Olivetti Corp. v. Ames Business Systems, Inc.
| Decision Date | 02 June 1987 |
| Docket Number | No. 418PA86,418PA86 |
| Citation | 319 N.C. 534,356 S.E.2d 578 |
| Court | North Carolina Supreme Court |
| Parties | OLIVETTI CORPORATION v. AMES BUSINESS SYSTEMS, INC. |
Poyner & Spruill by J. Phil Carlton and Mary Beth Forsyth, Raleigh and Weinstein, Sturges, Odom, Groves, Bigger, Jonas & Campbell by Hugh B. Campbell, Jr., Charlotte, for plaintiff-appellant.
Joe C. Young, Charlotte, for defendant-appellee.
Lacy H. Thornburg, Atty. Gen. by John F. Maddrey, Asst. Atty. Gen., for the State, amicus curiae.
In April 1978, defendant Ames Business Systems, Inc. (hereinafter "Ames"), was incorporated by James H. Nicholson, formerly a salesman of accounting machines for Olivetti Corporation, and Wade M. Perry, previously an owner and operator of a small company that sold business forms and supplies. Ames was initially capitalized by Nicholson and four other investors, including Perry's wife and mother-in-law, for $45,000; Perry did not contribute any capital to Ames. Ames was formed to sell word processors for plaintiff Olivetti Corporation (hereinafter "Olivetti"). Ames and Olivetti entered into an agreement to that effect on 3 March 1978, including a provision for Olivetti to provide long-term maintenance and service through its Charlotte office. Olivetti signed a service contract with Ames on 1 May 1978, and Ames executed an initial order of $85,000 worth of equipment on the same date. Olivetti closed its Charlotte office the following month, giving Ames the option of taking over the Olivetti sales operation. Ames agreed and began distributing word processors out of Charlotte. Olivetti assigned its service contract with Ames to Piedmont Business Systems, Inc. Until Ames opened up its own service department, service was performed by an employee of Piedmont, Rex Jones. Ames lost $13,400 during that first year.
In April 1979, Olivetti began preparing to market a new word processor, the Olivetti TES-701. This machine was to be manufactured by NBI, Inc. (hereinafter "NBI"), and was essentially identical to the NBI-3000. The TES-701 was to be sold for about thirty percent less than the NBI-3000 and was apparently to compete for the same market. On 10 April 1979, Olivetti entered into a contract with NBI (hereinafter the "NBI agreement"), which was renewable on an annual basis and provided that, in the event of nonrenewal, NBI would continue to provide parts to Olivetti for five years thereafter. There was no provision in the agreement for long-term software updates. 1 In the summer of 1979, Olivetti discussed with Ames the benefits of the TES-701. As a way of encouraging Ames to carry the TES-701, one of Olivetti's employees, Tom Gallagher, told Ames that the NBI agreement did in fact contain a long-term software update provision. In July 1979, Ames ordered one TES-701 as a demonstrator. Ames showed another loss that year of $24,400, leaving it with a net worth of about $7,000.
As early as February 1980, Olivetti began trying to get out of the NBI agreement. During the spring, Olivetti and NBI held talks to arrange an amicable separation. At the same time, Ames, unaware of these talks, continued to buy TES-701s from Olivetti and sell them. In July 1980, Olivetti breached the agreement with NBI. A termination agreement with NBI provided Olivetti with maintenance and software updates only through 31 December 1982. As part of the termination agreement, Olivetti and NBI agreed that the breakup would be kept secret. In the fall of 1980, Ames began to hear rumors, through Mr. J.S. Epley, a potential customer, that Olivetti and NBI might be breaking up. Olivetti's employee Gallagher reassured Ames that the agreement was still intact and that Geoffrey A. Kohart, also of Olivetti, would write to reassure Epley. Kohart wrote the letter on 26 November 1980. This letter alluded to the industry rumors, but tended to downplay the possibility of trouble between NBI and Olivetti. Apparently reassured by the letter, Ames bought several TES-701s from Olivetti and sold two to Epley. Olivetti sold these to Ames at a very low price, saying that it wanted to reduce its inventory. According to Ames, Olivetti represented that it wanted to reduce its inventory to make room for additional TES-701s from NBI. At the end of the year, Ames had a net worth of negative $31,800.
Early in 1981, Olivetti changed its credit terms with Ames. Before Olivetti would honor new orders for parts or equipment, Olivetti required Ames to sign trade acceptances for the amount that Olivetti claimed Ames still owed it, some $108,379.11. Ames did so under protest. In March 1981, Ames met with an NBI representative to discuss becoming a dealership. Audley W. Downs, a regional manager responsible for dealer operations for NBI, met with Perry; Julius M. "Jay" Ozment, Ames' sales manager; David Harrison, Ames' service representative; and another Ames employee for a full day. When Downs left, Perry decided that it would not be feasible to market the NBI-3000, since it was the same machine as the TES-701 and he would essentially be competing with himself. Downs apparently also decided that Ames was not ready to become an NBI dealership and did not recommend that such a dealership be offered at that time. According to Olivetti, Ames did not meet NBI's financial requirements for becoming a dealership--some $250,000. According to Ames, it decided not to pursue a dealership with NBI because it had been assured that Olivetti would continue to support the TES-701. Furthermore, Ames presented evidence that it needed only about $26,000 to become a dealership and that that amount was available to it.
In June 1981, NBI contracted with Information Processing Consultants (hereinafter referred to as "IPC") to become its dealership in North Carolina. In August or September, during a training session in Georgia for the TES-351 (), Kohart, an employee of Olivetti, told Ozment that Olivetti was phasing out the TES-701. According to Ames, Olivetti told Ames in the summer of 1981 that it would be buying more TES-701s from NBI. Olivetti offered to sell Ames ten TES-701s at a considerable discount, claiming that it wanted to clear its inventory to make room for more TES-701s. At the time of the trial, Ames had been unable to sell seven of the machines. In the fall of 1981, Ozment left Ames and set up an office for IPC in Charlotte. At the end of the year, Ames had a net worth, according to Olivetti, of negative $78,000.
The trial court found that Olivetti had defrauded Ames and had committed unfair and deceptive trade practices in violation of N.C.G.S. § 75-1. It calculated Ames' damages for lost future profits to be $401,000 and for lost past profits to be $5,200 and trebled those amounts pursuant to N.C.G.S. § 75-1.1, awarding Ames $1,218,600. The court also found that Ames would have been entitled to substantial punitive damages from Olivetti if N.C.G.S. § 75-1 did not apply to this case. The trial court also found that Ames owed Olivetti $57,000 based upon a preexisting debt. Finally, the trial court ordered Ames to return its unsold Olivetti word processors to Olivetti, the contract price of which was deducted from Ames' debt. The Court of Appeals affirmed the judgment in all respects.
Olivetti first argues that the Court of Appeals erred in affirming the trial court's finding that Olivetti made material misrepresentations upon which Ames reasonably relied. We disagree and affirm the Court of Appeals in this respect.
The trial court made extensive findings on this issue, including the following:
12. Based upon the false statements of Olivetti that it had a five year agreement with NBI for the 701, and the fact that the product was a good product, Ames purchased a demonstration 701 and proceeded to spend at least two-thirds of its time from August, 1979 through October, 1981 preparing to sell and attempting to sell the 701. In so doing, Ames concentrated its efforts on the 701 and slackened its efforts on other products in its line. Ames did so in reliance upon the false representations of Olivetti.
....
15. On or about July 17, 1980, Olivetti breached the NBI Agreement and refused to accept any further shipments of 701's from NBI. At that time Olivetti had over 400 of the 701's in inventory, at a purchase price of approximately $5000 each, and was committed to purchase another 400 or more during the remainder of 1980. This breach was committed by Olivetti despite its representations to Ames that it had a five year supply agreement for the 701, and that it would support the 701 during that period of time.
....
17. On or about September 23, 1980, Olivetti's president confirmed a termination arrangement reached September 15, 1980 with NBI's president. In this arrangement Olivetti would accept from NBI 47 additional 701 systems already completed, but no more; Olivetti would pay a $300 premium per unit on each of the 379 units purchased in 1980 ($113,700); NBI would make no additional software options available to Olivetti except records processing, stat/math, tailorable communications and a diablo wide track printer. The parties specifically agreed, at Olivetti's request, that no public announcement would be made about these matters. Olivetti never made a public announcement of the NBI termination.
....
18. In October or November, 1980, Ames heard, through a potential customer, a rumor that Olivetti had breached the NBI Agreement and that the Agreement had been terminated. The customer, Mr. J.S. Epley of Charlotte, was considering the purchase of a 701 from Ames, and had heard about these matters. Mr. Epley was disturbed, because he liked Ames and the 701 but did not want to purchase a 701 unless he could be assured of continued service, and support, including hardware and software updates. He conveyed the information and his concern to Ames; and Mr. Jay Ozment, Ames' salesman, telephoned Olivetti from Charlotte to check...
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