A14A2138. ALL STAR, INC. еt al. v. GEORGIA ATLANTA AMUSEMENTS, LLC.
A14A2138
Court of Appeals of Georgia
DECIDED MARCH 26, 2015
RECONSIDERATION DENIED APRIL 13, 2015
770 SE2d 22
BRANCH, Judge.
All Star, Inc., Elite Amusement, Inc., Ideal Amusements, Inc., Midtown Vending, LLC, and Ultra Group of Companies, Inc. (collectively “appellants“), appeal from an order of the Gwinnett County Superior Court granting summary judgment against them and in favor of Georgia Atlanta Amusements, LLC (“GAA“), on the appellants’ claims for tortious interference with contractual relations. At issue in this case is
The relevant facts are largely undisputed but where any doubt existed, we have construed the record in favor of the appellants, as the nonmovants. See Thompson v. Lovett, 328 Ga. App. 573, 573 (760 SE2d 246) (2014) (on a motion for summary judgment, we “construe the evidence in the light most favorable to the nonmovant“) (citation omitted).
All Star
On November 1, 2000, All Star entered into a written rental agreement with Fast Freddy‘s, a gas station and convenience store located in Lilburn. Under the terms of this agreement, Fast Freddy‘s agreed to pay All Star 40 percent “of the total gross revenue”4 generated by the machines as rent for the machines, with Fast Freddy‘s retaining 60 percent of the revenue. The contract was for a term of seven years, and it contained an automatic renewal clause. That clause provided that the contract would automatically renew for additional terms of seven years unless one party notified the other, at least ninety days in advance of the renewal date, that it was electing not to renew. There is no evidence in the record that either party exercised its right of nonrenewal; thus, the contract renewed on November 1, 2007, for an additional seven-year term.
On March 28, 2011, All Star entered a written rental agreement with USA Food Mart, a gas station and convenience store located in Carrollton. Under the terms of this agreement, USA Food Mart agreed to pay All Star 70 percent of the total gross revenue generated by the machines, with USA Food Mart retaining the remaining 30 percent. The contract was for a term of three years.
As of April 2013, All Star had an oral agreement with Tienda Veracruz, a Carrollton grocery, and the agreement had been in place for approximately one year. There is no evidence in the record as to how the parties had agreed to split the revenue from the machine or machines placed at this location.
Elite Amusement
As of April 2013, Elite had in place oral agreements for the placement of its machines at five different locations: Discount Foodmart in Atlanta; the BP gas station in Stockbridge; East Side Tobacco in Conyers; Old
Midtown Vending
On August 2, 2010, Midtown Vending entered into two separate written rental agreements with Kahlid Amin for the placement of coin-operated amusement machines at two businesses owned by Amin in Fayetteville: Paw Paw‘s Shell and Coleman Grocery. Both of the agreements provided that the business in question would pay Midtown Vending 30 percent “of the total gross revenue”5 generated by the machines as rent for the machines, with the businesses retaining 70 percent of the revenue. Each contract was for a term of 36 months.
On July 18, 2011, Midtown Vending entered a written rental agreement with Badi U. Zaman for the placement of coin-operated amusement machines in the Lakeview Country Store, a business owned by Zaman and located in Fayetteville. The agrеement provided that Zaman would pay Midtown Vending 30 percent “of the total gross revenue” generated by the machines as rent for the machines, with Zaman retaining 70 percent of the revenue. This contract was for a term of 24 months.
Ultra Group of Companies
On August 14, 2008, Ultra entered a written rental agreement with Merchant Investment Group for the placement of coin-operated amusement machines in a Citgo Food Mart/Sunoco in Tucker. Under the terms of this agreement, Ultra was to receive 30 percent “of the total gross revenue”6 generated by the machines as rent for the machines, with Citgo/Sunoco retaining 70 percent of the revenue. The contract was for a term of ten years and therefore was in effect until August 14, 2018.
On May 4, 2011, Ultra entеred into a written lease agreement with FNR/ENT, Inc. for the placement of coin-operated amusement machines in a Texaco station in East Point. On November 1, 2011, Ultra entered into a written lease agreement with East/West Convenience, Inc. for the placement of coin-operated amusement machines in a Chevron gas station and convenience store located in Conyers. That same day, Ultra also contracted with King Petro, Inc. for the placement of amusement machines in a Shell station in Stone Mountain. These agreements had identical revenue terms, and each pro-vided that Ultra would receive 30 percent of the “net revenue”7 generated by the machines and that the lоcation would retain the remaining 70 percent. The term of the rental agreement for the East Point Texaco was two years, while the contracts for both the Conyers Chevron and the Stone Mountain Shell had ten-year terms.
As of April 2013, Ultra had in place oral agreements for the placement of its machines at five different locations: Our Convenience Store in Atlanta; Stop‘n‘Save in Atlanta; the Shell gas station in Norcross; the Texaco gas station in Decatur; and Atlanta Food Mart in East Point. Ultra‘s agreement with Our Convenience Store had been in place nine years; its agreement with Stop‘n‘Save had been in place eight years and five months; its agreement with the Norcross Shell had been in place seven years and three months; its agreement with the Decatur Texaco had been in place for six years and eleven months;
The Statutory Scheme Enacted by HB 487
At the time each of the foregoing contracts was made, nothing in the law governing coin-operated amusement machines addressed how the revenue from the machines had to be divided. Rather, the parties were free to divide the revenue any way they chose. In 2013, however, the legislature passed House Bill 487 (“HB 487“), now codified as
The statute also declared that from the time of HB 487‘s enactment until the implementation of the Class B accounting terminal, it would constitute an unfair business practice for either the machine owner or the location owner to retain more than 50 percent of the proceeds genеrated by any Class B machine.
Finally, the new law also requires that all agreements between machine owners and location owners be in writing,
Appellants’ Attempts to Comply With HB 487
Following the enactment of HB 487, All Star, Midtown Vending, and Ultra each approached the location owners with whom
The Current Lawsuit
All Star, Elite, Ideal, Midtown, and Ultra filed the current lawsuit against GAA. Based on the foregoing facts, the appellants asserted claims for tortious interference with contractual relations and tortious interference with business relations. Additionally, Midtown Vending asserted a claim for destruction of persоnal property, based on the damage done to one or more of its machines.9 The appellants sought to recover actual and punitive damages as well as attorney fees and expenses.
GAA filed a motion for partial summary judgment on the appellants’ claims for tortious interference with contractual relations, arguing that because each of the written and oral agreements at issue provided for a revenue split other than 50/50, those contracts became illegal on April 10, 2013, the day that HB 487 became effective.10 Thus, GAA contended that the contracts were void and unenforceable as a matter of law and could not serve as the basis of a tortious interference with сontracts claim. The trial court granted that motion, finding that “[a]ny agreements [that] do not provide for a 50/50 [revenue] split are... illegal, void, and unenforceable” and that “[t]he Court cannot reform the contracts to comport with the law.” Thus, the trial court concluded that “any claim for tortious interference with contracts” as to these agreements failed as a matter of law. The appellants now appeal from this order.
As the appellants concede in their reply brief, they have not appealed the trial court‘s ruling as to the oral agreements at issue in this case. Thus, the controlling question in this appeal is whether HB 487 rendered the written contracts at issue void. In analyzing this question, we begin with the fаct that the contract clauses of both the United States and the Georgia Constitutions forbid the legislature from enacting any “[l]aw impairing the [o]bligation of [c]ontracts.”
We start our analysis with the well-established legal principle that the State may exercise its police powers “to protect the lives, health, morals, comfort, and general welfare of the public.” Moore v. Ga. Public Svc. Comm., 242 Ga. 182, 183 (1) (249 SE2d 549) (1978) (punctuation omitted). And it is “accepted as a commonplace that the Contract Clause does not operate to obliterate the police power of the States.” Allied Structural Steel Co. v. Spannaus, 438 U. S. 234, 241 (II) (A) (98 SCt 2716, 57 LE2d 727) (1978). Thus the State may, in the exercise of its police powers, enact regulations that place reasonable restraints on individuals’ freedom to contract. See Energy Reserves Group, 459 U. S. at 410 (II) (A) (“[a]lthough the language of the Contract Clause is facially absolute, its prohibition must be accommоdated to the inherent police power of the State to safeguard the vital interests of its people“) (citation and punctuation omitted); Moore, 242 Ga. at 183 (1) (the State may exercise its police powers even “though contracts previously entered into between individuals may thereby be affected“) (punctuation omitted).
As the United States Supreme Court has recognized, however, “private contracts are not subject to unlimited modification under the police power.” United States Trust Co. of New York v. New Jersey, 431 U. S. 1, 22 (IV) (97 SCt 1505, 52 LE2d 92) (1977). Accordingly, any laws that affect contractual rights must be in furtherance of a legitimate public purpose, as this “guarantees that the State is exercising its police power, rather than providing a benefit to special interests.” Energy Reserves Group, 459 U. S. at 412 (II) (A) (fоotnote omitted). Provided that the government has acted in furtherance of a legitimate public interest, parties to private contracts will be required to adjust their contractual “rights and responsibilities” to accommodate the law, so long as the required adjustment is a reasonable means of furthering the public purpose at issue. Id. (citation and punctuation omitted). Moreover, parties who contract with respect to a regulated industry or enterprise enter those contracts subject to further, reasonable regulation; when the subject of the contract is regulated, this fact controls, to some extent, the parties’ reasonable expectations under the contract. See Keystone Bituminous Coal Assn. v. DeBenedictis, 480 U. S. 470, 503-504 (IV) (107 SCt 1232, 94 LE2d 472) (1987); Energy Reserves Group, 459 U. S. at 408-409 (I) (D); Union Dry Goods Co. v. Ga. Public Svc. Corp., 142 Ga. 841 (83 SE 946) (1914), aff‘d, 248 U. S. 372 (39 SCt 117, 63 LE 309) (1919). In еssence, such parties are presumed to contract with the knowledge that, regardless of the terms they agree to, subsequent reasonable regulation might require them to amend one or more of those terms. Id.
In Union Dry Goods, the Georgia Public Service Corporation (“GPSC“) had contracted to provide Union Dry Goods, a mercantile company, with electricity at a specific rate for a five-year period. 142 Ga. at 842. At the time of the contract, the Railroad Commission of Georgia12 had the
After the Railroad Commission issued its order, GPSC began to bill the mercantile company at the maximum rate allowed under the rate schedule. Union Dry Goods then filed suit, seeking specific performance оf the contract. When the trial court denied Union Dry Goods’ request for an injunction prohibiting GPSC from discontinuing its service unless Union Dry Goods paid the higher rate, the company appealed. Union Dry Goods Co., 142 Ga. at 842. The Supreme Court of Georgia noted that the “pivotal question” on appeal was “the effect of the [C]ommission‘s order on the contract between the dry goods company and the public-service company. Did it empower the Georgia Public Service Corporation to disregard the contract rate, and to charge for the service at the maximum rate allowed by the [C]ommission?” Id. at 843. The court answered this question in the affirmative, noting that the State could exercise its police power to regulate certain industries “and that the power is not destroyed because such regulations may to some extent affect the power to contract, or existing contracts.” Id. at 844. Rather than finding that the contract was voided by the rate increase, however, the court found that the parties were expected to conform their contract to the law. Id. The court reasoned that the rate increase did not interfere with the reasonable expectations of the parties, as they were aware that they were contracting with respect to a regulated industry. Id. at 844-847. Thus, the parties were presumed to know that the State could enact regulations --- including rate increases --- that would impact the contract. “One whose rights, such as they are, are subject to [s]tate restriction, can not remove them from the power of the [s]tate by making a contract about them. The contract will carry with it the infirmity of the subject-matter.” Id. at 844, citing Hudson County Water Co. v. McCarter, 209 U. S. 349, 357 (28 SCt 529, 52 LE 828) (1908). In affirming the Supreme Court of Georgia, the United States Supreme Court relied on this same rationale. See Union Dry Goods Co., 248 U. S. at 375-376.
Almost 70 years later, the United States Supreme Court applied similar reasoning in Energy Reserves Group, 459 U. S. 400. That case involved two contracts for the intrastate purchase of gas from a specific gas field. Each contract contained two “price escalator” clauses, one of which provided that if any governmental authority fixed a price for any natural gas that was higher than the price specified in the contract, the contract price would be increased to that level. Id. at 403. After the contracts were executed, the federal government enacted a law that changed the way it regulated the price of natural gas, replacing the federal price controls that had been established under the 1938 Natural Gas Act “with price ceilings that rise monthly based on ‘an inflation adjustment factor’ and other considerations.” Id. at 405-406 (I) (B). In response, the Kansas state legislature passed a law that controlled intrastate natural gas prices and the contracts at issue became subject to the Kansas law. Id. at 407-408 (I) (C).
When the supplier sought to terminate the contracts based on the buyer‘s refusal to pay the higher gas rаte allowed under federal law, the buyer responded that the Kansas act served to amend the parties price escalator clause, as it limited the supplier to the highest price allowed under Kansas law and prohibited the supplier from charging the higher rate allowed under federal law. Energy Reserves Group, 459 U. S. at 408 (I) (D). The
In affirming the decision of the Kansas courts, the Supreme Court agreed that the Kansas law was enacted in furtherance оf legitimate public purposes: the protection of “consumers from the escalation of natural gas prices caused by deregulation” and to correct “the imbalance between the interstate and intrastate [natural gas] markets.” Energy Reserves Group, 459 U. S. at 417 (II) (C) (footnote omitted). The court then found that the law required the parties to conform their contract to the new regulation. In doing so, the Court noted that “[s]ignificant here is the fact that the parties are operating in a heavily regulated industry.” Id. at 413 (II) (B) (footnote omitted). Thus, the parties should have reasonably anticipated that future governmental regulation might occur and that such regulation could impact the parties’ contract. Id. at 416 (II) (B) (as the contract itself refleсted, the supplier “knew its contractual rights were subject to alteration by state price regulation. Price regulation existed and was foreseeable as the type of law that would alter contract obligations.“).
Turning to the current case, we note that coin-operated amusement machines “have been permitted to operate in this state only by the grace of the legislature. In fact, amusement machines have been the subject of frequent and intensive regulation in this state.” State of Ga. v. Old South Amusements, 275 Ga. 274, 279 (3) (564 SE2d 710) (2002) (footnote omitted). Thus, when interpreting legislation which affects a change in the regulatory scheme governing these machines, we look to “cases involving regulated industries,” as they “are more on point” than cases involving industries that are not subject to such regulation. Id. We therefore find the rationale of cases such as Union Dry Goods and Energy Reserves Group to be applicable to the instant case. Under that reasoning, where further regulation of an already regulated industry impacts private contracts, the parties to those contracts will be required to adjust their contracts to the new regulation, provided two conditions are met. First, the regulation must be in furtherance of a legitimate public purpose. Second, the regulation must constitute a reasonable method of furthering that public purpose.
Applying the foregoing principles, we find that HB 487 did not void any contracts for the placement of Class B machines that existed prior to the law‘s enactment, even if those contracts called for an unеven revenue split. The legislature‘s stated purpose for HB 487 (ensuring adequate funding for the State‘s HOPE Scholarship and pre-kindergarten programs) is a legitimate one, designed to benefit the general welfare of all Georgia‘s citizens. See Pitts v. State, 293 Ga. 511, 516-517 (2) (748 SE2d 426) (2013) (“ensuring that the children residing in Georgia are afforded the opportunity of an education” is a “legitimate governmental interest“). Additionally, the regulatory requirements of HB 487 with respect to Class B machines represent a reasonable method of achieving this purpose, as they “will aid in the enforcement of the tax obligations that arise from the operation of bona fide coin operated amusement machine businesses as well as prevent unauthorized cash pаyouts.”
Furthermore, the parties to these contracts entered them with the knowledge that Class B machines were subject to changing state regulation.13 And interpreting HB 487
In light of the foregoing, we find that
Because HB 487 did not void the written contracts at issue in this case, the order of the trial court granting summary judgment in favor of GAA and against the appellants on the appellants’ claims for tortious interference with contractual relations is reversed. The case is remanded for further proceedings consistent with this opinion.
Judgment reversed. Barnes, P. J., and Boggs, J., concur.
DECIDED MARCH 26, 2015 —
RECONSIDERATION DENIED APRIL 13, 2015 —
Robbins Ross Alloy Belinfante Littlefield, Joshua B. Belinfante, Kimberly K. Anderson, Alexander F. Denton, Craig G. Kunkes, for appellants.
Mark V. Spix; Sana M. Ayubi; Fellows LaBriola, Steven M. Kushner, Christina M. Baugh, for appellee.
Wimberly Lawson Steckel Schneider & Stine, Paul Oliver, amicus curiae.