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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