WTMC, Incorporated v. GA Braun Inc ( 2001 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
WMTC, INCORPORATED, d/b/a 
Martint Laundry Systems of
Gaffney, South Carolina,
Plaintiff-Appellee,
 No. 00-1499
v.
G. A. BRAUN, INCORPORATED,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Greenville.
G. Ross Anderson, Jr., District Judge.
(CA-99-365-6-13)
Argued: January 25, 2001
Decided: April 13, 2001
Before WILKINSON, Chief Judge, WILKINS, Circuit Judge,
and James H. MICHAEL, Jr., Senior United States District Judge
for the Western District of Virginia, sitting by designation.
Reversed and remanded by published opinion. Chief Judge Wilkinson
wrote the opinion, in which Judge Wilkins and Senior Judge Michael
joined.
COUNSEL
ARGUED: Alan J. Pierce, HANCOCK & ESTABROOK, L.L.P.,
Syracuse, New York, for Appellant. Robert Wilkinson Hassold, Jr.,
2 WMTC, INC. v. G. A. BRAUN, INC.
NEXSEN, PRUET, JACOBS & POLLARD, L.L.P., Greenville,
South Carolina, for Appellee. ON BRIEF: Clinch H. Belser, Jr.,
Michael J. Polk, BELSER & POLK, P.A., Columbia, South Carolina,
for Appellant.
OPINION
WILKINSON, Chief Judge:
WMTC, Inc. sued G.A. Braun, Inc. for wrongful termination of a
distributor agreement. The jury returned a verdict in favor of WMTC.
Braun then filed a motion for judgment as a matter of law claiming,
inter alia, that there was insufficient evidence to support the verdict.
The district court denied this motion. Because Braun’s decision to ter-
minate WMTC involved an exercise of business judgment and was
not arbitrary or malicious, the judgment of the district court is
reversed and remanded for entry of judgment in favor of the defen-
dant manufacturer.
I.
G.A. Braun manufactures textile and laundry equipment. Dick
Rhyne’s company, WMTC, Inc., was the exclusive distributor of
Braun’s laundry equipment for South Carolina, Georgia, North Caro-
lina, Tennessee and Alabama. WMTC’s distributorship agreement
was established through oral communications with Braun and through
performance by WMTC.
In mid-1997, Braun’s upper management changed. The new man-
agement decided to issue annual minimum quotas to its distributors.
Distributors who failed to meet their minimum quota risked having
their distributor agreements canceled. WMTC’s 1997 minimum quota
was $830,000. WMTC’s actual 1997 sales for its five state area was
$666,889 — $163,111 short of the minimum.1 On December 29,
1
WMTC’s total sales for 1997 were $799,998.37. Of this total,
$133,109.37 involved transactions in Mexico and thus was not credited
by Braun toward WMTC’s minimum quota for its five states.
WMTC, INC. v. G. A. BRAUN, INC. 3
1997, Braun informed WMTC that it had to achieve $750,000 in sales
in the first quarter of 1998 in order to remain a Braun distributor. On
February 10, 1998, Braun told WMTC that its minimum quota for all
of 1998 would be $2,000,000. This quota was based on the population
growth in WMTC’s area and was $735,000 higher than the quota for
any of Braun’s other large distributors. Also in February 1998, Braun
hired John Cox to be regional sales manager for WMTC’s five state
area.
On June 11, 1998, Braun terminated WMTC as an authorized
Braun distributor. In the termination letter, Braun explained that
WMTC had "failed to meet the first-quarter requirements" and it "is
readily apparent that the laundry group is not in a position to meet this
year’s target quotas." As a result, Braun stated that it had "lost confi-
dence in the laundry group to meet its target quotas." Braun subse-
quently assigned WMTC’s territory to John Cox.
WMTC filed suit, alleging that it had an implied contract with
Braun and that Braun wrongfully terminated this agreement. The jury
returned a verdict against Braun in the sum of $800,000. Braun then
filed a Rule 50(b) motion, arguing, inter alia, that it was entitled to
judgment as a matter of law. The district court denied Braun’s
motion. Braun appeals.2
II.
For purposes of this appeal we shall assume without deciding that
Braun and WMTC had an implied distributorship agreement. How-
ever, since the underlying contract was a product of the conduct of the
parties rather than a written instrument, it did not provide for a termi-
nation date. Under South Carolina law, contracts which "express no
2
WMTC claims that Braun’s motion before the district court did not
request judgment as a matter of law on the issue of wrongful termination.
This is not so. Braun’s motion specifically argued that there "was insuffi-
cient evidence as a matter of law to support a finding that there was a
wrongful termination of any contract between Braun and the plaintiff."
Moreover, the district court’s opinion discussed this issue at length. Thus
it cannot be said that Braun failed to preserve its right to appeal the issue
of wrongful termination.
4 WMTC, INC. v. G. A. BRAUN, INC.
period for [their] duration," may be terminated by either party "on
giving reasonable notice of his intention to the other." Carolina Cable
Network v. Alert Cable TV, Inc., 447 S.E.2d 199, 201 (S.C. 1994)
(quoting Childs v. City of Columbia, 70 S.E. 296, 298 (S.C. 1911)).
The right of one party to terminate a contract of indefinite duration
is subject only to the mildest restraint. See Philadelphia Storage Bat-
tery Co. v. Mutual Tire Stores, 159 S.E. 825 (S.C. 1931). In applying
the South Carolina precedents, we have held that a cause of action for
wrongful termination exists "only in extraordinary circumstances"
such as when one party has "acted maliciously and without reasonable
business justification in ending the relationship." Richland Wholesale
Liquors v. Glenmore Distilleries Co., 818 F.2d 312, 315-16 (4th Cir.
1987). See also Glaesner v. Beck/Arnley Corp., 790 F.2d 384, 389
(4th Cir. 1986) (finding no wrongful termination where there was no
evidence that Beck/Arnley acted "maliciously" and where there were
"easily comprehensible business reasons for terminating" the con-
tract).
WMTC claims that Braun acted in bad faith and that the decision
to terminate the distributorship agreement was not a reasonable busi-
ness judgment. According to WMTC, Braun exhibited bad faith by
establishing unattainable quotas for WMTC that were much larger
than those assigned to distributors with larger populations. Moreover,
WMTC claims that Braun’s termination was based on WMTC’s fail-
ure to meet the first quarter quota of $750,000 in sales even though
that requirement had been superceded by the $2,000,000 annual
quota. According to WMTC, Braun manufactured a reason to termi-
nate its contract with WMTC so that it could reassign WMTC’s terri-
tory to its own employee, John Cox. WMTC believes that this was
part of Braun’s nationwide plan to bring its sales in-house.
Braun responds by arguing that WMTC’s sales staff was serving
multiple masters and focusing its time on products other than Braun
laundry and finishing equipment. Braun also claims that WMTC’s
"sales figures for 1997 were unacceptable and did not represent what
they should be based on the total population in the area, the migration
of population into the five states, and the extensive vacation and tour-
ism trade, all of which should correspond into the sales of commercial
and industrial laundry equipment." Moreover, Braun points out that
WMTC, INC. v. G. A. BRAUN, INC. 5
WMTC’s per capita performance ranked in the bottom half of all its
distributors. And Braun claims it knew in June 1998 that WMTC
would not meet its 1998 minimum quota because of the significant
"lead times" associated with the sale of laundry equipment.
This whole exchange at trial, however, completely misses the legal
mark. Even accepting all of WMTC’s arguments as true, it has still
failed to make out a claim of wrongful termination. In Richland, for
example, the plaintiff claimed wrongful termination because the
defendant "had a secret agreement" to transfer the distributorship to
another party and thus "required Richland to meet outrageous perfor-
mance goals in order to manufacture a business justification for the
termination." 818 F.2d at 316. We rejected the claim in that case
because the defendant had "acted in accordance with its undisputed
right to terminate the relationship" and because flagging sales pro-
vided "a legitimate business justification for transferring the distribu-
torship" to another party. Id. Moreover, we found that even if there
had been a prior secret agreement to transfer the distributorship, this
would not undermine the legitimacy of the termination decision.
Rather, a wrongful termination claim requires evidence of "malicious
or arbitrary conduct in bringing about the termination." Id. at 317.
WMTC’s wrongful termination claim fails for the same reasons.
Unless otherwise forbidden by statute or contract, a manufacturer is
entitled to set quotas for the sales of its product. Indeed, brisk sales
are the lifeline of a business enterprise. Without a written contract to
the contrary, a distributor assumes the risk that the sales requirements
imposed on it will fluctuate. Moreover, Braun terminated WMTC
only after it failed to meet the 1997 minimum quota, failed to meet
the 1998 first-quarter quota, and after it came to the conclusion that
WMTC would fail to meet the 1998 annual quota. Indeed, Braun was
explicit in its reasoning, stating that it had "lost confidence in the
laundry group to meet" its minimum quotas. The fact that reasonable
business managers may dispute the relative stringency of a sales quota
does not transform a judgment on marketplace conditions into a jury
question. Given that WMTC had repeatedly failed to meet its quotas,
Braun "was not obliged by statute, by common law, or by contract to
stand mute in the face of such a development." Glaesner, 790 F.2d
at 390.
6 WMTC, INC. v. G. A. BRAUN, INC.
Even if Braun had some larger plan to bring its sales in-house, this
would not undermine the legitimacy of its business decision to termi-
nate WMTC’s distributorship. Businesses are free to arrange their
sales forces as they see fit. The decision whether to use an indepen-
dent contractor, a distributor, or an in-house sales force or whether to
abandon one in favor of another does not amount to the sort of "ex-
traordinary circumstances" that justifies sending a wrongful termina-
tion claim to a jury. See Glaesner, 790 F.2d at 389.
A manufacturer has every incentive to maintain its relationship
with a successful distributor of its product. Indeed, Braun tried to
make a success of WMTC. Ample uncontradicted evidence estab-
lishes that Braun tried to help WMTC reach its minimum quotas. For
example, Braun sent WMTC a copy of its Performance Plan in order
to assist WMTC in making sales. Braun also informed WMTC of
"laundry networks" in its region that could be tapped to make addi-
tional sales. And Braun organized sales meetings that Rhyne himself
described as a "success" and "most professionally organized." Rhyne
even conceded at trial that "[w]hen we asked for assistance [from
Braun], we normally got it." It is difficult for WMTC to maintain a
claim for malicious termination in the face of such efforts to assist it.
III.
Were we to recognize the claim here, the normal conduct of com-
mercial relations would be transformed by the law of torts with all of
its attendant unpredictability. We do not believe that South Carolina
law countenances such a result. For the foregoing reasons, the judg-
ment of the district court is reversed and the case is remanded for
entry of judgment in favor of the defendant, G.A. Braun, Inc.
REVERSED AND REMANDED