Armstrong v. Collins
| Decision Date | 17 November 2005 |
| Docket Number | No. 4028.,4028. |
| Citation | 621 S.E.2d 368 |
| Parties | Marshall ARMSTRONG, Respondent, v. Fred COLLINS, Jr., Appellant. |
| Court | South Carolina Supreme Court |
Charles E. Carpenter, Jr. and S. Elizabeth Brosnan, both of Columbia and Melvin Hutson and Lynn R. Hudson, both of Greenville, for Appellant.
James Richardson and Richard A. Harpootlian, both of Columbia and Richard J. Breibart, of Lexington, for Respondent.
Fred Collins, Jr., appeals from a jury award in favor of Marshall Armstrong on causes of action for fraud, constructive fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, and breach of contract accompanied by a fraudulent act. Collins argues the trial court erred in: (1) failing to direct a verdict as to all causes of action; (2) allowing Armstrong to amend his complaint to include the two breach of contract claims; and (3) failing to grant Collins a continuance based on the late amendment. We affirm.
Collins is the sole owner of Collins Entertainment, Inc., a conglomerate that owns and operates video games. Armstrong began working for Collins Entertainment in 1980, and he became president of the corporation in charge of day-to-day operations in 1998. Armstrong and Collins became friends, and prior to the litigation, Collins included Armstrong as a beneficiary under his will.
During the 1990s, video poker machines yielded Collins Entertainment gross annual revenues of about $63 million and net profits of $12 or $13 million per year. Video poker was Collins Entertainment's core product, from which it derived eighty percent of its gross revenues. In the early 1990s, Collins Entertainment borrowed $12 million from SouthTrust Bank to finance a public stock offering. SouthTrust secured its loan by taking a security interest in all of Collins Entertainment's business assets.1 However, when cash payouts for video poker were outlawed effective July 1, 2000, Collins Entertainment was left without its most profitable product. See Joytime Distribs. & Amusement Co. v. State, 338 S.C. 634, 650, 528 S.E.2d 647, 655 (1999) (). Collins Entertainment owed SouthTrust somewhere between $13 and $20 million in principal and interest.
During this period, an idea was developed to alter old, existing bingo machines such that they could generate additional revenue. Armstrong testified that he came up with the idea when he noticed that the supreme court's opinion in Joytime excluded Class III Bingo machines. Although the licensing fee for Class III Bingo machines was $2000 per year, Armstrong discovered that older machines could be modified and licensed under a different class that had only a $100 per year licensing fee.
Armstrong testified that he discussed his idea with Collins, who was unconvinced at first. Collins allowed Armstrong to use some old machines that Collins owned personally to construct working models. Armstrong worked on the project during hours that he was not working for Collins Entertainment. Armstrong stated that he made four modifications to the machines, including adding an electronic circuit board, a flipper to bring the machine within the "game of skill" requirement for the lower licensing fee, and a printer to print tickets showing credits won which would be redeemable for merchandise. Armstrong applied for a patent for the new Skillpins machine.
Armstrong was interested in going into business for himself and wanted to work about fourteen more years before retirement. Because Collins Entertainment was so heavily laden with debt, Armstrong testified that Collins proposed that a separate entity be created to market the Skillpins machines. The new corporation would be ninety percent owned by Collins and ten percent owned by Armstrong. Armstrong would also be guaranteed a salary of $150,000 a year. Armstrong would later resign from Collins Entertainment and run the new corporation. Additionally, Armstrong testified that Collins agreed to personally borrow $1,000,000 from the bank, with Armstrong co-signing, to fund the endeavor. The agreement, however, was never reduced to writing.
Collins instructed Armstrong to go to Europe to secure exclusive distribution agreements for the new venture, later called Skillpins, Inc. The trips were successful, resulting in agreements with G.A.A., Seeben, and Splin S.A. The agreements were executed in the Skillpins name, as instructed by Collins. Skillpins was to use separate contracts, delivery slips, and work slips. Collins Entertainment paid for the trips, but Skillpins was to reimburse Collins Entertainment once it became profitable. Employees of Collins Entertainment also accompanied Armstrong on the trip. Dennis Cosentino, one of the employees who traveled with Armstrong, testified that during the trip, Armstrong was the most excited he had seen him in twenty years because Armstrong was going to be a part owner. Armstrong testified that he would not have made these trips but for the promise of part ownership.
When the corporation later began operating, separate contracts were employed for Skillpins machines, even if Collins Entertainment machines were already operating at the location. Collins had never previously created a corporation for a specific product in South Carolina. Armstrong continued to work on the Skillpins project during hours he was not working for Collins Entertainment, and he executed agreements using the Skillpins name.
Tim Youmans, an attorney working for Collins Entertainment and later for Armstrong, testified that Collins told him that he had decided to give Armstrong ten percent of the new corporation that was to be separate and unencumbered by the SouthTrust debt. According to both Youmans and Armstrong, Collins instructed Youmans to find a shell corporation owned by Collins personally that was not encumbered with the SouthTrust debt. Youmans found a corporation meeting the criteria, and the corporation's name was changed to Skillpins, Inc. On the same date, another corporation under the Collins Entertainment umbrella was renamed Skill Flippers, LLC. This entity was to be the distribution vehicle for Skillpins, Inc. However, it was never used for that purpose.
The agreement between Armstrong and Collins was to be reduced to writing later by Richard Cox, an outside attorney for Collins Entertainment. Eventually, Armstrong and Collins met with Cox. According to Armstrong, Collins informed Cox that Skillpins was to be an entity completely separate from Collins Entertainment, that Armstrong would own ten percent of the corporation, and that Collins wanted to be a silent partner. Cox testified that the parties' intent was to set up an independent entity with each having an ownership position. Collins gave Armstrong constant assurances that the paperwork would soon be generated. Cox never prepared the documents.
Collins held a meeting at Collins Entertainment with upper level management and he discussed Skillpins. Armstrong's recollection of the meeting was that Collins informed the other employees that Skillpins was Armstrong's idea, and that a separate corporation was to be formed of which Armstrong would own ten percent. Collins recalled stating that he had offered Armstrong ten percent of Collins Entertainment, not ten percent of Skillpins.
By November of 2000, two or three hundred Skillpins machines were operating and producing income.2 At that time, Armstrong discovered information concerning Skillpins was included in Collins Entertainment's profit and loss statement. Armstrong confronted Collins, and Collins confirmed that Skillpins had been brought under the Collins Entertainment umbrella. Collins offered Armstrong ten percent of Collins Entertainment. Armstrong refused, saying he did not want ten percent of the $13 to $20 million debt. Collins laughed and said he did not think Armstrong would. Armstrong immediately resigned.
Skillpins, Inc., purchased all the Skillpins machines. However, Collins Entertainment paid for the machines and booked all the machines as Collins Entertainment assets. Collins Entertainment started another patent application, listing Collins and his son as the inventors. This application was never filed. Within thirty days after litigation ensued, Skillpins, Inc. was dissolved. In 2001, Skillpins machines generated sixty-seven and one-half percent of Collins Entertainment's revenues.
After Armstrong resigned, he formed his own corporation with Youmans as a minority shareholder. At the time of the hearing, Armstrong's corporation operated about 250 Skillpins machines and over 100 video redemption games. However, Armstrong's declining health forced him to stop working full-time after January of 2001.
Armstrong brought an action against Collins alleging fraud, constructive fraud, negligent misrepresentation, breach of fiduciary duty, and violation of South Carolina's Unfair Trade Practices Act, and the case was tried before a jury. In his opening statement, counsel for Armstrong stated that the case was "about whether or not there was a contract between Fred Collins and Marshall Armstrong." Counsel further stated that the question for the jury was whether they had a meeting of the minds. However, counsel for Collins later objected to admission of evidence of the financial success of video poker in part on the ground that no breach of contract had been alleged in this case.
At the close of Armstrong's case, he moved to amend the complaint to add causes of action for breach of contract and breach of contract accompanied by a fraudulent act, arguing that the existence of a contract was implicit in the factual basis for the case. Counsel for Collins objected on the ground that they were unable to conduct discovery and...
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