Englert, Inc. v. Leafguard Usa, Inc.

• Decision Date: 24 March 2008
• Docket Number: No. 26460.,26460.
• Citation: 659 S.E.2d 496,377 S.C. 129
• Parties: ENGLERT, INC., Respondent, v. LEAFGUARD USA, INC., Petitioner.
• Court: South Carolina Supreme Court

659 S.E.2d 496

377 S.C. 129

ENGLERT, INC., Respondent, v.LEAFGUARD USA, INC., Petitioner.

No. 26460.

Supreme Court of South Carolina.

Heard February 5, 2008.

Decided March 24, 2008.

John W. Fletcher, of Barnwell Whaley Patterson & Helms, of Charleston, for Petitioner.

Mark McAdams, and Amanda A. Bailey, of McNair Law Firm PA, of Myrtle Beach, for Respondent.

Justice WALLER:

We granted certiorari to review the Court of Appeals' opinion in Englert, Inc. v. LeafGuard USA, Inc.,365 S.C. 565, 619 S.E.2d 12(Ct.App.2005).The Court of Appeals affirmed the partial grant of summary judgment to Respondent, Englert, Inc., finding Englert was entitled to possession of a gutter-fabricating machine which was in the possession of Petitioner, LeafGuard USA, Inc.We reverse the grant of summary judgment.

FACTS

Jerry Dan Vickory is the owner of two companies which manufacture and install gutters: LeafGuard USA and Seamless Gutters of Socastee.In 1993, Vickory, on behalf of Seamless Gutters, entered into a Sub-License Agreement with Englert, Inc., a distributor of seamless gutter machines and raw materials used in manufacturing seamless gutters.Pursuant to the agreement, Seamless Gutters was granted the right to manufacture, sell, and install Englert's product, the LeafGuard Gutter System, in a set sales territory.The agreement set forth minimum sales quotas and required Seamless Gutters to pay Englert royalties.The agreement required Seamless Gutters to purchase a $26,000 gutter-fabricating machine to produce the Englert Gutter System.The contract includes the following buy-back provision:

Upon termination of this Agreement, Englert shall purchase, and Sub-Licensee shall sell, the Englert LeafGuard Gutter Machine, subject to normal wear and tear and pay Sub-Licensee at a price equal to the greater of:

(i) the depreciated value of the Englert LeafGuard Gutter Machine, based on a depreciated rate of 20% per year on the original price; or

(ii) $1.00

In 1998, LeafGuard USA entered into a SubLicense Agreement with Englert which was substantially similar to the 1993 agreement between Englert and Seamless Gutters.As with the prior agreement, LeafGuard USA had minimum sales quotas (15,000 feet of gutters per year), and was required to pay royalties.Although the 1998 contract required LeafGuard USA to purchase an Englert LeafGuard Gutter Machine for $28,000.00, it is undisputed that LeafGuard USA simply took possession of and utilized the LeafGuard Gutter Machine purchased by Seamless Gutters in 1993.

The 1998 agreement contains the same buy-back provision, allowing Englert to repurchase the LeafGuard Gutter Machine for $1.00 after full depreciation.The 1998 agreement was for an initial two year term from Jan.1, 1999-Dec. 31, 2000 and provided that it would continue for additional one year periods thereafter, "if Licensee has materially complied with all of the provisions of this License."However, the agreement provided that if the licensee breached any provision or remained in default for a period of thirty days after written notice from Englert (or 10 days written notice in the event of failure to pay royalties), Englert had the right to cancel the agreement and terminate the license immediately.

On March 15, 2001, Englert sent LeafGuard USA a letter advising that after numerous attempts at trying to contact LeafGuard USA, it was terminating the Sub-Licensing Agreement for the following reasons:

— Failure to meet the established sales target amount agreed as stated in the Sub-License Agreement under section 5C.

— As stated in the Sub-License Agreement under Section 6E, should Sub-Licensee be in default on its payment obligations to Englert for 60 days, Englert may, at its option, terminate this License Agreement and/or seek any other options open to Englert, taking over the repossessing Sub-Licensee's Englert LeafGuard Gutter Machine and/or rescinding Sub-Licensee from further manufacturing and distributing of Englert LeafGuard, and initiating the collection of the amounts owed to Englert.

The letter went on to advise that LeafGuard USA was 11,060 feet short of its 2000 sales quota, and that it was over 60 days past due in payment of royalties.Thereafter, Englert advised LeafGuard USA that it was to terminate all use of Englert's trademarks, and was to make arrangements for the immediate return of the gutter machine, at its expense, for which it would be paid $1.00 for the machine, in accordance with the licensing agreement.

LeafGuard USA did not return the machine and on July 30, 2001, Englert filed a Claim and Delivery action.One year later, on June 17, 2002, Judge Breeden denied Englert's motion for immediate possession of the gutter machine.Englert filed an amended complaint in March 2003 seeking an injunction and other relief.LeafGuard USA answered and alleged the affirmative defenses of waiver, estoppel, laches, unclean hands, fraud and bad faith (among other defenses).LeafGuard USA also filed a counterclaim, alleging unfair and deceptive trade practices, breach of contract, breach of contract accompanied by a fraudulent act, and fraud.

After a hearing, Judge Harwell granted Englert's motion for partial summary judgment, essentially holding that since the parties' contract was terminated, Englert had an absolute right to repossess the machine.Judge Harwell also found that LeafGuard USA's counterclaims did not preclude summary judgment.The Court of Appeals affirmed.Englert, Inc. v. LeafGuard USA, Inc.,365 S.C. 565, 619 S.E.2d 12(Ct.App.2005).The Court of Appeals addressed only LeafGuard USA's primary issue, in which it asserted summary judgment could not be granted to Englert because the machine had actually been sold to Seamless Gutters, such that the court could not order a transfer of ownership from a non-party.The Court of Appeals ruled that the two companies were in...