Ellie, Inc. v. Miccichi

Decision Date02 February 2004
Docket NumberNo. 3741.,3741.
Citation594 S.E.2d 485,358 S.C. 78
CourtSouth Carolina Court of Appeals
PartiesELLIE, INC., Appellant, v. Ronald R. MICCICHI, Respondent, Ronald R. Miccichi and Ronco of Charleston, Inc., Respondents, v. Ellie, Inc., Maple Games, Inc. and Robert Stefani, Sr., Appellants.

Francis T. Draine, of Columbia, for Appellants.

Justin O'Toole Lucey, of Mount Pleasant, for Respondents.

ANDERSON, J.:

Ellie, Inc., and Ronald R. Miccichi and Ronco of Charleston, Inc., filed competing claims of breach of contract and sought a declaratory judgment on the status of the lease between the parties. The trial court denied all claims by Ellie and found Ellie had breached the lease. The court concluded the breach was accompanied by fraudulent acts and awarded actual and punitive damages,1 Miccichi validly terminated the lease, and Stefani was personally liable under his Guaranty. We affirm.

FACTS/PROCEDURAL BACKGROUND

Miccichi owned and ran Sports, a bar in Mount Pleasant. Robert Stefani and Miccichi entered negotiations regarding Stefani taking over the bar's operations. Stefani established Ellie, Inc., for management of the bar. Miccichi, on behalf of Ronco, and Stefani, acting for Ellie, signed a Management Agreement in July 1995, in which Ellie was hired to operate the bar. The agreement outlined the basic responsibilities and compensation to Ellie. Attached to the Agreement was an Addendum dealing with equipment rental and the installation and maintenance of video gaming machines by Miccichi. Under the Addendum, Ellie received nominal compensation for handling the daily payouts for the machines, but did not acquire any portion of the profits.

Simultaneously, Miccichi, as owner of the property, and Ellie entered into a Lease Option Agreement. Ellie was granted the option to lease and operate Sports for five years with possibilities of renewal for three five-year terms. The agreement set forth several acts of default, the failure to observe, keep and perform any of the duties contained within the lease after sixty days notice. Miccichi was given the power to extinguish the lease for default with fifteen days notice. Miccichi signed the lease, but enclosed a corporate authorization by Ronco, indicating he was the president and had authority to sign. An identical Addendum to the one appended to the Management Agreement was attached to the Lease Option Agreement.

Contemporaneously, Stefani executed a Guaranty and noncompete contract. He personally guaranteed the payments required under the lease, and up to $30,000.00 in liquidated damages in the event of Ellie's default. Stefani signed the Guaranty individually and as president of Ellie.

The parties executed a first amendment on December 18, 1995, which expressly modified the Addendum to the Lease Option and Management Agreements. The amendment established Ellie's first shares of revenue from video gaming. Ronco would purchase a five-seat gaming machine and the profits would be divided. Ellie would maintain the machine and the payouts. The amendment also ratified the existing contracts and expressly enunciated that the Guaranty remained in full effect.

A second amendment on April 4, 1996, had more efficacy upon the original agreements. It altered the Lease Option Agreement to allow for installment payments of the fees in the event it was exercised. Additionally, it changed some of the equipment rental provisions. The parties agreed a second video gaming machine would be purchased and the parties would share revenues of the second machine. Finally, the amendment acknowledged that the prior agreements remained in effect.

Several months after this amendment, Stefani exercised the Lease Option. Therefore, the Management Agreement was no longer in effect. However, there is no indication Stefani was released from the Guaranty as it also applied to the financial responsibilities of Ellie under the Lease Option contract.

Ronco and Miccichi presented a third amendment on July 6, 1998, which provided Ellie a share of all the gaming machines' revenues. The amendment defined net revenues, and allocated twenty percent to Ellie. Miccichi and Ronco retained ownership of the machines, but Ellie was responsible for twenty percent of certain costs, including licenses. Additionally, Ellie was to handle daily collection of money from the machines, insure the collections, and report any problems to Ronco. On September 28, 1998, the parties adjusted the amount of gaming proceeds being paid to Ellie, as well as allowed Ronco to lease no more than twenty percent of the building for gaming use. This fourth agreement indicated that the revenues allocated to Ellie would pass on to any sublet tenant. The agreement further established that the cost of all new machines would be paid off before any profits are distributed.

The parties next signed off on a "letter ... for the purpose of clarifying the relationship between Ronco/Ron Micciche [sic] and Ellie/Bob Stefani with regard to the operation of video gambling machines...." The agreement, dated December 2, 1998, allocated seventy-five percent of the first $500,000.00 in net revenue to Ronco. Once net revenue surpassed $500,000.00, the parties divided the revenue evenly. Ellie/Stefani continued to pay twenty-five percent of the expenses, and the parties agreed to add additional rooms onto the property for gaming. The rooms would be paid for seventy-five percent by Ronco and twenty-five percent by Ellie. The agreement included a provision, which made the terms transferable with Ronco having the right of first refusal on any offer. Finally, the contract included a provision, which read: "This agreement is binding on Ellie and Ronco and replaces any previous agreement(s) between these parties."

The final amendment on May 1, 1999 introduced a new company, Maple Games, Inc., into the collection of money and sharing of revenues. Maple was owned and operated by Stefani. The amendment continued the $500,000.00 revenue threshold and split Stefani's share between Maple and Ellie. The amendment also included a provision allowing for a higher share of revenue for Stefani in the summer months. The provision was not contained in the previous amendment. Finally, the amendment defined net revenue as total income less total payouts and Miccichi wrote in "less expenses!" that was not objected to by Stefani prior to Miccichi signing.

The parties' disagreements centered around the video gaming and their sharing of revenues. In October 1999, Stefani claimed the revenues had reached the $500,000.00 level at which time the revenues were split evenly. Miccichi wanted an accounting to verify the revenue figures, and claimed Stefani excluded expenses, which should have reduced the net revenues. After reviewing the reconciliation, Miccichi identified two "phantom entries" on dates where he knew no reconciliation had been performed because he and his daughter were out of the country on vacation.

In striving to analyze the reports, Miccichi requested additional information to support the figures. Miccichi also attempted to retake control of the collection process. He sent a locksmith to the premises to change the locks on the machines, but Stefani refused the locksmith admittance.

Furthermore, the parties disputed the meaning of the "merger clause" in the letter clarifying their relationship. Miccichi sent a letter asking Stefani's opinion regarding the status of the lease. An additional letter was sent in which his counsel stated: "If [Stefani] has not vacated the property within thirty days, we will take it as a confirmation that the current lease document ... is still in full force and effect ... and that the only modifications that have potentially occurred to the lease are purely with regards to gaming provisions." Stefani's counsel responded, "[T]he applicability and effect of the clause will have to be determined on a case by case basis if, and when, a conflict arises between two competing agreements."

Miccichi's counsel responded by letter indicating that it was his belief the merger clause superseded the lease, and the tenancy was considered month to month. Alternatively, he stated that to the extent the lease was valid, he placed Stefani on notice regarding the violations of the gaming provisions and the refusal to allow the locks of the machines to be changed. Miccichi then gave notice that the lease would be terminated.

Approximately a month later, Ellie notified Miccichi that it sought to assign the lease to another corporation. Miccichi, through his counsel, denied the requested assignment. Ellie then initiated this lawsuit.

Ellie proceeded to trial on four main causes of action. Ellie sought a declaratory judgment that the lease was valid and Miccichi improperly denied its assignment of the lease. It claimed damages for breach of contract and in the alternative breach of contract with fraudulent intent. Its final cause of action alleged Miccichi interfered with a prospective relationship. Miccichi answered, denying all of Ellie's claims, and filed a counterclaim for breach of contract accompanied by fraudulent intent and a declaratory judgment that the lease was validly terminated and his denial of the validity of the assignment was valid. The case was referred to the masterin-equity by consent of the parties.

At trial, Miccichi presented evidence of five financial irregularities regarding the collection of the gaming money. He asserted there were incorrect tabulations of when the threshold level was met, unaccounted periods where the machines were reset, errors in determining the percentage allotted to Stefani, failure to properly include all expenses in calculation of net revenue, and phantom entries.

Stefani claimed the violations of the gaming agreements were insufficient to be considered a breach of the lease. Additionally, he maintained the parties to the...

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