Tom's Amusement Co.v.Total Vending Services

Court of Appeals of GeorgiaMar 30, 2000
243 Ga. App. 294 (Ga. Ct. App. 2000)
243 Ga. App. 294533 S.E.2d 413

A99A1753.

Decided: March 30, 2000

Tortious interference with contractual and business relations, etc. Fulton State Court. Before Judge Carnes, Senior Judge.

McCullough, Sherrill, John A. Sherrill, R. Leslie Waycaster, Jr., Steven M. Staes, for appellant.

Seacrest, Karesh, Tate Bicknese, Sanford R. Karesh, Edwin A. Tate II, Walker, Hulbert, Gray Byrd, Lawrence C. Walker, Jr., for appellees.


The primary question on appeal is whether it constitutes tortious interference with contractual and business relations for one company to induce a competitor's current employee to disclose confidential financial information and for that company further to solicit customers via the employee's misrepresentations regarding the competitor's solvency. We hold it does.

Tom's Amusement Company ("TAC") and Total Vending Services compete in placing coin-operated amusement games in various businesses in Atlanta. While employed by TAC as a route manager servicing games in Georgia, Alan Joseph secretly disclosed TAC's financial information to Total Vending (which had offered employment to Joseph) and in concert with agents of Total Vending solicited a TAC customer to give its business to Total Vending. As part of this solicitation, Joseph misrepresented TAC's financial status to the customer. Consequently, the customer (AMF) terminated its relationship with TAC at three locations and gave that business to Total Vending. After TAC fired Joseph in 1995 for breaching his duties to TAC, Total Vending hired him. Joseph then solicited other TAC customers, including CiCi's Pizza locations.

TAC sued Joseph and Total Vending and its agents (Schneider and Cotter) in seven counts for (i) tortious interference with contractual and business relations — against all defendants, (ii) breach of contract to purchase Total Vending — against Schneider only, (iii) disclosure of trade secrets — against Joseph only, (iv) breach of noncompete covenants — against Joseph only, (v) conversion of corporate revenues — against Joseph only, (vi) fraud arising out of the tortious interference, breach of contract, and conversion claims — against all defendants, and (vii) federal and state RICO violations — against all defendants. Defendants moved for summary judgment on all counts, which the trial court denied for the most part. But the court did grant partial summary judgment on the tortious interference, fraud (insofar as it arose out of the tortious interference), and the federal and state RICO claims, from which order TAC appeals. We affirm in part and reverse in part.

1. Summary judgment is only proper when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. We review the evidence de novo in the light most favorable to the nonmovant.

Matjoulis v. Integon General Ins. Corp., 226 Ga. App. 459 (1) ( 486 S.E.2d 684) (1997).

2. TAC contends that the defendants tortiously interfered with three contractual or business relationships: (i) TAC's business relationship with AMF, (ii) TAC's employment of Joseph, and (iii) TAC's business relationship with CiCi's. Athens Intl. v. Venture Capital Properties reiterated the elements of these two separate torts:

230 Ga. App. 286, 288 (2) ( 495 S.E.2d 900) (1998) (citations and punctuation omitted; emphasis supplied in part).

In establishing a cause of action for malicious or tortious interference with business relations, the appellants must demonstrate that the appellee (1) acted improperly and without privilege, (2) purposely and with malice with the intent to injure, (3) induced a third party or parties not to enter into or continue a business relationship with the appellants, and (4) for which the appellants suffered some financial injury. A cause of action for intentional interference with contractual rights must be based on the intentional and non-privileged interference by a third party with existing contractual rights and relations.

(Citations and punctuation omitted; emphasis in original and supplied.) Id.

(a) AMF's Business Relationship. TAC had been servicing AMF's seven Atlanta bowling alleys and thus had at least a business relationship if not an implied contract to continue. While Joseph was still employed by TAC, Total Vending and its agents induced him to disclose TAC's confidential financial information about revenues from the AMF locations and to solicit AMF repeatedly to give its business to Total Vending. In these solicitations, Joseph misrepresented that TAC was experiencing financial problems and could not afford to buy needed games. AMF succumbed and switched the three most profitable locations to Total Vending.

See Preferred Risk Ins. Co. v. Boykin, 174 Ga. App. 269, 272-273 (2) ( 329 S.E.2d 900) (1985) (whole court) (unlawful interference with continuing relationship or implied agreement is actionable).

This direct evidence found in sworn testimony, including testimony from AMF, supports an action for tortious interference. Defendants' joint actions were neither privileged nor proper. Although it appears Joseph did not hold fiduciary obligations at TAC, nevertheless, "an employee owes a duty of loyalty, faithful service and regard for an employer's interest." Thus, before the end of his employment, no employee may solicit customers for a rival business nor otherwise directly compete with his employer's business. Nor may he misrepresent his employer's financial status to persuade customers to change to the rival business. To induce a breach of these duties is improper.

Crews v. Roger Wahl, C.P.A., P.C., 238 Ga. App. 892, 901 (4)(d) ( 520 S.E.2d 727) (1999) (punctuation omitted) approving as "a correct statement of the law," Lane v. Taylor, 174 Ga. App. 356, 362 (5) ( 330 S.E.2d 112) (1985) (physical precedent only);Georgia Gulf Corp. v. Ward, 701 F. Supp.2d 1556, 1559 (N.D.Ga. 1987). The seemingly contradictory language found in Physician Specialists in Anesthesia, P.C. v. Wildmon, 238 Ga. App. 730, 735 (3) ( 521 S.E.2d 358) (1999), must be restricted to its facts.

Instrument Repair Service v. Gunby, 238 Ga. App. 138, 140 (1) ( 518 S.E.2d 161) (1999); Nilan's Alley v. Ginsburg, 208 Ga. App. 145 (1) ( 430 S.E.2d 368) (1993); E. D. Lacey Mills, Inc. v. Keith, 183 Ga. App. 357, 363 (9) ( 359 S.E.2d 148) (1987); compareNationwide Advertising Service v. Thompson Recruitment Advertising, 183 Ga. App. 678, 680-681 (1) ( 359 S.E.2d 737) (1987) (no tortious interference where no evidence of solicitation before leaving employment).

See American Buildings Co. v. Pascoe Bldg. Systems, 260 Ga. 346, 349 (2) ( 392 S.E.2d 860) (1990) (wrongful means include fraud, misrepresentation, or defamation); Architectural Mfg. Co. v. Airotec, Inc., 119 Ga. App. 245, 250-251 (2) ( 166 S.E.2d 744) (1969) (misrepresentations as to company's financial solvency are improper means and may constitute element of tortious interference).

But TAC may pursue this tort only against Total Vending and its agents, and not against its faithless employee Joseph, because only strangers to the contractual relationship and to the underlying business relationship are liable for tortious interference. Regardless of whether an employee is acting as an agent of his employer when engaging in the interference, he is not a stranger to the business relationship between his employer and the customers he personally services and thus cannot be held liable under a claim of tortious interference. But the competitor and its agents who assist in the interference can.

Atlanta Market Center Management Co. v. McLane, 269 Ga. 604, 609-610 (2) ( 503 S.E.2d 278) (1998) (endorsing cases reducing the number of entities against which tortious interference may be maintained, and holding "all parties to an interwoven contractual arrangement are not liable for tortious interference with any of the contracts or business relationships."). Id. at 610 (2) (emphasis supplied, citations omitted).

See Parks v. Multimedia Technologies, 239 Ga. App. 282, 291-292 (3)(f) ( 520 S.E.2d 517) (1999).

See id.

(b) Joseph's Employment Relationship. Beginning in 1991 Joseph had a written employment contract with TAC for a one-year term that automatically renewed until terminated. The agreement contained a post-employment twelve-month noncompete covenant that was superseded by a two-year noncompete covenant contained in his 1995 termination agreement. While Joseph was still employed by TAC, Total Vending offered him employment but he did not accept. TAC eventually terminated Joseph, and Total Vending hired him within a few months.

With regard to the written contract and the written termination agreement, the evidence is undisputed that Total Vending and its agents had no knowledge of these contracts until the filing of this lawsuit. These parties could not have intentionally and maliciously induced Joseph to breach their terms, for they must first have had knowledge of TAC's rights and have acted with the intent to interfere with them. Evidence that Joseph "never informed any of [Total Vending's] agents of the existence of his employment contract with appellant and that to his knowledge [Total Vending] was not aware of the contract," precludes a cause of action for tortious interference with contractual relations against them. Nor can Joseph be held liable for tortiously interfering with his own contracts.

Derosa v. Shiah, 205 Ga. App. 106, 110 (3) ( 421 S.E.2d 718) (1992).

Bible Farm Service v. House Hasson Hardware Co., 157 Ga. App. 358, 360 (3) ( 277 S.E.2d 341) (1981); see Unigard Ins. Co. v. Zimmerman's, Inc., 151 Ga. App. 394, 396 (2) ( 259 S.E.2d 652) (1979) aff'd 245 Ga. 475 ( 265 S.E.2d 774) (1980); cf. Combs v. Edenfield, 184 Ga. App. 75, 77 ( 360 S.E.2d 743) (1987).

Atlanta Market, supra, 269 Ga. at 608 (2).

But Total Vending and its agents were certainly aware of Joseph's employment relationship with TAC and acted to interfere with that. In Georgia, a competitor's privilege of fair competition is lost

when wrongful means in the solicitation of employees are utilized. [Cits.] Such wrongful means generally involve predatory tactics such as physical violence, fraud or misrepresentation, defamation, use of confidential information, abusive civil suits, and unwarranted criminal prosecutions.

American Bldgs. Co., supra, 260 Ga. at 349 (2).

Direct evidence shows that before he left TAC's employment, Total Vending induced Joseph to breach his implied duty of loyalty by working with it to solicit a TAC customer to give its business to Total Vending, by giving it TAC's confidential financial information, and by misrepresenting TAC's financial solvency to the customer. TAC lost three AMF locations to Total Vending as a result. Although Total Vending and its agents can be held liable for interfering with TAC's employment relationship with Joseph, Joseph of course cannot.

Id.

(c) CiCi's Business Relationship. TAC serviced various CiCi's locations, some of which were owned by the franchisor and the others by independent franchisees. TAC was listed as a preferred vendor by the franchisor, which was a recommendation to franchisees that they may wish to contract with TAC. After Joseph left TAC, he solicited various CiCi's locations serviced by TAC to no avail. But he did persuade a new CiCi's franchisee opening a location in Smyrna to use Total Vending instead of TAC.

Although there is evidence that one solicitation took place before Joseph left TAC's employment, this solicitation was completely unsuccessful and caused no damages to TAC.

These actions do not constitute tortious interference by Total Vending. "[A]n employee is permitted to solicit his former customers on behalf of a new employer." Fair competition is always legal, and absent a valid noncompete or nonsolicit covenant a former employee may go to customers whom he procured for the old employer and endeavor to persuade them to change their trade to his advantage. True, Joseph himself had a noncompete agreement with TAC prohibiting such, but the evidence is undisputed that no one at Total Vending was aware of that agreement until this lawsuit was filed. Absent such knowledge, the actions of Total Vending and its agents cannot meet the intent prong of the tort. And as an integral part of the TAC's business relationship with CiCi's, Joseph was not a stranger and thus cannot be liable for tortious interference.

Contractors' Bldg. Supply v. Gwinnett Sash Door, 199 Ga. App. 38, 40 (2) ( 403 S.E.2d 844) (1991) (citation omitted).

Airotec, supra, 119 Ga. App. at 249 (1).

We do not address the enforceability of that agreement.

See Unigard, supra, 151 Ga. App. at 396 (2).

See Parks, supra, 239 Ga. App. at 292 (3)(f).

In summary, the trial court correctly granted summary judgment on all tortious interference claims with the following two exceptions: (i) the claim against Total Vending and its agents for interfering with TAC's contractual and business relationships with AMF, and (ii) the claim against Total Vending and its agents for interfering with TAC's employment relationship with Joseph (insofar as Total Vending induced Joseph to solicit AMF, to disclose confidential information, and to misrepresent TAC's financial status to AMF).

3. The trial court also correctly entered summary judgment on TAC's fraud claim insofar as that alleged fraud was grounded on tortious interference. A fraud claim has five elements: (i) a false representation by the defendant, (ii) scienter, (iii) an intent to induce the plaintiff to act or refrain from acting, (iv) justifiable reliance by the plaintiff, and (v) damage to the plaintiff. TAC's evidence of tortious interference does not show that false representations were made to TAC with the intent to cause TAC to act in a certain way, nor does it show that TAC justifiably relied on such. Evidence that Joseph made false representations to others such as customers of TAC and that those customers acted thereon to change with whom they did business is irrelevant to a claim of fraud asserted by TAC. The court correctly granted defendants summary judgment on this claim.

Crawford v. Williams, 258 Ga. 806 ( 375 S.E.2d 223) (1989); Pyle v. City of Cedartown, 240 Ga. App. 445, 447 (1) (S.E.2d) (1999).

See Maddox v. Southern Engineering Co., 216 Ga. App. 6, 7 (1) ( 453 S.E.2d 70) (1994).

4. TAC also alleged claims based on the civil remedies available under both the Georgia and federal RICO statutes. (a) Federal law rests liability on a showing of a pattern of racketeering activity or the collection of an unlawful debt. A pattern of racketeering activity requires at least two acts of racketeering activity, which consist of various indictable offenses under federal or state law.

Much of the evidence of alleged wrongdoing by the defendants here obviously does not constitute indictable offenses as defined in 18 U.S.C. § 1961 (1). The only evidence that comes close involves the allegations of mail and wire fraud. Joseph misrepresented to AMF that TAC was experiencing financial problems and that TAC thus was unable to buy new equipment. TAC's president testified that these statements were untrue. The evidence shows that the mail and interstate wires were used in furtherance of this scheme.

See 18 U.S.C. § 1341, 1343.

But Joseph's misrepresentations were to AMF, not to TAC. Interpreting the proximate cause requirement of the federal RICO statute, the United States Court of Appeals for the Eleventh Circuit held in Pelletier v. Zweifel that "when the alleged predicate act is mail or wire fraud, the plaintiff must have been a target of the scheme to defraud and must have relied to his detriment on misrepresentations made in furtherance of that scheme." Because no misrepresentations were made to TAC upon which TAC relied, these allegations are not actionable under federal RICO against any defendants.

921 F.2d 1465, 1499-1500(II)(A)(2)(b) (11th Cir. 1991) (citations omitted).

Id. at 1499-1500 (II) (A) (2) (b).

(b) Under the Georgia RICO Act, a pattern of racketeering activity is also the lynchpin to liability. Georgia defines a pattern of racketeering activity as at least two interrelated acts indictable under certain categories of state and federal laws, including those constituting a federal RICO violation. The Pelletier requirement of detrimental reliance for mail or wire fraud claims also applies under Georgia's RICO statute to preclude such claims from serving as predicate acts here. And because neither tortious interference nor breach of contract is generally indictable under any of the listed laws, the Georgia RICO claim also must fail in this regard. Thus, the trial court correctly granted summary judgment on the federal and Georgia RICO claims based on the strictly tortious conduct.

OCGA § 16-14-3 (8), (9); Roth v. Connor, 235 Ga. App. 866, 872 (4) ( 510 S.E.2d 550) (1998).

OCGA § 16-14-3 (9)(A)(xxix).

See Gentry v. Volkswagen of America, 238 Ga. App. 785, 791 (4) ( 521 S.E.2d 13) (1999); Security Life Ins. Co. v. Clark, 229 Ga. App. 593, 601 (1)(c) ( 494 S.E.2d 388) (1997) rev'd on other grounds, 270 Ga. 165 ( 509 S.E.2d 602) (1998); Longino v. Bank of Ellijay, 228 Ga. App. 37, 41 (2) ( 491 S.E.2d 81) (1997); Huddleston v. R. J. Reynolds Tobacco Co., 66 F. Supp.2d 1370, 1376 (III)(A) (N.D.Ga. 1999).

(c) The single incident whereby Joseph allegedly gave $8,000 of TAC money to AMF as a cash incentive to enter into written agreements is not indictable as bribery under OCGA §§ 16-10-2, 16-12-33, or 16-12-34. Nor does this isolated incident evince any pattern of racketeering.

See, e. g., Emrich v. Winsor, 198 Ga. App. 333 ( 401 S.E.2d 76) (1991).

(d) As against defendant Joseph individually, Georgia RICO claims may validly be predicated upon evidence that he repeatedly converted significant amounts of TAC money, which is indictable conduct under OCGA § 16-8-4 (a).

OCGA § 16-14-3 (9)(A)(ix).

See Denmark v. State, 44 Ga. App. 157, 164 (7) ( 161 S.E. 286) (1931).

TAC hired an outside consultant with 27 years experience investigating misappropriation of corporate assets by employees, who monitored the internal meters in the games from which Joseph collected the money. These meters calculate the number of games played and the money that should be in the machine. Over a period of two months, in those machines serviced by Joseph, the "amount of money was always less than the meter readings," even after the meters were replaced. Amounts missing ranged from $25 to $300 per week per location, and the average shortfall per site over the two-month investigation was $100 per week. In our view, this is "precisely the conduct prohibited by the Georgia statute[.]" Consequently, as against Joseph individually, for those RICO claims based on proof that an employee repeatedly converted his employer's money, the grant of summary judgment was in error.

Larson v. Smith, 194 Ga. App. 698, 700 ( 391 S.E.2d 686) (1990).

Judgment affirmed in part and reversed in part. Pope, P.J., concurs. Smith, J., concurs in the judgement only.

Decided: March 30, 2000.


MILLER, Judge.

DECIDED MARCH 30, 2000 — CERT APPLIED FOR.