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Time Systems International Co., Inc. v. Datamatics Management Services

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


August 12, 2009

TIME SYSTEMS INTERNATIONAL CO., INC., PLAINTIFF-RESPONDENT,
v.
DATAMATICS MANAGEMENT SERVICES, INC., DEFENDANT-APPELLANT.

On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, Docket No. C-103-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued June 2, 2009

Before Judges Parker, Yannotti and LeWinn.

Defendant Datamatics Management Services, Inc. appeals from a judgment entered on May 15, 2008, awarding plaintiff Time Systems International Co., Inc. $495,782 in damages on its claims of breach of contract and tortious interference with prospective economic advantage, and an order entered on July 9, 2008, awarding plaintiff attorneys' fees and costs. For the reasons that follow, we reverse.

I.

Defendant is the developer and licensor of a time-and-attendance software program known as TC-1. Defendant also provides support services to users of the TC-1 software. The TC-1 system allows its users to track employees' hours and generate automatic payroll records. Plaintiff is a reseller of software and hardware related to time-and-attendance programs. The parties entered into a series of agreements under which plaintiff acted as a distributor of TC-1 and generally precluded defendant from selling TC-1 to plaintiff's "clients" or "customers".

In March 1993, defendant sent plaintiff a letter of understanding confirming their discussions. The letter provided in part that defendant would not make any direct sales contact to an "account" identified by plaintiff for a period of six months after the "account is made known" to defendant by plaintiff. In October 1995, the parties entered into an agreement, which stated that "[a]ny prospect or current client [that plaintiff] is working with will be considered [plaintiff's] client, provided [defendant] has not directly contacted that prospect or client within 30 days prior to the date [plaintiff] informs [defendant] they are a prospect or client."

Sometime in 1994, plaintiff sold defendant's TC-1 software system for use at Coca-Cola's Minute Maid plant in Hightstown, New Jersey. The purchase order was issued by Coca-Cola Foods, a division of The Coca-Cola Company, from its corporate address in Houston, Texas. The purchase order directed that the product be shipped and billed to Coca-Cola Foods in Hightstown.

In May 1996, the parties entered into a written distributor agreement for an initial term of approximately three years, which would be automatically renewed for successive twelve-month periods unless either party elected not to renew. The agreement provided in part that, although plaintiff's "primary focus" would be the New York, New Jersey and Connecticut area, plaintiff could sell the TC-1 system and related services "without restriction within the continental United [S]tates and the rest of the world." It should be noted, however, that under the agreement, international sales were limited to South and Central America.

The 1996 agreement also stated that sales by defendant were permissible, including those made within plaintiff's non-exclusive area. The agreement stated, however, that, for a period of five years after the termination of the agreement, "[defendant] shall not provide support or any other service, to any client of [plaintiff] using [defendant's] products, without consent of [plaintiff]." The 1996 agreement also stated that:

[plaintiff] will provide to [defendant], in writing, the names of prospects [plaintiff] wishes to remain proprietary (as defined herein) to [plaintiff]. [Defendant] will review these names and, within five (5) business days, notify [plaintiff] of its receipt of the list and any of the names listed that [defendant] has on its own prospect list and considers proprietary to [defendant]. Prospects proprietary to either party shall remain so for a minimum of siX (6) months. Parties hereto agree not to contact prospects deemed proprietary to the other. At the end of 6 months, [plaintiff] shall disclose to [defendant] any proprietary prospect that it continues to contact at least every 30 days, and that it wishes to have remain proprietary and continue as proprietary to [plaintiff]. [Plaintiff] may continue this process during the term of this agreement.

On March 21, 1996, plaintiff sent defendant a list of prospects and asked which would be proprietary to plaintiff. Coca-Cola was one of the prospects listed. Defendant returned the list to plaintiff. "No" was marked next to Coca-Cola. Defendant's president testified that he refused to allow Coca- Cola to become proprietary to plaintiff because plaintiff had not identified any specific location for the company.

At some point thereafter, Kevin Heinle ("Heinle"), defendant's vice president, received a call from an equipment manufacturer in Michigan, who advised that Minute Maid might be interested in one of defendant's software products for use at its facility in Paw Paw, Michigan. Heinle flew to Paw Paw and met with the plant manager. Heinle also met with about thirty-five of the plant's supervisors. The individuals at Paw Paw apparently were unaware that the TC-1 system was already in place at the Minute Maid facility in Hightstown.

On January 25, 1999, Heinle submitted a proposal for the sale of the TC-1 system, which was accepted. The purchase order for Paw Paw was not introduced as evidence in this case. The record shows, however, that defendant sent the bills for the TC-1 software to Minute Maid at Paw Paw.

While he was installing the system at the Paw Paw facility, Heinle learned that a Coca-Cola plant in Waco, Texas was being converted to a Minute Maid plant. Heinle contacted Waco and later traveled there to speak with its plant manager and supervisors. Defendant ultimately sold the TC-1 software system for use at Waco. On March 2, 1999, defendant billed Minute Maid for the purchase of the TC-1 system at the Waco address.

Heinle also sold the TC-1 software for use at a Minute Maid bottling plant in Northampton, Massachusetts. On November 30, 2000, defendant billed Minute Maid at the Northampton address. In addition, Heinle obtained an order for the TC-1 system from CCDA Waters, L.L.C. ("CCDA") of Houston, Texas. CCDA apparently was established to facilitate Coca-Cola's acquisition of a portion of Dannon Foods' beverage business. The CCDA order involved six separate physical plants. The purchase order was issued from CCDA's address in Houston, Texas.

In 2002, the parties entered into another distributorship agreement. The 2002 agreement provided that plaintiff's "[e]xclusive" territories were Puerto Rico, Connecticut, Queens, Bronx and Brooklyn, and its "[n]on-exclusive" territories were the Caribbean and North America. The 2002 agreement additionally provided that:

[defendant] agrees not to contact, service or sell products to any of [plaintiff's] restricted prospects (proprietary prospects approved by [defendant]) while this Agreement is in effect or for a period of two (2) years after the date of termination of this Agreement without prior written authorization from [plaintiff]. . . . [Defendant also] agrees not to contact, service, or sell products to any of [plaintiff's] customers while this Agreement is in effect or after the termination of this Agreement. [Defendant] may contact [plaintiff's] customers if they cease to use [defendant's] products for a period of one year.

In 2003, defendant sold TC-1 systems to Coca-Cola facilities in Auburndale, Florida and in Truesdale, Missouri. In 2003, defendant also sold the TC-1 system to POKKA USA, Inc. ("POKKA"). The record does not disclose the site where the POKKA system would be used; however, the bill was sent to an entity called Coca-Cola North American in Houston, Texas.

In 2004, Minute Maid's Hightstown plant was closed. In January 2005, Heinle authorized the transfer of Hightstown's TC-1 license to a Coca-Cola affiliate for use at a distribution facility in Apopka, Florida. Heinle said that he did this as a favor to the Apopka facility and as a gesture of good will towards Coca-Cola. Later, defendant entered into an agreement for support of the TC-1 system at Apopka.

On March 26, 2007, plaintiff filed an eight-count complaint in the Chancery Division asserting an assortment of claims against defendant. The parties later settled all claims except for plaintiff's claims that defendant breached the distribution agreements and tortiously interfered with its prospective economic advantage by selling the TC-1 software and related services to companies affiliated with Coca-Cola.

Following a bench trial on those claims, the court ruled that the disputed sales were made while defendant was contractually bound not to transact business with plaintiff's customers. The court found that when plaintiff sold the TC-1 software to Coca-Cola Foods for use at the Minute Maid plant in Hightstown, all companies affiliated with Coca-Cola became plaintiff's "customers" and defendant was barred from selling TC-1 to any of the entities.

The court additionally found that, although plaintiff's efforts to sell the TC-1 software for use at other Coca-Cola facilities were "scant and ill defined," plaintiff made reasonable efforts to sell the product by successfully installing and servicing the TC-1 system at Hightstown. The court determined that defendant had interfered with plaintiff's efforts to obtain economic benefits from its relationship with Coca-Cola and defendant's actions were "intentional, willful and without justification or excuse." According to the court, defendant did not have the right to "poach" plaintiff's sales to Coca-Cola and its conduct in doing so was malicious.

The court further determined that defendant's breach of the distribution agreements and its tortious interference with plaintiff's prospective economic advantage caused plaintiff to lose sales that it would otherwise have made as the only available, legitimate channel for the purchase of the TC-1 software by the Coca-Cola affiliates. The court found that, had defendant not made the sales to the Coca-Cola affiliates, it was reasonably probable that plaintiff would have received the economic benefit of those sales.

II.

We turn first to defendant's argument that the trial court erred by finding that it tortiously interfered with plaintiff's prospective economic advantage.

To prevail on a cause of action for tortious interference with prospective economic relations, a plaintiff must show that it enjoyed some protectible right, specifically a "'reasonable expectation of economic advantage.'" Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 751 (1989) (quoting Harris v. Perl, 41 N.J. 455, 462 (1964)). The plaintiff also must show that the defendant interfered with that right and did so with malice, that is, intentionally and without justification or excuse. Ibid. (citing Rainier's Dairies v. Raritan Valley Farms, Inc., 19 N.J. 552, 563 (1955)). In addition, the plaintiff must show that "'if there had been no interference[,] there was a reasonable probability that the victim of the interference would have received the anticipated economic benefits.'" Id. at 751-52 (quoting Leslie Blau Co. v. Alfieri, 157 N.J. Super. 173, 185-86 (App. Div.), certif. denied, 77 N.J. 510 (1978)).

To constitute a wrongful act for purposes of a cause of action for tortious interference with prospective economic advantage, the defendant's conduct must transgress "'generally accepted standards of common morality or of law.'" Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285, 306-07 (2001) (quoting Harper-Lawrence, Inc. v. United Merchs. and Mfrs., Inc., 261 N.J. Super. 554, 568 (App. Div.), certif. denied., 134 N.J. 478 (1993)). "[T]he relevant inquiry is whether the conduct was sanctioned by the 'rules of the game,' for where a plaintiff's loss of business is merely the incident of healthy competition, there is no compensable tort injury." Ibid. (citing Ideal Dairy Farms, Inc. v. Farmland Dairy Farms, Inc., 282 N.J. Super. 140, 199 (App. Div.), certif. denied, 141 N.J. 99 (1995)).

Here, the court ruled that plaintiff had a reasonable expectation of prospective economic benefit with Coca-Cola and its affiliated companies "beyond the purchase order and maintenance contracts" relating to the Minute Maid plant in Hightstown. The court stated that plaintiff was in "pursuit" of this business because it made reasonable efforts "to demonstrate the viability and economic attractiveness of the TC-1 time and attendance system[.]"

The court said that plaintiff achieved this goal "by making sure [Coca-Cola's] personnel and [plaintiff's] personnel became adept at the system, and by providing ongoing service and maintenance to bring home to [Coca-Cola] the viability and utility of the TC-1 system." As stated previously, the court also noted that, beyond plaintiff's efforts to successfully market TC-1 at Hightstown, plaintiff's efforts to sell TC-1 for use at other Coca-Cola facilities were "scant and ill defined[.]" The court found, however, that this did not "translate into a lack of pursuit of more [Coca-Cola] business."

"Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence." Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 484 (1974). However, "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995) (citing State v. Brown, 118 N.J. 595, 604 (1990); Dolson v. Anastasia, 55 N.J. 2, 7 (1969); Pearl Assurance Co. Ltd. v. Watts, 69 N.J. Super. 198, 205 (App. Div. 1961)).

We are convinced that the evidence presented at trial does not support the trial court's finding that plaintiff had a reasonable expectation of prospective economic advantage derived from future sales of TC-1 to Coca-Cola's affiliates. In our judgment, plaintiff's contracts with defendant did not give rise to any such expectation. The parties' agreements generally precluded defendant from selling TC-1 or its related services to any of plaintiff's "clients" or "customers" for specified periods of time. The terms "client" and "customer" were not, however, defined in the agreements.

The trial court determined that because plaintiff had sold its TC-1 software to Coca-Cola Foods for use at the Minute Maid facility in Hightstown, then all companies affiliated with Coca-Cola were plaintiff's "clients" or "customers" and were therefore "off limits" to defendant. We are convinced, however, that the record does not support the trial court's assumption that the parties to the contract intended such a result.

The trial court found that there was no meaningful distinction between any of the companies affiliated with Coca-Cola. The court stated that these entities were "all" Coca-Cola. There is insufficient evidence for a finding that, by entering into their agreements, plaintiff and defendant intended that all of the Coca-Cola companies would be deemed plaintiff's "clients" or "customers" merely because plaintiff marketed a TC-1 system for use at the Minute Maid facility in Hightstown.

Indeed, the fact that plaintiff made virtually no effort to sell TC-1 for use at other Coca-Cola facilities demonstrates that plaintiff viewed Hightstown as its "client" or "customer." Plaintiff's failure to market TC-1 for use at other Coca-Cola facilities further shows that the limitations in the contract on defendant's sales of TC-1 were intended to protect plaintiff's contact with Minute Maid in Hightstown, rather than preclude defendant from marketing the TC-1 system for use by Coca-Cola at other locations.

Even if the contracts are read to preclude defendant from contacting or selling TC-1 to any entity affiliated with The Coca-Cola Company, the record does not support the trial court's finding that plaintiff had a reasonable expectation that it would sell the TC-1 system to the Coca-Cola affiliates who purchased the system from defendant. The trial court stated that such an expectation arose because plaintiff apparently believed that, if it successfully installed TC-1 at Hightstown, Coca-Cola would be inclined to make future purchases of defendant's system from plaintiff.

The court found that "[t]he Hightstown experience is what sold Coke on TC-1." Plaintiff may have successfully installed TC-1 at Hightstown but the record shows that plaintiff made virtually no effort to sell the TC-1 system to Coca-Cola for any location other than Hightstown.

Stanley Gleich ("Gleich"), plaintiff's president and owner, testified that plaintiff placed newspaper ads, made direct mailings and engaged in some telephone marketing. He conceded, however, that plaintiff did not target any of its sales efforts towards Coca-Cola or create any specific marketing strategy for Coca-Cola. Gleich also acknowledged that plaintiff's sales efforts were primarily focused on the New York metropolitan area.

Gleich further testified that no other Coca-Cola affiliate made a commitment to purchase TC-1 from plaintiff, except for the Minute Maid facility in Hightstown. Gleich acknowledged that no one from Coca-Cola ever told him that Hightstown was a "pilot program" for the purchase of TC-1 systems for other Coca-Cola plants. He also acknowledged that no one from Coca-Cola ever told him that other Coca-Cola facilities would purchase TC-1.

William Woodard ("Woodard") was plaintiff's regional sales manager during the relevant time period. He testified that he had little recollection of efforts he took to expand the Coca-Cola account. Woodard stated that he believed he called the Minute Maid plant manager, who had been promoted and moved to Atlanta, Georgia, on a number of occasions.

Woodard further testified that he believed he made calls to other Coca-Cola locations but none of these efforts got very far. Woodard admitted that he never traveled outside of New Jersey to sell the TC-1 product to any other Coca-Cola facilities. He also did not recall presenting any proposals or marketing material to any Coca-Cola facility other than Hightstown.

Augustine Caruso ("Caruso"), plaintiff's sales manager, testified that Coca-Cola never made any promise that it would purchase the TC-1 system from plaintiff for a facility other than Hightstown. Caruso also said that Hightstown was not a "pilot program" for future sales to Coca-Cola. Caruso stated that he was present when Woodard called the Hightstown facility on a number of occasions but he had no personal knowledge as to whether Woodard called any Coca-Cola facility other than Hightstown.

In addition, plaintiff did not present any testimony from anyone associated with Coca-Cola to show that it had a reasonable expectation of future sales of the TC-1 system to the Coca Cola affiliates. Plaintiff presented no testimony from Coca-Cola to establish that the Coca-Cola affiliates would have purchased TC-1 systems from plaintiff rather than defendant if defendant had not marketed or could not market its own product.

We therefore conclude that plaintiff failed to establish that it had a reasonable expectation of additional sales of the TC-1 system to Coca-Cola and its affiliated companies. Accordingly, the trial court erred by finding that plaintiff had presented sufficient proof to prevail on its claim of tortious interference with prospective economic advantage.

III.

Plaintiff also contends that the trial court erred by finding that it breached its contract with plaintiff and awarding damages. Again, we agree.

The trial court found that defendant had breached its contracts with plaintiff by selling the TC-1 system to the Coca-Cola affiliates. The court further determined that defendant's breach of the contracts proximately caused plaintiff's damages. The court awarded plaintiff damages measured by the profits it would have earned had the Coca-Cola affiliates purchased the TC-1 systems from plaintiff rather than from defendant.

As we stated previously, the trial court erred by interpreting the contracts to bar defendant from making direct sales of the TC-1 system to the companies affiliated with Coca-Cola. We are convinced that, even if the contracts are interpreted to preclude defendant from making such sales, plaintiff did not present sufficient evidence to show that it sustained damages as a result of those sales.

A party who breaches a contract is liable for all of the natural and probable consequences of that breach. Totaro, Duffy, Cannova & Co., L.L.C. v. Lane, Middleton & Co., L.L.C., 191 N.J. 1, 13 (2007) (citing Pickett v. Lloyd's, 131 N.J. 457, 474 (1993)). Compensatory damages "should be such as may fairly and reasonably be considered as either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it[.]" [Ibid. (quoting Hadley v. Baxendale, 9 Exch. 341, 156 Eng. Rep. 145 (1854))].

Here, the trial court found that it was reasonably probable that, if the Coca-Cola affiliates had not purchased the TC-1 systems from defendant, the affiliates would have purchased those systems from plaintiff. As we stated previously, the evidence presented at the trial of this matter did not provide a basis for such a finding. As we have explained, plaintiff made virtually no effort to sell the TC-1 system for use at any Coca-Cola facility other than at Hightstown. Indeed, the only inference that could be reasonably drawn from the evidence is that, if defendant had not made the disputed sales to Coca-Cola, the sales would not have been made.

The trial court also found that the Coca-Cola affiliates decided to purchase TC-1 systems from defendant because of "the synergy created by the successful introduction of TC-1, to [Coca-Cola], by [plaintiff], in Hightstown" rather than by defendant's "independent contacts [and] work effort[.]" The installation at Hightstown may have been successful but there is insufficient evidence in the record to support a finding that it created "synergy" for the purchase of the system by Coca-Cola's affiliates.

The record shows that the Coca Cola affiliates purchased TC-1 because of defendant's marketing efforts. Although the successful operation of TC-1 at Hightstown may have been a factor in Coca-Cola's purchasing decisions, there is no evidence that the affiliates would have purchased TC-1 from plaintiff merely because the system was installed and operating successfully at Hightstown.

In its opinion, the court also stated, "[w]here else but to [plaintiff] could Coke have gone, had [defendant] honored its agreement not to deal directly with [plaintiff's] customer? There was but one available legitimate source - the entity with whom [it was] already doing business - [plaintiff]." The record established, however, that the Coca-Cola affiliates had numerous options for time-and-attendance software, including those provided by ADP and Chronos. In fact, the record shows that defendant's system displaced a Chronos system at Paw Paw.

There also is insufficient evidence for the trial court's finding that the damages claimed here were within the contemplation of the parties when they entered into the agreements. The evidence does not support an inference that the parties understood that defendant would be obligated to compensate plaintiff for selling its products to Coca-Cola where, as here, plaintiff failed to prove that Coca-Cola would have purchased TC-1 from plaintiff if it could not purchase the system directly from defendant.

We are therefore convinced that the damage award rendered in this case cannot stand. Assuming that defendant breached its contracts with plaintiff, the damages awarded here were not the "'reasonably certain consequence'" of that breach. Totaro, supra, 191 N.J. at 15 (quoting Donovan v. Bachstadt, 91 N.J. 434, 445 (1982)). In our judgment, plaintiff failed to prove by a fair preponderance of the evidence that its lost profits were the natural and probable consequence of defendant's sales of TC-1 to the Coca-Cola affiliates.

Plaintiff also has appealed from the trial court's order of July 9, 2008, awarding plaintiff attorneys' fees and costs incurred in this litigation. Plaintiff sought those fees and costs pursuant to its agreement with defendant, which provides in pertinent part that if a legal action is necessary to enforce any of the terms or conditions of the agreement, "the prevailing party shall be entitled to recover from the other party all expenses incurred in connection with such action, including reasonable attorneys' fees." Because we have concluded that the trial court erred by entering judgment for plaintiff, the award of counsel fees and costs must be reversed.

Reversed.

20090812

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