Davis v. Sears, Roebuck and Co.

• Decision Date: 23 May 1989
• Docket Number: No. 88-5334,88-5334
• Citation: 873 F.2d 888
• Parties: Flint DAVIS, Plaintiff-Appellee, v. SEARS, ROEBUCK AND COMPANY and Bruce Mason, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 888

873 F.2d 888

Flint DAVIS, Plaintiff-Appellee, v. SEARS, ROEBUCK AND COMPANY and Bruce Mason, Defendants-Appellants.

No. 88-5334.

United States Court of Appeals Sixth Circuit.

Argued Feb. 13, 1989.

Decided April 24, 1989.

Rehearing Denied May 23, 1989.

Kenneth E. Hall, Barry K. Maxwell (argued), T. Harold Pinkley, and Egerton, McAfee, Armistead & Davis, Knoxville, Tenn., for Flint Davis, plaintiff-appellee.

Norman H. Williams (argued), Barry W. Eubanks, and Robertson, Williams, Ingram & Overbey, Knoxville, Tenn., for Sears, Roebuck & Co. and Bruce Mason, defendants-appellants.

Before GUY and NORRIS, Circuit Judges, and BELL, District Judge. ^*

RALPH B. GUY, Jr. Circuit Judge.

Defendants Sears, Roebuck and Company (Sears) and its employee, Bruce Mason, appeal from the district court's amended judgment denying their motion for judgment notwithstanding the verdict (jnov) and awarding damages pursuant to a jury verdict in this breach of contract action against Sears and defamation action against Mason. The action was brought following Sears' termination of its contract with Davis that had established Davis as a Sears Authorized Catalog Sales Merchant (Merchant) in McCaysville, Georgia. The core of Sears' and Mason's appeal is that the district court erred in construing Georgia law and, thereby, erred in denying jnov as to the breach of contract and defamation claims. For the reasons that follow, we affirm the district court's denial of Sears' and Mason's motion for jnov as to the contract claim but reverse the district court's ruling on the defamation claim.

In 1971, Sears, a corporation organized and existing under the laws of the State of New York with its principal place of business in Illinois, and Davis, a citizen of the State of Georgia, entered into a Sears Authorized Catalog Sales Merchant Agreement (Agreement). Pursuant to the Agreement, Davis became an independent contractor operating a private business soliciting and receiving orders for and ultimately distributing Sears merchandise in McCaysville, Georgia. Essentially, Davis acted as a bailee in receiving and maintaining Sears merchandise for customer acceptance; title to the merchandise passed directly from Sears to the customer. Under the Agreement, Sears provided catalogs, signs, displays, and merchandise to Davis. Davis was solely responsible for his employees. He was also responsible for paying all license fees, most local and state taxes, and for securing a facility for his business. Although Davis could have leased space, he purchased land and constructed a building to house his catalog store and received design input from Sears. Davis and his new employees received approximately two weeks of training upon opening the McCaysville store.

Prior to 1971, Davis worked for the Tennessee Chemical Company for twenty-three years. Before leaving that position, at age forty, to become a Merchant, Davis allegedly was told by Sears that their Agreement would be renewed automatically each year, ad infinitum, barring any impropriety in Davis' operation of the store. The explicit duration provision in the Agreement, however, limits the Agreement to one year. The Agreement contains explicit termination provisions including one that authorizes either party to terminate the contract upon sixty days' notice. The Agreement also authorizes voluntary assignment of the Agreement and sale of business assets provided that the assignee/purchaser meets the standards then utilized by Sears in selecting new merchants and agrees to be bound by the Agreement.

Davis and Sears renewed their one-year Agreement without change each year from 1971 through 1984. Sales in Davis' store grew from $300,000 during its first year of operation to over one million dollars in gross sales in the 1980s. Some decline in net sales occurred in 1982 and 1984. Davis worked six days per week at his store and only took time off to attend the funeral of each of his parents. His store was well regarded by Sears. In fact, it won various promotional sales contests, including one during the 1984 Christmas season in which During his operation of the catalog store, Davis contacted Sears when operating problems necessitated intervention. ¹ In turn, Sears advised Davis of any problem noted in his store and gave him ample opportunity to cure it.

his store overwhelmingly exceeded a sales quota set by Sears.

In June 1982, Sears' Area Consultant, Bruce Mason, a Tennessee resident, allegedly discovered an excessively high number of discounts given at the McCaysville store. Mason and Sears' Area Trainer, Lynn Tennyson, met with Davis in November 1982, in part, to review Sears' discount policies. Davis denies that discount policies were discussed at that meeting. Mason subsequently sent Davis a second copy of Sears' discount policy. ² Sears' discount policy was also the alleged subject of a 1982 phone call between Mason and Davis.

In the fall of 1984, Mason again discovered an improper employee discount given at the McCaysville store to Charles Payne. Further investigation revealed that Payne was given improper discounts on sales approximating $11,700 over approximately one year. Payne was not a Sears employee or otherwise entitled to a discount. Mason did not contact Davis about this impropriety. Instead, the incident triggered an investigation into all McCaysville authorized discounts. The investigation spanned several months and involved five Sears employees and the Sears Atlanta shipping and auditing departments. The investigation revealed that Davis gave numerous improper employee, church, and school discounts on sales totalling over $100,000. Moreover, Sears alleges that Davis fraudulently documented sales to conceal the allegedly improper discounts and failed to properly document tax exempt sales.

Davis contends that he consistently authorized the same discounts from 1971 until the store was closed in 1985. Moreover, Davis and his principal employee, Laura (Penny) Davenport, contend that they never were advised that they were giving improper or unauthorized discounts. They further contend that before 1982, when Sears converted to computerized processing of sales, all McCaysville discounts were noted on the face of the catalog store ticket and submitted to the Sears Atlanta office for approval. If the discount was improper or lacked certain information, Sears' policy was to return the ticket for correction by the McCaysville store. From 1978 through 1982, no tickets were returned for improper discounts.

Subsequent to Sears' investigation, Davis received a phone call from Mason notifying him of Sears' intention to terminate their Agreement. Mason declined to explain the reason(s) for the termination. A letter sent to Davis, dated January 30, 1985, formalized Sears' intention to terminate its Agreement effective July 22, 1985, the closing date of the parties' then existing one-year Agreement. Although Sears produced testimony that the improper discounts ceased abruptly following its notice of termination to Davis, this testimony was refuted. The store closed on July 24, 1985. Davis attributes the sequence of events leading to the termination of his Agreement to a personality conflict between Mason and himself and to Mason's determination to remove Davis' store from him.

Although the Agreement provides that termination of the Agreement also terminates the parties' relationship and, by implication, extinguishes Davis' contractual right to "voluntarily " assign, transfer, or sell the Agreement, Sears nevertheless encouraged Davis to sell his business, even after their Agreement terminated, in order to facilitate the transition between Davis and his replacement Merchant. Sears On June 28, 1985, Davis notified Sears by letter of an offer he had received from Mr. and Mrs. Scott McNeill to purchase his business assets for $135,000, and gave Sears fifteen days to match the offer. Mrs. McNeill previously had been rejected by Mason as a possible replacement for Davis. Sears responded that because the Agreement was terminated, there could be no voluntary assignment or sale of his business assets. Therefore, Sears claimed, the assignment provisions, which only authorize "voluntary" transfers, were no longer available to Davis. Moreover, Sears indicated that Mrs. McNeill failed to satisfy Sears' standards for new catalog merchants and could not be approved. Therefore, Sears declined to approve the anticipated transfer and was not interested in matching the offer. Thus, no sale of Davis' business assets occurred prior to or after the termination of his Agreement with Sears. Kauffman reopened the Sears catalog store in a different facility approximately one month after Davis' store was closed.

                however, retained its right to approve the new Merchant.  Sears provided applications to Davis for prospective merchants and Mason interviewed each of the six applicants referred by Davis.  All six were rejected as failing to satisfy Sears' then existing, unwritten standards for selecting new catalog merchants. 3   As discussed below, during his interviews with prospective merchants, Mason made comments that ultimately became the basis for Davis' defamation claim against him.  After rejecting the six applicants referred by Davis, Sears reviewed applicant files in Atlanta, Georgia, and hired Dan Kauffman to replace Davis as its Merchant.  Although Sears attempted to orchestrate Kauffman's purchase of Davis' remaining business assets, no purchase occurred.  Davis attributes the impasse to a clause in the purchase agreement requiring him to release Kauffman and Sears from any liability related to Davis' termination
                

In November 1985, Davis filed a complaint against Sears and Mason alleging that Sears breached the Agreement by its bad faith termination of Davis and by its bad faith failure to approve as the new Merchant any of the applicants whom Davis had referred to Sears and with whom he had allegedly...