MJR Corp. v. B & B Vending Co.

• Decision Date: 30 August 1988
• Docket Number: No. 05-86-00539-CV,05-86-00539-CV
• Citation: 760 S.W.2d 4
• Parties: 1989-1 Trade Cases P 68,596 MJR CORPORATION, Mike Murphy, John Woodruff, Furrh Vending Corporation, d/b/a Quality Vending Company, and Don Furrh, Appellants, v. B & B VENDING COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 4

760 S.W.2d 4

1989-1 Trade Cases P 68,596

MJR CORPORATION, Mike Murphy, John Woodruff, Furrh Vending

Corporation, d/b/a Quality Vending Company, and Don Furrh, Appellants, v. B & B VENDING COMPANY, Appellee.

No. 05-86-00539-CV.

Court of Appeals of Texas,

Dallas.

Aug. 30, 1988.

Rehearing Denied Oct. 6, 1988.

Royal H. Brin, P. Michael Jung, Mark M. Donheiser, Dallas, for Mike Murphy, John Woodruff and Furrh Vending Corp., d/b/a Quality Vending Co.

Patrick C. Guillot, Karen Washington, Dallas, for Don Furrh.

Larry F. Amerine, Rick Hightower, Warren D. Campbell, Dallas, for appellee.

Before HOWELL, McCLUNG and McCRAW, ¹ JJ.

HOWELL, Justice.

This is a suit over the right to install and receive revenues from coin-operated vending machines and coin-operated game machines located in certain bars, lounges and nightclubs. Pleading both contract and tort, plaintiff, B & B Vending Company ("Old Vendor," or simply "Vendor") recovered a judgment against defendant, Furrh Vending Corporation, d/b/a Quality Vending Company ("New Vendor"), and related parties for forcibly excluding the machines of Old Vendor from ten different clubs and replacing them with machines of New Vendor. We find the judgment in error with respect to five clubs. Inasmuch as the damages were awarded in the aggregate, we find it necessary to reverse and remand the entire case for new trial.

FACTS

The parties were all well acquainted and had done business with one another for a number of years. B.H. Williams was the president of Old Vendor. ² Defendant Don Furrh, acting individually and through various corporations and partnerships, was a club operator. Defendant MJR Corporation and its principals, defendants Mike Murphy and John Woodruff, were also club operators. At the time this action arose or slightly before, Vendor had its machines installed in each of the ten clubs involved in this case. Vendor asserted the exclusive right to install machines in defendants' clubs for varying periods of years by reason of a series of written agreements, each pertaining to an individual club. Desiring to enter the coin-machine business themselves, the individual defendants organized New Vendor and acquired the necessary permits and equipment. During a short period commencing in February 1984, defendants caused Vendor's machines to be excluded from each of the ten clubs. Vendor then brought this suit for breach of contract joining the co-defendants just named through pleas of conspiracy and tortious interference. In a non-jury trial, the court below found in favor of Vendor on all theories and entered a joint and several judgment for $842,938.01 in lost profits plus exemplary damages in the same amount plus $45,995.50 in attorneys' fees for a total of $1,740,872.52.

The relationship between Vendor and defendant club operators was complex. Coin-operated machines were Vendor's main line of business. The established practice of the parties was to execute a printed form agreement provided by Vendor. Such contracts were each entitled "Location Agreement." However, the agreements referred to the parties as "lessor" and "lessee," and followed the customary language of a lease except that they recited that the respective "lessors" were demising "a location upon ... [premises identified or described] for the purpose of installing and operating coin-operated machines...." Each agreement further provided that during the term, lessee was granted "the exclusive right ... to install and operate such machines...." The forms, as printed, provided for a term of five years, but in certain instances, a shorter term was interlineated. The agreements contemplated that Vendor would service and maintain the machines, would fill them with merchandise, and would empty the coin boxes. They further provided that Vendor would remit to the club operator a percentage of the gross receipts, after deduction of taxes, the agreements generally calling for the club to receive five percent on cigarette machines and fifty percent on game machines.

In connection with its coin-machine business, Vendor engaged in the business of providing financing to bars, lounges and clubs. Undoubtedly, Vendor's willingness to finance the operators of such businesses gave to it an entree to secure the execution of location agreements. Banks and other commercial lenders often look askance upon such entities as suitable loan customers. For their part, club operators, when desirous of a loan, were entirely willing to sign five-year agreements granting exclusive rights to provide machines for their establishments.

Even though the agreements were generally drawn for five-year terms, they were rarely, if ever, enforced whenever an operator sold or closed his establishment. Businesses of this type change hands frequently. In such instances, it was the habit of Vendor to approach the new operator and attempt to secure the execution of a new five-year agreement, often offering or providing financing to the new operator. Upon execution of a new agreement by the new operator, the previous agreement was promptly forgotten. If the successor operator failed to sign a new agreement, Vendor rarely took any recourse except to remove its machines.

It appears that, at least in certain instances, Vendor also provided advice and counsel to the defendant operators general business, along with assistance in the drawing of legal instruments. During July 1983, the three individual defendants, Furrh, Murphy, and Woodruff went to the offices of Vendor and had a conversation with President Williams. Following the discussion, a secretary in that office prepared two lease agreements covering establishments known as "Geno's" and "Baby Dolls." These instruments were not simply "Location Agreements"; they were true leases of the premises described, executed on commercial printed lease forms. Each was for a term of fifteen years. The lessor in each instance was defendant Furrh and an affiliate corporation; the lessee in one was defendant MJR; in the other, an MJR affiliate. After the instruments were executed, they were notarized by Vendor's general manager. ³

Vendor was not a formal party to these leases, either as lessor or lessee. Why the transaction was completed at the office of Vendor is problematic, except for the supposition that Vendor desired to accommodate these club operators with whom it did considerable business by assisting in the drafting and execution of legal papers. Of particular significance to this case, each form lease agreement, as it was drafted, presumably by Vendor, and as it was signed by the parties, contained the following typewritten provision:

[Vendor], as a part of this lease, is granted the right to place all vending machines and/or coin operated machines on these premises.

Following execution of the two leases, according to the testimony of the three individual defendants, the three of them took an automobile trip to the country. While on the trip, defendant Furrh made known to co-defendants Murphy and Woodruff that he planned to go into the coin-machine business in competition with Vendor and had already secured a corporate charter and a permit for such an endeavor. An agreement was reached for Murphy and Woodruff to join the new company, each owning approximately one-third of the stock. The following day, entirely new leases for Geno's and Baby Dolls were executed, ⁴ the only significant change in the terms being that the name of Old Vendor was deleted and the name of New Vendor was substituted causing each lease to recite that New Vendor was granted the right to place all coin-machines on the respective premises.

During the following seven months, Vendor's machines remained in place at all ten clubs; business relations between Vendor and defendants remained undisturbed. ⁵ During that period, however, New Vendor quietly acquired enough coin-machines to meet the clubs' needs. Finally, during a brief period commencing on February 4, 1984, defendants excluded all of Old Vendor's machines from their clubs, unceremoniously hauling most of them to a warehouse and installing the machines of New Vendor. Vendor had no inkling of defendant's intentions until notified that it should retrieve its machines from the warehouse and elsewhere.

After filing suit, Vendor sought discovery of New Vendor's records showing the revenues and expenses realized by New Vendor's machines at the ten locations. New Vendor failed to provide the information. The court finally entered an order that inasmuch as the information sought by Vendor had not been provided, defendants would be forbidden to introduce any such information at the trial.

In order to prove damages, Vendor called a professor of economics and econometrics from a university in the area who presented extensive data. Basically, he took Old Vendor's records of receipts from each location, deducted expenses and an overhead allowance to reach a net estimated weekly income figure, and projected this figure forward to the expiration of the term of each lease and location agreement. These calculations were then discounted by an interest rate thought by the expert to be appropriate in order to present a net present lump sum value of the estimated future income stream. ⁶ Following this methodology, the expert arrived at the following estimate of discounted lost profits which we divide into groups:

The trial court made a single finding of actual damages in the amount of $842,938.01 which, after a forty percent reduction, closely approximates the expert's estimate just quoted. The court did not disclose its methodology, simply announcing that it had "made a substantial discount" from the evidence presented.

Furrh presents thirty-six points of error; the remaining defendants, appealing jointly, present thirty-three points, many of them overlapping Furrh's points. Most of the points challenge the legal and factual sufficiency of the evidence. ⁷ We sustain the...