Commercial Business Systems, Inc. v. Halifax Corp.

Present: All the Justices

COMMERCIAL BUSINESS SYSTEMS,INC.
OPINION BY JUSTICE A. CHRISTIAN COMPTON
v. Record No. 960754 April 18, 1997

HALIFAX CORPORATION, ET AL.

FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY
Theodore J. Markow, Judge Designate

This is the final chapter in litigation that has continued

most of this decade. The moving party in the controversy is a

disgruntled player in the rough-and-tumble world comprising the

competitive marketplace.
The main players in this dispute are: Commercial Business

Systems, Inc. (CBS), a business located in Chesterfield County

that engaged in the repair, maintenance, and refurbishing of

computer and data processing equipment; BellSouth Services,

Incorporated, a business located in Birmingham, Alabama, that was

created to perform selected staff and planning functions for

Southern Bell and South Central Bell Telephone Companies and to

consolidate services that can be managed most effectively through

a central organization; Halifax Corporation, formerly Halifax

Engineering, Inc., a Virginia corporation located in Alexandria

that engaged in business similar to that of CBS; and Jerry H.

Waldrop, an Alabama resident who had been employed by BellSouth

in its Birmingham office as a contract officer responsible for

negotiating contracts with vendors and selecting vendors to

repair telephone and computer equipment for BellSouth.

In 1990, CBS filed a motion for judgment against BellSouth

seeking recovery of lost profits and punitive damages for alleged
statutory conspiracy to injure CBS in its trade or business, in

violation of Code § 18.2-499; common law conspiracy to injure

CBS's business; and tort liability imputed to BellSouth under the

doctrine of respondeat superior as a result of the activities of

Waldrop. CBS claimed that Waldrop awarded a contract to CBS's

competitor, Halifax, in exchange for commercial bribes.

Following discovery, the trial court granted BellSouth's

motion for summary judgment and denied CBS's motion for partial

summary judgment. CBS contended that, as a matter of law,

Waldrop acted within the scope of his employment with BellSouth

when he engaged in improper conduct.
On appeal, this Court reversed the trial court's judgment

and remanded the case for further proceedings. Commercial

Business Systems v. BellSouth Services, Inc., 249 Va. 39, 453

S.E.2d 261 (1995). The record in that appeal was comprised of

the pleadings, including memoranda and exhibits accompanying the

summary judgment motions, "selected" responses to requests for

admission, and "excerpts" from deposition testimony of a number

of witnesses.

In that appeal (hereinafter, the BellSouth case), we held
that a jury issue was presented on the question whether Waldrop

acted within the scope of his employment when he committed the

wrongful acts, and thus the trial court erred in granting summary

judgment in favor of BellSouth on CBS's tort liability claim.

Id. at 46, 453 S.E.2d at 266. We also held that the trial court

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erred in granting summary judgment on CBS's claims of statutory

conspiracy, common law conspiracy, and damages.

Upon remand, the BellSouth case was consolidated with

another action that had been filed by CBS. Prior to the

BellSouth appeal and after the trial court had ruled on the

summary judgment motions in favor of BellSouth, CBS nonsuited

other defendants in that case. Then, CBS refiled an action

against some of the parties who had been defendants at the

pleading stage of the BellSouth case. After the cases were

joined upon remand, CBS filed a consolidated motion for judgment

against defendants BellSouth, Halifax, Waldrop, and Clifford J.

McGuire, who had been Halifax's southeastern regional manager.

The consolidated cases were tried to a jury during eight

days in October 1995. The issues submitted to the jury were

CBS's claims against all defendants of statutory conspiracy,

common law conspiracy, and conspiracy to tortiously interfere

with a prospective business relationship. Also submitted was

CBS's claim against Halifax and McGuire of wrongful interference

with a prospective business relationship.

The jury found in favor of all defendants on the statutory

and common law conspiracy claims. The jury found in favor of

BellSouth and Halifax, and against Waldrop and McGuire, on the

claim of conspiracy to tortiously interfere with a prospective

business relationship. The jury found against Halifax and

McGuire on the claim of wrongful interference with a prospective

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business relationship. The jury awarded CBS compensatory damages

of $435,177 plus prejudgment interest.

Subsequently, the trial court entered judgment on the

verdict in favor of BellSouth. Later, the court set aside the

verdict against Halifax, McGuire, and Waldrop and entered

judgment in their favor, from which CBS appeals. The judgment in

favor of BellSouth has become final. Waldrop, who appeared pro

se throughout the proceedings, has not appeared on appeal.
The dispositive issue on appeal is whether CBS presented

evidence sufficient to raise a jury question on its claim that

Halifax and/or McGuire (hereinafter, Halifax) wrongfully

interfered with CBS's prospective business relationship with

BellSouth in connection with a contract that CBS had with

BellSouth that expired July 28, 1987.

When the verdict of a jury has been set aside by the trial

court, the verdict is not entitled to the same weight upon

appellate review as one that has received the trial court's

approval. But in considering the facts under these

circumstances, the appellate court will accord the plaintiff

benefit of all substantial conflicts in the evidence and all

reasonable inferences that may be drawn from the evidence. Kelly

v. Virginia Elec. and Power Co., 238 Va. 32, 34, 381 S.E.2d 219,

220 (1989).

Before we summarize the evidence, we shall dispose of a

contention made by CBS that somehow Halifax is bound in the

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present appeal by factual conclusions stated by this Court in the

former appeal in the BellSouth case to which Halifax was not a

party. At various times on brief and during oral argument of the

appeal, CBS has packaged this contention in terms of "controlling

precedent" or "stare decisis" or "persuasive," although not "the

law of the case" or "res judicata." Whatever may be the actual

basis of this contention, we reject it.

Of course, under the doctrine of stare decisis, the

principles of law as applicable to the state of facts in the
BellSouth case will be adhered to, and will apply in later cases

where the facts are substantially the same, even though the

parties are different. See Selected Risks Ins. Co. v. Dean, 233

Va. 260, 265, 355 S.E.2d 579, 581 (1987). But adherence to that

principle relating to conclusions of law does not mean that

conclusions of fact based on a summary judgment record have any

binding effect whatsoever, in the context of appellate review,

upon factual findings arising from a jury trial where the parties

in the two cases are different and where, unlike the summary

judgment proceeding, the facts were fully developed.

Indeed, a reason underlying our Rule 3:18, providing that

summary judgment "shall not be entered if any material fact is

genuinely in dispute," is to assure that parties' rights are

determined upon a full development of the facts, not just upon

pleadings and "selected" "excerpts" from discovery materials.

Thus, it would be illogical to hold, in this context, that

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appellate conclusions of fact in a summary judgment appeal have

any controlling effect upon facts later developed in the case

during a jury trial. See Carper v. Norfolk & W. R. Co., 95 Va.

43, 45, 27 S.E. 813, 813 (1897) (upon remand for trial de novo,

new decision required upon second appellate review if facts

change).

The material facts presented during the jury trial

essentially are undisputed. CBS was founded by Gary Ewell Lacey

as a sole proprietorship "around 1981" to repair, refurbish, and

sell telecommunications equipment. Incorporated in 1984, CBS

"would approach companies," including telephone companies, "and

see if they needed communications equipment either purchased or

refurbished or repaired." Lacey contacted BellSouth seeking to

obtain a contract for the repair of Digital Equipment Corporation

(DEC) "writer printers" known as "TP1000s," which were

manufactured for and extensively used by telephone companies.
Lacey dealt with William B. Jordan, a BellSouth employee

whose duties involved writing "contracts for the repair of

movable telecommunications equipment." Jordan also was

responsible for "contract administration," that is, his "job was

to assure that the contract was being met by both the vendor and

the company."

In 1985, CBS submitted a bid of $691,060 and was awarded

Contract No. 85073 for "The Repair/Refurbishment and Conversion

of TP1000 Teleprinters" for "the two year period July 29, 1985

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thru July 28, 1987." The contract did not "grant [CBS] an

exclusive privilege to repair all products of the type described"

and provided that BellSouth "may contract with others for the

repair of comparable products and services." The contract also

provided for termination by either party upon 60 days notice

"without any charge or liability whatsoever."

CBS commenced performing under the contract and "had an

excellent working relationship" with Jordan, who solely

administered the contract. In November 1986, because the

"contract was coming up for renewal," Lacey contacted Jordan and

advised him that CBS "would like to start the process to renew

the contract with BellSouth." According to Lacey, when Jordan

was asked "what he thought [CBS's] chances of renewal were,"

Jordan responded, "that's not going to be a problem . . . you

guys are one of the best vendors that we have . . . . You're

doing your work, performing like you're supposed to and you [are]

also the incumbent."
In February 1987, Jordan changed job responsibilities and

ceased being the administrator of the contract. Jordan's duties

with reference to the contract were assumed by Waldrop. Waldrop

also became BellSouth's contracting officer responsible for

negotiating equipment repair contracts with vendors upon

expiration of such contracts.

In early 1987, CBS unsuccessfully attempted by both

telephone and letter to reach Waldrop to discuss renewal and

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expansion of its contract. Finally, Waldrop responded by

telephone. When Lacey "tried to talk to him about renewal,"

Waldrop "suggested" that CBS was "having very serious financial

trouble" and that CBS was "having warranty problems with

equipment being returned back not being repaired satisfactorily."

CBS undertook an investigation of Waldrop's charges and concluded

that Waldrop's information was "totally unfounded." On June 4,

1987, CBS advised Waldrop by letter of this finding.
On June 15, 1987, Waldrop wrote Lacey expressing

appreciation for CBS's "recent letter" and the "information

regarding your current financial status and the recent problems

your company has encountered." Waldrop wrote: "I hope you can

continue to make your comeback."

"However," the letter continued, "as I discussed with you

over the telephone, our plans are not to renew the contract with

your company at this time. BellSouth Services strives to offer

our clients the best in quality and service that the `market' has

to bear. This can be achieved by opening that market to other

qualified vendors and encouraging competition for the services we

desire." BellSouth, through Waldrop, refused to allow CBS to bid

"or even be part of the competition" for a new contract, and the

expired contract was not renewed.

In the meantime, during 1985-86, McGuire, as Halifax's

"southeastern regional manager," was "supposed to drum up

business" for his employer. At that time, McGuire began "seeking

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business with BellSouth through Jerry Waldrop." This effort was

successful, and Halifax started "doing work" for BellSouth "that

involved some printer repairs." Later, in "middle '86," Halifax

"began doing some additional work for BellSouth," which included

"TP1000 work."

In June 1987, Halifax submitted a written proposal to

BellSouth "seeking to do the TP1000 work." Prior to that time,

Halifax was receiving TP1000 printers from BellSouth for repair

without any written contract. McGuire, called by CBS as an

adverse witness, testified he had no knowledge of CBS's existence

in June 1987.
In June, July, and August of 1987, Halifax began getting

"more and more" TP1000s from BellSouth for repair. Subsequently,

BellSouth awarded Halifax a written contract for "The

Repair/Refurbishment of DEC Printers, Keyboards and Terminals"

for the term "January 1, 1988 through December 31, 1989."

In July 1989, following negotiations between McGuire and

Waldrop, Halifax's contract was amended by a written agreement,

which extended the term of the initial agreement six months to

June 30, 1990. This amendment allowed Halifax "to get a higher

price" for the work it was performing.

During the period when Halifax was dealing with Waldrop,

Halifax began obtaining various items and services directly from

companies in which Waldrop had a personal interest. For example,

an owner's manual, which Halifax had to purchase from the

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equipment manufacturer, accompanied each repaired TP1000.

Halifax began saving some of the cost of the manuals by

purchasing them directly from a company named Entracom, which was

owned by Waldrop. He had manuals privately copied in Birmingham,

and Entracom sold the reproduced manuals to Halifax at a large

markup over the copying cost.

In addition, Halifax had an agreement with Waldrop that

Entracom would perform "all the shipping" of repaired items for

Halifax and that Halifax would purchase all its "supplies" from

Entracom. During the period October-December 1987, "boxes" and

"pallets" containing items repaired by Halifax were being shipped

by a company named MedSouth, Incorporated, in rented trucks. The

trucks were driven by either Waldrop or one of his relatives.

Waldrop's brother was executive vice-president and general

manager of MedSouth. Later, the shipping was performed by

Entracom using leased trucks driven by Waldrop family members.

The family members were compensated for their services to

MedSouth and Entracom.
Also, Halifax paid Entracom $6,000 per month in 1988 as rent

for office and warehouse space in Birmingham. Entracom paid $620

per month to lease the space.

In 1989, Waldrop was discharged because he had been involved

in conflicts of interest while employed by BellSouth. In a

response to a CBS request for admission, BellSouth admitted that

the "windfall profit from Entracom's sale of supplies to Halifax

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was a kickback or bribe" to Waldrop for contract amendments and

"was intended to induce him to send more business to Halifax."

The trial court instructed the jury that this admission was

binding on BellSouth only and was not to be considered as

evidence against Halifax or Waldrop.

The analysis must begin with the question whether CBS

presented any credible evidence that would permit a jury to find,

without speculating, that Halifax committed the tort of wrongful

interference with prospective business or economic advantage.

For without proof of the underlying tort, there can be no

conspiracy to commit the tort.
In Glass v. Glass, 228 Va. 39, 51, 321 S.E.2d 69, 76-77

(1984), this Court recognized such a tort. We summarized the

elements of the cause of action as follows: "(1) the existence

of a business relationship or expectancy, with a probability of

future economic benefit to plaintiff; (2) defendant's knowledge

of the relationship or expectancy; (3) a reasonable certainty

that absent defendant's intentional misconduct, plaintiff would

have continued in the relationship or realized the expectancy;

and (4) damage to plaintiff." Id. at 51-52, 321 S.E.2d at 77.

The foregoing elements were embodied in Instruction No. 27

in the present case, given without objection by any party. The

trial court told the jury that CBS had the burden to prove by a

preponderance of the evidence that: "(1) there was a business

relationship or expectancy between CBS and BellSouth Services,

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with a reasonable probability of future economic benefit to CBS;

(2) Halifax and/or McGuire knew about this business expectancy or

relationship; (3) in the absence of Halifax and/or McGuire's

intentional misconduct, it is reasonably certain that CBS would

have continued in the relationship or realized the expectancy;

and (4) such misconduct proximately caused damage to CBS."

In a written opinion granting the motion to set the verdict

aside, the trial court assumed without deciding that there was a

business expectancy between CBS and BellSouth, that there was

intentional misconduct, and that CBS sustained damages. The

court ruled that there was evidence from which the jury could

have found Halifax and McGuire knew of the existence of CBS and

that CBS had a contract with BellSouth for the repair of TP1000

printers. But the court also ruled there was no evidence Halifax

"had any knowledge of any expectancy that the contract would

continue, for how long, or that it was subject to renewal or that

Halifax was in any way prevented from competing with CBS for that

business because of the CBS expectancy."
Importantly, the trial court also concluded the evidence

failed to establish the first element of the cause of action,

namely, that CBS had a reasonable probability the contract would

be renewed, or the third element, namely, that it was reasonably

certain "CBS would have realized the expectancy but for the

misconduct of Waldrop and Halifax/McGuire." Thus, we shall focus

on those two elements.

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 Initially, we shall comment on several obvious principles

that apply to the tort of wrongful interference with a

prospective business or economic advantage. First, proof of the

existence of the first and third elements of the tort must meet

an objective test; proof of subjective expectations will not

suffice. In other words, mere proof of a plaintiff's belief and

hope that a business relationship will continue is inadequate to

sustain the cause of action.
Second, the proof must establish a "probability" of future

economic benefit to a plaintiff. Proof of a "possibility" that

such benefit will accrue is insufficient.

We have searched this voluminous record, which includes a

2,998-page appendix, in an effort to find credible evidence upon

which a jury could properly base a finding that, at the time the

contract was about to expire, CBS had a reasonable probability

the contract would be renewed or CBS would have realized any such

expectancy but for the misconduct of Halifax. The record is

utterly devoid of such evidence.

It is true that CBS was encouraged by Jordan's November 1986

comments about the prospects for renewal. Subjectively, during

the period when the contract was about to expire, CBS's

principals thought CBS was performing well under the contract and

they had a subjective expectation that it would be renewed.

However, CBS failed to present credible evidence that either

Jordan, if he had continued to administer the contract, or

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Waldrop, when he took over as contract administrator, would

probably have renewed the contract.

During his deposition testimony presented as part of CBS's

case, Jordan stated it would be "hard to say at this juncture"

whether he would have continued to do business with CBS if he had

remained contract administrator. This testimony was consistent

with Jordan's live testimony when called later in the trial as

BellSouth's witness. Jordan stated he never told Lacey that "CBS

could expect to be renewed."
Jordan was replaced by Waldrop in February 1987. The

evidence is uncontradicted that Waldrop was the BellSouth

employee who would decide whether CBS would continue in a

relationship with BellSouth after the July 1987 expiration of the

TP1000 contract. The undisputed evidence showed that under no

circumstances, and for reasons totally unrelated to any intent to

profit on his own, would Waldrop have renewed the contract.

CBS was experiencing problems that made it a tarnished

participant in the competition among many vendors for BellSouth's

work. For example, while the contract was in effect, CBS's

"costs got kind of out of hand" and it "had some cash flow

problems," according to the testimony of Thomas Michael Clayton,

CBS's president at the time of trial. CBS's outside accountants

reported to it on February 27, 1987 that "the corporation

incurred a net loss of $264,810 during the year ended October 31,

1986 and, as of that date, the corporation's current liabilities

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exceeded its current assets by $173,471 and its total liabilities

exceeded its total assets by $106,918." According to the

accountant, "These factors indicate that the corporation may be

unable to continue in existence." CBS failed to report this

information to BellSouth. Also, CBS failed to submit monthly

reports regularly about its "accountability," as required by the

contract.

In early 1987, CBS closed an office in Columbia, South

Carolina, and consolidated its operations in the Richmond area in

an effort to cut costs. This removed its presence and "depot

location" from near the Florida-Alabama area; BellSouth did not

want its equipment "setting up there in Virginia" for repair

because it was "trying to get vendors that were close" to

Birmingham. During this period, CBS was unable to make federal

tax payments in a timely fashion.
BellSouth was aware of all these circumstances, which played

a part in the decision not to renew. And, during this period

BellSouth was doing business with another vendor, Halifax, a

prerogative BellSouth could exercise under the terms of the

nonexclusive CBS-BellSouth contract.

Finally, contrary to CBS's contention, there was no credible

evidence of any BellSouth "standard practice" or "preference" for

continuing to work with incumbent vendors. CBS's contention is

based on a portion of the testimony of Christopher Jones, a

Halifax executive called by CBS as an adverse witness. Jones was

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asked by CBS's attorney whether Waldrop "once" told him "that

once you get working with BellSouth if you do a good job you have

a contract with us forever." Jones answered, "I recall seeing

that." When asked whether Waldrop "said it to you," Jones

responded, "I don't recall. I recall hearing it, I don't recall

who he said it to . . . I recall hearing it, I don't know who

said it." Testimony about a comment from an unidentified source

regarding an unidentified time period is insufficient to

establish a corporate policy of renewing incumbent vendors.
In sum, we hold CBS established merely a subjective belief

or hope that the business relationship would continue and merely

a possibility that future economic benefit would accrue to it.

And, conflicts of interest existing in the BellSouth-Halifax

relationship cannot be converted into a business expectancy for

CBS.

Thus, it follows that the trial court did not err in setting

aside the verdict in favor of CBS for its failure to prove the

cause of action. This conclusion makes it unnecessary to address

the remaining issues in the appeal.

Therefore, the judgment from which the appeal was awarded

will be

Affirmed.

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