Grantham and Mann, Inc. v. American Safety Products, Inc.
| Citation | 831 F.2d 596 |
| Decision Date | 30 September 1987 |
| Docket Number | No. 85-5857,85-5857 |
| Parties | RICO Bus.Disp.Guide 6750 GRANTHAM AND MANN, INC., d/b/a Grantham Safety Industries, Inc., Plaintiff-Appellant, v. AMERICAN SAFETY PRODUCTS, INC., Sam Evans, Richard J. Althoff and James Hunneke, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
William Woodward Webb (argued), Broughton, Wilkins, Webb, Gammon, Raleigh, N.C., Donna L. Pierce, Chambliss, Bahner, Crutchfield, Gaston and Irvine, Chattanooga, Tenn., for plaintiff-appellant.
John W. Murrey, III, Witt, Gaither & Whitaker, Chattanooga, Tenn., Thomas A. Farr (argued), Maupin Taylor Ellis & Adams, John T. Williamson, Raleigh, N.C., for defendants-appellees.
Before JONES and RYAN, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.
Plaintiff-appellant Grantham and Mann, Inc. ("Grantham") appeals the district court's judgment notwithstanding the verdict ("j.n.o.v.") in favor of defendants-appellees American Safety Products, Inc. ("ASP") and three of its corporate officers following a jury verdict finding that the defendants had breached a contract with Grantham. This diversity case also involved allegations of unfair trade practices and a violation of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1982). Grantham contends on appeal that the district court erred in finding that the jury's award of damages was too speculative to be sustained, in granting a directed verdict in favor of the defendants on its RICO claim, in granting summary judgment to ASP on its claims brought pursuant to the North Carolina Unfair Trade Practices Act ("N.C. Act") and the Tennessee Consumer Protection Act ("TCPA"), and in excluding certain evidence during the course of trial. We hold that deficiencies in Grantham's proof of damages warranted the district court's grant of j.n.o.v. to ASP on the breach of contract claim and its treatment of Grantham's RICO and N.C. Act claims. In addition, we conclude that a reasonable factfinder could not have found that the alleged RICO violations caused any injury Grantham might have sustained, that the corporation was an improper party to initiate a private suit under the TCPA, and that errors in the trial court's evidentiary rulings, if any, were harmless. Accordingly, we affirm the district court in all respects.
ASP is a Tennessee corporation formed in February, 1981 to engage in the business of manufacturing and selling fire extinguishers. On May 12, 1982, ASP entered into a distributorship agreement with Grantham, a North Carolina corporation formed by its sole shareholders, John D. Grantham ("Mr. Grantham") and William C. Mann, for the purpose of selling ASP's product. Under this agreement, Grantham was given master distributorship rights for thirty-four counties of eastern and central North Carolina ("Grantham I") in exchange for an initial purchase of $25,000 worth of inventory from ASP. The contract afforded Grantham a sixty percent discount on inventory purchased from ASP and prohibited ASP from itself selling products in the territory covered by the contract or selling inventory to a third party if that party planned sales within Grantham's area. To remain the master distributor in Grantham I, Grantham agreed to purchase an additional $25,000 in inventory from ASP within six months, and an equal amount every three months thereafter. Additionally, the contract gave Grantham a right of first refusal for the master distributor rights for those areas of North Carolina not covered by distributorship agreements. By virtue of this provision, Grantham could foreclose ASP's granting of a master distributorship to another by matching the terms negotiated between ASP and the third party and taking over the territory itself.
On June 1, 1982, defendant-appellee James Hunneke, ASP's sales manager, informed Mr. Grantham by telephone that ASP had a party interested in a distributorship. Although Mr. Grantham reminded Hunneke of Grantham's right of first refusal, he learned at ASP's first annual sales meeting a few days later that ASP had already entered into a distributorship agreement with Charles Wood covering a twenty-one county area in the western part of the state. Hunneke initially informed Mr. Grantham that nothing could be done about this situation, but called a few days later to explain that the sale of the western counties had been a mistake, and that ASP would do whatever Grantham wanted to make up for it, including rescission of the Wood contract. Grantham declined this offer, but after a month of negotiations, the "Wood incident" terminated with a settlement resulting in a second distributorship contract between Grantham and ASP. This new agreement gave Grantham the master distributorship rights for twenty-five additional counties contiguous to Grantham's original territory ("Grantham II"). Under this July agreement, Grantham confirmed the $25,000 inventory purchase and repurchase provisions regarding Grantham I, and agreed to identical provisions for the purchase and repurchase of inventory to cover Grantham II, thereby requiring Grantham to purchase a total of $50,000 of initial inventory, an additional $50,000 in six months, and $50,000 worth of products every three months thereafter. In addition, a more detailed right of first refusal in the second contract gave Grantham seven days from the receipt of written notification to exercise its refusal right and required ASP, upon request, to disclose to Grantham all of its previous agreements, contracts, letters and other communications with any third party who was interested in purchasing the distributorship area.
In August, Mr. Grantham received another phone call and a letter, both from Hunneke, informing him that ASP had a definite offer for the purchase of a fifteen county distributorship around Charlotte, North Carolina for $40,000.00. Grantham, through its own investigation, determined that the potential purchaser was Larry Surber. Surber was not allowed to testify before the jury, but his proffered testimony indicated that although ASP had asked $40,000 for the distributorship, no firm offer had been made by him. Surber also indicated that Hunneke had suggested that if Grantham contacted Surber, Surber should inform Grantham that the offer was for $50,000. At any rate, negotiations between ASP and Surber broke down, and the "Surber incident" ended with no further action on Grantham's part.
The last incident forming the basis for Grantham's action, the "Day incident," occurred in October, 1982. Defendant-appellee Richard J. Althoff, the president of ASP, notified Grantham by letter dated October 8 that ASP had "an interested party for the distributorship covering the Winston-Salem and Charlotte areas." Grantham received the letter on October 14, and immediately wrote ASP requesting that Grantham be informed when a "firm bid" was received, the identity of the potential purchaser, and copies of all correspondence related to the negotiations. By letter dated October 19, Althoff responded that ASP had already notified Grantham as required by their contract with the October 8 letter, and informed Grantham that the purchaser's name was Frank Day, and that the purchase price was $65,000. This letter was received by Grantham on October 27, but in the interim, on October 22, ASP had granted a distributorship to Day (the "Day territory") by an agreement calling for Day to purchase $65,000 in inventory each quarter for a period of five years.
Grantham instituted suit against ASP in the United States District Court for the Middle District of North Carolina on February 15, 1983, claiming that ASP had breached the contract with Grantham when it granted Day a distributorship without affording Grantham the opportunity to exercise its right of first refusal. The complaint also alleged that throughout its dealing with Grantham, ASP had violated both the N.C. Act and RICO. In addition to ASP, Grantham named Sam Evans (ASP's Chairman of the Board), Althoff, and Hunneke as individual defendants. On October 1, 1984, the case was transferred to the United States District Court for the Eastern District of Tennessee pursuant to 28 U.S.C. Sec. 1406(a) (1982). Thereafter, the Tennessee district court granted ASP's motion for summary judgment on Grantham's claimed N.C. Act violation. Grantham was permitted to substitute for this claim an alleged violation of the TCPA, but prior to trial the district court also granted summary judgment to ASP on that claim. Hunneke was also dismissed from the suit prior to trial.
The case went to trial on July 15, 1985. At the end of Grantham's proof, the district court directed a verdict in favor of the remaining defendants on Grantham's RICO claim, leaving only Grantham's breach of contract claim to be submitted to the jury. On July 18, 1985, the jury returned a verdict for Grantham in the amount of $350,000 plus interest. The district court, however, granted ASP's j.n.o.v. motion, and this appeal ensued.
Since an analysis of Grantham's proof of damages provides a linchpin for the examination of all of the issues presented for our review, we begin by considering the propriety of the district court's grant of j.n.o.v. in favor of ASP on Grantham's breach of contract claim. At trial Grantham sought to establish that it was damaged by ASP's breach because it lost the profits that would have been generated through operation of the Day territory which were precluded when ASP granted the distributorship to Day rather than to Grantham. Through the testimonies of Mr. Grantham and Dr. J. Carl Poindexter, a North Carolina State University economist, Grantham presented the jury with two calculations of damages. 1 Both calculations were premised on the notion that Grantham would have acquired the Day territory distributorship by matching the...
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