s discovery violations. As a result, we need
not reach the question whether the district court abused its
discretion in choosing this sanction.
IV.
For the foregoing reasons, the judgment of the district
court is affirmed.
AFFIRMED
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