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Palmetto Mortuary Transport, Inc. v. Knight Systems, Inc.

Court of Appeals of South Carolina

May 4, 2016

Palmetto Mortuary Transport, Inc., Respondent,
v.
Knight Systems, Inc. and Robert L. Knight, Appellants.

Heard February 10, 2016

Appeal From Lexington County James Randall Davis, Special Referee, Case No. 2014-001819

Reginald I. Lloyd, of Lloyd Law Firm, LLC, of Camden, and Christopher Todd Hagins, of The Hagins Law Firm, LLC, of Columbia, for Appellants.

John Julius Pringle, Jr. and Lyndey Ritz Zwingelberg, both of Adams and Reese LLP, of Columbia, for Respondent.

WILLIAMS, J.:

Knight Systems, Inc. (Knight Systems) and Robert L. "Buddy" Knight (collectively "Appellants") appeal the special referee's order ruling in favor of Palmetto Mortuary Transport, Inc. (Palmetto). Appellants argue the special referee erred in failing to find (1) the geographic restriction in the parties' covenant not to compete (the Covenant) is unreasonable and void, (2) the Covenant's territorial restriction is unsupported by independent and valuable consideration, (3) the Covenant is void as a matter of public policy, and (4) the Covenant became void after any breach by Palmetto. We reverse and remand.

FACTS/PROCEDURAL HISTORY

Knight Systems, owned and operated by Buddy, engaged primarily in the mortuary transport business until 2007. On January 5, 2007, Knight Systems entered into an asset purchase agreement (the Agreement) with Palmetto, a business owned by Donald and Ellen Lintal. Pursuant to the Agreement, Knight Systems sold various tangible assets, goodwill, and customer accounts-including body removal service contracts with Richland County, Lexington County, and the University of South Carolina-to Palmetto in exchange for a purchase price of $590, 000. The Agreement also contained an exclusive sales provision that obligated Palmetto to purchase body bags at specified discounted prices from Knight Systems for ten years. The provision listed four types of body bags: heavy duty, lightweight, odor-proof, and water retrieval.

In addition to the Agreement, Palmetto executed the Covenant with Appellants. In consideration of $1, 000, Appellants agreed not to provide mortuary transport services within 150 miles of their business-located in Lexington County-for ten years following the closing date of the sale.

The subject of dispute in the instant ligation began in June 2011, when Richland County issued a request for proposal (RFP) seeking mortuary transport services from a provider for a period of five years. At that time, Palmetto still held the services contract with Richland County as a result of the Agreement. Palmetto timely submitted a response to the RFP.

On June 16, 2011, one day before responses to the RFP were due, Buddy recorded a telephone conversation he had with Donald Lintal. In that conversation, Buddy accused Palmetto of breaching the Agreement by buying infant body bags from other manufacturers in 2008. Donald relayed that he did not believe these purchases were significant and he was "not trying to get around" the Agreement. Donald claimed the amount of bags Palmetto purchased from sources other than Knight Systems only totaled $884.97. This amount included thirty-one infant body bags at $192.75, four extra-large body bags at $213.72, six heavy duty body bags at $208.50, and six water retrieval body bags at $270.

Donald, however, asserted that because infant and extra-large body bags were not the type of bags Palmetto was required to purchase from Knight Systems pursuant to the Agreement, the total amount Palmetto paid for body bags falling within the exclusive sales provision was $478.50. In comparison, from January 2007 to June 2011, Palmetto purchased more than $45, 000 worth of body bags from Knight Systems under the Agreement. Therefore, Donald contended the sales that allegedly violated the Agreement constituted less than 1% of Palmetto's overall purchases from Knight Systems.

After this telephone conversation, Buddy consulted with his attorney and submitted a response to the RFP on June 17, 2011. Buddy stated he felt Knight Systems would be "left out in the cold" by Palmetto's alleged breach of contract. After the RFP deadline passed, Buddy contacted an official at the Richland County Procurement Office, seeking a determination that Knight Systems be awarded the mortuary transport services contract because it was the only provider of odor-proof body bags required by the RFP. Buddy also informed the official that Knight Systems would be taking all of its odor-proof body bags off the market. Although Palmetto asserted its response to the RFP contained the lowest price for services and had the highest total of points from the Richland County Procurement Office, Richland County awarded Knight Systems the mortuary transport services contract for a five-year term.

On October 26, 2011, Palmetto filed a complaint against Appellants. On June 6, 2013, Palmetto amended its complaint and included causes of action for breach of contract, breach of contract accompanied by a fraudulent act, and intentional interference with prospective contractual relations. Palmetto alleged Appellants breached the Covenant by providing mortuary transport services within the restricted 150-mile radius of Lexington County. Palmetto also claimed Buddy intentionally made false representations to Richland County that Knight Systems had the exclusive ability to ...


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