Tom's Amusement Co. v. TOTAL VENDING

• Decision Date: 30 March 2000
• Docket Number: No. A99A1753.,A99A1753.
• Citation: 533 S.E.2d 413,243 Ga. App. 294
• Parties: TOM'S AMUSEMENT COMPANY, INC. v. TOTAL VENDING SERVICES et al.
• Court: Georgia Court of Appeals

533 S.E.2d 413

243 Ga. App. 294

TOM'S AMUSEMENT COMPANY, INC. v. TOTAL VENDING SERVICES et al.

No. A99A1753.

Court of Appeals of Georgia.

March 30, 2000.

Certiorari Denied September 29, 2000.

McCullough Sherrill, John A. Sherrill, Atlanta, R. Leslie Waycaster, Jr., Dalton, Steven M. Staes, Atlanta, for appellant.

Seacrest, Karesh, Tate & Bicknese, Sanford R. Karesh, Edwin A. Tate II, Atlanta, Walker, Hulbert, Gray & Byrd, Lawrence C. Walker, Jr., Perry, for appellees. MILLER, Judge.

The primary question on appeal is whether it constitutes tortious interference with contractual and business relations for one company to induce a competitor's current employee to disclose confidential financial information and for that company further to solicit customers via the employee's misrepresentations regarding the competitor's solvency. We hold it does.

Tom's Amusement Company, Inc. ("TAC") and Total Vending Services compete in placing coin-operated amusement games in various businesses in Atlanta. While employed by TAC as a route manager servicing games in Georgia, Alan Joseph secretly disclosed TAC's financial information to Total Vending (which had offered employment to Joseph) and in concert with agents of Total Vending solicited a TAC customer to give its business to Total Vending. As part of this solicitation, Joseph misrepresented TAC's financial status to the customer. Consequently, the customer (AMF) terminated its relationship with TAC at three locations and gave that business to Total Vending. After TAC fired Joseph in 1995 for breaching his duties to TAC, Total Vending hired him. Joseph then solicited other TAC customers, including CiCi's Pizza locations.

TAC sued Joseph and Total Vending and its agents (Schneider and Cotter) in seven counts for (1) tortious interference with contractual and business relations—against all defendants; (2) breach of contract to purchase Total Vending—against Schneider only; (3) disclosure of trade secrets—against Joseph only; (4) breach of noncompete covenants—against Joseph only; (5) conversion of corporate revenues—against Joseph only; (6) fraud arising out of the tortious interference, breach of contract, and conversion claims— against all defendants; and (7) federal and state Racketeer Influenced & Corrupt Organizations (RICO) Act violations—against all defendants. Defendants moved for summary judgment on all counts, which the trial court denied for the most part. But the court did grant partial summary judgment on the tortious interference, fraud (insofar as it arose out of the tortious interference), and the federal and state RICO claims, from which order TAC appeals. We affirm in part and reverse in part.

1. Summary judgment is proper only when there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law.¹ We review the evidence de novo in the light most favorable to the nonmovant.²

2. TAC contends that the defendants tortiously interfered with three contractual or business relationships: (a) TAC's business relationship with AMF, (b) TAC's employment of Joseph, and (c) TAC's business relationship with CiCi's. Athens Intl. v. Venture Capital Properties³ reiterated the elements of these two separate torts:

In establishing a cause of action for malicious or tortious interference with business relations, the appellants must demonstrate that the appellee (1) acted improperly and without privilege, (2) purposely and with malice with the intent to injure, (3) induced a third party or parties not to enter into or continue a business relationship with the appellants, and (4) for which the appellants suffered some financial injury. A cause of action for intentional interference with contractual rights must be based on the intentional and non-privileged interference by a third party with existing contractual rights and relations.⁴

(a) AMF's Business Relationship. TAC had been servicing AMF's seven Atlanta bowling alleys and thus had at least a business relationship if not an implied contract to continue.⁵ While Joseph was still employed by TAC, Total Vending and its agents induced him to disclose TAC's confidential financial information about revenues from the AMF locations and to solicit AMF repeatedly to give its business to Total Vending. In these solicitations, Joseph misrepresented that TAC was experiencing financial problems and could not afford to buy needed games. AMF succumbed and switched the three most profitable locations to Total Vending.

This direct evidence found in sworn testimony, including testimony from AMF, supports an action for tortious interference. Defendants' joint actions were neither privileged nor proper. Although it appears Joseph did not hold fiduciary obligations at TAC, nevertheless, "an employee owes a duty of loyalty, faithful service and regard for an employer's interest."⁶ Thus, before the end of his employment, no employee may solicit customers for a rival business nor otherwise directly compete with his employer's business.⁷ Nor may he misrepresent his employer's financial status to persuade customers to change to the rival business.⁸ To induce a breach of these duties is improper.

But TAC may pursue this tort only against Total Vending and its agents and not against its faithless employee Joseph, because only strangers to the contractual relationship and to the underlying business relationship are liable for tortious interference.⁹ Regardless of whether an employee is acting as an agent of his employer when engaging in the interference, he is not a stranger to the business relationship between his employer and the customers he personally services and thus cannot be held liable under a claim of tortious interference.¹⁰ But the competitor and its agents who assist in the interference can.¹¹

(b) Joseph's Employment Relationship. Beginning in 1991 Joseph had a written employment contract with TAC for a one-year term that automatically renewed until terminated. The agreement contained a post-employment twelve-month noncompete covenant that was superseded by a two-year noncompete covenant contained in his 1995 termination agreement. While Joseph was still employed by TAC, Total Vending offered him employment, but he did not accept. TAC eventually terminated Joseph, and Total Vending hired him within a few months.

With regard to the written contract and the written termination agreement, the evidence is undisputed that Total Vending and its agents had no knowledge of these contracts until the filing of this lawsuit. These parties could not have intentionally and maliciously induced Joseph to breach their terms, for they must first have had knowledge of TAC's rights and have acted with the intent to interfere with them.¹² Evidence that Joseph "never informed any of [Total Vending's] agents of the existence of his employment contract with appellant and that to his knowledge [Total Vending] was not aware of the contract," precludes a cause of action for tortious interference with contractual relations against them.¹³ Nor can Joseph be held liable for tortiously interfering with his own contracts.¹⁴

But Total Vending and its agents were certainly aware of Joseph's employment relationship with TAC and acted to interfere with that. In Georgia, a competitor's privilege of fair competition is lost

when wrongful means in the solicitation of employees are utilized. [Cits.] Such wrongful means generally involve predatory tactics such as physical violence, fraud or misrepresentation, defamation, use of confidential information, abusive civil suits, and unwarranted criminal prosecutions.¹⁵

Direct evidence shows that before Joseph left TAC's employment, Total Vending induced him to breach his implied duty of loyalty by working with it to solicit a TAC customer to give its business to Total Vending, by giving it TAC's confidential financial information, and by misrepresenting TAC's financial solvency to the customer. TAC lost three AMF locations to Total Vending as a result. Although Total Vending and its agents can be held liable for interfering with TAC's employment relationship with Joseph, Joseph of course cannot.¹⁶

(c) CiCi's Business Relationship. TAC serviced various CiCi's locations, some of which were owned by the franchisor and the others by independent franchisees. TAC was listed as a preferred vendor by the franchisor, which was a recommendation to franchisees that they may wish to contract with TAC. After Joseph left TAC,¹⁷ he solicited various CiCi's locations serviced by TAC to no avail. But he did persuade a new CiCi's franchisee opening a location in Smyrna to use Total Vending instead of TAC.

These actions do not constitute tortious interference by Total Vending. "[A]n employee is permitted to solicit his former customers on behalf of a new employer."¹⁸ Fair competition is always legal, and absent a valid noncompete or nonsolicit covenant a former employee may go to customers whom he procured for the old employer and endeavor to persuade them to change their trade to his advantage.¹⁹ True, Joseph himself had a noncompete agreement with TAC prohibiting such,²⁰ but the evidence is undisputed that no one at Total Vending was aware of that agreement until this lawsuit was filed. Absent such knowledge, the actions of Total Vending and its agents cannot meet the intent prong of the tort.²¹ And as an integral part of TAC's business relationship with CiCi's, Joseph was not a stranger and thus cannot be liable for tortious interference.²²

In summary, the trial court correctly granted summary judgment on all tortious interference claims with the following two exceptions: (i) the claim against Total Vending and its agents for interfering with TAC's contractual and business relationships with AMF and (ii) the claim against Total Vending and its agents for interfering with TAC's employment relationship with Joseph (insofar as Total Vending induced Joseph to solicit...