ADP-Financial Computer Services, Inc. v. First Nat. Bank of Cobb County

• Decision Date: 25 April 1983
• Docket Number: ADP-FINANCIAL,No. 82-8120,82-8120
• Citation: 703 F.2d 1261
• Parties: 13 Fed. R. Evid. Serv. 38 COMPUTER SERVICES, INC., Plaintiff-Appellee, v. The FIRST NATIONAL BANK OF COBB COUNTY, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1261

703 F.2d 1261

13 Fed. R. Evid. Serv. 38

ADP-FINANCIAL COMPUTER SERVICES, INC., Plaintiff-Appellee, v. The FIRST NATIONAL BANK OF COBB COUNTY, et al., Defendants-Appellants.

No. 82-8120.

United States Court of Appeals, Eleventh Circuit.

April 25, 1983.

Trotter, Bondurant, Miller & Hishon, H. Lamar Mixson, Emmet J. Bondurant, James C. Morton, Atlanta, Ga., for defendants-appellants.

Rogers & Hardin, Hunter R. Hughes, C.B. Rogers and Richard H. Sinkfield, Atlanta, Ga., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before FAY and VANCE, Circuit Judges, and ALLGOOD ^*, District Judge.

FAY, Circuit Judge:

This is an appeal from a jury verdict in favor of the plaintiff, ADP-Financial Computer Services, Inc., (ADP), in a breach of contract action against the First National Bank of Cobb County for failure to pay agreed-to minimum monthly charges for on-line computer services provided by ADP for a 23 month period. We reject the Bank's argument that these charges constitute an impermissible penalty under Georgia contract law and affirm the jury's verdict.

Background

This is a diversity case under Georgia contract law.

In August 1979, ADP, a New Jersey based firm in the business of providing computer data processing services to financial institutions, acquired Data Computation of Georgia, Inc. ("Data Comp"). Data Comp was owned by five shareholder banks in Atlanta, including the First National Bank of Cobb County, which held forty percent of the Data Comp stock. Data Comp served the five shareholder banks by processing deposit, loan and other financial data for those banks and approximately ten others from their data processing center in Atlanta. When ADP acquired Data Comp it agreed to continue to provide computer data processing to these fifteen customer banks and to replace the outdated hardware and software with ADP's modern national computer service product. More specifically, ADP and First National agreed to a three-year data processing services contract running from April 1, 1979 to March 31, 1982. This contract obligated ADP to perform certain data processing services as requested by First National. These services fell into five categories. The Bank was obligated to pay for these services as they were ordered; i.e., the charges were "transaction related." The services were to be provided to First National for the charges listed in a schedule which was part of the contract. Also included in the contract was the provision that regardless of First National's actual use of the data processing services, they would pay ADP a minimum monthly charge equal to eighty percent of the average monthly charge for the services during the immediately preceding six-month period. If First National used the services, they paid for them by the transaction. But if use in any month fell below the average use for the preceding six months, they still were to pay eighty percent of this average as a minimum monthly charge. This formula for minimum monthly charges was to be applied and figured separately for each of the five services categories.

ADP was progressing toward conversion to their national system when, in October 1979, Mr. Jack Gray and Mr. Bud Shaw bought controlling interest in First National. Mr. Gray became president and chief operating officer of First National and, shortly, directed his data processing committee to re-evaluate the bank's relationship with ADP. This committee asked at least six other vendors of computer equipment and services to bid for First National's business in spite of the existing and on-going contract with ADP. During this search, Mr. Gray found out that one of the computer firms, Trusco Data Services, had ordered a computer from IBM appropriate for bank in-house data processing, and that Trusco would assign their right to purchase the computer to Mr. Gray if Trusco were awarded ADP's data processing work. At the same time, Mr. Gray received advice from his accounting firm that substantial financial benefits would accrue to him personally if he were to purchase the computer and related equipment and then lease the equipment to First National.

On February 12, 1980, at Mr. Gray's request, Mr. Gray and other bank officers met with ADP's president, Mr. McInerney, and two other ADP officers. At this meeting, Mr. Gray voiced his interest in taking First National's computer operations "in-house." ¹ Three days later, First National concluded its negotiations with Trusco and agreed to change from ADP's computer service to Trusco's. For the next three months, First National continued to use and pay for services in all five categories. In May they stopped using services in three categories but continued using the other two. First National paid for services in the two categories which they used but did not pay the minimum service charge as formulated for the other three categories.

The jury awarded ADP compensatory damages in the amount of $411,360.32--the total of the minimum monthly charges for the remaining months of the contract. The jury also concluded that First National had acted in bad faith or had been stubbornly litigious, so that ADP was entitled to further awards of interest and litigation expenses.

First National raises four issues on appeal. First, they contend that the trial court erred in denying First National's motion for judgment notwithstanding the verdict or, alternatively, in denying First National's motion for a new trial on the issue of damages. Second, First National argues that ADP's cashing of checks paid for services actually rendered, which were less than ADP's invoices for minimum monthly charges, constituted an accord and satisfaction barring further recovery. Third, First National contends that ADP's customer surveys should have been admitted either for impeachment or as a business record. Fourth, First National argues that the trial court erred in denying their motion for directed verdict and J.N.O.V. on the issue of attorney's fees and litigation costs.

Damages

Both ADP and First National spent most of their efforts in briefing this appeal arguing whether the questioned clause was permissible as a liquidated damage provision or constituted an impermissible penalty. At oral argument and in a supplemental brief, ADP abandons this position and supports a different interpretation. We think this change of course is a wise one. ² Georgia law does not interpret contracts as providing for liquidated damages unless it is clear that the parties intended it. Jones v. Clark, 147 Ga.App. 657, 249 S.E.2d 619 (1978); Ga.Code Ann. Section 13-6-7. While the words "liquidated damages" are not specifically required, some manifestation of the parties intent to agree to liquidated damages is. In meeting what they presumed would be ADP's position on appeal--i.e., that the provision was an enforceable liquidated damages clause--First National said in their brief, "The 'minimum monthly charge' clause on which ADP relied in this case does not meet this threshold condition, [intent], of enforceability of a liquidated damage clause under Georgia law." Appellant's brief at p. 24. Unfortunately for the writer, we wholeheartedly agree. If there was some evidence to suggest that the parties intended this clause to be a liquidated damage provision, we feel that it would certainly fail the strict tests of Georgia law concerning that kind of contract.

The "minimum monthly charge" provision was found in the contract under a heading called "Cost of Services."

No mention is made of "liquidated damages," "breach," or other condition to suggest that this provision sought to establish liquidated damages, and we think it clear that this was not the parties' intent.

If not liquidated damages, then what? As a reading of the contract suggests and ADP now contends, the disputed provision simply describes the price to be paid for ADP's services. Taking again from First National's brief:

"As long as the Bank's usage of ADP's service charges exceeded eighty percent of the average of the charges paid by the Bank for the immediately preceding six months, the 'minimum monthly charge' provision in the ADP contract did not apply. The 'minimum monthly payment' clause applied only if, as the Bank performed the contract, the volume of transactions processed by ADP for the Bank in a particular month fell below the average cost during the immediately preceding six months. Only then was the Bank required to pay ADP the 'minimum monthly charge' for that particular month." Appellant's brief at p. 25.

The purpose of the eighty percent provision was to provide ADP an even flow of payments during performance, without abrupt decreases in a month in which the volume of a customer's transactions fell below the average for the immediately preceding six months. Appellant's brief p. 25 n. 17. This was important because ADP's primary investment had been made when they bought the equipment, and a steady flow of cash was part of their bargain to enable them to switch to their new national computer service system.

When First National stopped using ADP's services in three categories, the eighty percent minimum monthly charge provision was triggered. The charges for the other two categories continued to be billed on a per-transaction basis. Mr. Gray's outside deal to buy a computer and take his bank's processing "in-house" did not breach or terminate First National's contract with ADP. In fact, his actions did not affect the contract at all other than to trigger the eighty percent provision. No clear repudiation existed to constitute anticipatory breach because First National continued to use ADP for service in two of the five categories. ³ Phosphate Mining Co. v. Atlanta Oil & Fertilizer, 20 Ga.App. 660, 93 S.E. 532 (1917). Where no repudiation occurs, the contract is not breached simply by First National's not requesting service in the three categories....