VIRGINIA
CIVIL
PROCEDURE
Supplement
Professor Robert C. Wood, III
SPRING 2009
WASHINGTON AND LEE UNIVERSITY
SCHOOL OF LAW
LEWIS HALL
LEXINGTON, VIRGINIA 24450
1
Supplement - Table of Contents
PAGE
Introduction
B.
Courts and Alternatives
General District Court
Addison v. Salyer .............................................................................. 1
Chapter 1: Law and Equity
Introduction
New Rule Three – A New Deal in Virginia
The VADA Journal of Civil Litigation, Vol. XVIII, No. 2.............. 5
A.
Claims at Law or in Equity
Gasque v. Mooers .............................................................................. 12
Advanced Marine Enterprises v. PRC, Inc. ...................................... 17
Dairy Queen, Inc. v. Wood ............................................................... 31
B.
Injunctions
Boerner v. McCallister ...................................................................... 37
C.
General District Court Forms and Actions ............................................. Addendum
Unlawful Entry and Detainer §8.01-124, -130
Detinue §8.01-114, -121
Attachment §8.01-538, -576
Distress Warrant §55-230, -235
Debtor Interrogatories §8.01-506, -510
Garnishment §8.01-511, -525
Writ of Fieri Facis §8.01-466, -505
D.
Plea of Worker's Compensation
Whalen v. Dean Steel Erection Co., Inc. .......................................... 42
Chapter 2: Parties and Claims
B.
Joinder of Claims and Parties Generally
Old Dominion Iron v. Vepco ............................................................ 46
2
D.
K.
L.
M.
O.
P.
Q.
R.
S.
T.
U.
Misjoinder – Nonjoinder – Election of Remedies
Necessary Parties
Mendenhall v. Cooper .......................................................................
Wilkins v. Peninsula ..........................................................................
Joint Tortfeasors – Release and Contribution
Dickenson v. Tabb .............................................................................
Nationwide Mutual Ins. Co. v. Jewel Tea.........................................
Sullivan v. Robertson Drug Co. ........................................................
Medical Malpractice
Castle v. Lester ..................................................................................
Sovereign Immunity
UVA v. Carter....................................................................................
Suretyship
Bd. of Supervisors v. Safeco .............................................................
Stockholders, Officers & Directors of Corporations
Willard, et al. v. Moneta Building Supply, Inc. ................................
Stockholder Derivative Actions
Simmons v. Miller .............................................................................
Employers and Employees
Gina Chin & Associates v. First Union Bank ...................................
Peace v. Conway................................................................................
Anonymous Plaintiff – Section 8.01-15.1 ....................................................
County and Local Governing Body
Miller v. Highland County ................................................................
Declaratory Judgment
Miller v. Highland County ................................................................
53
57
60
70
77
81
90
92
98
115
119
127
130
130
130
Chapter 3: Venue and Forum Non Conveniens
E.
Forum Non Conveniens
Virginia Electric Power Company v. Dungee .................................. 140
Chapter 4: Service of Process and
Personal Jurisdiction
H.
Long-Arm Statute
International Shoe Co. v. State of Washington.................................
Hanson v. Denckla.............................................................................
Keeton v. Hustler Magazine ..............................................................
Shaffer, et al. v. Heitner .....................................................................
142
148
160
167
3
World-Wide Volkswagen Corp. v. Woodson, et al. ......................... 186
Chapter 5: Pleading and Motions
M.
N.
O.
Emotional Torts
Womack v. Eldridge ..........................................................................
Miller v. Johnson ...............................................................................
Naccash v. Burger..............................................................................
Sea-Land v. O'Neal ............................................................................
Russo v. White ...................................................................................
Almy v. Grisham ...............................................................................
Tort or Contract
Sensenbrenner v. Rust, Orling & Neale ............................................
Wrongful Discharge
Bowman v. State Bank of Keysville .................................................
Doss v. JAMCO, Inc. ........................................................................
Mitchem v. Counts ............................................................................
193
197
204
212
219
223
231
235
240
246
Chapter 6: Counterclaims, Cross-claims
and Third-Party Practice
A.
Defendant v. Plaintiff -Rule 1:4 - Packett v. Herbert ............................................................. 259
Chapter 7: Claim Splitting, Estoppel
and Res Judicata
Introduction
Davis v. Marshall Homes.............................................................................. 262
Gary Steel v. Kitchen .................................................................................... 282
Graves v. Associated Transport .................................................................... 285
Chapter 8: Limitations of Actions
C.
5.
6.
7.
Willard v. Moneta Building Supply, Inc........................................... 294
Eagles Court Condominium v. Heatilator, Inc. ................................ 300
Newman v. Walker ............................................................................ 303
1
Addison v. Salyer
185 Va. 644, 40 S.E.2d 760 (1946)
Hudgins, J., delivered the opinion of the court.
On April 17, 1940, J. O. Salyer filed a petition for an attachment before the
trial justice of Russell county, in which it was alleged that Marjorie D. Addison
and Stanley Addison, the principal defendants, were indebted to him in the sum of
$300; that they were removing, or about to remove, out of the State with intent to
change their domicile; and that they were assigning and disposing of their estate,
or the greater part thereof, with intent to hinder, delay and defraud creditors.
Attachments were issued, served upon the defendants and levied on a truck and a
stock of merchandise owned by defendants. On April 30, 1940, the trial justice
entered a judgment for plaintiff in the sum of $240 and ordered the property
seized under the attachment to be sole to satisfy the same. One the same day an
appeal was allowed, with Joel Campbell as surety on defendants' appeal bond.
On September 3, 1940, the two defendants named in the attachment
presented a petition before the circuit court for a writ of prohibition against the
trial justice, on the ground that he had no jurisdiction to try the claim asserted
against them because it involved title to real estate. No decision was rendered on
this petition.
On December 10, 1940, a jury was sworn to try the appeal of the
attachment. After plaintiff had introduced a part of his evidence, he moved to
declare a mistrial and to transfer the case to the equity side. Over the objection of
defendants, this motion was sustained, one juror was withdrawn, the others were
discharged, and the case was ordered to be transferred to the equity side of this
court.
Pursuant to this order, plaintiff filed a bill in chancery as an amendment to,
or substitute for, the petition for the attachment previously filed before the trial
justice, in which bill it was alleged (1) that plaintiff had purchased from
defendants 16.1 acres of land for the purchase price of $65 per acre; (2) that the
description in the deed was not accurate and did not describe the land actually
purchased; and (3) that a correct survey of the tract involved showed that it
contained only 12.4 acres, a shortage of 3.7 acres, for which plaintiff was entitled
to recover the sum of $240.50. The bill recited the institution of the attachment
proceedings before the trial justice, the levy of the attachment on defendants'
property, the judgment of the trial justice for plaintiff in the attachment
proceedings, the appeal from this judgment by defendants, the execution of a
forthcoming bond in the sum of $600 with Joel Campbell as surety, the surrender
of the attached property to defendants, and the order of the circuit court
transferring the case to the equity side.
2
The prayer of the bill was 'that said defendants (including Joel Campbell)
may be required to answer this bill, they now being before said court;' that the
deed be reformed and a correct description inserted; and that plaintiff recover of
defendants, including Joel Campbell, the sum of $240.50, with the costs of the
attachment proceedings.
To this bill defendants filed a demurrer, challenging its sufficiency on
various grounds, and, without waiving their demurrer, filed an answer and crossbill. The final decree, entered on August 9, 1945, declared that plaintiff in the
attachment proceedings was entitled to have his deed reformed in accordance with
his prayer. In addition, judgment was entered for him against the defendants,
including Joel Campbell, in the sum of $240.50, with interest from the date of the
deed and all costs. From this decree this appeal was allowed.
Defendants, in their various assignments of error, challenge the jurisdiction
of the trial justice to hear and determine the matter in the first instance.
The trial justice courts are the successors to the justice of the peace courts
which were abolished in 1930. The language of the statutes conferring jurisdiction
on the trial justices is substantially the same as the language of the statutes that
fixed and determined the jurisdiction of the justices of the peace, except that the
maximum amount recoverable in certain classes of actions has been increased.
Code, 1942 (Michie), secs. 4987f1, (c) and 6015.
This court has held repeatedly that a justice of the peace has limited
jurisdiction, and that, since he derives all his jurisdictional authority from the
statute, he 'can only exercise such jurisdiction as is expressly conferred upon him.'
See Wall v. American Bank, etc., Co., 159 Va. 871, 167 S.E. 425, and cases cited.
The statement is equally applicable to a trial justice.
Since 1808 this court has consistently held that a justice of the peace has no
jurisdiction in cases involving title to real property. See Miller v. Marshall, 1
Va.Cas. (3 Va.) 158; Warwick v. Mayo, 15 Gratt. (56 Va.) 528, 542; Martin v.
Richmond, 108 Va. 765, 62 S.E. 800; 31 Am.Jur. 725-6; Anno. 115 A.L.R. 504.
The question raised in Richmond v. Sutherland, 114 Va. 688, 77 S.E. 470,
was whether or not a police justice of the city of Richmond had jurisdiction to try
a person charged with encroachment upon the street in violation of a city
ordinance where such person claimed title to the land involved. The trial court
followed the decision in Martin v. Richmond, supra, and decided that the police
justice had no jurisdiction. On appeal it was held that the 1910 amendment (Acts
1910, p. 424) to section 4106 of the Code of 1887 expressly granted to police
justices and justices of the peace authority to try such offenses, but the principle
applicable to courts of limited jurisdiction was reiterated; namely, that such courts
'can only exercise such jurisdiction as is expressly conferred.'
When it appeared from the evidence before the trial justice that the plaintiff
in the attachment based his claim upon the loss of acreage in, and an inaccurate
3
description of, the tract of land described in his deed, it became the duty of the
trial justice to dismiss the case from its docket.
On appeal the defendants raised the question before and after the jury were
sworn. When the want of jurisdiction of the trial justice appeared to the circuit
court, it should have sustained the defendants' motion to dismiss, as 'the action of
the justice of the peace in issuing the warrant was null and void, and could not
confer jurisdiction upon any court to try the case. ' (Italics supplied.) Wall v.
American Bank, etc., Co., supra. 'Any act of a tribunal beyond its jurisdiction is
null and void, and of no effect whatever, whether without its territorial
jurisdiction or beyond its powers.' Western Union Tel. Co. v. Pettyjohn, 88 Va.
296, 298, 13 S.E. 431.
An appeal in a civil case from a judgment of a trial justice, as an appeal
from a conviction in a criminal case, is tried de novo before the circuit or
corporation court. Gravely v. Deeds, post, p. 662,40 S.E.(2d) 175; Copperthite
Pie Corp. v. Whitehurst, 157 Va. 480, 162 S.E. 189; Wygal v. Wilder, 117 Va.
896, 86 S.E. 97. The statute (Code, sec. 6038) expressly declares that 'every
appeal shall be tried by the court in a summary way, without pleadings in writing,
or, if the amount in controversy exceeds twenty dollars, by a jury, if either party
requires it. All legal evidence produced by either party shall be heard, whether the
same was produced or not before the justice from whose decision the appeal is
taken, * * *. ' Code, sec. 6038, provides that every appeal 'shall be determined
according to the principles of law and equity.'
These mandates of the statutes clearly reveal that the provisions of Code,
sec. 6084, dealing with the transfer of cases from one side of the court to the
other, have no application to cases appealed from the decision of a trial justice.
Another assignment of error is based upon the action of the court in refusing
to grant a writ of prohibition against the trial justice for the purpose of prohibiting
him from taking further steps in the attachment proceedings. This assignment of
error is not well taken for the simple reason that there was nothing more the trial
justice could do in the case. An appeal, properly perfected, transfers the entire
record to the circuit or corporation court for a retrial as though originally brought
therein. The judgment of the trial justice is completely annulled by the appeal and
is not thereafter effective for any purpose.
Mr. Justice Holt, in Gemmell, Inc. v. Svea Fire, etc., Ins. Co., 166 Va. 95,
98-9, 184 S.E. 457, said: 'A court which hears a case de novo, which disregards
the judgment of the court below, which hears evidence anew and new evidence,
and which makes final disposition of the case, acts not as a court of appeals but as
one exercising original jurisdiction.
***
''When an appeal is taken by either party, its effect is not only to
suspend but to destroy the effect of a judgment of a justice. It makes it
as though no judgment had been rendered. The cause is considered as
4
still pending, no regard is had to the judgment of the justice, and the
rights of the parties are the same as they would be in any other suit
pending in the courts of record.' Turner v. Northcut, 9 Mo. 251.”
The next question raised is whether a plaintiff, while his case is pending in
the circuit court on appeal from a decision of the trial justice, may amend his
pleadings to present a case which, as clearly shown on the face of the pleadings,
the trial justice has no jurisdiction to determine.
This is an open question in Virginia. In Copperthite Pie Corp. v. Whitehurst,
supra, it was held that a civil justice had jurisdiction to hear and determine
defendant's right of set-off and that, even if set-off was not pleaded before the
civil justice, on appeal it could be pleaded before the circuit or corporation court.
The discussion in the case was based on the assumption that the amount of the
set-off claimed did not exceed the original jurisdiction of the civil justice.
The general rule is that jurisdiction of the circuit or corporation courts to try
cases appealed from a decision of a trial justice is derivative and if the trial justice
had no jurisdiction to issue the warrant, the appellate court acquired no
jurisdiction by an appeal -- that is, the jurisdiction of the appellate court in such
matters is the same as that of the court in which the action was originally
instituted. * The limitation of power in the trial justice court adheres to the case
throughout. 'The jurisdiction of an appellate court on an appeal from a justice of
the peace is entirely derivative, and if the justice had no jurisdiction in an action
as it was before him the appellant court acquires no jurisdiction by an appeal, and
can derive none by amendment.' 31 Am.Jur. 768. Stacey Cheese Co. v. Pipkin,
155 N.C. 394, 71 S.E. 442, 37 L.R.A. (N.S.) 606 and note; Davis v. Hagan (Tex.
Civ. App.), 255 S.W. 484; Missouri, etc., Ry. Co. v. Hughes, 44 Tex.Civ.App. 436,
98 S.W. 415; Bankers' Mortgage Co. v. Rogers (Tex. Civ. App.), 61 S.W.(2d) 593;
Brandon v. Progress Distilling Co., 167 Ala. 365, 52 So. 640; Tracy v. Sumida,
31 Cal.App. 716, 161 P. 503; O'Mara v. Mancourt, 92 Ind.App. 426, 174 N.E.
297; Short v. Morrison, 149 Mo.App. 372, 130 S.W. 78; Bickett v. Garner, 21
Ohio St. 659; Albinola v. Horning, 39 Idaho 515, 227 P. 1054; Rose v. Christinet,
77 Ark. 582, 92 S.W. 866; Saunders v. Scott, 132 Mo.App. 209, 111 S.W. 874.
In Hamilton v. Canfield, 70 W.Va. 629, 74 S.E. 878, the West Virginia court
held that, on an appeal from the judgment of the justice, the jurisdiction of the
appellate court is not broader than that of the justice as regards the subject matter
of the action.
For a more detailed discussion of this question, see Stacy v. Mullins, post, p.
837, 40 S.E.2d 265.
There is one exception to this rule, expressly stated in Code, section 5449,
which provides that, on appeal from a decision of the trial justice in actions of
forceful entry or unlawful detainer, the trial justice may require the defendant 'to
give security also for all rent which has accrued upon said premises and which
may accrue thereon, but for not more than one year's rent in all, * * *.' A similar
5
West Virginia statute was construed in State v. Black, 91 W.Va. 251, 112 S.E.
497. It was held that a plaintiff was entitled to damages sustained between the
time of the institution of the action of unlawful detainer in the justice's court and
the rendition of the final judgment thereon by the circuit court on appeal, although
the amount was in excess of the justice's jurisdiction.
The decree is reversed and all proceedings are dismissed.
Reversed and dismissed.
New Rule Three – A New Deal in Virginia
In 1932, President Roosevelt presented to the American people a “new deal”
that eventually led our country out of a depression and established new
opportunities for all American citizens. Our Virginia Supreme Court has likewise
given the citizens of our Commonwealth a “new deal” that will provide a more
efficient and effective civil justice system. Effective January 1, 2006, our Court
adopted a new Rule Three (and abrogated Rule 2 - equity procedure) that allows
both legal and equitable remedies to be sought in a single action. After two
centuries of rigid adherence to English Common Law that made a marked
distinction between law and equity practice, a litigant no longer must choose
between filing an action at law where the court did not have the power to grant
equitable relief, and filing a bill in equity where the litigant had to forego a right
to a jury trial. See, e.g., Advanced Marine Enterprises v. PRC, Inc., 256 Va. 106,
501 S.E.2d 148 (1998). A litigant who seeks both money damages and an
equitable remedy, such as an injunction, specific performance, or rescission, may
now join in a single action all claims that arise out of the same transaction or
occurrence. Virginia has joined the overwhelming majority of her sister states,
and the federal courts, that for many decades have allowed joinder of claims for
legal and equitable relief in a single complaint. However, this reform of our civil
procedure does not alter the principals or elements of legal or equitable claims in
Virginia, and in no way denies, or enlarges, a party’s right to a jury trial. Instead,
it allows all parties’ claims and prayers for relief in a complaint, counterclaim,
cross-claim, or third party complaint to be heard in one proceeding. It allows
depositions and other discovery to be done once, and it facilitates resolutions of
all claims between the litigants arising out of the same transaction or occurrence
in a single case. When pled properly, our new system will avoid the potential
pitfall under our former system of a plea of res judicata where a second action at
law was filed after the chancellor had granted equitable relief to the plaintiff in an
earlier action. See, e.g., Wright v. Castles, 232 Va. 218, 349 S.E.2d 125 (1986);
Worrie v. Boze, 198 Va. 533, 95 S.E.2d 192 (1956). Virginia’s new deal serves
the public interest by allowing all claims of any nature to be joined, thereby
expediting the resolution of litigants’ claims in a simpler, more efficient system,
and thereby eliminating unnecessary delays, costs, and expenses in the
administration of the civil justice system.
I.
What the New System Does
6
New Rule Three provides for one form of action in Virginia courts called a
civil action. A civil action is now commenced by filing a complaint. There are
no more motions for judgment or bills of complaint. This simplification of
procedure accomplishes one fundamental goal: it avoids the mistakes and burdens
that occurred when parties had to select one side of the court on which to bring a
claim, defense, counterclaim or cross-claim. The New Rule eliminates the
necessity for Virginia Code Section 8.01-270 that allowed a plaintiff who brought
the action on the wrong side of the court to have the action transferred to the
proper side of the court and to thereafter amend the pleadings so as to obviate the
objection that the action was not brought on the right side of the court.
The paradigm example of the problems and pitfalls for attorneys and trial
judges under the old system was the case of Standardsville Volunteer Fire
Department v. Berry, 229, Va. 587, 331 S.E. 2d, 466 (1985). In an action for
trespass, the plaintiff filed its claim on the law side of the court seeking only
money damages. The defendant, who happened to be a circuit court judge, filed a
counterclaim to establish an equitable easement over the land of the plaintiff and
moved the trial court to transfer the entire case from law to equity. Over the
objection of the plaintiff, the trial court made the transfer, and thereafter, hearing
the case ore tenus, ruled that the defendant had established an equitable easement
over the plaintiff’s property. On appeal the Virginia Supreme Court reversed and
held that it was reversible error, not harmless error, for the trial court to have
made the transfer from law to equity since it denied the plaintiff its constitutional
right to a jury trial. Sadly, the parties had extended time, energy and financial
resources futilely for over five years after the dispute had arisen. The parties and
their counsel had to regroup and start all over again. This result will never
happen again in Virginia. New Rule Three eliminates such an obvious waste of
time, money, and judicial resources.
A single form of civil action permits a trial judge to follow equitable
doctrines for claims at law for money damages and for claims where the parties
seek only equitable relief. See Va. Code § 8.01-422. The New Rule does not
restrict a party’s right to a jury trial and monetary relief for claims at law for
money damages. The litigant no longer will be required to file multiple suits or
seek transfer of an action from one side of the court to the other where there are
concurrent claims for money damages and an equitable remedy. For example, in
Worrie v Boze, supra, the plaintiffs brought a second action at law claiming
compensatory and punitive damages, alleging a conspiracy by the defendants to
breach an employment contract between the parties. The defendants filed a plea
of res judicata arguing that a prior equity suit brought by the plaintiffs for an
injunction barred the law action. The equity suit involved the same employment
contract between the parties that contained a covenant prohibiting the defendants
from competing with the plaintiffs within a certain area for a stated period of
time. When the defendants opened a competing business in this restricted area,
the plaintiffs had filed a bill of complaint in which they sought only an injunction
to restrain the defendants from operating the competing business. The chancellor
7
granted the injunction, but awarded no monetary relief since there was no prayer
for assessment of damages. The Supreme Court upheld the trial court’s rejection
of the defendants’ plea of res judicata. The issues in the equity suit were whether
the contract was valid and enforceable, and if so whether it should be enforced.
On the other hand, the second action at law for money damages was based upon
an alleged tort, i.e., conspiracy to induce breach of contract. While the causes of
action in the two suits were closely related, our Court held that they were not
identical.
Now any practitioner who is faced with competing claims for equitable and
legal relief, as experienced by the attorneys in Worrie v. Boze, Wright v. Castles,
and Standardsville v. Berry, no longer has to choose one side of the court over the
other side, a choice where potentially draconian consequences lurked for a
mistaken choice of a forum. Under new Rule Three, the plaintiffs’ claims for
both equitable and legal relief can be joined in a single action.
II.
What the New System Will Not Do
While law and equity procedures are merged, the new system creates only a
single procedural system for civil cases and preserves in all respects the
distinctions between legal and equitable remedies. For instance, claims for purely
equitable relief such as injunctions, specific performance, reformation, and
rescission, or for the partition of property do not affect in any way the established
equitable principles upon which these remedies are premised; and in such claims
there is no constitutional right to a jury trial.
The principles underlying a right of action, defensive pleading, including
demurrers, a plea of the statute of limitations, joinder of parties, and limitations
on a court’s exercise of in personam jurisdiction and/or subject matter jurisdiction
have not been affected in any manner.
The historic rules providing for the right to a jury trial are not altered in any
way. New Rule 3:25 contains a new “jury demand procedure,” but the right to
demand a jury trial in an action at law in which a jury is available is preserved.
Actions sounding in equity will be heard without a jury. However, Virginia’s
established practice allowing for a jury trial on a special plea in equity or for an
advisory jury on a purely equitable claim is preserved. See § 8.01-336(D) and
(E). As discussed later, it is contemplated that claims triable to a jury will be
heard before the trial court makes any determination on an equitable claim where
the claims arise out of the same transaction or occurrence.
Virginia still adheres to the concept of notice pleading. Rule 1:4(k) tells
attorneys that “brevity is enjoyed as the outstanding characteristics of good
pleading.” The only exceptions to this rule are claims of fraud or conspiracy
which require the plaintiff to plead with particularity. See, e.g., Tuscarora v.
B.V.A. Credit Corp., 218 Va. 849, 241 S.E.2d 778 (1978). Remember, however,
that there can be no recovery unless the theory upon which the party prevails has
8
been pled. See, e.g., Ted Lansing Supply v. Royal Aluminum, 221 Va. 1139, 277
S.E.2d 228 (1981).
The rules governing joinder of claims are not altered in any way. The single
form of action system does not alter the rules permitting joinder of claims or
defenses and pleading alternative facts or legal theories that arise out of the same
transaction or occurrence. See Rule 1:4(k) and Code §§ 8.01-272 and 8.01-281.
The rules providing for counterclaims, cross-claims and third party
complaints have not been altered or abridged in any manner. The defendant may,
but is not required to, plead as a counterclaim any cause of action that the
defendant may have against the plaintiff, whether or not it grows out any
transaction set forth in the complaint. The New Rule has not been changed to
require a defendant to file a “compulsory counterclaim.” However, the
practitioner needs to remember that while there is no compulsory counterclaim,
the rules of collateral estoppel may have a profound affect in a second action
brought by either of the parties after a final judgment in the first suit on issues
common to both claims. See e.g., Carter v. Hinkle, 189 Va. 1, 52 S.E.2d 135
(1949). See Rule 3:9.
There is no charge with regard to cross-claim (a claim by one defendant
against another defendant). Any cross-claim by one defendant against another
defendant must grow out of any matter pled at the complaint. A cross-claim that
does not arise out of the matter pled in the complaint is subject to a demurrer.
Rule 3:10.
Third party practice remains essentially the same. Rule 3:13. The
defendant as a third-party plaintiff may file and serve a third-party complaint
upon a person, not a party to the action, who is or may be liable to the third-part
plaintiff, for all or part of the plaintiff’s claim against the third-party plaintiff.
This procedure is generally used in personal injury actions where the plaintiff has
decided to name only one defendant where there may be two or more joint
tortfeasors. The named defendant may file a third-party complaint against a
second (or third or fourth tortfeasor) for contribution or indemnification. The
defendant may file this complaint even though there has been no determination of
any liability of the defendant (or third-party plaintiff) to the plaintiff. Va. Code §
8.01-249(5). Remember that the plaintiff has the right in a personal injury or
property damage action arising out of a motor vehicle accident to have the third
party complaint severed and have a separate trial on the original complaint. Va.
Code § 8.01-281(B).
The joinder of parties has not changed. New Rule Three neither expands
nor contracts existing provisions for joinder of parties, plaintiff or defendant,
under the code or case law. For example, in Fox v Deese, 234, Va. 412, 362 S.E.
2d 699 (1997), the plaintiff filed an eight count action joining contract and tort
claims against the City of Richmond and joined as defendants, the City Manager,
and three other City employees. The Supreme Court reversed the trial court that
had sustained a demurrer for misjoinder of parties and causes of action. The
9
Supreme Court held that the plaintiff could join these defendants in the same
action, even though these defendants were not jointly and separately liable on all
claims in the motion for judgment since all claims arose out of the same
transaction or occurrence. See § 8.01-272 and § 8.01-281.
There is no change regarding the applicable statute of limitations to legal
claims or the concept of laches to any equitable claim. Periods of limitations
continue to apply to legal claims, and laches will still apply for equitable claims.
Any overlap will be handled as it has historically has been dealt. See, e.g.,
Belcher .v Kirwood, 238 Va. 430, 383 S.E. 2d, 729 (1989).
The basic legal principles for default and the entry of a default judgment are
not materially altered. Rule 3:19. However, the New Rule adds a new provision
that allows a court, prior to entry of a default judgment for good cause shown, to
allow the filing of a late responsive pleading. Rule 3:19(b). It also adds a
subparagraph (d) that provides during the twenty-one day period after a default
judgment, the trial court may, by written order, relieve a defendant of a default
judgment after consideration of the extent and cause of the defendant’s delay in
tendering a responsive pleading. The trial court can consider whether service of
process and actual notice of the claim were timely provided to the defendant, and
the effect of the delay upon the plaintiff.
New Rule Three is not designed to alter the doctrines of res judicata and
collateral estoppel, or the requirement of mutuality of estoppel articulated in
Virginia cases. See e.g. Norfolk & Western Railroad v. Bailey, 221 Va. 638, 272
S.E. 2d, 217 (1980).
However, there is a caveat of which to be aware. While the New Rule does
not specifically alter the doctrines of res judicata and collateral estoppel, it
certainly eliminates one of the foundations for a plea of res judicata. In Wright v.
Castles, supra, the plaintiff filed two successive actions, both of which arose out
of the same occurrence, the first on the equity side of the court in which a final
decree was entered, and the second on the law side. Rejecting the defendant’s
plea of res judicata, our Court held that for the purposes of res judicata, four
elements must concur: 1) identity of the remedy sought; 2) identity of the causes
of action; 3) identity of the parties; and 4) identity of the quality the persons for or
against whom the claim is brought. Wright v. Castles, 213 Va. at 222, 349 S.E.2d
at 128. Now that a plaintiff may seek both legal and equitable relief in a single
action, the ground that there must be an “identity of remedy sought” is no longer
an issue since legal and equitable relief can be claimed in the complaint. Thus, it
could be argued that a plaintiff, who previously filed a complaint seeking only an
equitable remedy, would later be barred on a plea of res judicata when in a
second complaint the plaintiff sought money damage if the two actions arise out
of the same transaction or occurrence.
The case of Davis v. Marshall Homes, Inc., 265 Va. 159, 576 S.E. 2d, 504
(2003), concerned a plea of res judicata filed by a defendant in a second action
for default on a note after the defendant had prevailed in an earlier action for
10
fraud. Both of the actions arose out of the same transaction. Our Court held that
the test to “determine whether claims are part of a single cause of action is
whether the same evidence is necessary to prove each claim.” Since the “same
evidence” was not required in both cases, the Court overruled the plea of res
judicata. The strict application of this test would seem to allow a plaintiff to file
an action seeking solely equitable relief, and a second action seeking legal relief
since “the same evidence would not be necessary to prove each claim.”
In Marshall, there was strong dissent. There is currently proposed a new
rule winding its way through the rulemaking process that would overrule “the
same evidence test” enunciated in the Marshall case.1 Under this proposed rule, a
party who makes a claim for relief, legal or equitable, from an identified
transaction or occurrence upon which there is a final, unappealable judgment is
barred from filing, or making, a subsequent claim, against the same opposing
party that arises from the same transaction or occurrence. The plea of res
judicata must be sustained by the trial court even though a party argues a new
legal theory or right of recovery, and regardless of the legal elements or the
evidence upon which any claim in the prior proceeding depended.
There are two exceptions in this new rule. Its provisions do not bar a party,
or a party’s insurer, from prosecuting separate personal injury and property
damage claims arising out of the same conduct, and it does not bar a party who
1
The Proposed New Rule 1:6 provides:
(a) Definition of Cause of Action. A party whose claim for relief arising from identified
conduct, a transaction, or an occurrence, is decided on the merits by a final judgment, shall be
forever barred from prosecuting any second or subsequent civil action against the same opposing
party or parties on any claim or cause of action that arises from that same conduct, transaction or
occurrence, whether or not the legal theory or rights asserted in the second or subsequent action
were raised in the prior lawsuit, and regardless of the legal elements or the evidence upon which
any claims in the prior proceeding depended, or the particular remedies sought. A claim for
relief pursuant to this rule includes those set forth in a complaint, counterclaim, cross-claim or
third party pleading;
(b) Effective Date. This rule shall apply to all Virginia judgments entered in civil actions
commenced after July 1, 2006.
(c) Exceptions. The provisions of this Rule shall not bar a party or a party’s insurer from
prosecuting separate personal injury and property damage suits arising out of the same conduct,
transaction or occurrence, and shall not bar a party who has pursued mechanic’s lien remedies
pursuant to Virginia Code § 43-1 et seq. from prosecuting a subsequent claim against the same or
different defendants for relief not recovered in the prior mechanic’s lien proceedings, to the
extent heretofore permitted by law.
(d) Privity. The law of privity as heretofore articulated in case law in the Commonwealth of
Virginia is unaffected by this Rule and remains intact. For purposes of this Rule, party or parties
shall include all named parties and those in privity.
11
has pursued mechanic’s lien remedies pursuant to Code § 43.1, et seq. from
prosecuting a subsequent claim against the same or different defendants for relief
not recovered in the prior mechanic’s lien proceeding, to the extent now permitted
by law.
Finally, the new rule articulated does not affect the existing laws of privity.
Party or parties includes all named parties and those in privity. See e.g., Nero v.
Ferris, 222 Va. 807, 284 S.E.2d 828 (1981).
When the proposed new rule is adopted by the Supreme Court, the doctrine
of res judicata will be altered to a significant extent, and existing case law would
have little, or no, precedential value. However, under the exception in the
proposed new rule, the law as pronounced in Carter v. Hinkle, supra, will not be
altered in any manner. The proposed new rule would require a party to join all
claims for relief, both legal and equitable, that arise from an identifiable
transaction or occurrence. Failure to do so would forever bar a subsequent action
arising out of the same transaction or occurrence. Under the new rule, the
defendants’ pleas of res judicata in the cases of Davis v. Marshall Homes, supra,
Wright v. Carter, supra, and Worrie v. Boze, supra, would be sustained.
The wise practitioner should join all claims that arise from a identified
transaction or occurrence, even if the new proposed rule is not adopted by a court.
III. Jury Trial Rights in Multi-Claim Actions
When parties, whether plaintiff or defendant, present both legal and
equitable claims in a single action, the trial court must determine whether or not
to present common questions of fact first to a jury before determining whether
any party is entitled to equitable relief. This issue was presented to the trial court
in Standardsville v. Berry, supra. In reversing the trial court for depriving the
plaintiff of its constitutional right to a jury trial, the Supreme Court provided a
road map how the case should proceed on remand. If the defendant wished to test
his right to an equitable easement over the plaintiff’s land before undergoing a
jury trial in the trespass case, the defendant was entitled to bring a chancery suit
seeking an equitable easement and have the chancery court enjoin the plaintiff’s
action at law for trespass until the chancery court had made its ruling on the
defendant’s claim. If the defendant was successful in equity, the plaintiff would
be permanently enjoined from interfering with the defendant’s easement, and the
plaintiff obviously would not be entitled to any damages in the action at law. If
the defendant did not prevail in equity, the plaintiff’s right to proceed in the
action at law would be unimpaired, and the issue of damages would be submitted
to a jury.
Under New Rule Three, it is anticipated our Court’s proffered road map in
Standardsville would be reversed 180 degrees. It is reasonable to expect that the
Virginia Supreme Court would follow the guidelines set forth in the United States
Supreme Court decisions of Beacon Theater, Inc. v. Westover, 359, U.S. 500
(1959) and Dairy Queen, Inc. vs. Wood, 369, U.S. 469 (1962). In Beacon
12
Theater, the Supreme Court established the proper federal practice when legal and
equitable claims are raised in a single action. It held that the Seventh Amendment
Right to a jury trial on legal claims must be preserved by trying the legal claims
first, or at least simultaneously with equitable claims, and the jury’s finding on
any common question of fact must be applied when the court decided the
equitable claims. In Dairy Queen, the Supreme Court stated “as long as any legal
cause is involved, the jury rights it creates control.” Daily Queen, 369, U.S. at
473.
If our Court, when presented with a case similar in nature to Standardsville
v. Berry, supra, follows Beacon Theater and Dairy Queen, common questions of
fact must first be tried to a jury since the jury trial right should not be impaired
through the prior determination of equitable claims. The jury would determine,
upon proper instructions, whether the defendant had trespassed over the plaintiff’s
land. If so, the plaintiff is entitled to recover money damages, and of course, the
defendant would not obtain any equitable relief. Conversely, if the plaintiff did
not prove that the defendant had trespassed over its land, then that finding by the
jury would be applied by the court in fashioning the equitable remedy requested
by the defendant, an equitable easement over the plaintiff’s land.
IV. Conclusion
The New Rule Three affords attorneys, judges and the public a simplified
procedural system that fosters the administration of justice in a timely, efficient,
and less expensive manner. We are indebted to our Supreme Court for its insight
in moving our civil justice system beyond 200 years of Virginia’s slavish
adherence to the “marked distinction” between law and equity procedures.
Citizens of our Commonwealth now have a civil justice system that is vastly
simplified and improved and can resolve citizens complaints and disputes without
the hassle of whether the parties are on the “right side of the court.”
Gasque v. Mooers
227 Va. 154, 313 S.E.2d 384
Russell, J. delivered Opinion in this case.
This case requires consideration of the rights of a buyer of a defective
automobile who seeks the remedy of revocation of acceptance against the seller and
the manufacturer under the Uniform Commercial Code (Va. Code § 8.2-608).
On January 8, 1980, Patricia E. Gasque and Earl L. Gasque (buyers) filed a
suit in equity against Mooers Motor Car Co., Inc. (Mooers) and Fiat Motors of
North America, Inc. (Fiat). They alleged that they had purchased a new 1979 Fiat
station wagon, manufactured by Fiat, from Mooers on February 21, 1979; that
after delivery they discovered numerous defects in the car; that Mooers had made
at least five attempts to correct the defects, without success; that on September
19, 1979, the buyers had demanded rescission of the sale and return of the
13
purchase price or replacement of the car; and that the demand had been refused.
The bill of complaint sought only cancellation of the sale and return of the
purchase price or, alternatively, replacement of the car with a new one of similar
model. There was no claim for compensatory damages, although there was a
claim for punitive damages and "loan interest, legal interest, costs of this
litigation, and an award of attorney's fees," as well as "other and further relief."
The court heard evidence ore tenus and, in a written opinion, held that the
evidence did not show a substantial impairment of value of the car by reason of the
defects and that the buyers had failed to revoke their acceptance within a reasonable
time. At trial, the court sustained Fiat's motion to strike the evidence as to it, on the
grounds that the remedy of rescission, or revocation of acceptance, was not available
against a party who had no contract with the buyer. A decree was entered in favor of
both defendants, from which the buyers appeal. We agree with the trial court's
rulings.
In accordance with established standards of appellate review, we must view the
evidence in the light most favorable to the parties prevailing below. The buyers took
delivery of a new Fiat from Mooers on February 21, 1979. At various subsequent
times, they reported to Mooers that they had experienced a water leak, a loose
gearshift lever, difficulty shifting into second and third gear, heater malfunction, an
inoperative clock and interior light, a loose wire under the dash, blown fuses, a piece
missing from a front door, automatic choke problems, difficulty starting, fast idling,
difficulty closing the rear door on the driver's side, difficulty opening the rear door
on the passenger's side, excessive oil consumption, loud vibrations, and various other
noises and rattles. In addition, they claimed that the reclining front seat broke, and
that they experienced repeated difficulty with the foot-long plastic extension to the
gearshift lever, which pulled loose.
The buyers returned the car to Mooers on March 13, March 23, an unspecified
date in May, June 21, June 27, July 20, and August 6, 1979, for service. On each
occasion, Mooers repaired the items complained of, without charge, although
Mooers could find no evidence of some of the problems described by the buyers.
Mooers conceded that the car experienced a recurring problem with the gearshift
extension and testified that this defect affected three out of seventy cars of this model
which it had recently sold. Mooers' service manager testified that the gearshift
extension would come off only if used improperly by pulling it upward and that the
car was still operable without the extension. The car was in fact driven for thousands
of miles while subject to this defect. Although Mooers thought a permanent repair of
this problem could be accomplished, the difficulty continued up to the time of trial.
The buyers consulted counsel, who, on September 19, 1979, wrote to Mooers
and to Fiat demanding "a full refund including interests and expenses for the times
that the vehicle was in the shop or, in the alternative, the replacement of said
automobile."
The buyers continued to drive the Fiat, except when it was left with Mooers for
service. When the car was last in Mooers' shop for repairs on August 6, it had 4,543
14
miles on the odometer. When buyers' counsel wrote to Mooers on September 19, he
stated that the car had been driven 5,400 miles. At the time of the trial on May 21,
1980, the car had been driven over 8,000 miles. The buyers testified that they
purchased a used Volkswagen in November 1979, and permanently parked the Fiat,
which by then had been driven 8,000 miles, in their driveway.
Code § 8.2-608 provides:
Revocation of acceptance in whole or in part.
1. The buyer may revoke his acceptance of a lot or commercial unit whose
nonconformity substantially impairs its value to him if he has accepted it
a. on the reasonable assumption that its nonconformity would be cured
and it has not been seasonably cured; or
b. without discovery of such nonconformity if his acceptance was
reasonably induced either by the difficulty of discovery before acceptance or by the
seller's assurances.
2. Revocation of acceptance must occur within a reasonable time after the
buyer discovers or should have discovered the ground for it and before any
substantial change in condition of the goods which is not caused by their own
defects. It is not effective until the buyer notifies the seller of it.
3. A buyer who so revokes has the same rights and duties with regard to the
goods involved as if he had rejected them.
Although the U.C.C. "Official Comment" appended to this section makes clear
that the buyer is no longer required to elect between rescission and damages for
breach, the buyers in this case did so by their pleading. The prayer of the bill is
purely for a restoration of the parties to the status quo ante, including such incidental
damages as would accomplish that purpose. The prayer for punitive damages is
extraneous and ineffectual. The suit is, as it must be to accomplish its purpose,
founded upon the contract between Mooers and the buyers. Punitive damages are
unavailable independent, willful tort is alleged and proved. Kamlar Corp. v. Haley,
224 Va. 699, 299 S.E.2d 514 (1983). Even if the buyers' bill alleged a tort, which it
fails to do, an award of compensatory damages, which are not claimed here, is an
indispensable predicate for an award of punitive damages, except in actions for libel
and slander. Newspaper Publishing Corp. v. Burke, 216 Va. 800, 805, 224 S.E.2d
132, 136 (1976). Thus, the trial court properly confined its consideration to the
question whether the evidence supported the prerequisites for revocation of
acceptance under Code § 8.2-608: (1) substantial impairment of value to the buyer,
and (2) action within a reasonable time and before any substantial change in
condition of the goods which is not caused by their own defects.2
2
Buyers contend that the condition of the car was in breach of implied warranties. Mooers
contends that such warranties were expressly excluded by the language of the parties' contract.
15
A buyer's right to revoke acceptance does not arise from every breach of
warranty, notwithstanding the availability of damages for the breach; it arises only
where the value of the goods to the buyer is substantially impaired. Tiger Motor Co.
v. McMurtry, 284 Ala. 283, 224 So.2d 638 (1969). The test of such impairment is
not, however, a diminution in value of the goods on the open market, or to the
average buyer, but rather a substantial impairment of value to the particular buyer
involved. See Champion Ford Sales, Inc. v. Levine, 49 Md. App. 547, 433 A.2d
1218 (1981). Whether substantial impairment of value to the particular buyer exists
is an issue to be determined by the trier of fact. See Asciolla v. Manter OldsmobilePontiac, Inc., 117 N.H. 85, 370 A.2d 270 (1977). The buyer must carry the burden of
proof on this issue by a preponderance of the evidence.
The authorities disagree as to the standard of proof which should apply. The
buyers urge us to adopt a subjective test, under which the buyers need only persuade
the fact-finder that their "faith has been shaken" in the product. See, e.g., Stamm v.
Wilder Travel Trailers, 44 Ill. App.3d 530, 358 N.E.2d 382 (1976), and Zabriskie
Chevrolet, Inc. v. Smith, 99 N.J. Super. 441, 240 A.2d 195 (1968). We decline this
invitation and hold that the buyer must offer objective evidence showing: (1) that the
goods fail to conform to the terms of the contract of sale, and (2) that the
nonconformity substantially impairs the value of the goods to the buyer. See
Asciolla v. Manter, supra; GNP Commodities, Inc. v. Walsh Heffernan Co., 95 Ill.
App.3d 966, 420 N.E.2d 659 (1981).
How may this be shown? Undoubtedly, there may be a purchaser of an
automobile who wants if for an unusual and special purpose, such as display in a
collection of antique vehicles. But the burden would be on the buyer to show such a
special need. In the absence of such a showing, the fact-finder is entitled to infer that
the goods are needed by the buyer for their customary and ordinary purpose -- simple
transportation in the case of an automobile. In the instant case, there was persuasive
evidence that the Fiat in question substantially fulfilled that purpose. It had been
driven 5,400 miles by the time the buyers sought to revoke acceptance and an
additional 2,600 miles thereafter. The trial court applied a standard of "drivability"
as the test of whether the car's value to the buyers was substantially impaired. While
such a standard would not be of universal application, we cannot say that it was
erroneous where the buyers failed to prove any need for the car beyond ordinary
transportation. Accordingly, the trial court's finding in this respect was supported by
evidence and will not be disturbed on appeal.
In deciding whether the remedy of revocation of acceptance is applicable, the
fact-finder must resolve additional issues: whether the buyer unreasonably delayed
giving notice of revocation, whether the condition of the goods had substantially
changed, and whether the buyer had made unjustified use of the goods after giving
notice of revocation. As to all these issues, the buyer has the burden of proving by a
Because of the view we take of the case, it is unnecessary to decide this question, and we will
assume, without deciding, that the warranties were effective.
16
preponderance of the evidence that his conduct was reasonable. The Uniform
Commercial Code has substituted a standard of commercial reasonableness for the
stricter standards which formerly prevailed, but the guiding principles are clear.
Revocation or acceptance must be made promptly, or within a reasonable time after
acceptance, and the buyer may not use the goods to a material degree and then
attempt to revoke. Reece v. Yeager Ford Sales, Inc., 155 W. Va. 453, 184 S.E.2d
722 (1971). What constitutes a reasonable time depends upon the facts and
circumstances of each case. The time for revocation will ordinarily extend beyond
the time for giving notice of breach. Lanners v. Whitney, 247 Or. 223, 428 P.2d 398
(1967); Pedrini v. Mid-City Trailer Depot, Inc., 1 Wash. App. 56, 459 P.2d 76
(1969). Where the delay in notification of revocation is brought about because the
buyer gave the seller repeated opportunities to correct the defects and the seller
procrastinated in accomplishing repairs, the delay is not unreasonable. Seekings v.
Jimmy GMC of Tucson, Inc., 130 Ariz. 596, 638 P.2d 210 (1981). But after giving
notice of revocation, the buyer holds the goods as bailee for the seller. The buyer
cannot continue to use them as his own and still have the benefit of rescission; his
continued use becomes wrongful against the seller, unless induced by the seller's
instructions or promises. Stephens Industries, Inc. v. American Express Co., 471
S.W.2d 501 (Mo. Ct. App. 1971); Sellman Auto, Inc. v. McCowan, 89 Nev. 353, 513
P.2d 1228 (1973).
Exceptions have been made to the rule in mobile home cases, where departure
from the home before resolving the litigation would cause undue hardship to the
buyer and where the buyer's continued occupancy might be the best means of
safeguarding the property for a seller who refuses to take it back. Minsel v. El
Rancho Mobile Home Center, Inc., 32 Mich. App. 10, 188 N.W.2d 9 (1971). Cf.
Twin Lakes Mfg. Co. v. Coffee, 222 Va. 467, 281 S.E.2d 864 (1981). But this
reasoning has no application to the continuing use of an automobile, which ordinarily
depreciates in value with every mile it is driven.
Applying these principles to the case at bar, the buyers' delay, at least until after
August 6, was reasonable in light of the seller's continuing efforts to effect repairs,
which were only partially successful. But it is equally clear that the buyer's
continued use of the car after giving notice of revocation of acceptance on September
19, during which time they drove it 2,600 miles, was entirely inconsistent, with their
positions as a bailee, maintaining custody only to safeguard the car for the seller.
Such personal use of what they contended to be the seller's property does not meet
the standard of commercial reasonableness, and the trial court correctly so held.
The trial court correctly struck the evidence against Fiat. The remedy of
revocation of acceptance was the sole relief available to the buyers under their bill of
complaint, as noted above. This remedy lies only against a seller of goods, not
against a remote manufacturer. This is so because the remedy, where successful,
cancels a contract of sale, restores both title to and possession of the goods to the
seller, restores the purchase price to the buyer, and as fairly as possible, returns the
contracting parties to the status quo ante. The remote manufacturer, having no part in
the sale transaction, has no role to play in such a restoration of former positions.
17
Seekings v. Jimmy GMC of Tucson, Inc., supra, 130 Ariz. at 600, 638 P.2d at 214;
Reece v. Yeager Ford Sales, Inc., 155 W. Va. 461, 184 S.E.2d 727, 731 (1971).
The buyers argue that this limitation on revocation revivifies the "archaic
doctrine of privity." We disagree. A remote manufacturer is liable to a buyer for
damages arising from negligence or from breach of warranty, and the defense of
lack of privity has been abolished as to such cases, Code § 8.2-318. But the
remedy of revocation of acceptance under Code § 8.2-608 is conceptually
inapplicable to any persons other than the parties to the contract of sale sought to
be rescinded.
For these reasons, the decree will be Affirmed.
Advanced Marine Enterprises, Inc., v. PRC
256 Va. 106; 501 S.E.2d 148 (1998)
Keenan, J., delivered the opinion of the Court.
In this appeal, we consider issues in a chancery proceeding involving both
equitable and legal claims arising from an alleged business conspiracy and breach
of an employment agreement.
PRC Inc. (PRC) is a Delaware corporation that, among other things,
provided marine engineering services under contract to the United States Navy.
Included in those services was "shipbuilding support" that PRC rendered to the
Naval Sea Systems Command (NAVSEA). Advanced Marine Enterprises, Inc.
(AME), a Virginia corporation engaged in the business of marine engineering,
also provided services under contracts with the Navy, including NAVSEA.
PRC requires every new employee to sign a uniform Employment
Agreement as a condition of employment. The Employment Agreement obligates
PRC employees to protect PRC's proprietary information and to refrain from
disclosing such information to individuals outside the company. The Employment
Agreement also contains a non-competition provision, which provides in relevant
part:
Employee agrees not to compete with PRC for a period of eight months
following termination of employee's employment, by rendering competing
services to or, with respect to such services, solicit any customer of PRC for
whom Employee performed services while employed by PRC, within 50 miles of
a PRC office.
At various times during 1995, due to the loss of certain marine engineering
contracts, PRC informed some of its marine engineering employees that they
18
should look for other employment. On December 13, 1995, PRC announced that
the company would be sold to Litton Industries, Inc. (Litton).3
In November 1995, prior to the announcement of the sale, C. Michael
Pirrera, a senior manager in PRC's marine engineering department, contacted
AME and inquired whether AME would be interested in employing all seven
managers from PRC's marine engineering department (PRC Managers). When
AME expressed interest in hiring the PRC Managers, AME and the PRC
Managers, led by Pirrera, formed a plan (the Plan) under which AME would
attempt to hire every employee in the PRC marine engineering department.
Under the Plan, AME agreed to make secret job offers to all employees in
PRC's marine engineering department. These employees would be required to
resign on the same day, December 29, 1995, without notice to PRC, despite PRC's
requirement that employees provide two weeks notice of their intent to leave
PRC's employ. The Plan's objective was to transfer PRC's entire marine
engineering department to AME, including the PRC Managers, the other
employees, all customer relationships, and all existing contracts. As one PRC
Manager stated, the idea was "to put together an entity that the [PRC] customer
can't live without."
AME knew about the terms of PRC's Employment Agreement before
implementing the Plan. AME was aware that it faced a potential lawsuit by PRC
to enforce the Employment Agreement, and that PRC could assert other causes of
action against AME, such as tortious interference with contract. After projecting
the nature and amount of damages that might result from a lawsuit by PRC, AME
decided that the benefits of the Plan outweighed the potential consequences of a
lawsuit.
To implement the Plan, some of the PRC Managers developed a "matrix"
describing how the PRC Managers would obtain the business of PRC's marine
engineering department. This "matrix" included detailed confidential and
proprietary information about PRC's workload, the value of certain work, and the
amount of government funding available for each job in PRC's marine
engineering department. The "matrix" also evaluated each of PRC's jobs
regarding the ease with which the job could be "pulled" from PRC or "diverted"
to AME.
Based on employee information supplied by the PRC Managers, AME
prepared "offer" letters to each of the PRC Managers and other marine
3
Due to a conflict of interest caused by the sale to Litton, PRC was later required to sell one of its
primary marine engineering contracts, the 400D contract, to a buyer other than Litton. In April
1996, PRC entered into a contract with Tracor, Inc., the parent company of Vitro Corporation
(Vitro), for the sale of the "400D unit," which covered the 400D contract and approximately 80
PRC employees.
19
engineering employees and authorized Pirrera to negotiate salaries with each
employee. The "offer" letters included a provision in which AME agreed to
indemnify and hold harmless each PRC employee against any claim, demand,
damage, or injury asserted by PRC in connection with the employee's
employment by AME.
The PRC Managers devised a schedule for distributing the "offer" letters to
the PRC employees based on the PRC Managers' concern that some employees
might "blab" to PRC after receiving their AME "offer" letter. Under this schedule,
the PRC Managers planned to give job offers to those PRC employees who might
"blab" only after offers were given to the employees who were unlikely to "blab."
The PRC Managers distributed the "offer" letters in mid-December 1995.
The PRC Managers delivered each letter personally, encouraged each employee
to accept AME's offer, and emphasized the need to keep PRC from gaining
knowledge of the Plan prior to December 29, 1995, the date of the scheduled
mass resignation.
On December 20, 1995, Pirrera learned that rumors of the Plan might "leak
out" to PRC. In response, Pirrera sent an "e-mail" message to the other PRC
Managers on December 21, 1995, which stated:
Subject: Execute
Gentlemen:
Based on yesterday's events we need to do the following:
With the exception of the highest risk team members (i.e., people we
are absolutely sure will blab), talk to the rest of the team today.
Determine task backlogs immediately.
Back up computer files immediately.
Transfer files to client sites immediately.
Remember gentlemen, we got to this point as a team and we will see
this through as a team. Let's roll!
Mike
On December 29, 1995, the whole group of 26 managers and employees
from PRC's marine engineering department submitted letters resigning their
employment with PRC, effective immediately. Before leaving PRC and without
PRC's knowledge or consent, many of the PRC Managers and other PRC
employees copied their client files and sent the files to client sites so that the files
would be available once the employees began working at AME. Many of the PRC
Managers and employees also made "back up" copies of PRC computer
documents and files, which they removed from PRC without PRC's knowledge.
Some PRC Managers and employees also removed, without PRC's consent,
various documents pertaining to ongoing projects and work in progress at PRC. In
20
many cases, there were no similar documents left at PRC. All of the abovedescribed information constituted confidential and proprietary information of
PRC.
In January 1996, PRC filed a bill of complaint against AME, two AME
executives, the former PRC Managers, and the other former PRC marine
engineering employees.4 Among other things, the bill of complaint contained a
request for a temporary restraining order to prevent the defendants from using or
disseminating PRC's confidential and proprietary information and from soliciting
or performing services for their former PRC customers. The chancellor entered
the temporary restraining order on January 2, 1996, but later modified its terms to
exclude AME's business with governmental entities.
As amended, the bill of complaint also asserted both legal and equitable
claims for relief. The five Counts relevant to this appeal are: 1) breach of
fiduciary duty (Count I); 2) intentional interference with contractual relations
(Count II); 3) intentional interference with prospective business and contractual
relations (Count III); 4) specific performance and breach of the Employment
Agreement (Count IV); and 5) violation of Code § 18.2-499 (Count VII).
The matter was tried before a chancellor, who heard testimony from two
expert witnesses and 41 other witnesses. PRC presented the testimony of Mark
Bleiweis, a certified public accountant, who is an expert in the area of damage
calculation in contract disputes. Bleiweis estimated that, of the several types of
economic damage suffered by PRC in the loss of its marine engineering unit to
AME, the largest amount of damages resulted from lost goodwill. Bleiweis
defined goodwill as the excess of the sales price of a business over the fair market
value of the business' identifiable assets.
To estimate the lost goodwill associated with the departure of the PRC
Managers and employees, Bleiweis examined two sales of comparable businesses,
PRC's sale of its 400D unit to Vitro and the sale of AME to Nichols. Bleiweis
subtracted the value of each "comparable company's" assets from its sales price to
determine the goodwill associated with each comparable sale. With respect to the
Vitro sale, he then adjusted this figure to reflect the value to Vitro associated with
the funded 400D contract. To account for the larger number of employees
involved in both comparable sales, Bleiweis apportioned the estimated goodwill
figure for each of the two comparable businesses among the total number of
employees involved in each transaction.
This calculation yielded a ratio or percentage that Bleiweis applied to
calculate the goodwill lost by AME's acquisition of the 26 PRC employees. Using
the Vitro sale, Bleiweis estimated that PRC sustained $ 925,123 in goodwill
damages from the loss of its marine engineering unit to AME. Using the sale of
4
In April 1996, AME signed a letter of intent with Nichols Research Corporation (Nichols) to sell
AME to Nichols.
21
AME to Nichols, Bleiweis estimated that PRC's lost goodwill damages were $
841,965.
Bleiweis also testified that PRC will suffer a loss of profits as a result of the
departure of the PRC Managers and employees. Bleiweis estimated that the
present value of the expected lost profits was $ 265,655, based on the revenues
that the former employees' labor would have generated for PRC. However, he
testified that these damages were included in his estimate of lost goodwill.
AME, the AME executives, and the PRC Managers and employees
(collectively, "AME") offered the testimony of Edward H. Ripper, a certified
public accountant, as an expert in government contract accounting claims and
valuation. Ripper testified that Bleiweis' conclusions were "substantially
overstated," "highly speculative," and contained many "calculation[] errors."
Ripper provided several adjustments to Bleiweis' figures and concluded that PRC
suffered zero damages from lost goodwill when Bleiweis' method was properly
applied to the Vitro sale figures. Ripper also testified that the Vitro and Nichols
sales were not true "comparable" sales.
On June 19, 1996, the chancellor found in favor of PRC on all counts at
issue in this appeal, stating, "I think the method by which the [PRC Managers]
elected to do this was covert, surreptitious, violated civil duties, [and] was
absolutely wrong." During post-trial hearings, the chancellor stated that "the total
impact of this thing was outrageous. This was a group wrong, and they were
intending to disadvantage their employer while sitting there silent setting up their
own employer for the benefit of themselves and the benefit of AME."
Ruling from the bench, the chancellor awarded $ 1,245,062 in compensatory
damages on each of Counts I, II, III, and VII. Although this amount was awarded
on each of these four Counts, the chancellor did not aggregate these amounts but
entered a single compensatory damage award of $ 1,245,062. Under Code § 18.2500, the chancellor then trebled the $ 1,245,062 compensatory damage award
entered on Count VII. Thus, the total amount of non-punitive damages awarded
was $ 3,735,186.
The chancellor awarded punitive damages in the amount of $ 1,000,000
against AME, noting that he might be required to reduce that amount to $ 350,000
under Code § 8.01-38.1. He also awarded varying amounts of punitive damages
against certain PRC Managers and employees.
The chancellor took under advisement AME's argument that the award of
treble damages under Code § 18.2-500 was subject to the punitive damages
ceiling fixed by Code § 8.01-38.1. He also awarded PRC attorney's fees and costs,
but deferred computation of those amounts to a later hearing.
On Count IV, based on breach of the non-competition clause of the
Employment Agreement, the chancellor enjoined certain PRC Managers and
employees for seven and one-half months from performing services for and
soliciting work from those NAVSEA jobs for which each manager or employee
22
provided services while employed by PRC. The chancellor stayed the injunction
pending resolution of this appeal, and ruled that if the damages he awarded are
approved on appeal, the injunction will be dissolved.5
After a hearing on several post-trial motions, the chancellor entered the final
decree on June 18, 1997, about one year after the trial. He essentially incorporated
the terms of his bench ruling, but reduced the punitive damage award against
AME to $ 350,000 to comply with the terms of Code § 8.01-38.1. He awarded
PRC $ 475,000 in attorney's fees under Count VII (Code §§ 18.2-499 and -500).
He also awarded PRC $ 113,365.56 in costs under Count VII. The costs awarded
included $ 47,922.73 for PRC's expert witness fees, $ 27,826.31 for transcripts,
and expenses for other costs such as meals, legal research, parking, cab fare, law
clerk "temporaries," overnight delivery services, messenger services, telephone
calls, and photocopying charges. The chancellor also ruled that PRC was entitled
to receive prejudgment interest on the entire award from June 19, 1996, the date
of his bench ruling.
On appeal, AME argues that the chancellor erred in (1) ruling that AME
violated Code § 18.2-499, (2) enforcing the non-competition covenant of the
Employment Agreement, (3) his calculation of PRC's lost goodwill and profits
and his determination that PRC met its burden of proving damages, (4) awarding
punitive and treble damages, (5) awarding PRC costs, and (6) awarding PRC
prejudgment interest.
I.
Violation of Code § 18.2-499
AME asserts that the chancellor erred in finding AME conspired to injure
PRC in its business in violation of Code § 18.2-499. AME contends that to
establish a violation of the statute, PRC was required to prove that AME acted
with the purpose of injuring PRC. AME argues that since the chancellor failed to
apply this evidentiary standard, his finding that AME violated the statute
constitutes reversible error. AME also asserts that there was no evidence AME
acted with the purpose of injuring PRC. We disagree with AME's arguments.
In Commercial Business Systems, Inc. v. BellSouth Services, Inc., 249 Va.
39, 453 S.E.2d 261 (1995), we addressed the question whether a violation of Code
§ 18.2-499 requires proof of actual malice. There, the plaintiff alleged that the
defendant's employee, in violation of Code § 18.2-499, conspired to destroy the
plaintiff's reasonable business expectancy for a contract renewal with the
defendant corporation by awarding a contract to the plaintiff's competitor in
exchange for commercial bribes. The trial court granted the defendant's motion
for summary judgment on the ground that the plaintiff failed to prove actual
malice, which required the plaintiff to establish that the conspirator's primary and
overriding purpose was to injure the plaintiff's trade or business. 249 Va. at 4647, 453 S.E.2d at 266-67.
5
AME does not assign error to the conditional nature of the chancellor's injunction.
23
We reversed the trial court, holding that the plaintiff was not required to
prove actual malice. We stated that Code §§ 18.2-499 and -500 do not require a
plaintiff to prove that a conspirator's primary and overriding purpose is to injure
another in his trade or business. Id. at 47, 453 S.E.2d at 267. Rather, we
explained that these statutes merely require proof of legal malice, that is, proof
that the defendant acted intentionally, purposefully, and without lawful
justification. Id.
PRC's evidence was plainly sufficient to meet this standard of proof. The
individuals in the business conspiracy participated in a scheme to take the entire
marine engineering department from PRC and relocate the department at AME.
As stated above, AME and the PRC Managers and employees planned and
implemented this scheme in secrecy while the PRC Managers and employees
were still employed by PRC. The PRC Managers and employees planned and
executed a mass resignation without notice to PRC. They took from PRC original
client documents and copies of documents containing confidential and proprietary
information without PRC's permission or knowledge. Thus, we conclude that the
evidence supports the chancellor's finding that AME conspired to injure PRC in
its business in violation of Code §§ 18.2-499 and -500.
II.
Non-Competition Clause of Employment Agreement
AME asserts that the non-competition clause in the Employment Agreement
was unenforceable because it was unreasonably broad, unduly harsh, and
oppressive. We disagree.
To determine whether a non-competition agreement may be enforced, a
chancellor must consider the following criteria:
Is the restraint, from the standpoint of the employer, reasonable in the sense
that it is no greater than necessary to protect the employer in some legitimate
business interest?
From the standpoint of the employee, is the restraint reasonable in the sense
that it is not unduly harsh and oppressive in curtailing his legitimate efforts to
earn a livelihood?
Is the restraint reasonable from the standpoint of a sound public policy?
New River Media Group, Inc. v. Knighton, 245 Va. 367, 369, 429 S.E.2d 25,
26 (1993)(quoting Roanoke Eng. Sales v. Rosenbaum, 223 Va. 548, 552, 290
S.E.2d 882, 884 (1982)); accord Blue Ridge Anesthesia & Critical Care, Inc. v.
Gidick, 239 Va. 369, 371-72, 389 S.E.2d 467, 468-69 (1990).
In New River Media, we enforced a non-competition agreement in which a
radio disc jockey contracted not to engage in a competing business within 60 air
miles of his employer's radio station for 12 months after leaving his employment.
245 Va. at 369-70, 429 S.E.2d at 26-27. In Roanoke Engineering Sales, we
enforced an agreement that prohibited a corporate officer from competing with his
employer for three years in any similar business located in Virginia or North
24
Carolina that covered the same sales territory served by the employer. 223 Va. at
553, 290 S.E.2d at 885.
When compared with these agreements, the non-competition provision
before us is not unduly harsh and oppressive in curtailing the legitimate efforts of
former PRC employees to earn a livelihood. The restraints imposed also are
reasonable from the standpoint of a sound public policy. The non-competition
provision does not contain a blanket prohibition against working for a competitor.
Instead, the covenant merely prohibits an employee for eight months from
"rendering competing services to or, with respect to such services, soliciting any
customer of PRC for whom Employee performed services while employed by
PRC, within 50 miles of a PRC office."
The agreement's geographic limitation is not rendered too burdensome
because PRC has approximately 300 offices worldwide. In the context of the brief
time period involved and the narrow definition of prohibited services, the
geographic restriction does not pose an unreasonable restraint on departing
employees. Likewise, the restriction on solicitation of PRC customers is
reasonable because the restriction is limited to the same eight-month period and
was interpreted by the chancellor as applying only to certain specialized
engineering areas of NAVSEA and individuals serviced by each employee while
employed by PRC. Thus, the record supports the chancellor's conclusion that the
non-competition provision is valid and enforceable.
We also find no merit in AME's contention that the eight-month period
provided in the non-competition clause has expired and may not be enforced. On
January 2, 1996, the chancellor entered a temporary injunction enforcing the
terms of the non-competition clause. For "public policy" reasons relating to nature
of the work and the governmental status of actual and potential "customers," the
chancellor lifted the injunction two weeks later with regard to AME's business
with governmental entities. Thus, since the portion of the injunction involving
governmental entities was in effect only for two weeks, the chancellor did not err
in ruling that seven and one-half months out of the eight-month prohibition on
competition still may be enforced with respect to such governmental entities. See
Blue Ridge Anesthesia, 239 Va. at 374, 389 S.E.2d at 470; Paramount Termite
Control Co. v. Rector, 238 Va. 171, 176-77, 380 S.E.2d 922, 926 (1989); Roanoke
Eng. Sales, 223 Va. at 556, 290 S.E.2d at 886.
III. "Goodwill" Damages And Sufficiency Of Evidence Of Damages
AME contends that the chancellor erred in accepting PRC's evidence of
damages, including its evidence of lost goodwill and profits. AME argues that
PRC's evidence was based on flawed methodology and speculative calculations.
Specifically, AME asserts that the chancellor failed to consider that PRC's marine
engineering department made a profit of only $ 45,108 in 1995, and that the price
for the sale of PRC to Litton did not change after the departure of the PRC
Managers and employees. We disagree with AME's arguments.
25
As trier of fact, the chancellor evaluated the testimony and the credibility of
the witnesses. See RF&P Corp. v. Little, 247 Va. 309, 321, 440 S.E.2d 908, 916
(1994); Richardson v. Richardson, 242 Va. 242, 246, 409 S.E.2d 148, 151 (1991).
We will not set aside his findings on appeal unless they are plainly wrong or
without evidentiary support. Willis v. Magette, 254 Va. 198, 201, 491 S.E.2d 735,
736 (1997); RF&P Corp., 247 Va. at 321, 440 S.E.2d at 916.
After hearing detailed testimony from Bleiweis, PRC's expert, and Ripper,
AME's expert, the chancellor accepted Bleiweis' methodology and evidence of
damages. We cannot say, as a matter of law, that the chancellor's determination
was plainly wrong.
In determining PRC's damages for lost goodwill, the chancellor accepted
Bleiweis' variation of the market value approach, a frequently-used method for
computing goodwill damages that is based on the difference between the price a
business would sell for and the value of its non-goodwill assets. See Russell v.
Russell, 11 Va. App. 411, 416, 399 S.E.2d 166, 169 (1990). Because there was no
sale associated with the transfer of the PRC Managers and employees to AME,
Bleiweis utilized a variation of this approach by determining the value of
goodwill associated with comparable sales and adjusting this figure to
approximate PRC's lost goodwill caused by the departure of the PRC Managers
and employees. Ripper never criticized Bleiweis' use of the market value
approach, but only stated that Bleiweis made certain errors in applying this
method.
The chancellor found that the closest comparable sale for purposes of
measuring lost goodwill was PRC's sale of the 400D unit to Vitro. The evidence
showed that the purchase agreement between Vitro and PRC identified the
goodwill associated with that sale by providing that Vitro would pay PRC $
4,424,091 more than the value of the tangible assets involved. Using Bleiweis'
methodology, the chancellor decreased this amount to reflect the value that Vitro
would receive from the funded 400D contract and then adjusted the resulting
figure to reflect the smaller number of employees involved in the departure of the
PRC Managers and employees.
The chancellor concluded that the comparable sale of AME to Nichols
corroborated Bleiweis' damage estimate for lost goodwill based on the Vitro
comparable sale. Since there was no actual sale by PRC to AME, the chancellor
rejected Ripper's opinion that the "best" transaction for measuring PRC's lost
goodwill was the actual transfer of the PRC Managers and employees to AME.
Although Bleiweis estimated the amount of profit PRC lost by the departure
of its marine engineering unit to AME, he stated that these damages were
included in his calculation of lost goodwill. Thus, in determining PRC's total
damages, Bleiweis concluded that a separate damage figure for lost profits should
not be added to the damage amount for lost goodwill. The chancellor agreed with
Bleiweis on this issue and declined to award additional damages for lost profits,
26
finding that lost profits damages were "subsumed" within the court's goodwill
calculation.
The chancellor's conclusions reflected his acceptance of Bleiweis'
methodology as the most appropriate and accurate measure of lost goodwill and
profits. Thus, AME's complaint essentially is reduced to the fact that the
chancellor accepted the testimony of PRC's expert witness, rather than the
testimony offered by AME's expert. Since the chancellor's findings regarding
PRC's lost profits and damages for lost goodwill are supported by credible
evidence, we will not disturb those findings on appeal. See City of Manassas v.
Board of Supervisors, 250 Va. 126, 137, 458 S.E.2d 568, 574 (1995); Jamerson v.
Womack, 244 Va. 506, 510, 423 S.E.2d 180, 182 (1992); Russell, 11 Va. App. at
417, 399 S.E.2d at 169.
For the same reasons, we find no merit in AME's contention that the damage
award was excessive as a matter of law. Although the record shows that the price
for the sale of PRC to Litton did not change after the departure of the PRC
Managers and employees, Bleiweis emphasized that the departing group had
goodwill value for purposes of maintaining the customer relationships necessary
for contract retention. As stated above, the chancellor based the award of damages
on his acceptance of Bleiweis' testimony, which constituted credible evidence in
support of that award.
IV. Punitive And Treble Damages
AME argues that a chancellor in equity may not award punitive damages
because any award of damages in equity is limited to compensating an injured
party to make it "whole." AME contends that punitive damages are in the nature
of a penalty and extend beyond mere compensation. AME also asserts that treble
damages are punitive in nature and, thus, are likewise unavailable in a court of
equity. We disagree with AME's arguments.
When a court of equity acquires jurisdiction of a cause for any purpose, the
court may retain the entire cause to accomplish complete justice between the
parties. Thus, the chancellor may hear legal claims and enforce legal rights by
applying remedies available only at law. Waskey v. Lewis, 224 Va. 206, 213, 294
S.E.2d 879, 882 (1982). This rule applies "even to the extent of establishing legal
rights and granting legal remedies which would otherwise be beyond the scope of
[the chancellor's] authority." Erlich v. Hendrick Constr. Co., Inc., 217 Va. 108,
115, 225 S.E.2d 665, 670 (1976) (citing Johnston v. Bunn, 108 Va. 490, 493, 62
S.E. 341, 342 (1908)); see Iron City Sav. Bank v. Isaacsen, 158 Va. 609, 625, 164
S.E. 520, 525 (1932).
The rule is based on the principle that once a court of equity obtains
jurisdiction in a case, the court has discretion to transfer the parties to a court of
law for adjudication of their law claims or to conclude the litigation by giving
complete relief in the chancery cause. Iron City, 158 Va. at 625, 164 S.E. at 525.
The purpose of this rule is to prevent a "circuity of action and expense." See
27
Smith v. Smith, 92 Va. 696, 698, 24 S.E. 280, 280 (1896). If a chancellor decides
to retain jurisdiction over legal claims, the chancellor acts "as a substitute for the
court of law." Id.; Iron City, 158 Va. at 637, 164 S.E. at 529.
PRC's bill of complaint sought both equitable and legal remedies. AME
could have moved to transfer its legal claims to the law side of the court under
Code § 8.01-270, where it would have been entitled to a jury trial, but chose not
to proceed in this manner. Thus, AME cannot now complain that the chancellor
improperly awarded legal relief to PRC. See Brown v. May, 202 Va. 300, 309-10,
117 S.E.2d 101, 108 (1960). We also observe that the chancellor awarded
compensatory, punitive, and treble damages under the various legal claims, not
under any equitable claims. Therefore, we conclude that the chancellor acted
within his discretion in awarding legal relief on the law claims before him.
We disagree with AME that our decision in Colonna Dry Dock Co. v.
Colonna, 108 Va. 230, 61 S.E. 770 (1908), requires a different conclusion. There,
in an appeal from a decree denying specific performance of a contract, we
addressed the issue whether the chancellor properly ruled that the forfeiture of a
deposit would constitute a penalty and, therefore, could not be enforced in equity.
Id. at 240, 61 S.E. at 774. Thus, unlike the present case, Colonna did not involve
legal claims, but only a request for equitable relief. Since the chancellor here
restricted his award of damages that are available solely at law to the law claims
before him, Colonna is inapposite.
We also disagree with AME's contention that the chancellor erred in
awarding treble damages. Code § 18.2-500(a) provides in relevant part:
Any person who shall be injured in his reputation, trade, business or
profession by reason of a violation of § 18.2-499, may sue therefor and recover
three-fold the damages by him sustained, and the costs of suit, including a
reasonable fee to plaintiff's counsel; and without limiting the generality of the
term, "damages" shall include loss of profits.
This subsection explicitly allows an award of treble damages on proof of the
cause of action provided under Code § 18.2-499. Nevertheless, AME asserts that
treble damages may not be awarded in equity because Code § 18.2-500(b), which
sets forth the equitable relief available for business conspiracy claims brought
under the statute, does not specifically state that treble damages may be awarded
in a chancery case. Code § 18.2-500(b) provides in relevant part:
Whenever a person shall duly file a bill in chancery in the circuit
court of any county or city against any person alleging violations of
the provisions of §18.2-499 and praying that such party defendant be
restrained and enjoined from continuing the acts complained of, such
court shall have jurisdiction to hear and determine the issues involved,
to issue injunctions pendente lite and permanent injunctions and to
decree damages and costs of suit, including reasonable counsel fees to
complainants' and defendants' counsel.
28
We conclude that this provision does not preclude an award of treble
damages in a law claim heard in chancery. Instead of limiting the relief available
in chancery, this subsection grants a complainant the additional right to seek and
obtain injunctive relief, as well as "damages and costs of suit." The term
"damages" in subsection (b) refers to the "three-fold" recovery of damages
described in subsection (a).
Notably, much of the language from subsection (a) is not repeated in
subsection (b). For example, subsection (b) does not expressly refer to a "person
who shall be injured in his reputation, trade, business or profession by reason of a
violation of § 18.2-499," yet this requirement is clearly a predicate for recovery
under the statute in equity, as well as in law. Lost profits also are not mentioned
in subsection (b), but this subsection necessarily contemplates the right to seek
recovery of lost profits in equity as compensatory damages. Thus, on
consideration of the language of the entire statute, we conclude that a chancery
court is permitted to award treble damages on a law claim under the provisions of
Code § 18.2-500.
We also find no merit in AME's contention that our decision in Porter v.
Wilson, 244 Va. 366, 421 S.E.2d 440 (1992), dictates a different result. Porter
involved a trespass action in which a plaintiff contended, among other things, that
the trial court erred in refusing to award him treble damages under Code § 55-334
for the unauthorized removal of timber from his property. Id. at 367, 421 S.E.2d
at 441. Observing that treble damages are in the nature of a penalty and are not
favored, we held that since the timber was removed by one acting under a bona
fide claim of right, the trial court did not abuse its discretion in refusing to award
treble damages. Porter, 244 Va. at 371-72, 421 S.E.2d at 443. Thus, contrary to
AME's assertion, Porter did not involve the issue whether treble damages may be
awarded in a chancery case.
AME next contends that the chancellor's award of both punitive and treble
damages was duplicative. Although AME concedes that the chancellor awarded
punitive and treble damages under separate counts of the bill of complaint, AME
argues that the conduct underlying the claims is the same and, therefore, that the
chancellor erred in awarding both types of damages. We disagree with AME's
argument.
The awards of punitive and treble damages were based on separate claims
involving different legal duties and injuries. The chancellor awarded punitive
damages under Counts I, II, and III, for breach of fiduciary duty, intentional
interference with contractual relations, and intentional interference with
prospective business and contractual relations. The award of treble damages was
limited to the business conspiracy claim of Count VII.
To prevail in its business conspiracy claim, PRC was required to prove that
the defendants combined, associated, agreed, or acted in concert together for the
purpose of willfully and maliciously injuring PRC in its business "by any means
whatever." Code § 18.2-499. In contrast, the claims asserted in Counts I through
29
III do not require such proof and relate solely to the employment relationship
between PRC and the PRC Managers and employees. Thus, the chancellor did not
err in awarding PRC both punitive and treble damages.
We also find no merit in AME's contention that an award of treble damages
is subject to the ceiling on punitive damages set forth in Code § 8.01-38.1. When
the words of a statute are unambiguous, we accord the statutory language its plain
meaning. Haislip v. Southern Heritage Ins. Co., 254 Va. 265, 268, 492 S.E.2d
135, 137 (1997); Archambault v. Roller, 254 Va. 210, 213, 491 S.E.2d 729, 731
(1997).
Under the plain language of Code § 8.01-38.1, the limitation of $ 350,000
applies only to an award of "punitive" damages. If the General Assembly had
intended for an award of treble damages to be subject to this limitation, it would
have included an express reference to such damages in the statutory language. See
Jones v. Jones, 249 Va. 565, 570, 457 S.E.2d 365, 368 (1995); Allstate Ins. Co. v.
Eaton, 248 Va. 426, 430, 448 S.E.2d 652, 655 (1994). In the absence of such a
reference, we will not construe the plain statutory language in a manner that
amounts to holding that the legislature meant other than what it actually stated.
See Davis v. Tazewell Place Assocs., 254 Va. 257, 260-61, 492 S.E.2d 162, 164
(1997); Haislip, 254 Va. at 268, 492 S.E.2d at 137; Jones, 249 Va. at 570, 457
S.E.2d at 368.
V.
Costs
AME challenges the chancellor's award of several items of "costs." AME
asserts that in the absence of an explicit statutory provision, expert witness fees
cannot be shifted to the losing party. AME also contends that the chancellor
abused his discretion in including numerous charges, such as fees for legal
research and temporary employees, as costs in this case.
In response, PRC contends that under the provisions of Code § 18.2-500,
PRC was entitled to all reasonable litigation expenses as the prevailing party at
trial. We disagree with PRC.
The taxing of costs in litigation was unknown at common law and is purely
a creature of statute. Ryan v. Davis, 201 Va. 79, 85, 109 S.E.2d 409, 414 (1959).
Code § 18.2-500 provides that "costs of suit, including a reasonable fee to
plaintiff's counsel" may be recovered on proof of a violation of Code § 18.2-499.
Thus, with the exception of reasonable attorney's fees, Code § 18.2-500 makes no
provision for an award of costs other than those ordinarily awarded under the
general statutes of Title 14.1 of the Code addressing the taxing of costs. See Code
§§ 14.1-177 through -201.
Since trial courts are vested with discretion under the relevant provisions of
Title 14.1 to determine what costs should be taxed against a losing party, we
examine the costs challenged by AME to determine whether the chancellor
abused his discretion. AME takes exception to the chancellor's award of expert
witness fees, and expenses for express mail service, messengers, meals, law clerk
30
"temporaries," computer-based legal research, "library research," photocopies,
parking, taxicabs, telephone calls, and transcripts. We conclude that the
chancellor abused his discretion in awarding PRC recovery for the abovechallenged expenses. Generally, unless otherwise specified by statute, a trial
court's discretion to award costs under Code § 18.2-500, or under the relevant
provisions of Code §§ 14.1-177 through -201, is limited only to those costs
essential for prosecution of the suit, such as filing fees or charges for service of
process.
Finally, we disagree with PRC's assertion that, in Ryan v. Davis, we "did
not question" the trial court's award of costs for expert witness fees in a
condemnation case. Since the State Highway Commissioner did not assign crosserror to the award of such "costs," the issue was not before us in that case.
VI. Prejudgment Interest
AME asserts that the chancellor erred in awarding interest from June 19,
1996, the date of the bench ruling, because some of the damages still were
unliquidated. PRC responds that the chancellor did not err in awarding interest
from that date, because the chancellor did not reduce the original amount of the
award, with the exception of his reduction of the $ 1,000,000 punitive damage
award to comply with Code § 8.01-38.1.
Generally, prejudgment interest is not allowed on unliquidated damages in
dispute between the parties. Skretvedt v. Kouri, 248 Va. 26, 36, 445 S.E.2d 481,
487 (1994); Beale v. King, 204 Va. 443, 447, 132 S.E.2d 476, 479 (1963).
However, the issue whether interest should be awarded, and from what date any
interest should run, is a matter submitted to the sound discretion of the trial court.
Code § 8.01-382; Skretvedt, 248 Va. at 36, 445 S.E.2d at 487-88; Marks v. Sanzo,
231 Va. 350, 356, 345 S.E.2d 263, 267 (1986).
When the chancellor ruled on June 19, 1996, that PRC was entitled to $
1,245,062 in compensatory damages, several matters remained to be resolved.
First, the chancellor ruled that the parties would argue at a later date the issue
whether treble damages awarded under Code § 18.2-500 were subject to the
statutory "cap" of Code § 8.01-38.1. Second, although the chancellor awarded $
1,000,000 in punitive damages against AME, he announced that he would
determine at a later date whether this amount should be reduced under the
provisions of Code § 8.01-38.1. Third, in his bench ruling, the chancellor did not
determine the amount of attorney's fees or costs to be awarded PRC. Thus, as of
the date of the bench ruling, the amount of AME's liability remained unliquidated
as to all amounts except the original compensatory damage award of $ 1,245,062.
The chancellor did not resolve these outstanding issues affecting the amount
of AME's liability until June 18, 1997, the date of entry of the final decree. AME
did not cause the delay in the chancellor's entry of the decree. Rather, the
chancellor candidly acknowledged that he was the cause of the one-year delay.
31
Thus, we conclude that the chancellor abused his discretion in awarding
prejudgment interest on all amounts in excess of $ 1,245,062.
For these reasons, we will affirm the chancellor's decree, with the exception
of the portion of costs and prejudgment interest specified in this opinion, and will
remand the case for entry of a decree regarding costs and interest that is consistent
with the principles set forth herein.6
Affirmed in part, reversed in part, and remanded.
Dairy Queen v. Wood
369 U.S. 469, 82 S. Ct. 894 (1962)
Black, J., delivered the opinion of the Court.
The United States District Court for the Eastern District of Pennsylvania
granted a motion to strike petitioner's demand for a trial by jury in an action now
pending before it on the alternative grounds that either the action was "purely
equitable" or, if not purely equitable, whatever legal issues that were raised were
"incidental" to equitable issues, and, in either case, no right to trial by jury
existed.7 The petitioner then sought mandamus in the Court of Appeals for the
Third Circuit to compel the district judge to vacate this order. When that court
denied this request without opinion, we granted certiorari because the action of
the Court of Appeals seemed inconsistent with protections already clearly
recognized for the important constitutional right to trial by jury in our previous
decisions.8
At the outset, we may dispose of one of the grounds upon which the trial
court acted in striking the demand for trial by jury -- that based upon the view that
the right to trial by jury may be lost as to legal issues where those issues are
characterized as "incidental" to equitable issues -- for our previous decisions
make it plain that no such rule may be applied in the federal courts. In Scott v.
Neely, decided in 1891, this Court held that a court of equity could not even take
jurisdiction of a suit "in which a claim properly cognizable only at law is united in
the same pleadings with a claim for equitable relief."9 That holding, which was
6
Although AME argues that the chancellor erred in adopting the findings of fact as drafted by
PRC, AME does not suggest that this constitutes ground for reversal of this appeal. Thus, we do
not address this argument on appeal.
7
McCullough v. Dairy Queen, Inc., 194 F.Supp. 686.
8
368 U.S. 874.
9
140 U.S. 106, 117. See also Cates v. Allen, 149 U.S. 451, in which the principles expressed and applied in
Scott v. Neely were explicitly reaffirmed.
32
based upon both the historical separation between law and equity and the duty of
the Court to insure "that the right to a trial by a jury in the legal action may be
preserved intact,"10 created considerable inconvenience in that it necessitated two
separate trials in the same case whenever that case contained both legal and
equitable claims. Consequently, when the procedure in the federal courts was
modernized by the adoption of the Federal Rules of Civil Procedure in 1938, it
was deemed advisable to abandon that part of the holding of Scott v. Neely which
rested upon the separation of law and equity and to permit the joinder of legal and
equitable claims in a single action. Thus Rule 18 (a) provides that a plaintiff
"may join either as independent or as alternate claims as many claims either legal
or equitable or both as he may have against an opposing party." And Rule 18 (b)
provides: "Whenever a claim is one heretofore cognizable only after another
claim has been prosecuted to a conclusion, the two claims may be joined in a
single action; but the court shall grant relief in that action only in accordance with
the relative substantive rights of the parties. In particular, a plaintiff may state a
claim for money and a claim to have set aside a conveyance fraudulent as to him,
without first having obtained a judgment establishing the claim for money."
The Federal Rules did not, however, purport to change the basic holding of
Scott v. Neely that the right to trial by jury of legal claims must be preserved.11
Quite the contrary, Rule 38 (a) expressly reaffirms that constitutional principle,
declaring: "The right of trial by jury as declared by the Seventh Amendment to
the Constitution or as given by a statute of the United States shall be preserved to
the parties inviolate. " Nonetheless, after the adoption of the Federal Rules,
attempts were made indirectly to undercut that right by having federal courts in
which cases involving both legal and equitable claims were filed decide the
equitable claim first. The result of this procedure in those cases in which it was
followed was that any issue common to both the legal and equitable claims was
finally determined by the court and the party seeking trial by jury on the legal
claim was deprived of that right as to these common issues. This procedure
finally came before us in Beacon Theatres, Inc., v. Westover,12 a case which, like
this one, arose from the denial of a petition for mandamus to compel a district
judge to vacate his order striking a demand for trial by jury.
Our decision reversing that case not only emphasizes the responsibility of
the Federal Courts of Appeals to grant mandamus where necessary to protect the
constitutional right to trial by jury but also limits the issues open for
determination here by defining the protection to which that right is entitled in
10 Id., at 110.
11 "Subdivision (b) [of Rule 18] does not disturb the doctrine of those cases [Scott v. Neely and Cates v.
Allen] but is expressly bottomed upon their principles. This is true because the Federal Rules abolish the
distinction between law and equity, permit the joinder of legal and equitable claims, and safeguard the
right to jury trial of legal issues." 3 Moore, Federal Practice, 1831-1832.
12 359 U.S. 500.
33
cases involving both legal and equitable claims. The holding in Beacon Theatres
was that where both legal and equitable issues are presented in a single case,
"only under the most imperative circumstances, circumstances which in view of
the flexible procedures of the Federal Rules we cannot now anticipate, can the
right to a jury trial of legal issues be lost through prior determination of equitable
claims."13 That holding, of course, applies whether the trial judge chooses to
characterize the legal issues presented as "incidental" to equitable issues or not.14
Consequently, in a case such as this where there cannot even be a contention of
such "imperative circumstances," Beacon Theatres requires that any legal issues
for which a trial by jury is timely and properly demanded be submitted to a jury.
There being no question of the timeliness or correctness of the demand involved
here, the sole question which we must decide is whether the action now pending
before the District Court contains legal issues.
The District Court proceeding arises out of a controversy between petitioner
and the respondent owners of the trademark "DAIRY QUEEN" with regard to a
written licensing contract made by them in December 1949, under which
petitioner agreed to pay some $ 150,000 for the exclusive right to use that
trademark in certain portions of Pennsylvania.15 The terms of the contract
provided for a small initial payment with the remaining payments to be made at
the rate of 50% of all amounts received by petitioner on sales and franchises to
deal with the trademark and, in order to make certain that the $ 150,000 payment
would be completed within a specified period of time, further provided for
minimum annual payments regardless of petitioner's receipts. In August 1960, the
respondents wrote petitioner a letter in which they claimed that petitioner had
committed "a material breach of that contract" by defaulting on the contract's
payment provisions and notified petitioner of the termination of the contract and
13 Id., at 510-511.
14 "It is therefore immaterial that the case at bar contains a stronger basis for equitable relief than was present
in Beacon Theatres. It would make no difference if the equitable cause clearly outweighed the legal cause
so that the basic issue of the case taken as a whole is equitable. As long as any legal cause is involved the
jury rights it creates control. This is the teaching of Beacon Theatres, as we construe it." Thermo-Stitch,
Inc., v. Chemi-Cord Processing Corp., 294 F.2d 486, 491.
15 There are two groups of respondents in this case in addition to the district judge who is formally a
respondent by reason of the procedural posture of the case. H. A. McCullough and H. F. McCullough, a
partnership doing business as McCullough's Dairy Queen, are the owners of the trademark and are entitled
under the contract to payment for its use. B. F. Myers, R. J. Rydeen, M. E. Montgomery, and H. S. Dale
are the original licensees under the contract through whom petitioner obtained its rights by assignment.
This latter group of respondents joined in the action against petitioner on the grounds (1) that they would
be responsible to the trademark owners if petitioner defaulted on its obligations under the contract, and (2)
that they are themselves entitled to certain royalties under the assignment arrangement. Since the portion
of the complaint involving this latter group raises no issues relevant to the question to be determined here
which differ from those raised in that part of the complaint involving the trademark owners, the discussion
can be restricted to the issues raised by the trademark owners and "respondents" as used in this opinion
will refer only to that group.
34
the cancellation of petitioner's right to use the trademark unless this claimed
default was remedied immediately.16 When petitioner continued to deal with the
trademark despite the notice of termination, the respondents brought an action
based upon their view that a material breach of contract had occurred.
The complaint filed in the District Court alleged, among other things, that
petitioner had "ceased paying . . . as required in the contract;" that the default
"under the said contract . . . [was] in excess of $ 60,000.00;" that this default
constituted a "material breach" of that contract; that petitioner had been notified
by letter that its failure to pay as alleged made it guilty of a material breach of
contract which if not "cured" would result in an immediate cancellation of the
contract; that the breach had not been cured but that petitioner was contesting the
cancellation and continuing to conduct business as an authorized dealer; that to
continue such business after the cancellation of the contract constituted an
infringement of the respondents' trademark; that petitioner's financial condition
was unstable; and that because of the foregoing allegations, respondents were
threatened with irreparable injury for which they had no adequate remedy at law.
The complaint then prayed for both temporary and permanent relief, including:
(1) temporary and permanent injunctions to restrain petitioner from any future use
of or dealing in the franchise and the trademark; (2) an accounting to determine
the exact amount of money owing by petitioner and a judgment for that amount;
and (3) an injunction pending accounting to prevent petitioner from collecting any
money from "Dairy Queen" stores in the territory.
In its answer to this complaint, petitioner raised a number of defenses,
including: (1) a denial that there had been any breach of contract, apparently
based chiefly upon its allegation that in January 1955 the parties had entered into
an oral agreement modifying the original written contract by removing the
provision requiring minimum annual payments regardless of petitioner's receipts
thus leaving petitioner's only obligation that of turning over 50% of all its
receipts; (2) laches and estoppel arising from respondents' failure to assert their
claim promptly, thus permitting petitioner to expend large amounts of money in
the development of its right to use the trademark; and (3) alleged violations of the
antitrust laws by respondents in connection with their dealings with the
16 The full text of the letter sent to petitioner is as follows:
"This letter is to advise you that your failure to pay the amounts required in your contract with
McCullough's Dairy Queen for the 'Dairy Queen' franchise for the State of Pennsylvania, as
called for in your contract with your assignors, constitutes in our opinion a material breach of that
contract.
"This will advise you that unless this material breach is completely satisfied for the amount due
and owing, your franchise for 'Dairy Queen' in Pennsylvania is hereby cancelled.
"Copies of this letter are being sent to your assignors."
35
trademark. Petitioner indorsed upon this answer a demand for trial by jury in
accordance with Rule 38 (b) of the Federal Rules of Civil Procedure.17
Petitioner's contention, as set forth in its petition for mandamus to the Court
of Appeals and reiterated in its briefs before this Court, is that insofar as the
complaint requests a money judgment it presents a claim which is unquestionably
legal. We agree with that contention. The most natural construction of the
respondents' claim for a money judgment would seem to be that it is a claim that
they are entitled to recover whatever was owed them under the contract as of the
date of its purported termination plus damages for infringement of their trademark
since that date. Alternatively, the complaint could be construed to set forth a full
claim based upon both of these theories -- that is, a claim that the respondents
were entitled to recover both the debt due under the contract and damages for
trademark infringement for the entire period of the alleged breach including that
before the termination of the contract.18 Or it might possibly be construed to set
forth a claim for recovery based completely on either one of these two theories -that is, a claim based solely upon the contract for the entire period both before and
after the attempted termination on the theory that the termination, having been
ignored, was of no consequence, or a claim based solely upon the charge of
infringement on the theory that the contract, having been breached, could not be
used as a defense to an infringement action even for the period prior to its
termination.19 We find it unnecessary to resolve this ambiguity in the
respondents' complaint because we think it plain that their claim for a money
judgment is a claim wholly legal in its nature however the complaint is construed.
As an action on a debt allegedly due under a contract, it would be difficult to
conceive of an action of a more traditionally legal character.20 And as an action
17 "Any party may demand a trial by jury of any issue triable of right by a jury by serving upon the other
parties a demand therefor in writing at any time after the commencement of the action and not later than
10 days after the service of the last pleading directed to such issue. Such demand may be indorsed upon a
pleading of the party."
18 This seems to be the construction given the complaint by the district judge in passing on the motion to
strike petitioner's jury demand. See 194 F.Supp., at 687-688.
19 This last possible construction of the complaint, though accepted as the correct one in the concurring
opinion, actually seems the least likely of all. For it seems plain that irrespective of whatever else the
complaint sought, it did seek a judgment for the some $ 60,000 allegedly owing under the contract.
Certainly, the district judge had no doubt that this was the case: "Incidental to this relief, the complaint
also demands the $ 60,000 now allegedly due and owing plaintiffs under the aforesaid contract." 194
F.Supp., at 687.
20 "In the case before us the debt due the complainants was in no respect different from any other debt upon
contract; it was the subject of a legal action only, in which the defendants were entitled to a jury trial in the
Federal courts." Scott v. Neely, 140 U.S. 106, 110. See also Thompson v. Railroad Companies, 6 Wall.
134.
36
for damages based upon a charge of trademark infringement, it would be no less
subject to cognizance by a court of law.21
The respondents' contention that this money claim is "purely equitable" is
based primarily upon the fact that their complaint is cast in terms of an
"accounting," rather than in terms of an action for "debt" or "damages." But the
constitutional right to trial by jury cannot be made to depend upon the choice of
words used in the pleadings. The necessary prerequisite to the right to maintain a
suit for an equitable accounting, like all other equitable remedies, is, as we
pointed out in Beacon Theatres, the absence of an adequate remedy at law.22
Consequently, in order to maintain such a suit on a cause of action cognizable at
law, as this one is, the plaintiff must be able to show that the "accounts between
the parties" are of such a "complicated nature" that only a court of equity can
satisfactorily unravel them.23 In view of the powers given to District Courts by
Federal Rule of Civil Procedure 53 (b) to appoint masters to assist the jury in
those exceptional cases where the legal issues are too complicated for the jury
adequately to handle alone,24 the burden of such a showing is considerably
increased and it will indeed be a rare case in which it can be met.25 But be that as
it may, this is certainly not such a case. A jury, under proper instructions from
the court, could readily determine the recovery, if any, to be had here, whether the
theory finally settled upon is that of breach of contract, that of trademark
infringement, or any combination of the two. The legal remedy cannot be
characterized as inadequate merely because the measure of damages may
necessitate a look into petitioner's business records.
Nor is the legal claim here rendered "purely equitable" by the nature of the
defenses interposed by petitioner. Petitioner's primary defense to the charge of
breach of contract -- that is, that the contract was modified by a subsequent oral
21 Cf., e. g., Arnstein v. Porter, 154 F.2d 464; Bruckman v. Hollzer, 152 F.2d 730.
22 359 U.S., at 506-510. See also Thompson v. Railroad Companies, 6 Wall. 134, 137; Scott v. Neely, 140
U.S. 106, 110.
23 Kirby v. Lake Shore & Michigan Southern R. Co., 120 U.S. 130, 134.
24 Even this limited inroad upon the right to trial by jury "'should seldom be made, and if at all only when
unusual circumstances exist.'" La Buy v. Howes Leather Co., 352 U.S. 249, 258. See also In re Watkins,
271 F.2d 771.
25 It was settled in Beacon Theatres that procedural changes which remove the inadequacy of a remedy at
law may sharply diminish the scope of traditional equitable remedies by making them unnecessary in
many cases. "Thus, the justification for equity's deciding legal issues once it obtains jurisdiction, and
refusing to dismiss a case, merely because subsequently a legal remedy becomes available, must be reevaluated in the light of the liberal joinder provisions of the Federal Rules which allow legal and equitable
causes to be brought and resolved in one civil action. Similarly the need for, and therefore, the availability
of such equitable remedies as Bills of Peace, Quia Timet and Injunction must be reconsidered in view of
the existence of the Declaratory Judgment Act as well as the liberal joinder provision of the Rules." 359
U.S., at 509.
37
agreement -- presents a purely legal question having nothing whatever to do either
with novation, as the district judge suggested, or reformation, as suggested by the
respondents here. Such a defense goes to the question of just what, under the law,
the contract between the respondents and petitioner is and, in an action to collect
a debt for breach of a contract between these parties, petitioner has a right to have
the jury determine not only whether the contract has been breached and the extent
of the damages if any but also just what the contract is.
We conclude therefore that the district judge erred in refusing to grant
petitioner's demand for a trial by jury on the factual issues related to the question
of whether there has been a breach of contract. Since these issues are common
with those upon which respondents' claim to equitable relief is based, the legal
claims involved in the action must be determined prior to any final court
determination of respondents' equitable claims.26 The Court of Appeals should
have corrected the error of the district judge by granting the petition for
mandamus. The judgment is therefore reversed and the cause remanded for
further proceedings consistent with this opinion.
Reversed and remanded.
Boerner v. Mccallister
197 Va. 169, 89 S.E.2d 23 (1955)
Whittle, J., delivered the opinion of the court.
McCallister filed a bill in chancery against Boerner seeking to enjoin and
restrain him from trespassing on and over his land, and to enjoin him from fishing
in that portion of the Jackson River which passes through his property. The bill
alleged that the tract of land owned by McCallister had been conveyed to Richard
Morris by William Jackson in 1772 and lay on both sides of the river, it being one
of the tracts granted under authority of the Crown of England, and included not
only the lands bordering on the river, but "the rivers, waters and watercourses
therein contained, together with the privilege of hunting, hawking, fishing,
fowling", etc.; that the said land had been conveyed by divers mesne conveyances
to one C. H. Andrews who had conveyed it to McCallister.
The bill further alleged that on numerous occasions Boerner had come upon
the lands of McCallister without his consent and against his will, for the purpose
of fishing in the waters of the river as it flows through and across his lands, in
violation of § 29-165, Code of Virginia, 1950; that McCallister had repeatedly
requested and advised Boerner to stay off the lands and not to trespass thereon or
to fish in the waters of Jackson River flowing through his lands; that Boerner had
26 This does not, of course, interfere with the District Court's power to grant temporary relief
pending a final adjudication on the merits. Such temporary relief has already been granted in this
case (see McCullough v. Dairy Queen, Inc., 290 F.2d 871) and is no part of the issues before this
Court.
38
stated to McCallister "in no uncertain terms that your complainant could not stop
the defendant, and that he intended to continue to fish in said stream where it
flows through the complainant's lands."
The bill further alleged that the fishing on the property constituted a trespass
damaging McCallister's right to privacy and ownership, interfering with his right
to fish unmolested in his own stream, and impaired his use and enjoyment of his
said lands and waters; that "the repetition with which the defendant has
committed such trespassing and his avowed intention to continue so to do, not
being adequately compensable in damages, creates such a condition that your
complainant has no plain, adequate and complete remedy at law, and so he must
resort to a court of equity for injunctive relief to inhibit, restrain and enjoin the
said defendant from trespassing upon his lands and waters, against the will and
without the consent or permission of your complainant; and openly and hostilely
defying and insulting your complainant so as to tend to cause violence and breach
of the peace"; hence the prayer for injunctive relief.
Boerner filed a demurrer to the bill in which he asserted that the bill showed
on its face that McCallister was seeking to deny defendant and the public the right
to fish in a river belonging to the Commonwealth of Virginia; that the suit was
one to try title to land and was improperly brought in equity; that McCallister had
prosecuted Boerner criminally and equity will not enforce a penal statute; that
McCallister had alleged no irreparable injury; that there was an adequate remedy
at law, and that the court should take judicial notice that the Jackson River is
floatable for logs and was used commercially for that purpose and therefore the
public can fish therein.
The court, overruling the demurrer, held that the suit was not one to try title
to land; that the bill appeared to be "a pure bill for an injunction to prevent a
trespass"; that the complainant does not have an adequate remedy at law; that
judgment at law would not protect complainant's alleged rights; that the purpose
of the bill was to avoid a multiplicity of law actions and that as Boerner had no
personal claim in the river as it passed through the lands of McCallister he could
not complain that McCallister is seeking to enjoin his trespass rather than to
embarrass him [Boerner] with numerous actions at law or even criminal
prosecutions.
In the court's written opinion overruling the demurrer it is stated: "He
[Boerner] complains, however, that he should not be required, at great expense, to
defend this proceeding. In the oral argument it was brought to his attention that
he does not have to defend this suit at any expense, if he would agree with the
complainant not to trespass again over the lands or fish in the river where it
passes through the lands of the complainant. This he is not willing to do." The
court further held that the navigability of Jackson River was a factual question.
We are of the opinion that the allegations in the bill stated a cause for
injunctive relief and therefore the demurrer was properly overruled.
39
As a general rule, where an injury committed by one against another is
being constantly repeated, so that complainant's remedy at law requires the
bringing of successive actions, the legal remedy is inadequate and the trespass
will be prevented in equity by an injunction, the prevention of a multiplicity of
actions at law being one of the special grounds of equity jurisdiction. 43 C.J.S.,
Injunctions, § 24(a), p. 449. This is so, even though each individual act of
trespass is in itself trivial, or the damage is trifling, nominal or insubstantial, and
despite the fact that no single trespass causes irreparable injury. The injury is
deemed irreparable and the owner protected in the enjoyment of his property
whether such be sentimental or pecuniary. 43 C.J.S., Injunctions, § 64(a), pp.
526, 527. See also Long's Baggage Transfer Co. v. Burford, 144 Va. 339, 132
S.E. 355; Mears v. Colonial Beach, 166 Va. 278, 184 S.E. 175.
The order overruling the demurrer required Boerner to answer the bill and
further provided that the case be heard ore tenus. The answer to the bill denied
generally the allegations thereof, and specifically denied that the patent referred to
in the bill included anything other than land, asserting that it did not include any
water rights or "beds or bottoms of streams".
The answer admitted that Boerner had fished in the waters of Jackson River
"which belongs to the Commonwealth of Virginia". It denied, however, that he
had fished in the river "at a point plaintiff owned land on both sides thereof". It
asserted that "even if complainant's title covers land on both sides of Jackson
River where defendant was fishing, and even if his title was derived from a
colonial grant which gave the original patentee title to the bed of the river * * *
said river has been used commercially for small boats, bateaus, or canoes, by a
small steamboat, and for the commercial floating of logs, and is therefore
navigable in fact, within the meaning of the decisions of the courts of the
Commonwealth of Virginia, and is held by the owner subject to the public right to
use same and fish therein, pursuant to which right defendant was fishing in said
river; and that the Jackson River, its waters and its bottom is a highway for the
people of the Commonwealth of Virginia and a public river, and defendant had a
right to fish therein, * * *."
The bill and answer formed the issues to be determined.
The court, after hearing evidence ore tenus, entered the decree appealed
from which stated in part:
"* * * (The) court doth find as a fact from the evidence that the
Jackson River, above the City of Covington and at Natural Well,
where the same flows through the lands of the complainant, is a nonnavigable stream and consequently private, the bed of which is
vested in the complainant, and is not public or vested in the public.
The court doth accordingly adjudge, order and decree that the
defendant, Frank R. Boerner be, and he is hereby permanently
restrained and enjoined from coming upon the lands and waters of
the complainant for the purpose of fishing, hunting, or any other
40
purpose, without the prior written consent and permission of the
complainant."
To the entry of this decree Boerner filed assignments of error, the first of
which, charging that the court erred in overruling the defendant's demurrer to the
bill, has heretofore been treated.
The next assignment charges "that the court erred in granting an injunction
enjoining appellant from fishing on appellee's lands, appellant having denied and
traversed appellee's allegation that he was on the appellee's lands, and appellee
having failed to introduce evidence showing that appellant was on appellee's
lands."
There is no merit in this assignment. In addition to other evidence, Boerner
admitted in his testimony: "I have been in the river through his [McCallister's]
property, which he claims he owns. I have fished it many times and about two
years ago when we were arrested Mr. McCallister and I did have words."
It was evident that Boerner defiantly intended to continue to fish in the
waters of the river claimed by McCallister, contending that McCallister had no
right to prohibit him from so doing.
The next assignment of error challenges McCallister's ownership of the bed
of the stream, contending that the title thereto is in the Commonwealth.
The evidence discloses that McCallister owns the land on both sides of the
river at the point in question, his title going back to a colonial grant recorded in
Virginia State Library, Archives Division, Land Office, in Book of Patents No.
29, which patent was recorded between 1749 and 1751, at page 148. The grant to
William Jackson is in the name of George II, King of Great Britain, etc., through
William Gooch, Esquire, Lieutenant Governor and Commander in Chief of the
Colony and Dominion of Virginia. It is signed by Thomas Lee.
It is disclosed by the grant that the grantee acquired title to "all the woods,
underwoods, swamps, marshes, low grounds, meadows, feedings and his due
share of all veins, mines and quarries, as well discovered as not discovered within
the bounds aforesaid, and being part of the said quantity of the said 270 acres of
land and the rivers, waters and water courses therein contained, together with the
privilege of hunting, hawking, fishing, fowling and all other profits, commodities
and hereditaments whatsoever, to the same or any part thereof belonging or in any
wise appertaining."
At the time of the grant (between 1749 and 1751) there was no law
preventing the conveyance of "the rivers, waters and water courses therein
contained", therefore the grantee took title under the grant in this case to that part
of Jackson River within the grant. The common law of England continues in
force in this jurisdiction except as altered by the General Assembly. § 1-10, Code
of Virginia, 1950. It has not been changed by statute so as to affect the ownership
of the beds of streams granted prior to 1780 where the land lies in the eastern or
tidewater section, or granted prior to 1802 where the land lies in the western part
41
of the State, the situs of the present proceeding. 20 M.J., Waters and
Watercourses, § 11, p. 35; Gaston v. Mace, 33 W.Va. 14, 10 S.E. 60, 25
Am.St.Rep. 848, 5 L.R.A. 392.
The statutes of 1780 and 1802 made grants by the "Land Office" subsequent
to their passage void as to beds of streams, but they specifically exempted grants
made by the "former government" prior to their passage. Hence the title to the
bed of the river lying within the boundary of the McCallister property belongs to
him as it was undeniably embraced within the grant above referred to. The bed of
non-navigable streams and the waters are owned by the riparian owners. Hampton
v. Watson, 119 Va. 95, 89 S.E. 81, L.R.A. 1916 F. 189; Jennings v. Marston, 121
Va. 79, 92 S.E. 821, 7 A.L.R. 855.
Boerner next contends that even though the Jackson River at this point is
properly embraced within the grant, it being a floatable or navigable stream,
should be held to be the property of the Commonwealth which would give the
public the right to fish therein. In view of our conclusion as later expressed, that
Boerner has not proved the river navigable, it is not necessary to decide this
question; yet there is persuasive authority to the effect that even though a stream
may be floatable, and in some instances navigable, the public interest therein is
limited to the right of navigation; the only restraint placed upon the owner being
that he cannot obstruct or impede the public right. James River and Kanawha
Power Co. v. Old Dominion Iron and Steel Corp., 138 Va. 461, 469, 122 S.E.
344; Miller v. Commonwealth, 159 Va. 924, 166 S.E. 557; Mass. v. New York,
271 U.S. 65, 70 L.Ed. 838, 46 S.Ct. 357; 56 Am. Jur., Waters, § 470, p. 884.
We agree with the chancellor that the question of whether or not the river at
the point in controversy is a floatable or navigable stream was a factual one to be
determined upon the evidence presented. The test is whether the stream is used or
is susceptible of being used in its natural and ordinary condition "as a highway for
commerce on which trade and travel are or may be conducted in the customary
modes of trade and travel on water". 20 M.J., Waters and Watercourses, § 21, p.
59; Ewell v. Lambert, 177 Va. 222, 13 S.E.2d 333; United States v. Appalachian
Elec. Power Co. (Va.), 23 F.Supp. 83, reversed on another point in 311 U.S. 377,
61 S.Ct. 291, 85 L.Ed. 243.
The decree deciding the issue states: "* * * (The) court doth find as a fact
from the evidence that the Jackson River, above the City of Covington at Natural
Well, where the same flows through the lands of the complainant [McCallister], is
a non-navigable stream and consequently private, the bed of which is vested in
the complainant, and is not public * * *."
That there was substantial evidence upon which to base this conclusion
cannot be successfully controverted. Boerner asserted that the river was
navigable and the burden rested upon him to establish this fact. Burner v. Nutter,
77 W.Va. 256, 87 S.E. 359; Rhodes v. Otis, 33 Ala. 578, 73 Am.Dec. 439; Case v.
Woolley, 6 Dana 17, 32 Am.Dec. 54. He attempted to carry the burden by
showing that between 1901 and 1907 several efforts were made to float logs down
42
the Jackson River "during floodtime" to a mill located at Dry Run, now within the
corporate limits of the City of Covington. This method of transportation
evidently proved unsatisfactory as no such further attempts have been made. A
great preponderance of the evidence establishes the fact that the stream at the
point in question is neither floatable nor navigable.
The ruling of the chancellor on an issue where conflicting evidence is heard
ore tenus is entitled to special respect. "A decree in a chancery suit, where
conflicting evidence is heard in open court, has the weight of a jury's verdict, or
the weight of a common law judgment in a case heard by the court without the
intervention of a jury. The case comes to the appellate court with all the conflicts
in the evidence resolved in favor of the prevailing party." Evans v. Slone, 196 Va.
231, 239, 83 S.E.(2d) 385, 390; 1 M.J., Appeal and Error, §§ 277, 278, pp. 707, et
seq.
For the reasons stated the decree is affirmed.
Whalen v. Dean Steel Erection Co., Inc.
229 Va. 164, 327 S.E.2d 102 (1985)
Russell, J., delivered the opinion of the court.
This appeal turns upon the question whether a general contractor's employee
may bring a tort action against a subcontractor for personal injuries caused by the
subcontractor's negligence on the job. The subcontractor contends that such an
action is barred by the Worker's Compensation Act.
The facts are undisputed. The Kroger Company desired to erect a grocery store
building in Charlottesville. Kroger engaged Pinkerton and Laws Company as
general contractor for the work. Pinkerton and Laws subcontracted the structural
steel work to Dean Steel Erection Company, Inc., by a subcontract which provided
that Dean Steel was to do "a complete job of steel erection" for the building.
Edward T. Whalen was a carpentry foreman employed by Pinkerton and Laws,
the general contractor. On April 25, 1980, the date of his injury, he was working at
the construction site, engaged in fabricating wooden forms into which concrete
would be poured. His crew was responsible for installing reinforcing steel and
pouring concrete into the forms when completed. Whalen's crew also set "anchor
bolts" in the concrete, to which vertical steel columns would later be attached.
On the date of the accident, Whalen's carpentry crew, Dean Steel's crew, and
the crew of a masonry subcontractor were working simultaneously inside the
structure. The masonry walls were partially completed. Dean Steel's crew had
erected some of the vertical columns and had placed on top of them fifteen of the
nineteen horizontal steel girders which were ultimately to span the top of the
structure from wall to wall. Dean Steel had stored the remaining four girders, which
were about fifty feet long and five feet deep, inside the building. They rested on
wooden supports which had been placed on the ground by Dean Steel's crew.
43
Whalen was seriously injured when one of these girders "fell over," striking both his
legs.
Whalen applied for and received benefits under the Worker Compensation
coverage carried by his employer, Pinkerton and Laws. While receiving disability
benefits, he brought this action against Dean Steel, contending that its negligence
was the proximate cause of his injuries. Dean Steel filed a special plea, asserting that
Whalen's sole remedy was under the Workers' Compensation Act. After hearing
evidence, the court sustained the plea, finding that Dean Steel was "participating in
the trade, business or occupation" of Pinkerton and Laws at the time of the injury,
and that this action was therefore barred by the Workers' Compensation Act. On
appeal, Whalen contends that the employee of a general contractor is not barred from
suit against a subcontractor for the latter's negligence on the job, and that a
construction of the Workers' Compensation Act that would so bar him is
unconstitutional.
We have considered the underlying question in many cases. The test to be
applied was most recently set forth in Stewart v. Bass Constr. Co., 223 Va. 363, 288
S.E.2d 489 (1982).
Code Sec. 65.1-40 states that the rights and remedies granted under the
Workmen's Compensation Act "shall exclude all other rights and remedies" of an
employee to recover for an injury received during the course of his employment.
Code Sec. 65.1-41 provides, however, that an employee can maintain an action at
law against the person causing his injury, provided such person is an "other party."
Our task is to determine whether Bass was an "other party."
The test to be applied in the present case was first stated in Feitig v. Chalkley,
185 Va. 96, 38 S.E.2d 73 (1946). There we said that in order to maintain a common
law action the defendant had to be a stranger to the trade, occupation, or business in
which the plaintiff was involved. This test has been restated and applied numerous
times. See, e.g., Stout v. Onorati, 221 Va. 143, 267 S.E.2d 154 (1980); Bosher v.
Jamerson, 207 Va. 539, 151 S.E.2d 375 (1966); Rea, Administratrix v. Ford, 198 Va.
712, 96 S.E.2d 92 (1957); Sykes v. Stone & Webster Eng. Corp., 186 Va. 116, 41
S.E.2d 469 (1947). Its application depends upon the facts and circumstances of the
particular case. Bassett Furniture v. McReynolds, 216 Va. 897, 902, 224 S.E.2d 323,
326 (1976).
Id. at 365, 288 S.E.2d at 490.
Rea, Administratrix v. Ford, cited in Stewart, is factually similar to the present
case. An employee of a general contractor engaged in the construction of a school
building was killed by a falling steel truss which was being hoisted by a
subcontractor's employee. The subcontractor was engaged for the purpose of
providing the necessary crane and crew to lift the steel trusses into place. We
affirmed the trial court's judgment striking the evidence of the decedent's personal
representative in a common-law action against the subcontractor, on the ground that
such an action was barred by the Workmen's Compensation Act. The result followed
44
from the fact that the subcontractor was no stranger to the employment and the work.
We said:
In the present case Ford, [the subcontractor], was no stranger to the business of
Daniel, the principal contractor. On the contrary, in furnishing the equipment and
crew for the purpose of erecting the steel structure Ford was a subcontractor engaged
in an essential part of the work which the principal contractor had to do. Thus he
was not an "other party" within the meaning of Code, Sec. 65-38 [now Code Sec.
65.1-41]. Like the principal contractor, Ford was under the canopy of the
Workmen's Compensation Act and not subject to an action at law for damages for
injury to or death of Rea who was engaged in the same work.
198 Va. at 717, 96 S.E.2d at 96.
The "stranger to the work" test, applied to varying facts, necessarily produces
varying results. Thus, in Hipp v. Sadler Materials Corp., 211 Va. 710, 180 S.E.2d
501 (1971), and in Burroughs v. Walmont, 210 Va. 98, 168 S.E.2d 107 (1969),
subcontractors were found to be outside the canopy of Worker's Compensation, and
therefore subject to suit, because their duties consisted simply of delivering materials
to a construction site, without participation in the construction work. But where a
subcontractor had mixed duties, some involving mere deliveries of materials and
others directly involved in the construction work, we held that he was within the
canopy of Worker's Compensation, and not subject to an action for negligence at the
hands of an employee of the general contractor.
In Bosher v. Jamerson, 207 Va. 539, 151 S.E.2d 375 (1966), an employee of a
general contractor engaged in the construction of an industrial building was injured
when struck by a truck operated by the employee of a subcontractor engaged in
hauling sand to the construction site. Although the plaintiff had recovered Worker's
Compensation benefits from his employer, the general contractor, he sued the
subcontractor for negligence. The trial court overruled the subcontractor's plea in
bar, and the plaintiff recovered a judgment. We reversed and entered final judgment
for the subcontractor because his duties included not only hauling sand to the
construction site and dumping it there, but also spreading it inside the foundation
area to establish a sand base six inches deep. The latter activity, we held, was "part
of the trade, business or occupation" of the general contractor. The subcontractor
was, therefore, no stranger to the general contractor's work and not an "other party"
within the meaning of Code Sec. 65-38 (now Code Sec. 65.1-41). As a consequence,
the plaintiff's remedy was limited to Worker's Compensation. Id. at 542-43, 151
S.E.2d at 377-78.
It is clear from a comparison of these precedents that the rule of Feitig v.
Chalkley, 185 Va. 96, 38 S.E.2d 73 (1946), has become firmly fixed in Virginia. It
requires that the facts of each case be analyzed to determine whether the defendant in
a common-law action was, at the time of the plaintiff's injury, a stranger to the work
in which the plaintiff was engaged. If the defendant was "no stranger," then he was
not an "other party" within Code Sec. 65.1-41, and the common-law action against
him is barred by Code Sec. 65.1-40. There is no clearer illustration of this principle
45
than the case of a subcontractor who has undertaken to perform a fraction of the
construction work for which a general contractor has overall responsibility.
Here, as in Rea, the defendant was a subcontractor engaged in an essential part
of the work which the general contractor had to do. Dean Steel was no stranger to
the work in which Whalen's employer was engaged, but was, on the contrary,
performing an essential part of it. Dean Steel was, therefore, under the canopy of the
Worker's Compensation Act when Whalen was injured, and the trial court correctly
ruled that this action was barred.
Whalen, however, conceding that the "stranger to the work" test pervades our
previous holdings, contends that a competing and better-reasoned test is found in
Southeastern Tidewater Auth. v. Coley, 221 Va. 859, 275 S.E.2d 589 (1981), based
upon Shell Oil Co. v. Leftwich, 212 Va. 715, 187 S.E.2d 162 (1972), and Bassett
Furniture v. McReynolds, 216 Va. 897, 224 S.E.2d 323 (1976). This test, the
argument continues, depends not on whether the subcontractor is a stranger to the
work, but rather upon whether the subcontractor's activity is one normally carried out
by the owner or general contractor through employees, instead of one customarily
entrusted to a subcontractor. Whalen misapplies these authorities. Southeastern,
Shell Oil, and Bassett stand in a line of cases beginning with Sykes v. Stone &
Webster Eng. Corp., 186 Va. 116, 41 S.E.2d 469 (1947), which consider whether a
subcontractor's employee, injured by a general contractor's (or owner's) negligence
on the job, may sue such general contractor or owner at common law or whether
such general contractor or owner has become the statutory employer of the plaintiff
under Code Secs. 65.1-29, 65.1-30, or 65.1-31, or their predecessors. These statutory
employer cases present a question which is the obverse of the one presented here,
and their rule is inapplicable where a general contractor's employee seeks to sue a
subcontractor. Professor Arthur Larson, quoted in Shell Oil, makes the distinction
clear: "The test (except in cases where the work is obviously a subcontracted
fraction of a main contract ) is whether this indispensable activity is, in that business,
normally carried on through employees rather than independent contractors." Shell
Oil, 212 Va. at 722, 187 S.E.2d at 167 (quoting 1C A. Larson, The Law of
Workmen's Compensation Sec. 49.12 at 9-53 (1982)) (emphasis added).
Whalen tacitly admits that this case is controlled by Rea, Administratrix v.
Ford, if that authority is followed, but argues that the holding in that case was faulty
on constitutional grounds, and that any construction of the Workers' Compensation
Act which deprives him of the right to sue a subcontractor denies him due process,
equal protection of the laws, and the right of trial by jury. We do not agree. In
adopting the Compensation Act, the legislature provided for the payment of statutory
compensation to workers for injuries arising out of and in the course of the
employment. The claimant is relieved of the necessity of proving negligence and
proximate cause. He is also relieved of any need to resist such affirmative defenses
as contributory negligence and assumption of the risk. In exchange, the law relieves
the employer of exposure to actions at law from employees sustaining such injuries.
Many cases, weighing this quid pro quo, have held it to be a fair exchange, beneficial
to employer, employee and society at large, and in itself sufficient to satisfy
46
constitutional requirements. See, e.g., New York Central R.R. Co. v. White, 243 U.S.
188, 37 S.Ct. 247, 61 L.Ed. 667 (1917); Northern P. Ry. v. Meese, 239 U.S. 614, 36
S.Ct. 223, 60 L.Ed. 467 (1916); Bergen v. Fourth Skyline Corporation, 501 F.2d
1174 (4th Cir. 1974); Haynes v. James H. Carr, Inc., 427 F.2d 700 (4th Cir.) cert.
denied, 400 U.S. 942 (1970). See also Fauver v. Bell, 192 Va. 518, 65 S.E.2d 575
(1951); Humphrees v. Boxley Bros. Co., 146 Va. 91, 135 S.E. 890 (1926).
Whalen contends that this case differs from the statutory employer cases in that
Dean Steel had no obligation to pay him workers' compensation benefits because it
was neither his employer nor his statutory employer, and that Dean Steel should not,
therefore, be entitled to the constitutionally-sanctioned quid pro quo of immunity
from suit. We do not agree. The quid pro quo which protects the Compensation Act
from constitutional attack is of larger dimensions. It is a societal exchange,
benefiting all employers and all employees who stand together under the canopy of
the Compensation Act. Its effect is to guarantee compensation to all injured workers
under the canopy and to bar common-law suit against all employers also thereunder.
As long as the injured worker has recourse to compensation from his own employer,
or a statutory employer, he has the benefit of the quid pro quo upon which the
compensation scheme is based, and it is immaterial whether he would have been
entitled to claim compensation from other employers who are also under the canopy
of the Act. Accordingly, we conclude that the result reached by the trial court did
not infringe Whalen's constitutional rights.
The judgment appealed from will be Affirmed.
Old Dominion Iron v. Vepco
215 Va. 658, 212 S.E.2d 715 (1975)
Poff, J., delivered the opinion of the court.
The fundamental question before us is whether Old Dominion Iron & Steel
Corporation (Old Dominion) stated a cause of action in its motion for judgment
against Virginia Electric and Power Company (Vepco) and City of Richmond,
Virginia (the City).
We will proceed to the consideration of the fundamental issue on the record as
originally transmitted. Confining ourselves to that record, we will not notice
arguments of the parties based upon facts not stated expressly or by necessary
implication.
We look to the motion for judgment for facts and reasonable inferences of
facts, for they are taken as confessed when well pleaded. Chippenham Manor v.
Dervishian, 214 Va. 448, 201 S.E.2d 794 (1974); Ames v. American Nat. Bank, 163
Va. 1, 176 S.E. 204 (1934).
By deed dated January 29, 1926, Old Dominion's corporate grandfather
conveyed to Old Dominion's corporate father 12 acres of land on Belle Isle, an island
in the James River in Richmond. By the same deed, the grantor conveyed to Vepco
47
all of its right, title, and interest in the steel highway bridge connecting the island
with the north bank of the river. However, the deed provided that Old Dominion and
its successors in title could use the bridge in connection with its manufacturing
operation conducted on the 12-acre tract, and that Old Dominion and Vepco and
their respective successors in title "shall jointly . . . maintain the same and shall
contribute equally . . . towards the cost of maintenance upkeep repair and
replacement of said bridge and towards the settlement and discharge of any claims or
actions at law, for damage or personal injury to property or persons growing out of
the use, maintenance upkeep and repair of said bridge."
Vepco and Old Dominion, the two grantees in the deed, executed a separate
agreement of even date and later recorded both documents on the same date. The
agreement acknowledged as binding the provisions of the deed quoted above.
On May 13, 1933, Old Dominion and Vepco entered into another agreement
under which Vepco released Old Dominion from its liability respecting the bridge
and assumed sole responsibility for the maintenance, repair, and replacement thereof
so long as no other adequate roadway connection with the north shore of the river
was available.
The 1926 agreement, as amended in 1933, was made for Old Dominion's use,
enjoyment, and benefit.
By order entered in condemnation proceedings on September 12, 1968, the trial
court vested title in the City to a portion of the 12-acre tract, but, with the City's
consent, Old Dominion continued to occupy the condemned land, conduct its
business on the 12-acre tract, and use the bridge in connection with its business
operation.
About January 15, 1970, the remaining portion of the 12-acre tract, previously
acquired by the City, was leased by the City to Old Dominion, and Old Dominion
continued to occupy and use the entire tract.
Under an agreement dated March 27, 1972, Vepco agreed to sell and the City
agreed to buy certain Vepco holdings on Belle Isle, including the steel bridge. The
agreement further provided that Vepco would continue to maintain the bridge as long
as Old Dominion continued to occupy the 12-acre tract, with the understanding that
the City would consummate acquisition and occupancy of that property as soon as
possible. This agreement was in confirmation of Vepco's duties with respect to the
bridge and was made for Old Dominion's use, enjoyment, and benefit.
On June 23, 1972, the bridge was destroyed by the flood waters of tropical
storm "Agnes" and has not been replaced.
Having recited these allegations of fact in its motion for judgment, Old
Dominion alleged that "[as] a result of the failure of either Vepco or the City to
properly maintain, keep up and repair the bridge by reason of which failure the
bridge was destroyed as aforesaid and as a result of the failure of either Vepco or the
City to replace the bridge, all in violation of the duties and obligations of Vepco and
the City pursuant to agreements made as aforesaid for Plaintiff's use, enjoyment and
48
benefit, Plaintiff has sustained and will continue to sustain" certain specifically
enumerated damages, including the costs of providing alternate methods of access
and transportation to and from its plant.
Old Dominion argues that it has alleged standing in three capacities to sue for
damages for breach of the covenant to maintain and replace the bridge, viz., in its
capacity as lessee of a portion of the land benefited by the covenants in the deed, in
its capacity as condemnee and permissive occupant of another portion of that land,
and in its capacity as original promisee in the contract arising from the 1926
agreement, as amended in 1933. Old Dominion argues further that, in its capacity as
third party beneficiary of the March 27, 1972, contract between Vepco and the City,
it has standing to sue for damages for breach of the contract commitment to maintain
the bridge. Finally, Old Dominion contends that, with respect to its standing in each
of these capacities, it has alleged a breach of obligation and causally related damages
and, thus, has properly pleaded a cause of action against Vepco and the City.
I.
Old Dominion As Lessee
The deed contained two covenants, one covenant granting Old Dominion the
right to use the bridge (a use in the nature of and easement) and the other covenant
requiring Old Dominion and Vepco to maintain and replace the bridge. The parties
do not disagree that these covenants run with the land. The bridge is the burdened
estate. The 12-acre tract is the benefited estate.
Old Dominion alleged that it leased a parcel of land from the City about
January 15, 1970. Reading the motion for judgment as a whole, it appears that this
parcel was a portion of the 12-acre tract benefited by the covenants. The terms and
tenure of the leasehold are not reflected in the record before us, and we cannot
consider the argument advanced by Vepco and the City that Old Dominion's
leasehold interest "was not sufficiently substantial" to give it standing to sue for
damages flowing from a breach of the covenants. Nor do we mean to imply that we
would accept the argument if the record reflected the terms and tenure of the
leasehold.
We consider only whether a leasehold interest acquired from an original
covenantee or its successor in title is sufficient to give a lessee standing to enforce
the covenants.27 Vepco argues that, under the express language of the covenants,
only "successors in title", i.e., subsequent owners of fee simple title, have such
standing. Such an argument overlooks the distinction the law makes between the
burden of a covenant running with the land and the benefit of such a covenant.
27 In Jones v. Richmond, 88 Va. 231, 13 S.E. 414 (1891), and Meagher v. Appalachian Power Co.,
195 Va. 138, 77 S.E.2d 461 (1953), cited by Vepco, the party seeking to enforce the covenant
had no proprietary interest in the benefited estate. Those cases are inapposite here, since Old
Dominion has alleged a leasehold interest.
49
That distinction and the rules attendant upon it are stated in Restatement of
Property § 547 at 3266-69 (1944):
"§ 547. Privity between Beneficiary and Successor.
"The benefit of a promise respecting the use of land of the beneficiary
of the promise can run with the land only to one who succeeds to some
interest of the beneficiary in the land respecting the use of which the
promise was made.
"Comment:
a. Rationale. . . . The running of the benefit, like the running of the
burden, was once based upon a concept of identification of the successor
with his predecessor. This concept required for its application that the
successor succeed to the estate held by the original promisee. But other
concepts have joined to modify the historical concept as applied to the
running of benefits. The succession to benefits is never as objectionable,
at least from the point of view of the successor, as the succession to
burdens. It is not unnatural that greater liberality has been displayed with
respect to the former kind of succession than the latter. The result has
been so to modify the concept of identification with respect to the running
of the benefit of a promise respecting the use of land as to require only that
an interest of the predecessor pass to the successor. . . .
c. Succession to interest. The concept of identification, upon which
the running of both the burden and the benefit of promises respecting the
use of land is based, presupposes a succession to an interest in the land
with which the promises run. Historically, such a succession meant a
succession to the interest of the predecessor in that land. This historical
rule is still applicable in the case of the running of the burden (see 535).
It is no longer true with respect to the running of the benefit. The benefit
will run with any part of the interest of the beneficiary of the promise if the
part succeeded to is of such a character that performance of the promise
will be of benefit to the owner of it.
"Illustration:
1. A and B are the owners of neighboring lands. A has a dwelling
house located on his land. B covenants with A and his assigns that he, B,
will not use his land as the site of a manufacturing establishment. A leases
his house to C for ten years. B begins to operate a glue factory upon his
land. C is sufficiently the successor to the benefit of the promise to enable
him to sue upon it." [Emphasis in text supplied].
The rule is further explicated in 2 American Law of Property § 9.20(392)
(1952):
50
". . . But in the case of the benefit as distinguished from the burden,
the courts permit the life tenant or lessee of the covenantee to enforce the
benefit. In these cases the courts proceed on the theory that the benefit of a
covenant is primarily attached to the possession of the covenantee's estate,
and that when he has transferred this possession by creating a lesser
possessory estate, the benefit should be treated as temporarily passing with
the possessory interest to the life tenant or lessee."
To accept Vepco's argument, we must assume that the original parties to the
covenants intended that the benefit run only to the covenantee and its "successors in
title." Except for the use of that phrase, we find nothing in the record bearing upon
the parties' intent which would justify such an assumption. Rather, we find much that
supports the construction that the parties intended that the benefit should descend to
an owner of a lesser possessory interest in accordance with the established rules
governing covenants running with the land. When the covenant was first attached to
the 12-acre tract, the covenantor and covenantee knew that the bridge was the only
vehicular access to the island from the shore. While the benefit of the covenant, as
an attachment to the land, had some value, its only real value was in its attachment to
the use of the land. If we are to make any assumption as to what the original parties
intended, we must assume that they intended the benefit of the covenants to run to
those they could reasonably anticipate would necessarily be the users of the bridge,
viz., the original covenantee, its successors in fee simple title, and the possessors of a
lesser proprietary interest lawfully acquired from the original covenantee or one of
its successors in title. As lessee of the City, Old Dominion possessed such an
interest; necessarily, the lease agreement must have contemplated use of the demised
premises as part of Old Dominion's manufacturing operation and use of the bridge in
connection therewith. Under the facts before us, we do not construe the phrase
"successors in title" as a limitation on the class of the covenantee's successors
entitled to enforce the covenant, but as an indication of the parties' intent that the
covenants run with the land.
We hold that Old Dominion, as lessee of a portion of the benefited estate,28
had standing to sue for damages resulting from a breach of the covenant to maintain
and replace the bridge and properly pleaded a cause of action against the legal owner
of the burdened estate. During the time the alleged damages were sustained the legal
owner was Vepco. As vendee in the March 27, 1972, contract, the City was
equitable owner. Unlike an owner of a lesser proprietary interest in the benefited
estate who inherits the benefit of the covenant, an owner of a lesser proprietary
interest in the burdened estate does not inherit the burden. In order for the successor
28 A covenant is not destroyed by division of the benefited estate, and its benefit runs to an assignee
of a parcel of the benefited estate, provided the enjoyment of the benefit does not place an
additional charge upon the burdened estate. Restatement of Property, supra at @ 551 (3276-77).
See also Linkenhoker v. Graybill, 80 Va. 835 (1885) (applying the same rule with respect to
easements).
51
to the covenantor to be liable upon the burden of the covenant, he must succeed to
the estate of the covenantor.29 2 American Law of Property, supra at § 9.15 (384);
Restatement of Property, supra at 535 (3210-11). Since City, as the equitable
owner, had neither legal title to nor the right to occupy the burdened estate, 8A G.
Thompson, Real Property, § 4449 (285-86) (1963), it had not succeeded to the estate
of its predecessor, Vepco.
Accordingly, we hold that Old Dominion, in its capacity as lessee, has failed to
state a cause of action against the City.30
II.
Old Dominion as Condemnee and Permissive Occupant
Old Dominion alleged that, at the time its damages were sustained, it was a
permissive occupant of the condemned parcel of the benefited estate. On appeal,
it argues that, as condemnee, it had a potential reversionary interest sufficient to
give it standing to sue for damages resulting from a breach of the covenant to
maintain and replace the bridge.
But Old Dominion made no allegation in its motion for judgment that the
condemnation proceeding was still pending and that it owned such an interest at the
time its damages were sustained. While we cannot look to the enlarged record, we
take judicial notice of our opinion in Richmond v. Old Dominion Iron and Steel
Corporation, 212 Va. 611, 186 S.E.2d 30 (1972). There, we held, inter alia, that the
City had proved the necessity of the taking of the parcel of land involved here. Upon
the entry of our order in that case, any potential reversionary interest owned by Old
Dominion was extinguished. Our order was entered January 17, 1972. The bridge
was destroyed June 23, 1972.
We hold that Old Dominion failed to allege standing as a condemnee to
enforce the covenant, that it had no such standing in fact, and that as condemnee and
permissive occupant, it failed to state a cause of action against Vepco and the City.
III. Old Dominion as Original Promisee of a Contract
Old Dominion says that, apart from its standing as lessee to enforce the
covenants in the deed, it has standing as original promisee in the separate contract
arising from the 1926 and 1933 agreements to sue for damages for breach of the
promise Vepco made in that contract.
Vepco argues that the promise to maintain and replace the bridge raises a duty
the benefit of which attaches to ownership of the benefited property; that the breach
29 The covenant to maintain and replace the bridge is an affirmative covenant. We do not decide
what rule would apply to a negative covenant running with the land.
30 There is respectable authority for the rule urged by Vepco that when the benefited estate and the
burdened estate become merged in the same owner, a covenant running with the land is
extinguished. See, e.g., 21 C.J.S., Covenants § 78(936) (1940). But there was no such merger
here. While the City owned fee simple title to the benefited estate in its entirety, the City as we
have said, owned only an equitable title to the burdened estate.
52
of that duty "injures a party by damaging his property interest"; and that "any cause
of action arises from this property interest." Vepco concludes that Old Dominion had
no "substantial estate in the benefited property" and therefore "does not have such a
property interest on which to sue and recover damages."
Vepco's contractual liability, as distinguished from its liability on the
covenants, is founded upon privity of contract with Old Dominion and does not
depend upon Old Dominion's ownership of a substantial interest in the benefited
estate.31 The nature and extent of Vepco's contractual liability turns upon the
intention of the parties, as evidenced by the two contract documents and the
circumstances surrounding their execution. The facts alleged in the motion for
judgment do not manifest an intent that Vepco's liability terminate when Old
Dominion ceased to own a "substantial estate" in the benefited property. The
contractual commitment to maintain and replace, like the covenants, was attached to
the use of the benefited property (See Part I, supra). This circumstance supports the
conclusion that the parties intended Vepco's contractual obligations to continue as
long as Old Dominion had the right to use the bridge in connection with its
manufacturing operation on the island.
Old Dominion alleged that it had such a right, that Vepco breached the promise
to maintain and replace the bridge, and that it was damaged by the breach. As
promisee of the 1926 and 1933 agreements, Old Dominion stated a cause ex
contractu against Vepco. Since Old Dominion did not allege that the City was privy
to the contract, it failed to state such a cause against the City.
IV. Old Dominion as Third-Party Beneficiary
Old Dominion alleged that the March 27, 1972, contract under which Vepco
agreed to sell the bridge to the City provided "that Vepco would continue to maintain
the bridge so long as Plaintiff's occupancy of property on Belle Isle continued, with
the understanding that the City would as soon as possible consummate acquisition
and occupancy of the said property" and that this provision "was made for Plaintiff's
use, enjoyment and benefit."
This allegation was fully sufficient to give Old Dominion standing under Code
§ 55-22 (Repl. Vol. 1974) to sue for damages for breach of the commitment to
31 ". . . [A] . . . covenant [running with the land] creates two different bases of liability in the
covenantor. Firstly, he is in privity of contract with the covenantee, and this relationship creates
in the covenantor a contract duty which is unassignable. Secondly, he is in privity of estate with
the covenantee, and this relationship is the basis upon which the courts treat a contractual burden
as attaching to the covenantor's land and running to a subsequent assignee. Thus, when the
covenantor assigns his entire estate in the land, he ceases to be liable as to the future upon this
contractual burden because he is no longer in privity of estate with the covenantee; but his
liability upon the nonassignable contract duty under privity of contract remains in him." 2
American Law of Property, supra at § 9.18 (388).
53
maintain the bridge. See Kempsville Utilities v. Wills, 213 Va. 679, 194 S.E.2d 740
(1973). Old Dominion alleged that the commitment was made by Vepco. The
commitment was part of the consideration for the City's promise to buy the bridge.
Old Dominion's rights under that commitment are co-extensive with those of the
City. We hold that Old Dominion, as third-party beneficiary under the contract,
properly stated a cause of action against Vepco; it stated none against the City.
Vepco argues that Old Dominion alleged only a commitment to maintain the
bridge and that such a commitment does not include a duty to replace the bridge.
Ordinarily, a duty to replace is not to be inferred from a naked promise to
"maintain". Absent factors denoting a broader obligation, such a promise imports
only an undertaking to conserve the status quo, i.e., to make such repairs as become
necessary to sustain normal operability.
But this is not an ordinary case, and we must determine whether the record
before us indicates that the parties intended the commitment to "maintain" to include
the duty to replace. The use of the word "maintain" is only one of the facts alleged
and, standing alone, that fact does not resolve the question. Old Dominion further
alleged that Vepco's commitment "was in confirmation of the duties and obligations"
Vepco had undertaken in 1926. It is not likely that Vepco would have volunteered
any commitment for Old Dominion's benefit had it not felt that it owed Old
Dominion some continuing duty with respect to the bridge. The only duty it could
have had in mind was its earlier commitment to maintain and replace. Of course,
upon a trial on the merits, the burden of proving intent will rest upon Old Dominion.
On this appeal, however, we are not concerned with proof of the facts alleged but
with the sufficiency of the allegations.
We hold that the trial court was correct in sustaining the City's demurrer but
erred in granting Vepco's motion for summary judgment. The judgment is affirmed
in part and reversed in part, the motion for judgment as to Vepco is reinstated on the
docket, and the case is remanded for further proceedings not inconsistent with this
opinion.
Mendenhall v. Cooper
239 Va. 71, 387 S.E.2d 468 (1990)
Stephenson, J., delivered the opinion of the court.
Code § 43-17 provides that "[n]o suit to enforce [a mechanic's lien] . . . shall be
brought after six months from the time when the memorandum of lien was
recorded." In this case, the lienors brought suits to enforce liens against their debtor
within the six-month limitations period. Approximately six months after bringing the
suits, however, the lienors, with leave of court, filed amended bills of complaint,
adding new defendants. The new defendants claimed that the suits against them
were time-barred, but the trial court disagreed and decreed enforcement of the
54
mechanic's liens. The new defendants appeal, contending that the trial court erred in
overruling their statute of limitations defense.32
The facts are undisputed. Colonial Beach Development Company (the
Developer) acquired certain real property in the Town of Colonial Beach as a site for
a condominium project. On November 13, 1983, the Developer recorded a deed of
trust on the property that secured a promissory note payable to First American
Savings and Loan Association (First American) in the principal sum of $1,650,000.
The trustee named in the deed of trust was First American Service Corporation (the
Trustee).
Thereafter, the Developer proceeded to construct the condominium project.
On November 13, 1984, the Developer recorded the condominium declaration. In
1984, the Developer contracted with Douglas L. Cooper, Inc. (Cooper), and
Northbowl, Inc. (Northbowl) for labor and materials that were furnished to the
project.
The Developer sold and conveyed two condominium units in Phase I of the
project. Unit No. 6 was conveyed to Ellen P. Becker, by deed dated November 1,
1984, and recorded November 13, 1984. Unit No. 4 was conveyed to Windsor H.
and Leslie L. Mendenhall, by deed dated December 14, 1984, and recorded
December 19, 1984. At the same time, the Mendenhalls recorded a purchase money
deed of trust to the Trustee on Unit 4, securing a promissory note also payable to
First American.
On January 31, 1985, Cooper recorded a memorandum of mechanic's lien.
Northbowl recorded its memorandum of mechanic's lien on February 8, 1985. In
their respective memoranda, Cooper and Northbowl named the following parties as
owners: the Developer; Becker, as owner of Unit 6, Phase I; and the Mendenhalls, as
owners of Unit 4, Phase I. Cooper and Northbowl gave notice of their lien claims to
the owners named in their memoranda and to the Trustee. On May 16, 1985, the
Developer filed for bankruptcy. On July 31, 1985, within six months after Cooper
and Northbowl recorded their memoranda, Cooper and Northbowl filed bills of
complaint only against the Developer to enforce their mechanic's liens. The
Developer did not respond to the suits.
Because the Developer defaulted under the deed of trust that secured First
American, the Trustee was directed to conduct a foreclosure sale of the
condominium property, except for Units 4 and 6 in Phase I. The sale was conducted
on August 9, 1985, and First American purchased the property. First American
subsequently assigned its interest in the property to The St. Johns Development
Corporation (St. Johns). Consequently, by deed recorded November 27, 1985, the
Trustee conveyed the property to St. Johns, subject to all mechanic's liens.
On January 8, 1986, the trial court entered orders permitting Cooper and
Northbowl to file amended bills of complaint that would add new parties
32 The lienors' suits were consolidated at trial and on appeal.
55
defendant.33 On January 22, 1986, Cooper and Northbowl filed amended bills of
complaint that added, as defendants, the Mendenhalls, Becker, the Trustee, and First
American (collectively, the new defendants).34 As previously stated, the trial court
overruled the new defendants' plea of the statute of limitations and decreed
enforcement of the mechanic's liens.
Our analysis begins with a determination whether the new defendants are
necessary parties to the suit to enforce, or are merely proper parties. Failure to
include proper parties is not a ground for dismissing the suit. A court is empowered
to adjudicate a cause in the absence of proper parties. Bonsal v. Camp, 111 Va. 595,
597, 69 S.E. 978, 978-79 (1911). Thus, the sustaining of a proper party's statute of
limitations plea does not mandate a dismissal of the suit.
A different rule applies, however, with respect to necessary parties. A court is
powerless to proceed with a suit unless all necessary parties are properly before the
court. We have said that
[a necessary party's] interests in the subject matter of the suit, and in
the relief sought, are so bound up with that of the other parties, that their
legal presence as parties to the proceeding is an absolute necessity,
without which the court cannot proceed. In such cases the court refuses
to entertain the suit, when these parties cannot be subjected to its
jurisdiction.
Bonsal, 111 Va. at 597-98, 69 S.E. at 979 (quoting Barney v. Baltimore City, 73 U.S.
(6 Wall.) 280, 284 (1867)). Accord, Walt Robbins, Inc. v. Damon Corporation, 232
Va. 43, 348 S.E.2d 223 (1986); Buchanan Co. v. Smith, 115 Va. 704, 80 S.E. 794
(1914); Sweeney v. Foster, 112 Va. 499, 71 S.E. 548 (1911). See also Kennedy Coal
v. Buck'n Coal, 140 Va. 37, 124 S.E. 482 (1924). It follows, therefore, that a suit,
time-barred as to any necessary party, must be dismissed because such necessary
party is not subject to the court's jurisdiction.
Consequently, we must determine whether the new defendants in the present
case are necessary parties. We define "necessary parties" broadly:
Where an individual is in the actual enjoyment of the subject matter,
or has an interest in it, either in possession or expectancy, which is likely
either to be defeated or diminished by the plaintiff's claim, in such case
he has an immediate interest in resisting the demand, and all persons who
have such immediate interests are necessary parties to the suit.
33 The orders were endorsed only by counsel for Cooper and Northbowl. Nothing in the record
suggests that the added parties knew about the orders until they were served with copies of the
amended bills.
34 The new defendants are the appellants herein. St. Johns was added as a party defendant also and
is an appellant herein. However, because St. Johns acquired its interest in the subject matter after
July 31, 1985, we express no opinion whether it was a necessary party.
56
Raney v. Four Thirty Seven Land Co., 233 Va. 513, 519-20, 357 S.E.2d 733, 736
(1987) (quoting Gaddess v. Norris, 102 Va. 625, 630, 46 S.E. 905, 907 (1904))
(citation omitted). Moreover, we have held that both the trustee and the named
beneficiary of an antecedent deed of trust are necessary parties in a suit to enforce a
mechanic's lien. Walt Robbins, Inc., 232 Va. at 47-48, 348 S.E.2d at 227. See also
Code § 55-66.1.
In the present case, Becker and the Mendenhalls are owners of condominium
units subjected to the mechanic's liens. They were so designated, and their properties
described, in the memoranda of liens and in the amended bills to enforce. The
Trustee and First American are the trustee and beneficiary, respectively, under the
antecedent deed of trust. Thus, the new defendants were necessary parties in the
suits to enforce because they each had an interest in the subject matter which likely
could be defeated or diminished by Cooper's and Northbowl's claims.
Although the new defendants were not made parties to the enforcement suit
until more than a year after the memoranda of liens were filed, Cooper and
Northbowl claim that the amended bills relate back to the commencement of the suits
brought against the Developer. Cooper and Northbowl contend, therefore, that the
filing of the original bills stopped the running of the statute of limitations as to the
new defendants.
In the context of Code § 43-17, however, we have held that, when an
amendment introduces a new claim or makes new demands, the statute continues to
run until the time of the amendment. Neff v. Garrard, 216 Va. 496, 498, 219 S.E.2d
878, 879-80 (1975). See also Comm. Mech., Inc. v. Stand. Fed., 222 Va. 330, 331,
281 S.E.2d 811, 811 (1981). Furthermore, it is well-established that when "a new
party is brought into a suit by an amended pleading, the suit must be deemed to have
been commenced as to him at the time that he was so brought in." Webb v. United
States Fidelity, etc. Co., 165 Va. 388, 393, 182 S.E. 557, 559 (1935). Accord Dorr's
Adm'r v. Rohr and als., 82 Va. 359, 365-66 (1886).
Cooper's and Northbowl's original bills sought to enforce their mechanic's liens
only against the Developer's property. By their amended bills, however, Cooper and
Northbowl sought to enforce their liens against properties owned by Becker and by
the Mendenhalls, in addition to the Developer's property. Furthermore, the amended
bills, unlike the original bills, presented questions concerning the priority of the lien
created by the antecedent deed of trust. The amended bills, therefore, not only added
new defendants but also presented new and different claims. Therefore, the
enforcement suits against the new defendants are deemed to have been commenced
at the time of the amendments. Consequently, we hold that the enforcement suits
were not brought against the new, necessary defendants within the time required by
Code § 43-17.35
35 The decision we reach is dispositive of the case. Therefore, we do not address the assignment of
cross-error.
57
Accordingly, the trial court's judgment will be reversed, the mechanic's lien
enforcement suits will be dismissed, and final judgment will be entered here for the
appellants.
Reversed and final judgment.
Wilkins v. Peninsula Motor Cars, Inc.
266 Va. 558, 587 S.E.2d 581
Lemons, D., delivered the opinion of the court.
In his suit against Peninsula Motor Cars, Inc. ("Peninsula"), a jury awarded
Gerald G. Wilkins ("Wilkins") enhanced damages of $12,000, a sum conceded by
Peninsula to represent the trebling of $4,000 in actual damages under the Virginia
Consumer Protection Act, Code §§ 59.1-196 to -207 ("VCPA"). By agreement of
the parties, the issue of attorney's fees and costs pursuant to Code § 59.1-204(B)
was reserved for determination by the trial court and was later fixed at $34,183.
Also, in his claim for common law fraud, the jury awarded Wilkins $1,862.86 in
actual damages and $100,000 in punitive damages. In this appeal, we consider
whether the trial court erred in requiring Wilkins to elect between his remedies.
I.
Facts and Proceedings Below
On March 30, 1999, Gerald Wilkins purchased a 1998 BMW 540I from
Peninsula. An employee of Peninsula represented to Wilkins that the car was new
despite the fact that the car's odometer had recorded 972 miles. In fact, the car
had been previously titled and was considered a used car. Wilkins discovered
Peninsula's misrepresentations when he received the title to the car in the mail.
Wilkins brought an action against Peninsula for fraud, violation of the VCPA, and
violation of the federal Odometer Act. After the close of evidence, the trial court
struck the Odometer Act claim. After the jury returned the verdict and in
response to a motion by Peninsula, the trial court required Wilkins to elect
between the two verdicts. The trial court explained that Wilkins had "advanced
two alternative theories of recovery based on a single transaction or occurrence"
and ruled that allowing Wilkins to receive both verdicts would permit a double
recovery for his loss. Wilkins conceded that receiving both $100,000 punitive
damages for the fraud claim and the additional $8,000 above actual damages for
his claim under the VCPA would constitute a double recovery. He also conceded
that receiving both $1,862.86 under the fraud claim and $4,000 of the $12,000
enhanced damages under the VCPA claim would constitute double recovery of
actual damages. However, Wilkins maintained that no election between the two
verdicts should be required and that he should receive $4,000 in compensatory
damages, $100,000 in punitive damages, and the attorney's fees associated with
his VCPA claim. The trial court held that by "awarding damages under the
VCPA and the plaintiff's fraud cause of action, the jury essentially compensated
the plaintiff and punished the defendant twice." Wilkins appeals the adverse
58
judgment of the trial court requiring his election between verdicts based upon
separate causes of action.
II.
Analysis
The issue before us involves a question of law. We review de novo the trial
court's determination that Wilkins was required to elect between his verdicts.
Eure v. Norfolk Shipbldg. & Drydock Corp., 263 Va. 624, 631, 561 S.E.2d 663,
667 (2002).
The genus of election of remedies has many species. This case is not about
claims that are irreconcilable, such as a claim for rescission of the contract
accompanied by a claim for specific performance. Nor does this issue involve
questions of election between remedies at law or in equity. The only election of
remedies issue presented in this case is whether the bar against double recovery
justifies the trial court's requirement that Wilkins elect between verdicts. We had
previously stated that the trial court must assure that a verdict, while fully and
fairly compensating a plaintiff for loss, does not include duplicative damages.
Tazewell Oil Co. v. United Virginia Bank, 243 Va. 94, 113, 413 S.E.2d 611, 62122 (1992). While the precise circumstances presented by this case have not been
addressed in Virginia, the principles resolving the matter are not unfamiliar.
In determining whether multiple damage awards constitute impermissible
double recovery, the trial court must consider the nature of the claims involved,
the duties imposed and the injury sustained. Advanced Marine Enterprises v.
PRC Inc., 256 Va. 106, 124, 501 S.E.2d 148, 159 (1998). In Advanced Marine,
the trial court had entered judgment of treble damages on a claim pursuant to
Code § 18.2-499 and -500 for conspiracy to injure plaintiff in its reputation, trade,
business or profession. Additionally, the trial court had entered judgment for
punitive damages on three separate counts involving "breach of fiduciary duty,
intentional interference with contractual relations, and intentional interference
with prospective business and contractual relations." Id. Concluding on appeal
that the awards were not duplicative, we stated:
The awards of punitive and treble damages were based on
separate claims involving different duties and injuries.... To prevail
in its business conspiracy claim, PRC was required to prove that the
defendants combined, associated, agreed, or acted in concert
together for the purpose of willfully and maliciously injuring PRC in
its business "by any means whatever." Code § 18.2-499. In contrast
the [other claims] do not require such proof and relate solely to the
employment relationship between PRC and the PRC Managers and
employees. Thus, the chancellor did not err in awarding PRC both
punitive and treble damages.
Id. at 124-25, 501 S.E.2d at 159.
However, when the claims, duties, and injuries are the same, duplicative
recovery is barred. In Moore v. Virginia Int'l Terminals, 254 Va. 46, 49, 486
59
S.E.2d 528, 529 (1997), we affirmed the right of an injured worker to seek
compensation under either or both the federal Longshore Act and the state
workers' compensation statutes, but "[t]he claimant, however, is entitled to only a
single recovery for his injuries."
Unlike the circumstances presented in Advanced Marine, the causes of
action brought by Wilkins have the potential for duplication of damages.
However, Wilkins concedes that he is only entitled to one award of compensatory
damages, one award of exemplary damages, and one award of attorney's fees. He
does not seek a judgment for the actual damages awarded in the VCPA claim in
addition to the actual damages awarded in the fraud claim. He maintains that the
trebled portion of the verdict under the VCPA is in the nature of exemplary or
punitive damages and does not seek recovery of that portion of the award in
addition to the punitive damage award.36 Wilkins argues that judgment should be
entered in his favor for $4,000 actual damages (from the VCPA claim), $100,000
punitive damages (from the fraud claim), and $34,183 in attorney's fees and costs
(ancillary to the VCPA claim). Acknowledging that the trial court was required
to assure that there was not duplicative recovery, he argues that the trial court
erred in requiring him to elect between his verdicts based upon the different
causes of action. We agree with Wilkins.
This case does not present irreconcilable causes of action which would
require Wilkins to elect between them. Rather, this case involves causes of action
with different elements of proof and potentially duplicative damage awards. In
these circumstances, Wilkins is entitled to full and fair compensation but not
duplicative compensation. The trial court erred in requiring Wilkins to choose
between causes of action, when all that was required was supervision of the
damage awards to avoid double recovery.
Additionally, Peninsula argues that an award of attorney's fees and costs
under the VCPA is duplicative of punitive damages. The plain language of the
statute defeats this argument.
Code § 59.1-204(B) clearly states,
"Notwithstanding any other provision of law to the contrary, in addition to any
damages awarded, such person also may be awarded reasonable attorney's fees
and court costs." Peninsula suggests that such language was intended to apply
only to damages awarded under the VCPA and does not apply to circumstances
where damages are awarded for an independent cause of action. First, damages
were awarded under the VCPA in this case. Second, if the General Assembly had
intended such a restrictive view of a remedial statute, such an effect could have
been evinced by plain language. See, e.g., City of Richmond v. Richmond Metro.
Auth., 210 Va. 645, 648, 172 S.E.2d 831, 833 (1970); Greenberg v.
36 Consequently, we are not presented with the issue whether the enhanced damages under the
statutory conspiracy claim are duplicative of the punitive damages in the fraud claim. See United
Laboratories, Inc. v. Kuykendall, 335 N.C. 183, 437 S.E.2d 374 (1993).
60
Commonwealth, 255 Va. 594, 600, 499 S.E.2d 266, 270 (1998); Barr v. Town &
Country Props., Inc., 240 Va. 292, 295, 396 S.E.2d 672, 674 (1990).
Additionally, the purpose of the attorney's fees and costs provision is
different from the purpose of punitive damages. Punitive damages are designed
to punish offensive or unlawful conduct and deter it in the future. Flippo v. CSC
Assocs., 262 Va. 48, 58, 547 S.E.2d 216, 222 (2001). The fee shifting provisions
of the VCPA are designed to encourage private enforcement of the provisions of
the statute.
Accordingly, we will reverse the judgment of the trial court and remand
with directions to enter judgment for Wilkins in the amount of $138,183 plus an
award of reasonable attorney's fees and costs for successfully prosecuting this
appeal.
Reversed and remanded.
Dickenson v. Tabb
208 Va. 184, 156 S.E.2d 795 (1967)
Spratley, J., delivered the opinion of the court.
On December 15, 1962, Darryl Edward Dickenson and his young bride of two
months drove from their home in Annandale, Virginia, to Kern Motor Company in
Winchester, Virginia, to find out when they could expect the delivery of a new car
purchased through John Prosser Tabb, IV, salesman for the motor company. After a
short conference at the office of the motor company, Tabb left, purchased a "fifth" of
whiskey, and returned. The motor company closed for business between 6:15 and
6:30 p.m. At that time, approximately seven or eight ounces of the whiskey had been
consumed by the Dickensons and Tabb. It is not disclosed how much of the liquor
had been consumed by any one of them.
After the motor company closed, William Harrington Smith, Jr., its sales
manager, invited the Dickensons and Tabb to his apartment for a drink. Tabb and
Dickenson each had two highballs at Smith's apartment between 6:30 and 8:40 p.m.
The witnesses said that Dickenson's conduct and behavior at Smith's apartment were
normal, and there was nothing about his appearance or conduct to suggest that his
drinking had impaired his ability to drive a motor car.
Arrangements were made for Smith and his wife, Dickenson and his wife,
Tabb and a friend, Beverly Rice, to go to Lone Oaks Restaurant in Waterloo,
Virginia, for dinner. At the restaurant, the group of six were served a steak dinner.
Dickenson had two bottles of beer and Tabb one during a period of about one hour
and forty-five minutes. At the restaurant, nothing out of the ordinary was noticed
about Dickenson's appearance or actions. He was not loud or boisterous. He
appeared to have control of his muscular movements and there was nothing wrong
with his speech.
Tabb telephoned his wife from the restaurant that he was bringing some guests,
the Dickensons, to his home to spend the night. Mrs. Tabb testified he said nothing
61
about the ability or inability of Dickenson to drive. The group left the restaurant
about 10:45 p.m. in two cars to drive to Tabb's home in Middleway, West Virginia.
Dickenson was the driver of the first car, a Tempest, with his wife in the front seat
and Tabb in the rear seat. Smith drove the other car, a Studebaker, which was
occupied by Mrs. Smith and Beverly Rice.
Traveling from Waterloo through Middleway, the parties proceeded in an
easterly direction on U.S. Route 340 towards Charles Town, West Virginia. They
drove through Berryville, Virginia, thence across the West Virginia line to about one
mile west of Charles Town, where the accident hereinafter related occurred.
After the two cars passed through Berryville, Smith and his wife, who were
driving behind Dickenson, observed Dickenson driving at times in the middle of the
highway. His automobile drifted to the right of the hard surface, and on to the hard
shoulder a couple of times between Berryville and Gaylord, a distance of four and
one-half miles. Smith, who was driving approximately 50 to 55 miles per hour, said
that Dickenson suddenly drove ahead at a rate of speed in excess of 65 miles per
hour. Smith tried briefly to keep up with the Dickenson car; but slowed down when
Mrs. Smith protested. He lost sight of the Dickenson car until Rippon was passed.
Between Rippon and the scene of the accident, a distance of 5 miles, the Dickenson
car appeared to maintain a constant speed of 50 to 55 miles per hour.
At about 11:00 p.m., Mr. and Mrs. Ripley Franklin Dellinger left Charles
Town, traveling in a westerly direction on Route 340 in a Buick automobile,
Dellinger driving and his wife on the front seat. They traveled about a mile and a
half, when Dickenson, traveling easterly, drove his car across the center line of the
highway into the westbound traffic lane of Dellinger and crashed "broadside" into
Dellinger's Buick.
Route 340, at the scene of the accident, is a two-lane highway, 21 feet in width,
running generally in an east-west direction. The two lanes are divided by lines in the
center, one broken to permit eastbound passing, and one solid to prohibit westbound
passing. East of the point of the accident, the highway is straight and practically
level for a considerable distance. Immediately to the west it runs downhill and into a
rather sharp curve towards the north.
As a result of the collision, the Dickenson car, the Tempest, stopped
approximately in the middle of the roadway in a crosswise position, facing north and
occupying both lanes. The Dellinger Buick came to rest at an angle across the center
of the highway, with its left front driven into the right-hand door of the Tempest.
The right door of the Tempest was caved in; but its left side did not appear to be
damaged very much.
Smith came upon the scene of the accident from the west almost immediately
after its occurrence, while the smoke and dust from the collision were still in the air.
He stopped his Studebaker on the southern shoulder of the road beside a portion of
the wreckage. He and his wife observed that the Tempest blocked both traffic lanes,
62
and that the Buick was at an angle across the center line. Debris was scattered
throughout Dellinger's lane; but there was none in Dickenson's lane.
Mr. and Mrs. Smith realizing that there had been a "very serious accident," and
fearing the result of injuries to the occupants of the wrecked automobiles, sought to
give and to obtain help. Smith sent Rice to Charles Town to notify the police and to
secure ambulances; directed his wife to help the injured; ran about 60 feet in an
easterly direction towards Charles Town; and stationed himself in the center of the
highway to warn traffic. He was then clad in an unbuttoned tan topcoat with his
white shirt exposed. He observed an approaching car, and "waved" his arm to cause
it to stop; but it did not slow down nor stop. The observed car turned out to be a car
driven by Mrs. Helen P. Tharp.
In the meantime, Mrs. Tharp, a nurse at the Charles Town General Hospital,
left her work about 11:00 p.m. to go to her home in Berryville. Traveling in an
Oldsmobile, she drove in a westerly direction on Route 340, and approached the
wreckage of the Tempest and Buick, at a speed of about 40 to 50 miles per hour. She
says she did not see Smith standing in the center of the road, waving his arms to
warn her. She drove on until she collided with the wrecked Buick. She testified that
Route 340, immediately east of the scene of the accident, is "a long, straight stretch
with a very, very slight decline." She admitted that nothing blocked her view for a
distance of at least 627 feet, or for so much of that distance as came within the range
of her headlights, as she approached the scene. She observed the lights of three
automobiles, which she thought were driving towards her; their lights "blinded" her
and she dimmed her lights. When she arrived at a point about 10 feet from the
wrecked Buick, she realized that the cars facing her were not moving; then she
swerved to her left into the eastbound lane, in an attempt to avoid the Buick; and,
failing in her attempt, struck its right rear fender. She admitted that she did not slow
down; did not sound her horn; did not deviate from her path; and did not apply her
brakes until the moment she saw the Buick just 10 feet away.
The Buick was struck with such force that it was moved a distance of 30 to 35
feet, and came to rest across the westbound traffic lane. In its movement, it struck
the Tempest and knocked that care sideways a distance of at least 30 feet to the north
berm of the highway. The "swinging" left rear end of the Tempest struck and
severely injured Mrs. Smith, who had stepped onto the road, in the eastbound lane,
attempting to go to the aid of the injured in the first collision. Mrs. Tharp's car
"caromed" off the rear of the Buick, thence to a fence on the south side of the
highway, and came to rest in a field. Photographic exhibits of the three cars show
that each was badly damaged.
Mr. and Mrs. Smith testified that there were no vehicles in the area of the
accident, except the Tempest and the Buick, until the arrival of Mrs. Tharp. Smith
said he had to leap aside from his position in the middle of the highway to escape
being struck by the approaching Tharp car. He further testified that the highway was
in good condition, the road dry, the night clear, although there was no moon. There
was some light snow on the dirt and gravel shoulder, but none in the roadway.
63
No witnesses saw Tabb between the first and second collisions. No evidence
was presented to show what injuries he received in the first collision. After the two
collisions, he was found unconscious in Dickenson's car, and he had no memory of
either collision. Mrs. Dellinger did not remember what happened after the first
collision. Mr. and Mrs. Dickenson died on the night of the accident from the injuries
received in the collision, and Dellinger died thirteen days later in a hospital.
After both collisions, Tabb was found to have suffered a fracture of the skull,
numerous lacerations and contusions of the forehead and face, trimalleolar fracture
of the right ankle, damage to the capsular ligament complex, and comminuted
fractures of the left arm and right leg.
The amount of the damages awarded is not in question in either case. The
smashed condition of the wrecked cars and the multiple injuries sustained by Tabb
reflect the violence of the two collisions.
The trial consumed five days and the evidence is voluminous. There were
some contradictions in the evidence; but the jury resolved them in favor of the
plaintiffs, Tabb and Mrs. Smith. Consequently, the facts have been summarized and
stated in that light.
Tabb filed a motion for judgment against the administrator of Dickenson, the
administratrix of Dellinger, and Mrs. Tharp, who will be sometimes hereinafter
referred to as defendants. Mrs. Barbara A. Smith instituted action against the same
defendants. In each case, defendants filed responsive pleadings in which they denied
liability and charged each of the plaintiffs with contributory negligence and
assumption of risk. The issues were joined, and the cases were, by agreement,
consolidated for trial at the same time.
At a bench conference following opening statements by counsel for all parties,
counsel for Mrs. Dellinger, administratrix, moved the court to enter judgment in her
favor, because plaintiffs in their statements did not allege any negligence on the part
of her decedent. After a colloquy among the court and counsel, counsel for plaintiffs
moved "to dismiss this suit against Dellinger, administratrix of her husband." The
court announced that it would grant the motion. The other defendants objected. The
court and all parties agreed that no order would be immediately entered; but that the
dismissal of Dellinger would be reflected in the final order.
While the first witness was on the stand, the court told the jury that plaintiffs
had renounced their claims against Dellinger. At the conclusion of the evidence for
plaintiffs, and at the conclusion of all the evidence, the court overruled defendants'
motions to strike the evidence.
After receiving instructions from the court, and hearing argument of counsel,
the jury returned a verdict in favor of Tabb against Dickenson's administrator, and
Tharp, jointly and severally, for the sum of $20,000; and in the case of Mrs. Smith a
verdict in favor of Dickenson, administrator, and against Mrs. Tharp for the sum of
$3,000.
64
Motions of the two defendants to set aside the verdicts, and to enter judgment
in their favor, notwithstanding the verdicts, were continued to a later date.
Subsequently, each defendant filed a plea of release and res judicata on the ground
that the dismissal of Dellinger as a defendant released all others jointly liable for the
same wrong or injury. It appeared that an order was prepared, and endorsed by
plaintiffs, dismissing Dellinger "with prejudice," but it was never entered. Plaintiffs
moved to withdraw their endorsement of the order on the ground that their motion
was to dismiss Dellinger "without prejudice." The court, in the exercise of its
discretion, thereupon entered an order dismissing "without prejudice," the
administratrix of Dellinger. The pleas of release and res judicata were denied.
The court overruled and denied the motions to set aside the verdicts and
entered judgments in accordance therewith. Objections and exceptions were noted
by defendants. Writs of error were granted the administrator of Dickenson and Mrs.
Tharp in the case of Tabb (Record Nos. 6479, 6480), and Mrs. Tharp in the case of
Mrs. Smith (Record No. 6481). On appeal the three writs of error were consolidated
and heard together on a single record from the court below.
Dickenson's administrator, in his assignments of error, (Record No. 6479)
contends: (1) that the evidence was insufficient to justify the jury in finding that any
negligence on his part was the proximate cause of the injuries sustained by Tabb; (2)
that Tabb was guilty of contributory negligence and assumption of risk as a matter of
law; and (3) that the court erred in refusing to sustain his plea of release and res
judicata "in allowing plaintiff to withdraw his endorsement of the dismissal order
with prejudice;" and (4) that the court erred in giving Instruction No. 4 and in
refusing Instruction No. J. At the bar of this Court, he has abandoned his assignments
with reference to the two instructions.
Mrs. Tharp, in the Tabb case (Record No. 6480) relies on assignments of error
similar to those of Dickenson, except as to instructions. She argues that the court
erred in granting Instructions Nos. 3, 4 and E, and in refusing to give Nos. BB, CC
and CC-1.
In the Smith case (Record No. 6481), Mrs. Tharp defends on the grounds that
Mrs. Smith was, as a matter of law, guilty of contributory negligence and assumption
of risk. She asserts that the court erred in granting Instructions Nos. 3 and E, and in
permitting Mrs. Smith to withdraw her endorsement of the order dismissing
Dellinger as a Defendant, and denying plea of release and res judicata.
As the collisions of the automobiles occurred in West Virginia, we shall
consider the evidence in the light of the law of that State, where applicable here.
Records Nos. 6479, 6480
Dickenson's administrator, as a corollary to his claim that he was free from
negligence causing the injuries to Tabb, argues that those injuries were due to the
intervening negligent actions of Mrs. Tharp, which he could not have reasonably
foreseen. In addition, he claims that the circumstances of the two collisions did not
present a case for the application of the single indivisible injury rule.
65
The uncontradicted evidence clearly shows that Dickenson was guilty of
negligence, which was the cause of the first collision. Tabb was riding in the rear
seat of Dickenson's car, when the latter drove his automobile from its eastbound lane
across the center line of the highway into the westbound lane, and in front of the
oncoming Dellinger car. All of the debris from the collision was found in Dellinger's
lane of travel.
The negligence of Dickenson caused both lanes of traffic to be blocked, and
this situation continued to the time of the second collision. The second collision was
a naturally foreseeable consequence of the highway being blocked. Dickenson's
negligence created that situation and started a chain of events from which further
injury could and did occur as a proximate result. Evans v. Farmer, 148 W.Va. 142,
133 S.E.2d 710. Cf. Hartley v. Crede, 140 W.Va. 133, 148, 82 S.E.2d 672, 681.
The case of Hartley v. Crede, supra, 140 W.Va., upon which Dickenson's
administrator relies, may be distinguished from this case on the facts. One of the
specific instances of the difference is that in the Hartley case, one lane of traffic was
unobstructed and entirely open to the free flow of traffic. Here, the highway was so
blocked that it was reasonable to foresee danger from approaching traffic, and the
consequences which ensued.
We do not think that the actions of Mrs. Tharp constituted intervening acts
which "insulated" the negligence of Dickenson. An insulated intervening cause has
been defined in Lester v. Rose, 147 W.Va. 575, 594, 130 S.E.2d 80, 93, quoted with
approval in Maroulis v. Elliott, 207 Va. 503, 510, 511, 151 S.E.2d 339, 345, as
follows:
"An intervening cause in order to relieve a person charged with
negligence in connection with an injury must be a negligent act, or
omission, which constitutes a new effective cause and operates
independently of any other act, making it and it only, the proximate
cause of injury."
In Evans v. Farmer, supra, 148 W. Va., the West Virginia Court said at page
155, "An intervening cause of an injury is a negligent act or omission which
constitutes a new effective cause and which, operating independently of anything
else, is the proximate cause of the injury." (133 S.E.2d at page 718).
Dickenson's negligence concurred with the negligence of Mrs. Tharp in
causing the second collision. Her negligence was not "a new effective cause," which
operated "independently" of his negligence. While each collision was, perhaps,
sufficiently severe in itself to cause most of the injuries to Tabb, the evidence
supports the jury's finding that the negligent acts of each defendant concurred in
proximately causing all of the injuries sustained by Tabb.
The causation of each special injury, each bruise, each broken bone, or
particular damage to Tabb could not be established mathematically. It was
impossible to ascertain with certainty which part of his injuries was attributable to
the negligence of Dickenson in the first collision, and which was caused by Mrs.
66
Tharp in the second collision. As his injuries were not susceptible of apportionment
between the two collisions, the trial court properly told the jury that the injuries
sustained by Tabb were indivisible.
As we said in Maroulis v. Elliott, supra, 207 Va., at page 511:
"* * * (Where) separate and independent acts of negligence of two
parties are the direct cause of a single injury to a third person and it is
impossible to determine in what proportion each contributed to the
injury, either or both are responsible for the whole injury." Richmond
Coca-Cola Bottling Works, Inc. v. Andrews, 173 Va. 240, 250, 251, 3
S.E.2d 419; Von Roy v. Whitescarver, 197 Va. 384, 393, 89 S.E.2d
346; Murray v. Smithson, 187 Va. 759, 48 S.E.2d 239; Lester v. Rose,
supra, 147 W. Va.; Reilley v. Byard, 146 W.Va. 292, 119 S.E.2d 650;
Wilson v. Edwards, 138 W.Va. 613, 77 S.E.2d 164.
In Reilley v. Byard, supra, 146 W. Va., at page 299, 119 S.E.2d, at page 654,
the Court quoted the following from The Law of Automobiles in Virginia and West
Virginia, Volume 1, Section 18, page 53:
"Where, although concert is lacking, the separate and independent
acts or negligence of several combine to produce directly a single
injury, each is responsible for the entire result, even though his act or
neglect alone might not have caused it."
See Anno: Motor Vehicles -- Damages -- Apportionment, 100 A.L.R.2d, page
50.
The court did not err in granting Instruction No. 4, which told the jury that if
"negligences of two persons concur in proximately causing a single indivisible
injury, then such persons are jointly and severally liable for the entire damage
sustained, although there was no common duty, common design, or concert of action,
and the jury in case of such finding may not apportion damages as between such
persons," and that "In order for the negligence of two parties to concur with each
other as a proximate cause it is not necessary that they occur simultaneously, but the
question of whether there is such concurring negligence is for the jury to decide."
Although the evidence shows that Tabb knew Dickenson had consumed
intoxicating beverages, there was nothing to show that Dickenson's drinking had
been to an extent likely to affect the manner of his driving. Mr. and Mrs. Smith and
Mrs. Charles R. Miller, the owner and operator of Lone Oaks Restaurant, testified
that Dickenson's behavior at the Smith apartment and later at the restaurant was
normal. He was not loud or boisterous; nothing appeared to be wrong with his
speech or with his walk; and there was no indication that he was under the influence
of intoxicants. Not until after the group had left the restaurant, and Dickenson had
driven past Berryville did Smith and his wife observe that he was driving for a short
distance in an improper manner. However, they observed no irregularity in his
driving for a distance of about five miles prior to reaching the scene of the accident.
Since Mr. and Mrs. Dickenson were killed and Tabb had no recollection of the
67
events on the day of the accident, no evidence was available to explain the driving of
Dickenson beyond Berryville and his sudden burst of speed.
The fact that a host has been drinking and his guest has knowledge of that fact
is not sufficient to establish contributory negligence as a matter of law. The evidence
must go beyond this and show that because of his drinking the driver's ability to drive
was impaired, and that the guest knew, or, in the exercise of ordinary care, should
have known this and yet entered, or continued to voluntarily ride in the car. Whether
Tabb knew, or should have known, that drinking had impaired the ability of
Dickenson to drive was a question for the jury. Meade, Adm'r v. Meade, Adm'r, 206
Va. 823, 827, 147 S.E.2d 171, 174; Yorke v. Maynard, 173 Va. 183, 188, 3 S.E.2d
366, 369; 8 Am. Jur., 2d, Automobiles, §§ 537, 538, pages 94-96.
In Spurlin v. Nardo, 145 W.Va. 408, 114 S.E.2d 913, the West Virginia Court
recognized the same distinction between contributory negligence and assumption of
risk as that adopted in Virginia. Arrington, Adm'r v. Graham, Adm'r, 203 Va. 310,
124 S.E.2d 199; Hunn v. Windsor Hotel Company, 119 W.Va. 215, 217, 218, 193
S.E. 57, 58; Tiller v. N. & W. Ry. Co., 190 Va. 605, 612, 58 S.E.2d 45, 48. In both
states it has been held that:
"The essence of contributory negligence is carelessness; of
assumption of risk, venturousness. * * * (Assumption) of risk
embraces a mental state of willingness, while contributory negligence
is a matter of conduct," with knowledge and appreciation of the danger.
Arrington, Adm'r v. Graham, Adm'r, supra, 203 Va., at page 314.
There is no evidence that Tabb voluntarily exposed himself to any known
hazard, with full knowledge and appreciation of its existence. Whether he carelessly
placed himself in a dangerous position was a jury question.
The trial court did not abuse its discretion in permitting plaintiffs to withdraw
their endorsement of the unentered order dismissing Dellinger's administratrix "with
prejudice," and then entering on order dismissing her "without prejudice." No reason
appears from the transcript of the evidence as to why the dismissal was intended to
be "with prejudice." There was no evidence that Dellinger was guilty of any
negligence. Plaintiffs' final motion was simply to "dismiss the suit against Dellinger"
-- not to dismiss it "with prejudice."
Dismissing or releasing a claim against one tort-feasor does not operate as a
release of other joint tort-feasors unless there has been a satisfaction. It is the
acceptance of satisfaction which operates to extinguish plaintiff's cause of action
against other joint tort-feasors. First, etc., Bank v. Bank of Waverly, 170 Va. 496,
503, 197 S.E. 462; Key v. Caldwell, 39 Cal.App.2d 698, 702, 104 P.2d 87, 89.
In Shortt v. Hudson Supply, etc., Co., 191 Va. 306, 313, 60 S.E.2d 900,
quoting with approval from Cooley on Torts, 4th Ed., Vol. 1, sec. 83, page 263, we
said:
"* * * (Where) the bar accrues in favor of some of the wrongdoers
by reason of what has been received from or done in respect to one or
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more others, * * * the bar arises not from any particular form that the
proceeding assumes, but from the fact that the injured party has
actually received satisfaction, or what in law is deemed the equivalent."
We find no merit in the objections of Mrs. Tharp to the granting and refusing
of certain instructions.
Instruction No. 3 merely stated well recognized duties of an operator of an
automobile.
Instruction No. 4, which we have hereinbefore referred to, sets out the
"indivisible injury" rule, and applies it to the facts of this case.
Instruction No. E is based on the Code of West Virginia, §1721 (333) (now §
17C-6-1), which read in pertinent part as follows:
"(a) No person shall drive a vehicle on a highway at a speed greater
than is reasonable and prudent under the conditions and having regard
to the actual and potential hazards, then existing. In every event speed
shall be so controlled as may be necessary to avoid colliding with any
person, vehicle, or other conveyance on or entering the highways in
compliance with legal requirements and the duty of all persons to use
due care.
***
"(c) The driver of every vehicle shall, consistent with the
requirements of subsection (a), drive at an appropriate reduced speed *
* * when special hazard exists with respect to pedestrians or other
traffic or by reason of weather or highway conditions."
Mrs. Tharp testified that she was blinded by the lights of cars headed towards
her as she approached the scene of the first collision. Traveling at 45 to 50 miles per
hour, she did not remove her foot from the accelerator, nor apply her brakes until she
was within 10 feet of the Dellinger vehicle.
In Wolfe v. Beatty Motor Express, 143 W.Va. 238, 246, 101 S.E.2d 81, 86,
where the facts were similar to those in this case, insofar as they concern Mrs. Tharp,
the Court quoted with approval the following statement from Darling v. Browning,
120 W.Va. 666,668, 669, 200 S.E. 737, 738:
"It is an accepted mandate of law that, in the exercise of reasonable
care, a motorist, temporarily blinded by the lights of an approaching
vehicle, must exercise caution commensurate with the situation in order
to avoid injury to the person or property of others. * * *."
To the same effect see Stamper v. Bannister, infra, 146 W.Va. 100.
Instructions BB and CC are in conflict with Instruction No. 4, in that they
would impose upon Tabb the burden of proving what specific part of his injuries was
caused by the first collision and what part was caused by the second. In that event,
Tabb would have been unable to recover from either Dickenson or Mrs. Tharp.
69
Instruction No. CC-1 was given as No. CC-2, with minor changes, which
cautioned the jury against inferring negligence of Mrs. Tharp from the fact that the
second collision occurred.
Record No. 6481.
This brings us to a consideration of Mrs. Smith's action against Mrs. Tharp.
In view of our determination that the court did not err in the granting and
refusing of instructions, nor in dismissing the pleas of release and res judicata, and
having reached the conclusion that Mrs. Tharp was guilty of negligence, we need
only consider whether Mrs. Smith was guilty of contributory negligence and
assumption of risk.
Mrs. Smith testified, without contradiction, that just before the second
collision, she had alighted from her husband's car, and was standing alone on the
south shoulder of the road, facing the wreckage of the first collision; that desiring to
go to the aid of the injured in that collision, she made preparations to cross the road;
that knowing her husband had gone down the road to her right to warn traffic
approaching from the east, she looked to the left, that is towards the west; saw no car
approaching in the eastbound lane; then stepped on to the eastbound lane; and before
she could cross the road, Mrs. Tharp, approaching in the westbound lane, struck the
wrecked Buick, causing it to strike the Tempest and the rear end of the Tempest to
strike her. She expressed it in this way:
"I remember we hadn't seen any cars at all behind us. Then I
thought, well, if a car does come up from that direction, they are going
to see this accident, but they are not going to see me standing over here
on the side of the road. So I finally got myself all gathered together for
what I might see over there, and so I said, well, here I go, and next
thing I heard, horrible noise, and I felt myself being hurt."
In going to the aid of the injured persons, Mrs. Smith did not voluntarily
expose herself to the danger of Mrs. Tharp's negligence. Failing to see any
approaching car, she was not indifferent to the hazards of the road. She was not
guilty of assumption of risk, and whether she was guilty of contributory negligence,
under the circumstances of the case, was correctly left to the jury.
In Stamper v. Bannister, 146 W.Va. 100, 104, 118 S.E.2d 313, 316, this is said:
"The law in this state is that if the way appears clear to a pedestrian,
he may proceed to cross a highway, and whether or not he is guilty of
negligence in so doing is generally a question of fact for jury
determination." (Citing cases.)
In Deputy v. Kimmell, 73 W.Va. 595, 596, 80 S.E. 919, 920, dealing with the
reciprocal rights and duties of pedestrians and drivers of automobiles this is said in
Point 7 of the syllabus of the Court:
"A person lawfully in a public highway may rely upon the exercise
of reasonable care by drivers of vehicles to avoid injury. Failure to
70
anticipate omission of such care does not render him negligent. A
pedestrian is not bound, as a matter of law, to be continuously looking
or listening to ascertain if automobiles or other vehicles are
approaching, under penalty that if he fails to do so and is injured his
own negligence will defeat recovery of damages sustained."
Cf. Ritter v. Hicks, 102 W.Va. 541, 135 S.E. 601.
In conclusion, we are of opinion that the evidence was sufficient to justify the
jury in finding that Dickenson and Mrs. Tharp were each guilty of negligence, and
that their successive negligent acts were, in combination, the direct and proximate
cause of Tabb's injuries. We also hold that the evidence was sufficient to justify the
jury in finding that Mrs. Smith was neither guilty of contributory negligence, nor of
assuming the risk.
The judgments complained of are, therefore, affirmed.
Nationwide Mutual Insurance Company v.
Jewel Tea Company, Incorporated
202 Va. 527, 118 S.E.2d 646 (1961)
Snead, J., delivered the opinion of the court.
Ralph D. Hilton and Nationwide Mutual Insurance Company instituted a
suit in equity against Jewel Tea Company, Incorporated, to obtain contribution
from Jewel as a joint tort-feasor after Nationwide had settled claims for personal
injuries and property damage resulting from an automobile collision. Respondent
demurred to the bill and also filed a motion to strike and dismiss it. By decree
entered January 26, 1960, the demurrer and motion were sustained and the bill
was dismissed with leave to amend. In the decree Nationwide's motion to amend
the bill by omitting Ralph D. Hilton as a party complainant, but in all other
respects to remain the same, was granted, and Jewel's demurrer to the amended
bill and motion to strike were sustained and the amended bill was dismissed.
Complainant assigned error to the entry of this decree and we granted an appeal.
The bill alleged that complainant issued to Ralph D. Hilton a policy of
indemnity insurance on his 1953 Chevrolet automobile. On December 17, 1956,
the car was being operated by his son, Randolph Hilton, on business of his own
and not as agent of his father when the vehicle collided with another owned and
operated by Dr. F. F. Buck, in which James C. Lyons was riding, on Route 680 in
Wythe county approximately in front of the residence of W. T. Musser. The
highway extends in a northerly and southerly direction and just north of the point
of collision there is a sharp curve to the west. Randolph was proceeding in the
southbound lane and Dr. Buck was proceeding north in the other lane. Musser's
home is on the west side of the road. His front yard slopes in a steep bank at the
base of which is a rock wall that obstructs the vision of motorists rounding the
curve. Just south of the point of the curve Jewel's panel delivery truck, headed
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north, was parked on the west side of the road in front of the Musser property,
partly on the hard surface and partly off of it. As Randolph Hilton approached the
curve he veered his vehicle to the left in order to pass the truck. At that moment
the car driven by Dr. Buck proceeding in the northbound lane appeared and the
two vehicles collided.
The bill further alleged that Jewel's driver was negligent in parking or
stopping his truck in such a manner as to impede or render dangerous the use of
the highway by others; that Randolph Hilton was negligent in operating his
vehicle without having it under proper control and without keeping a proper
lookout, and that as a result of their concurring negligence Dr. Buck's car was
damaged and Lyons received personal injuries.
It was also alleged that complainant promptly entered into negotiations with
Dr. Buck and Lyons and settled their claims on January 21, 1957, for the total
sum of $2,555.74, which it says was reasonable, so as 'to avoid the expense of
litigation and in view of the liability of said Jewel Tea Company and the said
Randolph Hilton (who was covered for liability insurance under the policy of * *
* Ralph D. Hilton under the omnibus coverage clause)'; that complainant
unsuccessfully undertook to obtain from respondent contribution of one-half of
said payments; that the negligence of respondent was judicially determined in an
action brought by Ralph D. Hilton against respondent for damages to his car,
wherein he recovered a judgment upon which a writ of error was refused by this
court; that complainant is entitled to be subrogated to the right of Ralph D. Hilton
to contribution because of the settlements made by it under the policy of
indemnity insurance; that it was important that the claims be settled promptly, and
that the torts were mere acts of negligence and involved no moral turpitude.
The bill prayed that respondent be required to pay to complainant, by way of
contribution, $1,277.88, being one-half of the amount of the two claims settled.
It is contended by complainant that it made payments to Dr. Buck and
Lyons on behalf of Randolph Hilton, an additional assured under his father's
policy, and by virtue of such payments it is entitled to contribution from Jewel as
joint tort-feasor.
Respondent challenges complainant's allegation in the bill that it was
entitled to be subrogated to the right of Ralph D. Hilton to contribution because of
the settlements made by it on his behalf under the policy. It maintains that Ralph
D. Hilton, who was the bailor, had no such right as he was not liable for damages
to either Dr. Buck or Lyons. With this we agree. However, complainant also
alleged it made the settlements in view of the liability of Jewel and Randolph
Hilton, who was covered as an additional assured under the omnibus clause of the
policy issued to his father. The latter allegation, together with others in the bill,
stated a sufficient case for contribution.
No right of contribution among wrongdoers existed at common law. 4 M.J.,
Contribution, § 22, p. 527, note 10, and cases there cited. That right is now given
72
by § 8-627, Code 1950, and may be enforced when the wrong is a mere act of
negligence and involves no moral turpitude. To enforce contribution against a
joint tort-feasor a cause of action by the person injured against that wrongdoer
must lie. Nationwide insists that because the Buck car was in its proper lane
when struck, the concurring negligence of Jewel and Randolph Hilton was the
proximate cause of the damage to Dr. Buck's automobile and the personal injury
to Lyons and both Dr. Buck and Lyons had causes of action against the joint tortfeasors. Complainant maintains that the interests of Nationwide and Jewel were
served by complainant's making prompt and reasonable settlements of the claims
and that it is entitled to enforce the right of contribution possessed by Randolph
Hilton, its additional assured. Randolph Hilton's right of contribution is dependent
upon a determination of the issues of whether the joint negligence of Randolph
Hilton and Jewel's agent was the proximate cause of the injuries sustained by Dr.
Buck and Lyons, and whether Dr. Buck and Lyons were contributorily negligent.
The principle of subrogation has been liberally applied in Virginia. Federal
Land Bank v. Joynes, 179 Va. 394, 402, 18 S.E.2d 917. The right to contribution
is not a personal right of the tort-feasor but is a chose in action to which an
insurer may be subrogated. McKay v. Citizens Rapid Transit Company, 190 Va.
851, 859, 59 S.E.2d 121. The insurance company was indemnitor of its additional
assured, Randolph Hilton, and because he was an alleged tort-feasor, it could,
upon making settlement of the claims in his behalf, be subrogated to his right of
contribution from a joint tort-feasor.
A right of action for contribution will lie though no previous judgment
determining the issues of negligence and contributory negligence has been
obtained. Some jurisdictions require that a judgment be obtained against both
tort-feasors and paid by one before he may seek contribution from the other.
Annotation 85 A.L.R. 1091; 122 A.L.R. 520; 141 A.L.R. 1207. There is nothing
in our statute which requires that the issues of negligence and contributory
negligence be adjudicated before an action for contribution may be brought. It is,
however, necessary that the injured person have a cause of action against the tortfeasor from whom contribution is sought. If the alleged joint tort-feasor
challenges the right to contribution on the grounds that the compromise
settlement is unreasonable, excessive, made in bad faith, or that he was not
concurrently negligent, or that his negligence was not a proximate cause of the
injuries compromised, he may, in the suit for contribution, produce evidence to
rebut the allegation and proof of negligence and show that the compromise was
unreasonable and excessive, and have the issues adjudicated. Consolidated Coach
Corp. v. Burge, 245 Ky. 631, 54 S.W.2d 16, 85 A.L.R. 1086. Respondent is not
bound by the compromise settlements since it was not a party to them, nor is it
deprived of a trial by jury as to its liability for the damages sustained by Dr. Buck
and Lyons. Complainant must establish the negligence of both Randolph Hilton
and Jewel as concurring causes of the injuries; Jewel has the right to rebut the
evidence tending to show its negligence or that it was a proximate cause of the
injuries. The burden is upon Jewel to show that the compromises were not made
73
in good faith or that they were unreasonable and excessive if such is a defense.
13 Am. Jur., Contribution, § 119, p. 98.
There is no merit in respondent's contention that Nationwide's claim is
barred by the statute of limitations. In its answer it alleges that Lyons' claim for
personal injury against either Hilton, Dr. Buck, or Nationwide existed for one
year from the date of the accident and is barred now by the statute of limitations.
The basic principle of equity is that where two or more persons are subject
jointly to liability, it should be borne by them equally. The right to contribution is
not based upon express contract or agreement. Code section 8-627 specifically
states that contribution may be enforced between wrongdoers when the act of
negligence involves no moral turpitude. This is a right that is given by statute and
arises when, and only when, one tort-feasor has paid a claim for which they are
both liable. The right of action arises upon payment or discharge of the
obligation, and it is then that the statute of limitations begins to run. Van Winckel
v. Carter, 198 Va. 550, 556, 95 S.E.2d 148; McKay v. Citizens Rapid Transit Co.,
supra, at pages 857, 858; 13 Am. Jur., Contribution, § 88, p. 77.
In McKay v. Citizens Rapid Transit, supra, at pages 858, 859, we said:
'We therefore hold that the statute of limitations did not begin to
run until the payment was made by the indemnitors through the transit
company to Mrs. Patrick, and that even if the one-year statute could
have applied, less than a year had expired before bringing this action.
However, we are of opinion that the one-year statute has no
application, but that the cause of action in cases of this kind arises out
of an implied promise to pay, and therefore the three- year statute of
limitations would apply. 18 C.J.S., Contribution, sec. 13-b, p. 22; 13
Am. Jur., Contribution, sec. 84, p. 75; Houston v. Bain, 170 Va. 378,
196 S.E. 657.'
Here Nationwide settled the claims of Dr. Buck and Lyons by making
payment in compromise on January 21, 1957, and this suit was brought on May
27, 1959, well within the three-year statute of limitations.
Respondent contends that complainant should be barred from recovery in its
suit for contribution because it is splitting its cause of action and is harassing
defendant with a multiplicity of suits. It maintains that there was only one
insurance carrier, Nationwide, which carried both liability and property damage
on the Hilton car. It admits that Dr. Buck, Lyons and Ralph Hilton each had a
right to sue the various defendants in separate actions at law for his respective
damages; however, it asserts that once complainant acquired all of these claims
arising from one incident or happening, the complainant was bound by the rule
against splitting causes of action, and the judgment in the subrogation case of
Ralph D. Hilton v. Jewel Tea Company awarding Hilton property damages should
be a bar to the present suit by complainant. This overlooks the fact that there
arose out of the accident several causes of action which could have been brought
74
by the separate plaintiffs against respondent at different times. There was no
requirement that they be brought together or at the same time, and had they been
paid by Nationwide at different times, it would still have been entitled to
contribution from respondent in each instance upon proof that respondent's agent
was a joint tort-feasor in commission of the negligent act causing the various
injuries.
Respondent attacks the holding in Carter v. Hinkle, 189 Va. 1, 52 S.E.2d
135, in which this court followed the minority rule in allowing a plaintiff to
institute separate actions for personal injuries and for property damage arising out
of the same tort. It argues that the primary reason for the rule is that different
insurance carriers may become subrogated to different elements of the damages,
and contends that such a situation does not exist here. For an annotation
discussing the majority and minority rules, see 62 A.L.R.2d 997; the Virginia rule
is set out on page 1001.
In the present case no one plaintiff was suing separately for property and
personal injury damages; rather the claim of Dr. Buck was for property damage,
that of Lyons for personal injuries, and once paid by complainant, it filed only
one suit to enforce contribution of respondent after its compromise settlement
with the two claimants. Had complainant settled with Lyons within one year and
later settled with Dr. Buck, it could have enforced its rights of contribution a year
or more apart and yet been entitled, on proof of concurring negligence, to recover
one-half of the amount paid the respective claimants. Rather than harassment by a
multiplicity of suits, the joining of the two claims into one suit for contribution
reduces the amount of litigation.
Respondent argues that when Nationwide brought action in behalf of Ralph
Hilton against Jewel and recovered judgment, it should have joined the
compromise settlements of Dr. Buck and Lyons and brought only one suit against
Jewel for the three claims. This it could not have done for the right of action of
Ralph Hilton, to which Nationwide was subrogated, was based not on Jewel's
being a joint tort-feasor but was based on its primary negligence. No negligence
could be attributed to Ralph Hilton, and it follows that he had no right of
contribution. The only right of contribution existing as a result of that action was
that of Jewel against Randolph Hilton as a joint tort-feasor, had Jewel so desired
to proceed and had it proved Randolph's joint negligence in causing the damage
to the Hilton car. The present suit for contribution was separate and distinct.
Complainant was subrogated to the right of Randolph Hilton, an additional
assured under the policy, and was entitled to seek contribution for damages paid
Dr. Buck and Lyons for which Randolph Hilton and Jewel might be jointly liable.
The decree appealed from is reversed and the case remanded for a
determination of the issues presented.
Reversed and remanded.
75
Sullivan v. Robertson Drug
273 Va. 84; 639 S.E.2d 250 (2007)
Keenan, J, delivered the opinion of the court.
This case is an appeal of a judgment entered in a contribution action
involving joint tortfeasors. We consider whether the circuit court erred in
instructing the jury that it could apportion damages based on the jury's assessment
of the degree to which a defendant's negligence contributed to the injuries that
were the subject of the underlying tort action. We also consider whether the
circuit court erred in instructing the jury that it could consider the reasonableness
of the settlement reached in the underlying tort action.
In 1997, David M. Hopper filed a complaint in the United States District
Court for the Western District of Virginia against his physician, William C.
Sullivan, D.O., alleging that Dr. Sullivan improperly prescribed excess amounts
of Triamcinolone, a corticosteroid. Hopper alleged that his use of those excessive
amounts of Triamcinolone caused him to develop severe medical conditions
including Cushing's Syndrome37 and osteoporosis. Hopper further alleged that
Dr. Sullivan failed to monitor Hopper's use of Triamcinolone, improperly
administered an injection of testosterone, and subjected Hopper, a known
recovering narcotics abuser, to a "foreseeable dangerous home regime of selfadministered drugs."
In his complaint, Hopper additionally alleged that Dr. Sullivan had written
Hopper prescriptions for Cortisone, Prednisone, and other corticosteroids and
medications, and that Dr. Sullivan had "disavowed to other health care providers
knowledge" of Hopper's drug regimen. Hopper sought $1 million in
compensatory damages and $350,000 in punitive damages from Dr. Sullivan.
Hopper and Dr. Sullivan later entered into an agreement settling the federal court
action for the amount of $ 735,000. In the agreement, Hopper released all claims
he may have had against Dr. Sullivan and against Robertson Drug and its
employees.
After the settlement, Dr. Sullivan filed the present motion for judgment
against Michael S. Robertson, a pharmacist, and Robertson's employer, Robertson
Drug Co., Inc. (Robertson Drug), seeking contribution for Dr. Sullivan's payment
in settlement of Hopper's claim. In the contribution action, Dr. Sullivan alleged
that Robertson, in his individual capacity and as owner of Robertson Drug,
negligently "refilled" Hopper's Triamcinolone prescriptions, thereby contributing
to Hopper's injuries.
37 Cushing's Syndrome is a condition caused by excessive cortisone in the body. The symptoms
may include a rapid increase in fat cells in the face, neck, and trunk, curvature of the back caused
by osteoporosis of the spine, hypertension, diabetes, pain in the abdomen and back, and muscular
wasting and weakness. Richard Sloane, The Sloane-Dorland Annotated Medical-Legal
Dictionary 690 (1987)
76
Dr. Sullivan further alleged that because Hopper could have pursued an
action for damages against Robertson and Robertson Drug, Dr. Sullivan was
authorized under Code §§ 8.01-34 and - 35.1 to pursue the contribution action.
Thus, Dr. Sullivan asserted that Robertson and Robertson Drug were indebted to
Dr. Sullivan for "their share of the total settlement paid by Sullivan for their
release." In their grounds of defense, Robertson and Robertson Drug denied that
they caused any injury to Hopper or were joint tortfeasors with Dr. Sullivan.
At trial, the evidence showed that Hopper initially sought medical treatment
from Dr. Sullivan for multiple injuries he sustained in an automobile accident. In
June 1993, Dr. Sullivan provided Hopper with his first dose of Triamcinolone for
"pain management." Hopper reported that his headaches were less severe after the
injection. Thereafter, Dr. Sullivan gave Hopper two or three additional
Triamcinolone injections between August and September of 1993.
Dr. Sullivan also wrote Hopper a prescription for Triamcinolone. Instead of
writing "0" as the number of refills permitted, Dr. Sullivan circled "PRN," which
allowed Hopper to receive unlimited "refills" for 24 months. According to Dr.
Sullivan, he did not intend to allow unlimited "refills" of the drug because its
long-term use can cause suppression of the immune system, bone deterioration,
diabetes, and weight gain. Dr. Sullivan admitted that he acted negligently in
prescribing Triamcinolone to Hopper.
From June 1993 through July 1993, based on the prescription written by Dr.
Sullivan, Hopper obtained Triamcinolone on five occasions from Westover
Pharmacy. After Westover Pharmacy permanently closed its business at the end
of July 1993, Hopper obtained "refills" of his prescription at Robertson Drug
three times between early August 1993 and the middle of September 1993.
Robertson was the pharmacist who provided these last three "refills" and, at that
time, he had access to Westover Pharmacy's prescription records.
The jury heard conflicting testimony on the issue whether Robertson's
conduct constituted a breach of the standard of care applicable to pharmacists.
Edgar R. Gonzales, who qualified as an expert in pharmacology, testified that
because of the drug's serious long-term effects, Robertson breached the standard
of care for pharmacists by supplying the additional Triamcinolone without
contacting Dr. Sullivan. In contrast, Timothy W. Lucas, who also qualified as an
expert in pharmacology, testified that Robertson did not breach the standard of
care for pharmacists by failing to contact Dr. Sullivan before "refilling" Hopper's
prescription.
The evidence further revealed that in the middle of September 1993, Hopper
became ill, was admitted to a hospital for 20 days, and was diagnosed as having
Cushing's Syndrome. In 1995, Dr. Eugene J. Barrett began treating Hopper for
Cushing's Syndrome, osteoporosis, and several other related problems, including
a compression back fracture, a rib fracture, and a risk of spinal collapse. Dr.
Barrett attributed these conditions to Hopper's overuse of corticosteroids.
77
Dr. Barrett could not identify any specific condition as being caused solely
by a particular steroid prescribed by Dr. Sullivan. However, Dr. Barrett concluded
that Hopper's use of Triamcinolone was the dominant, contributing factor in his
development of Cushing's Syndrome and osteoporosis, and that each injection of
that drug had a cumulative effect.
At the close of Dr. Sullivan's evidence, Robertson and Robertson Drug
(collectively, Robertson) moved to strike the evidence, arguing that Dr. Sullivan
was required to apportion the damages and quantify Robertson's share of the
injury because Dr. Sullivan was responsible for a "big measure" of Hopper's
injury, while Robertson was only responsible for a "very small area" of damages.
Robertson argued that Dr. Sullivan's settlement did not reflect such an
apportionment, and further noted that neither Dr. Barrett nor Gonzales was able to
apportion the amount of damage attributable to the actions of either Dr. Sullivan
or Robertson. The circuit court denied Robertson's motion, stating that the jury
should decide what damages, if any, Robertson caused.
At the close of all the evidence, Dr. Sullivan argued that he was entitled to
judgment as a matter of law on the issue of reasonableness of the settlement,
arguing that Robertson had failed to present any evidence to rebut the
presumption that the settlement was reasonable. The circuit court denied Dr.
Sullivan's request.
Over Dr. Sullivan's objections, the circuit court gave the following jury
instructions:
Instruction A:
The Court instructs the jury that where there is damage from
several causes, for a portion of which the defendants cannot be held
liable, a plaintiff must present evidence that will show within a
reasonable degree of certainty the share of the damages for which the
defendants are responsible. If the plaintiff fails to do so, then he cannot
recover for that item.
Instruction O:
The Court instructs the jury that on the issue of damages if you
find [both Robertson and Robertson's Drug were] negligent, and their
negligence was a proximate cause of David Hopper's injuries, which
were the basis of his lawsuit and settlement with Dr. Sullivan, then
you shall determine how much of the amount of that settlement is
related to negligence of [the] Robertson[s] and apportion that amongst
all the wrongdoers on a pro-rata basis.
Instruction 13:
The Court instructs the jury that there is a presumption that the
$735,000.00 settlement made by Dr. Sullivan is reasonable, that the
defendants are not bound by the compromise settlement since they
78
were not a party to the settlement, and that the burden of proof is upon
the defendants to prove that compromise settlement was unreasonable
and excessive.
The jury returned a verdict in favor of Dr. Sullivan, awarding him damages
in the amount of $73,500. Dr. Sullivan made a motion to set aside the verdict,
arguing that because the jury decided that Dr. Sullivan and Robertson were joint
tortfeasors, Robertson was required to pay half the $735,000 settlement. The
circuit court denied the motion and entered final judgment in accordance with the
jury verdict. Dr. Sullivan appeals.
Dr. Sullivan argues that the circuit court erred in giving Jury Instructions A
and O, which permitted the jury to apportion the amount of damages based on the
jury's assessment of Robertson's degree of negligence in causing Hopper's injury.
Dr. Sullivan maintains that Hopper's injuries were not susceptible to
apportionment because the evidence showed that his injuries were indivisible.
Thus, Dr. Sullivan contends that Robertson was a joint tortfeasor who was equally
liable for half the damages caused by his concurrent negligence and that the
circuit court should have instructed the jury that if it returned a verdict in Dr.
Sullivan's favor, the jury must award him $367,500.
In response, Robertson argues that Jury Instructions A and O were correct
based on the evidence presented. Robertson asserts that the evidence showed that
Hopper suffered multiple divisible injuries, some of which were caused solely by
Dr. Sullivan. Robertson contends that, therefore, the jury was properly instructed
that Dr. Sullivan could recover only for injuries proximately caused by the
concurrent negligence of Robertson and Dr. Sullivan, and that the jury was
required to determine what portion of the $735,000 settlement was attributable to
that concurrent negligence. We disagree with Robertson's arguments.
The right of contribution is based on the equitable principle that when two
or more persons are subject to a common burden, their responsibility shall be
borne equally. Nationwide Mut. Ins. Co. v. Minnifield, 213 Va. 797, 800, 196
S.E.2d 75, 77-78 (1973); Nationwide Mut. Ins. Co. v. Jewel Tea Co., 202 Va. 527,
531-32, 118 S.E.2d 646, 649 (1961); Wiley N. Jackson Co. v. City of Norfolk, 197
Va. 62, 66, 87 S.E.2d 781, 784 (1955). A right of contribution against a joint
tortfeasor lies when one wrongdoer has paid or settled a claim not involving
moral turpitude for which other wrongdoers also are liable. Minnifield, 213 Va. at
798, 196 S.E.2d at 76; Bartlett v. Roberts Recapping, Inc., 207 Va. 789, 793, 153
S.E.2d 193, 196 (1967); Jewel Tea, 202 Va. at 532, 118 S.E.2d at 649; see Code §
8.01-34. The party seeking contribution has the burden of proving that the
concurring negligence of the other parties was a proximate cause of the injury for
which damages were paid. Jewel Tea, 202 Va. at 531, 118 S.E.2d at 649.
When a contribution action is based on a settlement agreement reached
between an injured person and one tortfeasor, the remaining tortfeasors may
defend against the contribution action on various grounds. Such defenses, which
are subject to adjudication in a contribution action, include that the settling
79
tortfeasor was not negligent, that the remaining tortfeasors were not concurrently
negligent with the settling tortfeasor, that the remaining tortfeasors' negligence
was not a proximate cause of the damages compromised, or that the settlement
agreement was unreasonable, excessive, or made in bad faith. Id.
If separate and independent acts of negligence of two parties directly cause
a single indivisible injury to a third person, either or both wrongdoers are
responsible for the whole injury. Maroulis v. Elliott, 207 Va. 503, 511, 151
S.E.2d 339, 345 (1966); Murray v. Smithson, 187 Va. 759, 764, 48 S.E.2d 239,
241 (1948). Thus, in determining the liability of a person whose concurrent
negligence results in such an injury, comparative degrees of negligence shall not
be considered and both wrongdoers are equally liable irrespective whether one
may have contributed in a greater degree to the injury. Maroulis, 207 Va. at 510,
151 S.E.2d at 344; Von Roy v. Whitescarver, 197 Va. 384, 393, 89 S.E.2d 346,
352 (1955); Murray, 187 Va. at 764, 48 S.E.2d at 241; Richmond Coca-Cola
Bottling Works, Inc. v. Andrews, 173 Va. 240, 250-51, 3 S.E.2d 419, 423 (1939).
Accordingly, each such wrongdoer is responsible for an equal share of the
amount paid in damages for a single injury. Only when there are multiple,
divisible injuries covered by a compromise settlement is the finder of fact
required to attempt an allocation of the amount in contribution a wrongdoer must
pay for his negligent act or acts causing one or more of those divisible injuries.
See Tazewell Oil Co. v. United Virginia Bank, 243 Va. 94, 115, 413 S.E.2d 611,
622, 8 Va. Law Rep. 1784 (1992).
In the present case, Dr. Barrett testified that the effect of the Triamcinolone
was cumulative and, therefore, it was impossible to determine what effect any
particular dose had on Hopper. According to Dr. Barrett, Hopper's use of
Triamcinolone was the dominant contributing factor in Hopper's development of
Cushing's syndrome and osteoporosis. Dr. Barrett also stated that several of
Hopper's other conditions, including sepsis, pneumonia, and empyema, were
caused by the immunosuppressive effect of the Triamcinolone. Dr. Barrett further
explained that Hopper received other corticosteroids, and stated that this entire
group of drugs, including the Triamcinolone, "all cause the same issues when
given in high doses and given repeatedly."
By this medical testimony, which was not refuted, Dr. Sullivan established
that the cumulative effect of the doses of Triamcinolone given to Hopper caused
him an indivisible injury. Thus, if Robertson's actions breached the standard of
care, Robertson was liable for the whole injury to Hopper, irrespective whether
doses of that drug not supplied by Robertson, or whether other drugs, contributed
in a greater degree to Hopper's injury. See Maroulis, 207 Va. at 510, 151 S.E.2d
at 344; Von Roy, 197 Va. at 393, 89 S.E.2d at 352; Murray, 187 Va. at 764, 48
S.E.2d at 241; Richmond Coca-Cola Bottling Works, 173 Va. at 250-51, 3 S.E.2d
at 423.
Viewed in this context, Instruction A was erroneous because it improperly
suggested that Robertson could not be found liable for the whole, indivisible
80
injury caused by the various doses of Triamcinolone and other medications
supplied to Hopper from different sources. This instruction further was improper
because Robertson failed to present any evidence that Hopper suffered injuries
separate and divisible from those resulting from his use of Triamcinolone.
Hopper's various allegations in the underlying tort action that he suffered injury
resulting from medications other than Triamcinolone plainly were not evidence in
the present action that Hopper had sustained a divisible injury. Thus, the record
before us lacked evidence of a separate, divisible injury for which Robertson was
not liable.
We also conclude that the circuit court erred in giving Instruction O. This
instruction was erroneous because it directed the jury to apportion damages based
on the joint tortfeasors' relative degrees of negligence. By improperly directing
the jury to compare the negligence of the wrongdoers, Instruction O violated the
established principle that comparative degrees of negligence are not to be
considered in determining the liability of persons whose concurrent negligence
results in an injury. Maroulis, 207 Va. at 510, 151 S.E.2d at 344; Murray, 187 Va.
at 764, 48 S.E.2d at 241.
We next consider Dr. Sullivan's argument that the circuit court erred in
allowing the jury to consider the issue whether the settlement between Dr.
Sullivan and Hopper was reasonable. Dr. Sullivan contends that although
Instruction 13 was a correct statement of law, Robertson presented no evidence to
rebut the presumption that the settlement was reasonable and, thus, the circuit
court should not have given that instruction.
In response, Robertson argues that the circuit court did not err in allowing
the jury to consider the reasonableness of the settlement. Robertson contends that
although the settlement may have been reasonable with regard to Dr. Sullivan and
Hopper's several claims against Dr. Sullivan, the settlement was unreasonable
with regard to Robertson because it included claims, injuries, and damages that
were not the product of the concurrent negligence of Dr. Sullivan and Robertson.
We find no merit in Robertson's arguments.
When a tortfeasor enters into a settlement agreement with a claimant that
also releases other tortfeasors, the settling tortfeasor is entitled to obtain
contribution from the remaining tortfeasors for reasonable amounts paid to settle
the claim. Code § 8.01-35.1. Under this statute, a fact finder may consider the
reasonableness of the settlement agreement only with regard to the indivisible
injury sustained and may not consider whether the remaining tortfeasors caused
the injuries that were the basis for the settlement. Robertson's argument
addressing the reasonableness of the settlement is unpersuasive because it
confuses these two concepts.
The terms of settlement of a claim constitute prima facie evidence of
reasonableness, and a defendant in a contribution action bears the burden of
producing evidence that the compromise reached was unreasonable or excessive.
See Jewel Tea, 202 Va. at 531, 118 S.E.2d at 648-49. Thus, Robertson, as the
81
defendant in the contribution action, had the burden of producing evidence that
the settlement was unreasonable before he was entitled to Instruction 13
submitting that issue for the jury's determination.
Robertson, however, failed to present any evidence indicating that the
settlement was unreasonable or excessive.38 Therefore, having failed to produce
more than a scintilla of evidence on the subject, Robertson was not entitled to
have the jury instructed on the issue of reasonableness of the settlement.
Monahan v. Obici Med. Mgmt. Servs., 271 Va. 621, 636, 628 S.E.2d 330, 339
(2006); Schlimmer v. Poverty Hunt Club, 268 Va. 74, 78, 597 S.E.2d 43, 45
(2004); Pollins v. Jones, 263 Va. 25, 28, 557 S.E.2d 713, 714 (2002).
Accordingly, we conclude that the circuit court erred in giving Instruction 13 and
in submitting that issue for the jury's consideration.
Our holding that the circuit court improperly instructed the jury requires us
to reverse the circuit court's judgment. Because the circuit court's improper
instructions addressed issues of liability as well as issues of damages, those
instructions may have exerted a material influence on the jury in reaching its
conclusions on both issues. Therefore, a new trial on all issues is appropriate. See
Wright v. Estep, 194 Va. 332, 337-38, 73 S.E.2d 371, 375 (1952); Rawle v.
McIlhenny, 163 Va. 735, 750, 177 S.E.2d 214, 221 (1934).
For these reasons, we will reverse the circuit court's judgment and remand
the case for a new trial on all issues.
Reversed and remanded.
Medical Malpractice
Castle v. Lester, 2006 Va. Lexis 108
In Castle, the plaintiff, mother of a child who was born with serious
neurological injuries, alleged that the defendant Dr. Castle was negligent in
monitoring and managing her labor and affecting the child’s delivery. The
defendant doctor settled the child’s claim for his severe neurological and physical
injuries, pain and suffering, mental anguish, and future medical expenses. In the
mother’s claim against the doctor, the doctor filed a motion in limine seeking to
exclude any reference to the child’s injuries, damages, life expectancy and costs
of medical care. He argued that such evidence would be unfairly prejudicial,
would confuse the jury, and would permit the plaintiff to litigate claims already
settled, thereby opening the door to double recovery. The mother agreed to
exclude evidence of the child’s medical expenses, but she opposed the exclusion
of evidence concerning the extent of the child’s injuries and his diminished life
38 Likewise, Robertson failed to present any evidence that the settlement agreement included
compensation for injuries involving willful and wanton acts of negligence or moral turpitude or
compensation for punitive damages. Therefore, we do not address further his argument that these
alleged factors were reflected in the settlement.
82
expectancy. The trial court agreed with the plaintiff and denied the doctor’s
motion in limine with respect to evidence about the child’s injuries and life
expectancy, but granted it with respect to the costs of treating and raising a
neurologically impaired child. At trial, over the doctor’s objection, the jury was
instructed that “injury to an unborn child in the womb of the mother is be
considered as physical injury to the mother.” Dr. Castle asserted this instruction
was not appropriate since this case involved a live birth as opposed to a still birth,
and that it would allow the mother to recover for the same physical injuries for
which her child had already been compensated. The jury returned a verdict for
the plaintiff in the amount of $1.6 million in damages. The trial court entered
judgment for the plaintiff mother, and Dr. Castle appealed. The following are
portions of the opinion of the Supreme Court affirming the jury verdict for the
plaintiff.
In this appeal, we once again address two previous rulings of this Court, that
an injury to a fetus constitutes an injury to the mother, Modaber v. Kelley, 232
Va. 60, 66, 348 S.E.2d 233, 237, 3 Va. Law Rep. 510 (1986); and that a mother
who gives birth to an impaired child is entitled to recover, as part of her
individual cause of action, damages for her mental suffering resulting from the
birth. Bulala, 239 Va. at 229, 389 S.E.2d at 675; see also Fairfax Hosp. Sys., Inc.
v. McCarty, 244 Va. 28, 37, 419 S.E.2d 621, 626-27, 8 Va. Law Rep. 3192 (1992).
Dr. Castle asks us to reconsider our holding in Bulala because that decision, he
argues, extended "the rule in Modaber beyond its supporting rationale."
Dr. Castle's quarrel with Bulala underpins two of his three assignments of
error. First, he contends the trial court erred in giving Instruction No. 6 to the jury
because Dusty was born alive and therefore had his own separate claim for his
personal injuries, for which he had already been compensated. Second, Dr. Castle
claims "the trial court erred in allowing . . . jury instructions permitting, and
evidence supporting, . . . Lester's claims for damages from mental suffering due to
her son's impairment, including evidence regarding her son's life expectancy,
condition, and care needs, and [her] depression and lost earnings."
In support of these two assignments of error, Dr. Castle argues the decision
in Modaber allowing a mother's claim for physical injury and mental anguish
arising from her child's stillbirth was necessary to mitigate the harshness of the
common law "rule that an unborn child is a part of the mother until birth and, as
such, has no juridical existence." Lawrence v. Craven Tire Co., 210 Va. 138, 142,
169 S.E.2d 440, 442 (1969) (internal quotation omitted). Dr. Castle contends the
need to allow a mother to recover such damages disappears when the child is born
alive, albeit impaired, and becomes a "person" with legal recourse for his or her
own prenatal injuries. Furthermore, according to Dr. Castle, when a child is born
alive, continued recognition of his or her prenatal injuries as being those of the
mother allows an impermissible double recovery for the same injury, once by the
mother, and again by the child. The essence of Dr. Castle's argument is that Lester
should have recovered only for her own physical injuries and resulting mental
anguish and not for any mental suffering caused by the birth of her severely
83
impaired son and the need for her to provide him with around-the-clock care.
Thus, Dr. Castle asks this Court to reconsider our decision in Bulala and to hold
that the trial court erred in giving Instruction No. 6 and in admitting evidence
concerning the severity of Dusty's impairments, his ongoing care needs, and his
life expectancy.
Of course, Dr. Castle's request that we revisit our decision in Bulala
implicates the doctrine of stare decisis. Time and again, we have said:
In Virginia, the doctrine of stare decisis is more than a mere
cliche. That doctrine plays a significant role in the orderly
administration of justice by assuring consistent, predictable, and
balanced application of legal principles. And when a court of last
resort has established a precedent, after full deliberation upon the
issue by the court, the precedent will not be treated lightly or ignored,
in the absence of flagrant error or mistake.
Pulliam v. Coastal Emergency Servs., Inc., 257 Va. 1, 10, 509 S.E.2d 307, 312
(1999) (quoting Selected Risks Ins. Co. v. Dean, 233 Va. 260, 265, 355 S.E.2d
579, 581, 3 Va. Law Rep. 2345 (1987)); see also Nunnally v. Artis, 254 Va. 247,
252-53, 492 S.E.2d 126, 128-29 (1997); Kelly v. Trehy, 133 Va. 160, 169, 112
S.E. 757, 760 (1922). We have previously considered the issues presented in this
appeal, and we entertain them again today. Nonetheless, we are convinced that
our holding in Bulala was not a "flagrant error or mistake," Pulliam, 257 Va. at
10, 509 S.E.2d at 312, but was well reasoned and remains good law.
In Modaber, the issue before the Court was whether a mother sustained
personal injuries, as well as mental suffering, as a result of the stillbirth of her
child. 232 Va. at 61, 348 S.E.2d at 233. A jury found that the defendantobstetrician's negligence had caused the plaintiff's unborn child to die in the
womb. Id. at 62, 65, 348 S.E.2d at 234-36. The trial court in that case gave an
instruction identical to the one Dr. Castle assigns as error here: "[I]njury to an
unborn child in the womb of the mother is to be considered as physical injury to
the mother." Id. at 65, 348 S.E.2d at 236. We concluded that the instruction was a
correct statement of the law and that the mother "may recover for such physical
injury and mental suffering associated with a stillbirth." Id. at 66, 348 S.E.2d at
236-37. Clearly, the decision in Modaber was a logical consequence of our prior
holding that, since a fetus is not a legally cognizable "person" separate from its
mother until birth, Virginia's wrongful death statute does not allow a cause of
action for the death of an unborn child. Id. at 66, 348 S.E.2d at 236-37 (citing
Lawrence, 210 Va. at 140-42, 169 S.E.2d at 441-42).
In Bulala, we examined the elements of a mother's compensatory damage
claim and that of her child when the defendant-doctor's negligence caused the
child, though born alive, to be seriously impaired. 239 Va. at 229-30, 389 S.E.2d
at 675-76. We concluded that the mother and child were both "patients" of the
defendant, each of whom was entitled to a separate statutory damage cap under
84
the Virginia Medical Malpractice Act. Bulala, 239 Va. at 229, 389 S.E.2d at 67576. We preserved Modaber's rule that prenatal injury to a fetus constitutes
physical injury to the mother and, therefore, permitted the mother to recover
damages for the "mental suffering resulting from the birth of a defective child."
Bulala, 239 Va. at 229, 389 S.E.2d at 675.
Concluding that, at the moment of birth, the child also became the
defendant's "patient," we allowed the child to recover "the usual elements of
damage . . . appropriate to any infant's personal injury action." Bulala, 239 Va. at
229-30, 389 S.E.2d at 676. Under the rule we announced the same day in Kalafut
v. Gruver, 239 Va. 278, 389 S.E.2d 681, 6 Va. Law Rep. 1474 (1990), damages
recoverable by the impaired child included those arising out of harm inflicted on
the child by the defendant before birth. Bulala, 239 Va. at 229, 389 S.E.2d at 675.
In Kalafut, "[w]e drew the line between nonliability and liability for prenatal
injury at the moment of live birth of the child, when the child becomes a 'person,'"
Bulala, 239 Va. at 229, 389 S.E.2d at 675, and accordingly held that a "tortfeasor
who causes harm to an unborn child is subject to liability to the child, or to the
child's estate, for the harm to the child, if the child is born alive." Kalafut, 239 Va.
at 283-84, 389 S.E.2d at 684.
The decisions in Bulala and Kalafut collectively established that, when a
fetus sustains injury and is subsequently born alive, the mother and the impaired
child each have a claim for damages resulting from the negligently caused, in
utero injury. Those two claims, however, encompass different elements. As the
Court in Bulala uniformly accepted, a mother's claim is solely for her mental
suffering arising from the birth of a defective child. Whatever disagreement
existed in that case as to whom was a proper plaintiff turned on whether the child
could assert her own claims for injuries she suffered prior to becoming a legal
"person." See Bulala, 239 Va. at 235-37, 389 S.E.2d at 679-80 (Russell, J.,
dissenting).
Even in the absence of settled precedent, Dr. Castle's arguments are without
merit. Dr. Castle does not assert that Modaber was wrongly decided. But, in Dr.
Castle's view, the mother's physical injury due to injury to her fetus disappears at
the moment her child is born alive, as if it had never occurred. Such an outcome
would be inconsistent with the holding in Modaber, and we decline to make it the
law of the Commonwealth.
Neither can we accept Dr. Castle's double-recovery argument as a
justification for overturning Bulala. We have considered and discarded the same
proposition on more than one occasion. The doctor in Bulala contended that his
alleged negligence caused "but one injury--the injury to the child." Brief of
Appellant Bulala at 9, Bulala v. Boyd, 239 Va. 218, 389 S.E.2d 670, 6 Va. Law
Rep. 1399 (1990) (Record No. 890900). On that basis, he argued further, "Any
claim which the parents may have is derivative of the action for the injury to the
child." Id. The Court agreed that the claim for emotional distress asserted by the
child's father was "wholly derivative of the child's claim," but specifically held,
85
"[T]he mother, as part of her claim, would be entitled to recover for mental
suffering resulting from the birth of a defective child." Bulala, 239 Va. at 229,
389 S.E.2d at 675 (emphasis added).
Our other decisions confirm that Dr. Castle's double-recovery argument is
without merit. In Kalafut, we made it clear that "in Modaber we did not say that
injury to the fetus constituted harm only to the mother . . . ." 239 Va. at 285, 389
S.E.2d at 684. Two years later, in McCarty, we upheld an award of damages for a
mother's emotional distress resulting from injuries inflicted in utero that caused
her child to be born with severe neurological impairments. 244 Va. at 37, 419
S.E.2d at 626-27. The defendant in that case advanced the same argument raised
by Dr. Castle, namely, that a mother should not be allowed to recover damages
for mental anguish caused by giving birth to an impaired, but living, child. See
Brief of Appellant at 35-41, Fairfax Hosp. Sys., Inc. v. McCarty, 244 Va. 28, 419
S.E.2d 621, 8 Va. Law Rep. 3192 (1992) (Record No. 911203). In doing so, the
defendant in McCarty suggested that our holding in Bulala did not permit a
mother to recover damages for mental suffering resulting from prenatal injury to
the fetus, but only recognized a mother's claim for mental anguish damages
stemming from the physical injuries she suffered personally, separate and apart
from those inflicted upon the fetus. See id. at 39. Despite the fact the mother in
McCarty did not suffer an independent physical injury during her labor and
delivery of the child, as did the mothers in this case and in Bulala, we dismissed
the proposed distinction and, once again, held that a mother can recover damages
for her mental suffering resulting from the birth of an impaired child, irrespective
of her impaired child's separate cause of action. McCarty, 244 Va. at 37, 419
S.E.2d at 626-27.
In light of our conclusion that Bulala remains good law and should not be
overturned, Instruction No. 6 was a correct statement of the law, and the trial
court did not err in giving the instruction to the jury. Nevertheless, Dr. Castle
argues that Instruction No. 6, when read in conjunction with Instruction No. 5,
confused the jury as to whom--Lester or Dusty--was entitled to compensation for
Dusty's physical injuries. For that reason, he insists giving Instruction No. 6
constituted reversible error. Specifically, he contends that, after the trial court told
jurors in Instruction No. 5 that they should consider, in determining Lester's
damages, "any bodily injuries she sustained," the instruction, "[I]njury to an
unborn child in the womb of the mother is to be considered as physical injury to
the mother," wrongly allowed the jury to compensate Lester for all of Dusty's
bodily injuries.
Undeniably, "the office of an instruction is to fully and fairly inform the jury
as to the law of the case applicable to the particular facts, and not to confuse
them." Gaalaas v. Morrison, 233 Va. 148, 156, 353 S.E.2d 898, 902, 3 Va. Law
Rep. 2008 (1987) (internal quotation omitted). "Instructions should be pertinent to
the issues and set out correct legal principles complete in themselves as far as
they go with regard to the specific issues involved. If an instruction may
reasonably be regarded as having a tendency to mislead the jury, it is error to give
86
it." H.W. Miller Trucking Co. v. Flood, 203 Va. 934, 937, 128 S.E.2d 437, 440
(1962). We will not find error when a jury was instructed correctly as to the law
and the surrounding circumstances assure us that the jury was not confused about
its obligations. See Murray v. Commonwealth, 225 Va. 13, 16-17, 300 S.E.2d
740, 742-43 (1983).
The record in the case at bar reveals multiple instances when the trial court
and both parties apprised the jury that Lester's claims were not to be confused
with Dusty's. Before impaneling the jury, the trial court provided the veniremen
with some details about the case in an instruction drafted by the parties:
The facts are as follows, a brief summary. Dusty Lester, Jr.,
who is now 15 months old was born on June 22nd of 2004. He
suffers from severe neurological injury. This case is being brought
by the mother, Karyn Lester, for her damages as a result of injuries
to her son. The parties have stipulated as to liability. Therefore, the
only issue before you is that of damages.
During voir dire, counsel for Lester explained:
[I]n this case the law says that injury to a baby in the womb is
injury to the mother. And you will get that instruction later on in the
case. Before birth an injury to the baby is an injury to the mother. . . .
...
. . . And as a result you will not hear testimony about the
medical costs of raising the baby, of caring for the baby. You will
not hear about the baby's future or anything like that. This is the
mother's claim for injury.
Counsel for Dr. Castle provided the venire with an even clearer explanation of the
issue in the case:
This case that you are going to hear . . . is not a case for you to
determine injuries to Dusty Lester, Jr., and, more importantly, to
compensate Dusty Lester, Jr. for those injuries.
Those issues are for another group, another day. It is not your
job to award compensation to Dusty Lester, Jr. for injuries that he
sustained during the birth process.
Rather what you are going to be asked to do is to compensate
his mother for her emotional distress in dealing with the fact that her
son was injured in the birth process.
You are not compensating the child. That's why you're not
going to hear anything about the costs of raising the child or
anything like that. That's for others to decide. What you are going to
decide only, only [sic] is the issue with respect to the mother's
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damages.
He then asked, "[I]s there anybody on this panel who cannot separate the two and
deal with only the issue that I've outlined for you?" No one on the panel
responded in the affirmative.
Before opening statements, the trial court cautioned the jurors:
This case involves an action by Karyn Lester, the mother of
Dusty Lester. It is separate and apart from any separate action
brought by her child, Dusty Lester.
You are not to concern yourselves with any action brought on
behalf of the child and should only consider this current action by
the mother against the defendant, Dr. Castle, which is the case you
are deciding today and tomorrow.
In his opening argument, Dr. Castle's attorney again reminded the jury that what it
was being
asked to do is keep separate and apart the case involving the injuries
to the child which are admittedly severe. They are catastrophic. There
is no doubt about that.
But, as I discussed with you earlier this morning and as Judge
Finch instructed you a few minutes ago, that's for another group,
that's for another day. What we're talking about here are the injuries
to Mrs. Lester.
Both sides touched on the subject again in their closing arguments. Lester's
counsel told the jury, "[Counsel for Dr. Castle] will tell you, 'This is not the
baby's case. This is the mother's case. And don't confuse the two.' And he's right.
I agree with him there." Counsel for Dr. Castle stated:
As I said to you before and as Judge Finch has said to you,
those child's problems are for others to view at another time.
He admonished you, if you recall, at the beginning of the
evidence that you need to and indeed you are instructed to keep the
two separate. You are not to compensate Karyn Lester for the
injuries that Dusty Lester sustained. You are to compensate Karyn
Lester for her injuries. . . .
...
Clearly the woman is entitled to compensation. However, what
she is not entitled to is what belongs to Dusty Lester. What belongs
to Dusty Lester is for, as I said, others to decide. We need to
separate them. As hard as that it is, we need to separate them.
Thus, the record is replete with reminders to the jury about its obligation to
compensate Lester only for her damages, not for the damages sustained by her
88
son. Furthermore, the jurors did not hear evidence pertaining to Dusty's claims,
for example, evidence of his medical expenses.39 We do observe, however, that
Dr. Castle would have been entitled to an instruction clarifying Instructions Nos.
5 and 6 and stating that, although an injury to a fetus is considered a physical
injury to the mother, Lester, upon giving birth to an impaired child, was not
entitled to recover damages for the child's physical injuries. If Dr. Castle
proffered such an instruction and the trial court denied it,40 he has not assigned
error to that denial, and we will not consider any such issue on appeal. Rule
5:17(c). Considering the circumstances of the entire trial and the fact that both
Instruction Nos. 5 and 6 were correct statements of the law, we find no basis on
which to conclude that the two instructions had a tendency to mislead the jury
about the issue before it or that the jury awarded damages to Lester for Dusty's
physical injuries.
As an alternative to overruling Bulala, Dr. Castle urges the Court to limit
Lester's recovery to her mental anguish resulting from giving birth to Dusty, as
opposed to her emotional distress arising from living with and caring for him. Dr.
Castle's proposed dichotomy is rooted in the literal language of the Bulala
opinion: "[T]he mother, as a part of her claim, would be entitled to recover for
mental suffering resulting from the birth of a defective child." 239 Va. at 229, 389
S.E.2d at 675 (emphasis added). He argues that only evidence related to the
"circumstances surrounding birth" should have been introduced at trial because,
otherwise, the evidence before the factfinder would be indistinguishable from the
evidence presented to prove Dusty's pain-and-suffering claim. In other words, Dr.
Castle says the trial court erred in admitting Lester's evidence concerning the
daily tasks required to care for Dusty and her use of the cumbersome medical
equipment in doing so, her frustration from sleepless nights, and her knowledge
that her son will not live more than a few more years.
We find no error in the admission of the challenged evidence. Although Dr.
Castle settled Dusty's claims and stipulated liability for Lester's injuries, the
evidence relating the extent of Dusty's impairments and the nature of the care
Lester has to provide to Dusty on a daily basis was relevant to the issue of her
39 Indeed, Lester conceded in her response to Dr. Castle's pretrial motion in limine that evidence of
Dusty's medical expenses was immaterial to Lester's claims and should properly be excluded.
40 After Lester rested her case, counsel for Dr. Castle purported to "renew [a] motion" that the jury
be reminded that they were not to compensate Lester for the injuries sustained by Dusty. It is not
clear from the record whether the "motion" he referred to was his earlier objection to Instruction
No. 6 or his pre-trial motion to exclude evidence of Dusty's injuries and life expectancy. Nothing
in the record indicates that Dr. Castle offered any formal instruction referring to the admonition
he sought. Moreover, the trial court, in denying Dr. Castle's "motion," concluded that it had
already made the distinction clear to the jury in "the all-encompassing instruction" it gave before
opening arguments.
89
continuing mental anguish caused by giving birth to an impaired child. The jury
was entitled to know the severity of Dusty's impairments and his daily needs in
order to assess the credibility of Lester's mental anguish claim and to determine
whether it was commensurate with the severity of Dusty's impairments. Indeed, if
Dusty had recovered from the injuries he sustained in utero, Dr. Castle would
undoubtedly want the jury to know that fact in assessing the credibility of Lester's
mental suffering claim.
Furthermore, Dr. Castle's argument that the event of Dusty's birth should be
separated from Lester's ongoing task of caring for her impaired son cannot be
reconciled with recognized principles of proximate causation. Our opinion in
Naccash v. Burger, 223 Va. 406, 290 S.E.2d 825 (1982), provides a good
illustration. In that case, the defendant-physician negligently failed to ensure that
a blood sample taken from an expecting parent was properly labeled, thereby
depriving the parents of important information needed to make an informed
decision about whether to terminate the pregnancy because their unborn child was
affected by an incurable genetic disorder. Id. at 414, 290 S.E.2d at 829. We held
that the parents were "entitled to recover those damages which are the reasonable
and proximate consequences of the breach of the duty owed them, viz.,
consequences that a reasonable and informed person could have foreseen and
anticipated." Id. at 414, 290 S.E.2d at 830 (citing Tullock v. Hoops, 206 Va. 665,
668-69, 145 S.E.2d 152, 154 (1965)). Thus, the parents properly recovered
damages for the emotional distress they endured in watching their child, whom
they would have aborted but for the defendant's negligence, deteriorate and
ultimately die. Id. at 411, 414, 290 S.E.2d at 828, 830. Notably, as in the present
case, the evidence included the parents' testimony outlining "the tragic course of
the disease in [their daughter] and the nature and extent of the care and treatment
she required as her condition degenerated." Id. at 411, 290 S.E.2d at 828.
The mental anguish damages sustained by Lester are the reasonably
foreseeable consequences of Dr. Castle's negligence. The injury caused by Dr.
Castle's breach of his duty of care to his patient, Lester, was the in utero injury
resulting in her child being neurologically impaired. The mental anguish she
suffers almost every waking minute of her life results entirely from that injury, as
does her clinical depression and her concomitant inability to work. Dr. Castle has
not advanced any reason why we should allow a mother to recover some, but not
all, of the mental anguish damages that are proximately caused by his negligence,
and we find no reason to do so.
Moreover, the ramifications that would flow from bifurcating proximately
caused mental suffering damages reinforce our conclusion that such an
undertaking is unworkable. If the mother's recovery were limited to emotional
injuries arising from "the circumstances surrounding birth," courts would have a
difficult task in fashioning a remedy when, as is the case here, the mother learns
about the severity of her child's impairment incrementally over time. During oral
argument, Dr. Castle suggested that "there has to be some rule of reason that is
applied," and that where the line should be drawn between what is and is not
90
compensable will turn "on the facts and circumstances of the case." It is unclear
what facts or circumstances would support such an arbitrary distinction, but we
are certain they are not present in this case.
University of Virginia v. Carter
267 Va. 242; 591 S.E.2d 76 (2004)
Agee, J., delivered the opinion to the court.
The Rector and Visitors of the University of Virginia ("UVA") appeal an
interlocutory order of the Circuit Court of the City of Charlottesville pursuant to
Code § 8.01-670.1. On appeal, UVA argues that the Virginia Tort Claims Act
(Code §§ 8.01-195.1 through -195.9) provides for limited waiver of the sovereign
immunity of the Commonwealth but leaves intact the sovereign immunity of the
Commonwealth's agencies.
I.
Background and Proceedings Below
This case arises from a medical malpractice action brought by Tina Marie
Carter ("Carter") alleging negligence in the insertion of an epidural catheter.
Carter timely filed a motion for judgment against the University of Virginia
Health System ("UVHS"), and a resident physician. The resident physician filed a
plea of sovereign immunity and was dismissed as a party. UVHS then moved for
summary judgment asserting it is not capable of being sued because it is not a
legal entity. In response, Carter moved to amend her motion for judgment to
substitute UVA as the sole defendant in place of UVHS. The trial court granted
Carter's motion to amend. The Commonwealth is not named as a party defendant
in Carter's pleadings.
UVA filed a plea of sovereign immunity, which the trial court denied by
order dated October 26, 2001. With Carter's consent, UVA moved the trial court
to certify an interlocutory appeal from that order pursuant to Virginia Code §
8.01-670.1. The trial court entered the order of certification dated January 29,
2003. We granted UVA this appeal.
II.
Analysis
The Virginia Tort Claims Act (the "Act"), provides that:
the Commonwealth shall be liable for claims for money . . . on
account of . . . personal injury or death caused by the negligent or
wrongful act or omission of any employee while acting within the
scope of his employment under circumstances where the
Commonwealth . . ., if a private person, would be liable to the
claimant for such . . . injury or death.
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Code § 8.01-195.3 (emphasis added). UVA argues that the Act provides an
express, limited waiver only of the Commonwealth's sovereign immunity but does
not disturb the sovereign immunity of the Commonwealth's agencies. We agree.
Absent an express statutory or constitutional provision waiving sovereign
immunity, the Commonwealth and its agencies are immune from liability for the
tortious acts or omissions of their agents and employees. Patten v.
Commonwealth, 262 Va. 654, 658, 553 S.E.2d 517, 519 (2001); Baumgardner v.
Southwestern Va. Mental Health Inst., 247 Va. 486, 489, 442 S.E.2d 400, 401
(1994). "In 1981, the General Assembly stated in the Act an express, limited
waiver of the Commonwealth's immunity from tort claims." Patten, 262 Va. at
658, 553 S.E.2d at 519; see also Baumgardner, 247 Va. at 489, 442 S.E.2d at 402.
The limited waiver provided for in the Act will be strictly construed because the
Act is a statute in derogation of the common law. Patten, 262 Va. at 658, 553
S.E.2d at 519; Baumgardner, 247 Va. 486, 489, 442 S.E.2d at 402.
Under the plain language of the Act, the Commonwealth (and certain
"transportation districts" not here relevant) are the only entities for which
sovereign immunity is waived. See Code § 8.01-195.3 (stating that "the
Commonwealth shall be liable for claims for money"). The Act contains no
express provision waiving sovereign immunity for agencies of the
Commonwealth, which we have stated repeatedly is a mandatory requirement
before waiver occurs. Id. As an agency of the Commonwealth, UVA is entitled to
sovereign immunity under the common law absent an express constitutional or
statutory provision to the contrary. There is no such waiver in the Act or
elsewhere. See James v. Jane, 221 Va. 43, 51, 282 S.E.2d 864, 868 (1980) (noting
that UVA is entitled to the sovereign immunity granted to the Commonwealth
under the common law).
Carter argues that Code § 8.01-195.4, which states that "the Commonwealth
shall be a proper party defendant" in all actions brought against the
Commonwealth under the Act, implies that the Commonwealth is not a necessary
party to litigation under the Act. Because of the strict construction accorded to
statutes in derogation of the common law and the lack of an express provision
limiting the immunity of the Commonwealth's agencies, we decline to adopt this
view. The Act's waiver of the Commonwealth's immunity would make the
Commonwealth both a proper party, and given UVA's immunity, a necessary
party to a claim by Carter.
Carter points out that Code § 8.01-195.6 requires plaintiffs bringing suit
under the VTCA to file a written statement "which includes the time and place at
which the injury is alleged to have occurred and the agency or agencies alleged to
be liable." The fact that the statute refers to "the agency or agencies alleged to be
liable," serves as proof, Carter argues, that the sovereign immunity of those
entities has been waived. However, this language does not expressly waive
agencies' sovereign immunity or even mention the concept. Moreover, as Carter
admits, Code § 8.01-195.6 is simply a notice requirement apprising the Attorney
92
General or the Director of the Division of Risk Management of the essential facts
of the claim.
Finally, Carter asserts that "it is axiomatic that the 'Commonwealth' can act,
and thus can commit torts, only through its agencies and employees." The reality,
of course, is that "agencies" are nothing more than administrative divisions of the
Commonwealth and do not, in and of themselves, act. Ultimately, only an
agency's employees can commit torts. Yet, since enactment of the VTCA, we
have held on multiple occasions that employees of the Commonwealth are
entitled to sovereign immunity. See e.g., Lohr v. Larsen, 246 Va. 81, 88, 431
S.E.2d 642, 646, 9 Va. Law Rep. 1454 (1993); Gargiulo v. Ohar, 239 Va. 209,
215, 387 S.E.2d 787, 791, 6 Va. Law Rep. 1176 (1990); Lentz v. Morris, 236 Va.
78, 83, 372 S.E.2d 608, 611, 5 Va. Law Rep. 516 (1988). The VTCA waives the
sovereign immunity of the Commonwealth only.
If the General Assembly desired in the Act to waive the sovereign immunity
of the Commonwealth's agencies in addition to the immunity of the
Commonwealth, it could have easily done so. It did not. Given the Act's lack of
an express waiver of the common law sovereign immunity afforded the
Commonwealth's agencies, UVA retains its sovereign immunity from the claim
brought by Carter. Accordingly, the trial court was in error when it failed to grant
UVA's plea of sovereign immunity in its October 26, 2001 order.
III. Conclusion
For the reasons stated above, we will reverse the trial court's order denying
UVA's plea of sovereign immunity. The case will be remanded for entry of an
order sustaining the defendant's plea of sovereign immunity and dismissing the
case.
Reversed and remanded.
Board of Supervisors v. Safeco
226 Va. 329, 310 S.E.2d 445
Cochran, J., delivered the opinion of the Court.
The Board of Supervisors of Stafford County (the County) initiated this action
in the trial court against Safeco Insurance Company of America (Safeco), surety on
four bonds executed by Crow's Nest Harbour (Crow's Nest), a Virginia partnership,
as principal, to assure construction of roads, waterlines, and sewer lines in four
sections of a subdivision. In its motion for judgment, the County, alleging in four
counts that Safeco had defaulted on its obligation to the County under each bond,
sought judgment in the face amounts of the bonds, $311,254, $410,949, $373,041,
and $192,248, respectively (a total of $1,287,492), with interest, costs, and attorney's
fees.
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In addition to other pleadings, Safeco filed a third-party motion for judgment
against Diversified Mortgage Investors (D.M.I.), a Massachusetts Business Trust,
alleging that D.M.I. was liable for all or any part of the total of $1,287,492 which the
County might recover from Safeco. The third-party claim was settled, and D.M.I.
was dismissed as a party.
With leave of court, the County filed an amended motion for judgment
containing the four counts in the original motion for judgment, for which it again
sought to recover a total of $1,287,492, and a fifth count seeking consequential
damages in the amount of $2,418,393 for Safeco's refusal to make prompt payment
under the bonds. Safeco demurred to the fifth count, and the trial court sustained the
demurrer, dismissing the count with prejudice.
Safeco asserted numerous defenses to the action, and the County and Safeco
engaged in protracted pretrial discovery procedures. At a pretrial conference on
March 7, 1980, the trial court in a memorandum opinion ruled as follows:
The purpose of the bonds has been frustrated by the failure of the beneficiaries
of the bonds to pursue the projects, by the rezoning of the property, and by the
general abandonment of the project. This repudiation of the project by the County
absolves Safeco of liability to it on the bonds. The defenses of frustration of purpose
will be sustained.
The court further stated that the County had incurred and would incur no cost
as to the contemplated projects and that no liability, therefore, could be imposed on
Safeco under principles of indemnification.
Notwithstanding these rulings of the trial court, a jury trial was held on
November 20 and 21, 1980. After the County presented its evidence, however, the
trial court granted Safeco's motion to strike the evidence. The trial judge stated that
the "suppositions" upon which the opinion of March 7, 1980, was based were borne
out by the evidence. On November 21, 1980, the court entered final judgment
dismissing the action.
On appeal, the principal contentions of the County are that the trial court erred
in sustaining Safeco's motion to strike and in denying the County the right to seek
compensatory damages in excess of the face amount of the bonds. In analyzing the
motion to strike, of course, we will view the evidence in the light most favorable to
the County.
In 1971, Crow's Nest purchased 4,726 acres of land, east of Route 1 between
Potomac and Aquia Creeks near the Potomac River, on which it proposed to build a
planned community. To this end, Crow's Nest had the property rezoned in 1971 for
single-family residential, multi-family, and industrial uses. Crow's Nest planned first
to develop 700 acres in 346 lots for single-family residences in Sections A, B, C, and
D of Crow's Nest Harbour Subdivision, as shown on plats submitted to the County
for approval. The plats showed streets, waterlines, and sewer lines which Crow's
Nest was to install in the subdivision.
94
Four bonds dated October 2, 1973 in the total face amount of $1,287,492, the
estimated cost of the improvements, were executed by Crow's Nest, as principal, and
Safeco, as surety. Within 24 months, Crow's Nest was to complete the water and
sewer lines and streets within the subdivision in accordance with specifications
shown on the plats. Each bond also contained the following provision:
NOW, THEREFORE, if the said Principal shall well and faithfully do and
perform the things agreed by it to be done, as hereinabove stipulated, then this
obligation shall be void, otherwise, the same shall remain in full force and effect; it
being expressly understood and agreed that the liability of the Surety for any and all
claims hereunder shall in no event exceed the penal amount of this obligation as
herein stated.
Crow's Nest also agreed to construct waterlines to connect with the County's
mains at Route 1, approximately five miles from the subdivision, and to construct
access roads and a sewage disposal plant. The County did not require bonds to
guarantee completion of these improvements.
The final plats for Sections A, B, C, and D were recorded on October 19, 1973.
Each plat bore the approval of the Virginia Department of Highways, the Board of
Supervisors, the local Planning Commission, and the State Board of Health. The
approval of the State Board of Health, however, was subject to the proviso that the
development would be served by public water and public sewer approved by the
State Health Department.
Of the 346 platted lots, 313 were sold.41 The only work done on the project
was limited to on-site clearing and grading for roads. No work was ever started on
installation of water or sewer lines. The County did not dispute the assertion of
Safeco in its trial brief that Crow's Nest had abandoned the development by
December, 1974, and that thereafter the general and limited partners of the
partnership filed bankruptcy petitions in the United States Bankruptcy Court.
George Smerigan, who was employed by the County as Community
Development Director in 1973, helped prepare a Comprehensive Development Plan
which the County adopted on July 17, 1975. The Plan placed the entire 4,726 acres
of Crow's Nest land outside the areas designated for dense population; under the
Plan, therefore, the land was not intended to receive central water and sewer service.
On June 21, 1976, the County notified Safeco that it was calling the bonds
because the roads and water and sewer lines in Section A, B, C, and D had not been
completed as required. Safeco refused to pay, and the County brought this action in
1977. In June of 1978, the County adopted a rezoning ordinance which downzoned
41 With leave of Court, counsel for certain purchasers of lots filed a brief amicus curiae in support
of the County's position in this appeal.
95
the Crow's Nest land to "A-2 -- Rural Residential" 42 pursuant to the Comprehensive
Development Plan. This classification was approved, Smerigan testified, because of
the nature of the terrain, lack of adequate facilities at that time, and problems of
accessibility. On cross-examination, he conceded that the land was "marginal" for
the use of septic tanks for sewage disposal. Smerigan, who was no longer employed
by the County, also conceded that in his opinion the land was improperly zoned in
1971.
The County presented evidence that the cost of completing the roads and water
and sewer lines would have been $2,816,500 on October 3, 1975, $2,869,865 on July
1, 1976, and $4,224,600 on October 30, 1980. The estimated cost of completing
only the roads on October 3, 1975, was $1,632,400.
The trial court correctly ruled that the bonds in this case were indemnity or
performance bonds rather than penal bonds. The purpose of such a bond is to
provide "funds to the extent to the amount of the bonds to cover the cost of
completion of the improvements." Supervisors v. Ecology One, 219 Va. 29, 36, 245
S.E.2d 425, 430 (1978). The trial court incorrectly ruled, however, that the County
could not recover because its evidence showed that it had frustrated performance of
the bonded obligations and had incurred and would incur no loss.
The County's evidence showed that the performance bonds were properly
executed, that the principal failed to fulfill its bonded obligations, that proper notice
of default and demand for payment was given to the surety, and that the cost of
completing the improvements on and after the date of completion contracted for in
the bonds exceeded the face amount of the bonds. On this evidence, the County
made out a prima facie case entitling it to recovery of the face amount of the bonds,
unless its evidence showed acts on its part that would preclude recovery.
There is no evidence that the County frustrated performance by Crow's Nest or
abandoned the project before the completion date called for in the bonds. The
rezoning to which the trial court referred in its opinion of March 7, 1980, was not
approved until 1978, which was after this litigation began. The County approved the
Comprehensive Development Plan after Crow's Nest had abandoned the project but
several months before the date by which the bonded improvements were required to
be completed. Such a plan, however, is not a zoning ordinance but only a guideline
for zoning ordinances. Fairfax County v. Snell Corp., 214 Va. 655, 660, 202 S.E.2d
889, 894 (1974). See Shopping Plazas v. Olive, 202 Va. 862, 866, 120 S.E.2d 372,
375 (1961). In approving the plan, the County did not frustrate performance by
Crow's Nest of the bonded obligations.
It was unnecessary for the County to prove a financial loss as a prerequisite to
recovery from Safeco. A performance bond is intended to guarantee completion of
the improvements it covers. Thus, the obligee of such a bond need not incur any
42 Diversified Mortgage Investors (D.M.I.), the development lender for Crow's Nest, filed its bill of
complaint in the trial court against the County contesting the rezoning of the land. D.M.I. stated
in the bill of complaint that it had acquired title to the land by foreclosure.
96
expense or do any work on the improvements before collecting on the bond. See,
e.g., Lake View Trust & Savings Bank v. Filmore Construction Co., 74 Ill. App.3d
755, 393 N.W.2d 714 (1979).
Although Safeco does not say that the County had to complete the bonded
improvements before it could recover on the bonds, it argues that the County had to
establish a feasible plan to construct the improvements, and that having failed to
produce evidence of such plan, the County cannot recover. Safeco has consistently
maintained, as stated in its trial brief, that the County should not be permitted to
recover from Safeco and expend these funds on a failed project, when the public
interest will be served by maintaining the status quo.
It may be, as Safeco's counsel argued before us, that without central water and
sewer service, the construction of streets and roads in Crow's Nest subdivision would
be a waste of money. But that determination is not now Safeco's to make. Safeco
could have determined not to become surety on the bonds because the project was
infeasible and the risk of default by Crow's Nest too great. Safeco did not do so. It
voluntarily entered into a contractual relationship based upon the implicit assumption
that the project was feasible, and regardless of its present concern for the public
welfare, it will be held to its contractual obligation as a professional surety.
Safeco relies upon language in Ecology One approving the rule that a county
may assign its rights under a performance bond upon a showing that the
improvements have been made. In that case, however, the face amount of the bond
exceeded the cost of completing the improvements and the county had a duty to
ascertain that the improvements had been made by the assignee before payment was
made.
Safeco relies upon three California cases to support the argument that if the
obligee has sustained no loss, the surety is not liable under a performance bond. In
Morro Palisades Co. v. Hartford Accident & Indemnity Co., 52 Cal.2d 397, 340 P.2d
628 (1959), a contractor failed to complete roads in a subdivision. The obligee, a
county, assigned its interest to a landowner in the subdivision. Recovery against the
surety was denied. The assignment was held to be invalid because the assignee was
not trying to compel performance but was seeking to obtain a money judgment on its
own behalf. 52 Cal.2d at 403, 340 P.2d at 632.
In County of Yuba v. Central Valley National Bank, 20 Cal. App.3d 109 97
Cal. Rptr. 369 (1971), a subdivision developer obtained an instrument of credit from
the defendant bank. Because of a reduction in force at a nearby Air Force base, there
was no market for the subdivision, and the developer failed to begin work. Yuba
County sought to recover on the bank's instrument of credit. The court denied
recovery on the theory that "at least partial improvement of the land and construction
of the streets was contemplated as a prerequisite to the emergence of the obligations"
of the bank and the developer. 20 Cal. App.3d at 113, 97 Cal. Rptr. at 372. Yuba
County suffered no damage, said the court, and "to permit recovery in the
circumstances of this case would be to uphold an 'illegal forfeiture.'" Id. at 114, 97
Cal. Rptr. at 372.
97
County of Yuba was later examined in City of Sacramento v. Trans Pacific
Industries, Inc., 98 Cal. App.3d 389, 159 Cal. Rptr. 514 (1979). In Sacramento, a
developer promised to install certain improvements in a subdivision. After partially
completing the work, the developer had financial problems. To avoid having to
complete the improvements itself, the developer sold several parcels to one Watkins,
who was then unaware that the improvements were incomplete. Since he wanted to
use the land as soon as possible, Watkins agreed to complete the improvements
himself; in return, the City of Sacramento promised to reimburse him, using any
money it recovered on the developer's bond. The city did recover on the bond; in
permitting this recovery to stand, the court distinguished County of Yuba on the
ground that since the land in County of Yuba was still uninhabited farmland, there
was no need for roads. In Sacramento, by contrast, development of some parcels had
started, and it was planned for the remaining land. 98 Cal. App.3d at 398, 159 Cal.
Rptr. at 518.
In the present case, as in Sacramento, development had commenced on the
parcels. Clearing and grading had been performed, and 313 of the 346 lots in the
four platted sections had been sold. County of Yuba is distinguishable on this basis.
Morro, relating to an assignment of a county's rights under a bond, is inapposite.
In oral argument, counsel for Safeco said that the County's evidence showed
that it was not feasible to complete the bonded improvements and that the County
had not shown an intent or need to perform. He conceded that such a defense would
not be available to Crow's Nest, the principal, in an action for breach of its obligation
under the bonds. Safeco, therefore, may not assert this defense. A surety stands in
the place of its principal and may raise only defenses available to the principal.
Cohen v. Mayflower Corp., 196 Va. 1153, 1164, 86 S.E.2d 860, 866 (1955).
It is not Safeco's responsibility to see to the application of the bond proceeds.
Upon failure of Crow's Nest to perform and notice from the County of such default,
Safeco could either perform at its own expense or pay the cost of performance up to
the face amount of the bonds. It did neither. Liability was fixed as of October 2,
1975. There is a presumption that public officials will perform their duties in
accordance with the law. See WTAR Radio-TV v. Virginia Beach, 216 Va. 892, 895,
223 S.E.2d 895, 898 (1976). It is reasonable to presume, therefore, that the County
will properly use the bond proceeds. See Pacific County v. Sherwood Pacific, Inc.,
17 Wash. App. 790, 797, 567 P.2d 642, 648 (1977); Sioux City v. Western Asphalt
Paving Corp., 271 N.W. 624, 632 (Iowa 1937); City of Oakland v. DeGuarda, 95
Cal. App. 270, 287, 272 P. 779, 785 (1928).
The County further contends that the trial court erred in ruling it was not
entitled to recover any consequential damages, other than interest, shown to have
been caused by Safeco's refusal to pay promptly the aggregate face amount of the
bonds. The bonds themselves expressly limited recovery to their face amounts, as
did the bond in Ecology One. See Noland Company v. Realty Corporation, 206 Va.
938, 942, 147 S.E.2d 105, 109 (1966). Moreover, § 8-353 of the 1950 Code
provided that judgment against a surety could not be obtained for more than the
98
amount to which his liability was limited on the bond. The "Revisers' Note" to Code
§ 8.01-430 (Acts 1977, c. 617) explained that § 8-353 was deleted from the 1977
revision because it merely declared what were "longstanding and clear principles of
substantive law." Indeed, as a matter of substantive law the statute would be saved by
the provisions of Code § 8.01-1, if we are of opinion that the deletion may materially
change the substantive rights of Safeco.
The County relies on Continental Realty Corporation v. Andrew J. Crevolin
Co., 380 F. Supp. 246 (S.D. W.Va. 1974), in which consequential damages were
allowed against a surety which unjustifiably refused to pay after the principal
defaulted. Crevolin, which arose under West Virginia law, is inapposite. The acts of
the surety were found to be tantamount to bad faith. There is no evidence that Safeco
acted in bad faith. Safeco asserted defenses which the trial court ruled were
sufficient to bar the County's recovery. Our holding that the court erred in so ruling
does not impugn the surety's good faith in asserting the defenses until their viability
has been finally determined.
Under the statute and the limiting language of the bonds we hold that the trial
could correctly ruled that the County could not properly claim consequential
damages other than interest. The principal amount of the judgment against Safeco
may not exceed the aggregate principal amount of the bonds. We hold that the
County has made out a prima facie case for recover of a judgment in the principal
amount, limited to the face amount of the bonds.
We reject Safeco's assignment of cross-error that the trial court erred in ruling
that the question of interest was reserved for trial. The limitation in the bonds and in
the statute applies only to the principal amount of the judgment. Under Code §
8.01-382, the fact finder, whether jury or court, "may provide for interest on any
principal sum awarded, or any part thereof, and fix the period at which the interest
shall commence." If no such provision is made, the judgment bears interest at the
judgment rate from date of entry. Accordingly, the trial court properly reserved the
question of interest for determination by the jury.
Although opposing counsel briefed other assignments of error and cross-error,
these were neither discussed nor expressly reserved at oral argument. Therefore,
consistent with established procedure, we have not considered them. See Stevens v.
For Motor Company, 226 Va. 415, 417, n., 309 S.E.2d 319, 320-21, n. (1983) (this
day decided); Cooley v. Cooley, 220 Val. 749, 753, n., 263 S.E.2d 49, 52, n. (1980).
For the reasons assigned, we will reverse the judgment entered in favor of
Safeco and remand the case for a new trial consistent with the views herein
expressed.
Reversed and remanded.
Ronald L. Willard, On Behalf Of Moneta Building Supply, Inc. And
All Its Shareholders v.
Moneta Building Supply, Inc., Et Al.
99
258 Va. 140, 515 S.E.2d 277
Kinser, J., delivered the opinion of the Court.
This appeal involves a sale of the assets of a closely held corporation. The
minority stockholder of the corporation has attacked the propriety of the
transaction, primarily on the grounds that the corporation's directors, who were
also its majority stockholders, breached their statutory and common law duties by
failing to maximize the sales price, by authorizing a transaction in which they had
a conflict of interests, and by failing to comply with the statutory procedures for
selling the assets of a corporation, not in the ordinary course of business.
Finding no error, we will affirm the circuit court's judgment upholding the
transaction.
Facts And Material Proceedings
In 1978, Ronald L. Willard and Cappellari, Inc. (Cappellari), acquired a
building supply business located in Bedford County. Cappellari was a West
Virginia corporation owned primarily by Amerigo S. (A.S.) and Rose Mary
Cappellari. The purchasers incorporated the newly acquired business in Virginia
under the name of Moneta Building Supply, Inc. (Moneta). Willard purchased 20
percent of the shares of stock issued in Moneta, and Cappellari purchased 80
percent. 43
In 1986, A.S. and Rose Mary dissolved Cappellari and distributed its shares
of Moneta stock in the following proportions: A.S. received 253 shares (49.8
percent), Rose Mary received 129 shares (25.4 percent), and David Lawrence
Cappellari, the son of A.S. and Rose Mary, received 18 shares.44 Willard owned
the remaining 100 shares (19.7 percent) of Moneta stock.
David served as president, director, and manager of Moneta from its
inception until he resigned from those positions in 1996. Willard was Moneta's
only other officer and director during those initial years until A.S. and Rose Mary
dissolved Cappellari. Then, A.S. and Rose Mary, both of whom had lived in
West Virginia and had participated very little in the operation or management of
Moneta, moved to Virginia and eventually became officers and directors of the
corporation along with David and Willard.
No one disputes that Moneta experienced success in the building supply
industry and achieved annual sales in excess of four million dollars by 1990.
However, David became increasingly concerned about his future at Moneta
because of a December 1, 1978 "Stock Purchase Agreement" entered into among
43 Originally, Willard and his wife purchased the 20 percent interest in Moneta.
Willard later
obtained sole ownership of that interest.
44 David ultimately purchased another eight shares of stock from Moneta after the corporation
increased the number of its authorized shares. After that purchase, David owned 26 shares (5.1
percent).
100
Moneta, Cappellari, and the Willards. That agreement granted each of Moneta's
stockholders a right of first refusal in the event that any one of the other
stockholders desired to dispose of shares of Moneta stock.
David was
dissatisfied with his percentage of ownership interest in Moneta and his inability
to acquire additional shares from his parents due to the "Stock Purchase
Agreement.”45
Consequently, David began developing a business plan to start his own
building supply company. On September 18, 1996, David resigned from his
positions as an officer and director of Moneta. At an October 3, 1996 meeting of
the Moneta board of directors, the board accepted David's resignation and elected
A.S. as president of Moneta, Rose Mary as vice-president, and Willard as
treasurer. The board also decided to continue Moneta's operations and to retain
David as the interim manager while the board searched for a new manager. 46
On October 7, 1996, Willard called a special meeting of the stockholders.
At that meeting, Willard offered to sell his shares of stock in Moneta for one
million dollars. No action was taken on Willard's offer. During the meeting,
David informed the stockholders that he might be interested in purchasing
Moneta's assets, depending on what direction the company decided to take.
When Willard was asked whether he might also be interested in purchasing the
assets, he indicated that he was not.47 Subsequent to the meeting, Willard
tendered a letter of resignation as a director and officer of Moneta. He cited
"continuing oppression and unfair treatment" as the reasons for his decision.
After David's resignation from Moneta, he pursued his plans to open a
building supply business. He incorporated a new company under the name of
Capps Home & Building Supply, Inc. (Capps). On October 8, 1996, David
entered into a "Confidentiality Agreement" with Moneta for the "exchange of
certain information pertaining to [Moneta] and ... the acquisition of certain assets
of [Moneta] by [David]." A.S. executed the agreement in his capacity as
president of Moneta.
These events prompted Willard to file a suit seeking the dissolution of
Moneta and a preliminary injunction to enjoin any Moneta stockholder from
competing with Moneta until the corporation could be dissolved and the assets
45 David and his parents challenged the continuing applicability of the "Stock Purchase Agreement"
by filing a declaratory judgment action in the Circuit Court of Bedford County. In an order dated
November 7, 1995, the court held that the agreement governed both inter vivos and testamentary
transfers of shares of Moneta stock. This Court refused a petition for appeal in that case.
46 Willard voted against the election of officers and the decision to employ David as the interim
manager.
47 It was also announced at that meeting that another Moneta employee had been promoted to
manager, effective November 1, 1996.
101
liquidated.48 The circuit court heard evidence and argument on October 24,
1996, and denied the requested injunction.
On November 15, 1996, Capps, through its counsel, submitted a proposed
"Asset Purchase Agreement" to A.S. and Rose Mary, in their capacities as
directors and officers of Moneta. In the agreement, Capps offered to purchase
the assets of Moneta for approximately $1.3 million. The offer would expire,
however, if not accepted by November 23, 1996. Capps also informed A.S. and
Rose Mary that David had acquired bank financing to provide the necessary funds
if the proposed agreement received the approval of Moneta's board of directors
and stockholders. Finally, Capps included a valuation of Moneta's assets with
the agreement. Hope Player and Associates, P.C., had prepared a valuation
report (the Player report) for Capps and, in that report, opined that the fair market
value of Moneta's assets as of September 30, 1996, was $1.3 million.
On November 19, 1996, A.S. and Rose Mary, as the only remaining
members of Moneta's board of directors, held a special meeting of the board at
their home to consider the offer from Capps. The board "voted unanimously to
accept the offer and direct[ed] the President to sign the Asset Purchase Agreement
... reserving the right to negotiate the Seller's Representations contained in
paragraph 4 of the ... Agreement, and any other matters of concern to the
shareholders." The board also voted to hire an independent certified public
accountant or other valuation expert to evaluate whether the amount of the Capps
offer reflected the fair market value of Moneta's assets. Finally, the board
decided to refer the proposed transaction to the stockholders without any
recommendation from the directors and to call a special meeting of the
stockholders to be held on December 20, 1996, for the purpose of voting on the
offer from Capps.
On November 21, 1996, Capps submitted a revised "Asset Purchase
Agreement" to Moneta. In exchange for a reduction in the purchase price of
approximately $150,000, Capps agreed to assume certain liabilities of Moneta.
A.S. signed the revised agreement as president of Moneta without first presenting
the changes to the board of directors.
A.S. then sent a notice to all Moneta stockholders advising them that a
special meeting would be held on December 20 for the purpose of considering
and voting upon the offer from Capps.
The notice included a disclosure
concerning the familial relationship among A.S., Rose Mary, and David, and
copies of the revised "Asset Purchase Agreement" and the Player report.
After receiving notice of the December 20 special meeting, Willard sent a
letter, dated December 10, 1996, to A.S. and Rose Mary informing them that he
48 This suit was the second time that Willard had attempted to have Moneta dissolved. In the 1995
declaratory judgment action, Willard filed a counterclaim to dissolve Moneta on the basis that the
majority stockholders had engaged in oppressive and unfair business practices to the detriment of
the corporation and minority stockholder. The counterclaim was dismissed.
102
believed that Capps' offer was too low and that it did not "adequately reflect fair
value." In that letter, Willard offered to purchase Moneta's assets for $400,000
more than the amount Capps had offered. However, Willard stipulated that his
offer was good only until 3:00 p.m. on December 13, 1996.
In a letter dated December 13, 1996, A.S. advised Willard that he and Rose
Mary believed that it would be inappropriate for the board to consider his offer
prior to the stockholders' meeting on December 20. Since Willard's offer specified
that it would expire on December 13, A.S. encouraged Willard to come to the
stockholders' meeting and present his offer at that time.
One day before the special meeting of the stockholders, Willard sent a
second letter to A.S. and Rose Mary. In that letter, Willard increased his offer to
$600,000 more than the amount offered by Capps. Willard also requested 30 days
in which to evaluate the assets and determine if an even higher purchase price was
warranted.
As authorized by the board of directors, Moneta obtained an opinion from
Dr. Larry A. Lynch, a business valuation expert, with regard to whether the
amount of Capps' offer reflected the fair market value of Moneta's assets. In a
report dated December 12, 1996, Dr. Lynch stated that the value of Moneta's
assets ranged from $1,357,531 to $1,449,746, depending on the valuation method
utilized. He concluded that Capps' offer of $1.3 million was fair and reasonable
upon taking into consideration the fact that the "going concern assumption may be
affected by the loss of key personnel and pending litigation." A copy of Dr.
Lynch's report was forwarded to the stockholders prior to the special meeting on
December 20.
The stockholders' special meeting proceeded as called on December 20,
1996.49 A.S., David, and Willard were in attendance. Rose Mary did not attend,
but she had given A.S. her proxy for the purpose of voting her shares of stock.50
All parties in attendance were represented by legal counsel. At the meeting, A.S.
informed the other stockholders about the recent offers tendered by Willard,
including Willard's offer to sell his shares of stock in Moneta. A.S. advised
Willard that he and Rose Mary would sell their stock for the same price per share,
but Willard did not respond to that proposal. A.S. further stated "he would
consider the best interest of the employees of [Moneta] as well as other nonmonetary factors including the business' customers, continuity of management
and the realistic threat to [Moneta] from competition if the property were not sold
49 Willard filed an action in the circuit court to enjoin the stockholders from convening the special
meeting. After hearing evidence on December 17, 1996, the circuit court denied Willard's
request for injunctive relief.
50 David's resignation from Moneta had caused discord within the Cappellari family. Consequently,
Rose Mary had delegated her authority as an officer and director of Moneta to A.S. at the end of
the year. She was hospitalized at the time of the special meeting of stockholders, but she was
present at the special meeting of directors on November 19, 1996.
103
to Capps." Willard noted his objections to the offer from Capps and reiterated
that he had a counter-offer on the table. A.S. stated that the only item of business
to be acted upon at the meeting was the offer from Capps. A.S. and Rose Mary,
by proxy, then voted to accept the offer from Capps. Willard voted against the
proposal, and David abstained from voting. Thus, a majority of Moneta's
stockholders approved the revised "Asset Purchase Agreement."
On April 23, 1997, Willard, on behalf of Moneta and all its stockholders,
filed this shareholders' derivative suit pursuant to Code § § 13.1-672.1 et seq.,
naming Moneta, A.S., Rose Mary, David, and Capps as defendants. In an
amended bill of complaint, Willard sought to void the sale of Moneta's assets to
Capps on the basis that the transaction violated the provisions of Code § 13.1691 dealing with conflict of interests. He also requested an award of damages for
breach of fiduciary duties, violation of Code § 18.2-499, and common law
conspiracy; the imposition of a constructive trust over the income and assets of
Capps; and an award of expenses, attorney's fees, and court costs.
During a bench trial, the circuit court heard testimony with regard to the
facts already recited. In addition, the court received evidence from several
experts who had appraised the value of Moneta's assets. These experts differed
in their opinions with regard to the appropriate valuation method and the actual
value of the assets. For example, Harry Schwarz testified that he valued the
assets at $2,675,000 as of September 30, 1996, but acknowledged that he had not
considered what effect, if any, David's leaving Moneta and opening his own
building supply business would have on the value of the assets. Schwarz also
included cash and securities in his valuation, but those assets were not sold to
Capps.
Hope Player, who had prepared the Player report, testified that Moneta was
surpassing its peers in terms of profitability. She attributed that accomplishment
to David's superior management skills. Accordingly, she factored the effect of
David's resignation into her valuation. Player also testified that, when comparing
two offers to purchase, a prudent seller would take into consideration any
contingencies associated with the offers, assuming that the buyers had equal
motivation and ability.
Dr. Vittorio Bonomo, a professor of finance at Virginia Polytechnic Institute
and State University, opined that any amount over $800,000 was a fair price for
Moneta's assets. Dr. Bonomo believed that, during the first seven years after
David left Moneta and opened his own competing business, Moneta's annual
profits would fall by an amount somewhere between $400,000 and $100,000,
primarily for two reasons: Moneta would be splitting the market with another
competitor and that competitor would have "a good manager" rather than just "a
norm manager." Thus, Dr. Bonomo opined that a director who was faced with
the events that had occurred during the fall of 1996 would have to consider the
subsequent financial consequences to Moneta if the Capps offer were not
accepted.
104
In a letter opinion dated May 14, 1998, the circuit court explained that
"[t]he wide discrepancy in valuation often depended upon the method utilized by
the expert, and the extent to which the expert viewed, as a financial impact, the
consequences of a competing business and the loss of key personnel." The
testimony of Dr. Bonomo, Dr. Lynch, and Ms. Player was more persuasive to the
court than that of the other experts. Finding that Willard had failed to present
sufficient evidence to prove his claims, the circuit court dismissed each of the
seven counts in his amended bill of complaint in an order dated June 4, 1998.
We awarded Willard this appeal.
Standard of Review
The standard of appellate review applicable to this appeal is well settled.
Since the circuit court heard the evidence ore tenus, its factual findings carry the
same weight as a jury's verdict. W.S. Carnes, Inc. v. Board of Supervisors of
Chesterfield County, 252 Va. 377, 385, 478 S.E.2d 295, 301 (1996). Under the
provisions of Code § 8.01-680, the circuit court's judgment cannot be set aside
unless it appears from the evidence that the judgment is plainly wrong or without
evidence to support it.
Thus, we examine the evidence in the light most
favorable to the defendants, the prevailing parties at trial. Id.
Director's Discharge Of Duties
In his first two assignments of error, Willard contends that the circuit court
erred by ruling that A.S. and Rose Mary, as the only remaining directors of
Moneta, did not have a duty to maximize the price received for the sale of
Moneta's assets and by concluding that they discharged their duties in accordance
with the provisions of Code § 13.1-690. Willard asks us to judge the directors'
decision to sell Moneta's assets to Capps by the test articulated in Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del.1986). The Revlon
court held that the duty of a board of directors changed from one of preserving the
corporate entity "to the maximization of the company's value at a sale for the
stockholders' benefit" when it becomes apparent that the sale of the company is
inevitable. Id. at 182. "The directors' role [in that instance] change[s] from
defenders of the corporate bastion to auctioneers charged with getting the best
price for the stockholders at a sale of the company." Id.
In addressing these issues, the circuit court found that A.S. and Rose Mary
were not liable under Code § 13.1-690 because "[t]he evidence ... clearly
demonstrate[d] that defendants A.S. Cappellari and Rose Mary Cappellari, as
directors of [Moneta], engaged in an informed decision making process that ...
produce[d] a defensible business decision." The court stated that § 13.1- 690
does not require a director to maximize profits by accepting the highest bid when
selling the assets of a corporation. Instead, a director is required to "act in
accordance with 'his good faith business judgment of the best interests of the
corporation.' " The court further concluded that "[a] director may consider not
only the quantity of an offer to purchase assets, but the quality of the offer." We
agree.
105
The General Assembly has mandated the standard by which to evaluate a
director's discharge of duties in Virginia. The applicable statute is Code § 13.1690:
A. A director shall discharge his duties as a director, including his
duties as a member of a committee, in accordance with his good faith
business judgment of the best interests of the corporation.
B. Unless he has knowledge or information concerning the matter in
question that makes reliance unwarranted, a director is entitled to rely
on information, opinions, reports or statements, including financial
statements and other financial data, if prepared or presented by:
1. One or more officers or employees of the corporation
whom the director believes, in good faith, to be reliable and
competent in the matters presented;
2. Legal counsel, public accountants, or other persons as to
matters the director believes, in good faith, are within the
person's professional or expert competence; or
3. A committee of the board of directors of which he is not
a member if the director believes, in good faith, that the
committee merits confidence.
C. A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
D. A person alleging a violation of this section has the burden of
proving the violation.
Code § 13.1-690(A) does not abrogate the common law duties of a director.
It does, however, set the standard by which a director is to discharge those
duties. If a director acts in accordance with that standard, Code § 13.1-690(C)
provides a "safe harbor" that shields a director from liability for any action taken
as a director, and for failure to take action. Commonwealth Transp. Comm'r v.
Matyiko, 253 Va. 1, 6, 481 S.E.2d 468, 470 (1997).
In adopting Code § 13.1-690, the General Assembly rejected § 8.30 of the
Revised Model Business Corporation Act (RMBCA). WLR Foods, Inc. v. Tyson
Foods, Inc., 65 F.3d 1172, 1185 (4th Cir. 1995), cert. denied, 516 U.S. 1117, 116
S.Ct. 921, 133 L.Ed.2d 850 (1996); The Revision of Chapters 1 and 2 of Title
13.1 of the Code of Virginia, Report of the Virginia Code Commission to the
Governor and the General Assembly of Virginia, H. Doc. No. 13, at 48-49 (1985).
That provision of the RMBCA requires a director to discharge the duties of the
office in good faith, with the care that an ordinary prudent person in similar
circumstances would exercise, and in a manner reasonably believed to be in the
best interests of the corporation.
106
The contrast between the provisions of Code § 13.1-690 and those
contained in § 8.30 of the RMBCA convinces us that, in Virginia, a director's
discharge of duties is not measured by what a reasonable person would do in
similar circumstances or by the rationality of the ultimate decision. Instead, a
director must act in accordance with his/her good faith business judgment of what
is in the best interests of the corporation. Thus, the Revlon test is not applicable
in Virginia.
Accordingly, we conclude that A.S. and Rose Mary were entitled to
consider the quantity and quality of the offers to purchase Moneta's assets.51
Contrary to Willard's argument, they were not required to accept an offer merely
because it maximized the purchase price. Such a rule would mean that only one
offer, among many, was in the best interests of the corporation. That result
would erode the deference afforded a director's discharge of duties under Code §
13.1-690.
Turning to the facts of the present case, we agree with the circuit court's
judgment that A.S. and Rose Mary engaged in an informed decision-making
process. Pursuant to Code § 13.1-690(B), a director can rely on information and
opinions from, inter alia, legal counsel, accountants, and other experts unless the
director has knowledge that such reliance is unwarranted. Thus, a director may
use an informed decision-making process in discharging the duties of the office as
long as the director does so in good faith. See WLR Foods, 65 F.3d at 1185.
When a director resorts to such a process, the ultimate decision must still
reflect the director's "good faith business judgment of the best interests of the
corporation" in order to receive the benefit of the "safe harbor" afforded in Code §
13.1- 690(C).
A.S. testified that, when he received the first Asset Purchase Agreement, he
compared the amount of the purchase price with a report dated July 15, 1996,
from James T. Shepherd, a certified public accountant.52 Shepherd had estimated
that the value of Moneta was $2,008,300.
However, that amount included
$240,900 for marketable securities that were not to be sold to Capps. Shepherd
also did not include any discounts for marketability or minority interests. A.S.
also testified that he looked at the balance sheets for Moneta and concluded that
the amount of the offer approximated the total amount of the stockholders' equity.
51 In Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1282 n. 29 (Del.1989), the court
recognized that, in obtaining the highest price reasonably available for a corporation, a board of
directors may consider "the adequacy and terms of the offer; its fairness and feasibility; the
proposed or actual financing for the offer, and the consequences of that financing; ... the risk of
nonconsumation; the basic stockholder interests at stake; the bidder's identity, prior background
and other business venture experiences; and the bidder's business plans for the corporation and
their effects on stockholder interests."
52 David had obtained the report from Shepherd when he first started developing his business plan.
The report was sent to A.S. by mistake.
107
So, before the special meeting of the directors on November 19, A.S. and Rose
Mary had had the benefit of this information along with the Player report. By the
time the stockholders met on December 20, they had received Dr. Lynch's report
in which he opined that the offer from Capps was fair to the corporation.
Other factors were also relevant to the directors' discharge of their duties
with regard to the sale of Moneta's assets. Willard first indicated that he was not
interested in purchasing the assets, but then he made an offer that expired three
days later.
He did not submit his second offer until one day before the
stockholders' special meeting.
Furthermore, in Willard's second offer, he
requested an additional 30 days in which to review the financial records of
Moneta in more detail so that he could determine if an even higher purchase price
was warranted. Thus, A.S. and Rose Mary were justified in their fear that the
value of Moneta's assets would decline significantly if they waited and David
opened his new business during those 30 days. A.S. and Rose Mary were
obliged to consider this potential consequence. Even Willard had acknowledged
the adverse impact that David's new business would have on the value of
Moneta's assets.53
Thus, we conclude that A.S. and Rose Mary, in their capacities as directors,
acted in good faith and used their business judgment by pursuing a course to
achieve the result that they considered to be in the best interests of Moneta. They
discharged their duties in accordance with Code § 13.1-690 and are, therefore,
protected by the "safe harbor" afforded under subsection C of that statutory
provision.54
Conflict of Interests
Willard's third and fourth assignments of error address an alleged conflict of
interests and a director's duty of loyalty. Specifically, Willard asserts that the
circuit court erred by ruling that A.S. and Rose Mary did not have a conflict of
interests in the transaction to sell Moneta's assets to a corporation owned by their
son.
53 At the hearing on October 24, Willard stated, "After Dave announces his opening and comes out
of the ground, you can pretty much shut [Moneta] down by about a third right then."
54 Because the objective reasonableness of a director's decision or conduct is not a relevant inquiry
under § 13.1-690, we also conclude that the circuit court correctly held that Willard was not
entitled to discover the substance of certain legal and financial advice that the defendants
received. See WLR Foods, 65 F.3d at 1187. Furthermore, the circuit court actually reviewed all
the requested material in camera and ordered the defendants to provide some of the documents to
Willard. "Generally, the granting or denying of discovery is a matter within the discretion of the
trial court and will not be reversed on appeal unless 'the action taken was improvident and
affected substantial rights.' " O'Brian v. Langley School, 256 Va. 547, 552, 507 S.E.2d 363, 366
(1998) (quoting Rakes v. Fulcher, 210 Va. 542, 546, 172 S.E.2d 751, 755 (1970)).
108
The statute at issue is Code § 13.1-691, which provides the following, in
pertinent part:
A. A conflict of interests transaction is a transaction with the
corporation in which a director of the corporation has a direct or
indirect personal interest. A conflict of interests transaction is not
voidable by the corporation solely because of the director's interest in
the transaction if any one of the following is true:
1. The material facts of the transaction and the director's
interest were disclosed or known to the board of directors or a
committee of the board of directors and the board of directors
or committee authorized, approved, or ratified the transaction;
2. The material facts of the transaction and the director's
interest were disclosed to the shareholders entitled to vote and
they authorized, approved, or ratified the transaction; or
3. The transaction was fair to the corporation.
B. For the purposes of this section, a director of the corporation has an
indirect personal interest in a transaction if:
1. Another entity in which he has a material financial interest
or in which he is a general partner is a party to the transaction;
or
2. Another entity of which he is a director, officer or trustee is
a party to the transaction and the transaction is or should be
considered by the board of directors of the corporation.
Relying on our decision in Izadpanah v. Boeing Joint Venture, 243 Va. 81,
412 S.E.2d 708 (1992), the circuit court ruled that Willard had the initial burden
of establishing a conflict of interests and that he failed to do so.55 The court
determined that A.S. and Rose Mary, in their capacities as directors, did not have
an "indirect personal interest" in the transaction, as that term is defined in Code §
13.1-691(B). Aside from the familial relationship between son and parents, the
court also found no evidence of a "direct personal interest in the transaction."
According to the court, the evidence actually demonstrated that David's
resignation as an officer and director of Moneta and his new business plans had
caused considerable discord between him and his parents.
55 The court also stated that if a plaintiff establishes a conflict of interests, the director then has the
burden to prove compliance with Code § 13.1-691. This allocation of the burden of proof is
correct. "[W]hen a conflict of interest as defined in § 13.1-691 exists, ... the burden shifts to the
directors to show that their actions complied with the requirements of that section." Izadpanah,
243 Va. at 83, 412 S.E.2d at 709; accord Giannotti v. Hamway, 239 Va. 14, 24, 387 S.E.2d 725,
731 (1990).
109
As an alternative finding, the court determined that, even if A.S. and Rose
Mary had conflicts of interests in their capacities as directors, the transaction was,
nevertheless, "fair to the corporation" pursuant to Code § 13.1-691(A)(3). Thus,
the circuit court held that the sale of Moneta's assets was not a voidable
transaction under Code § 13.1-691. Because we agree that the transaction was
"fair," we need not address whether A.S. and Rose Mary had a conflict of
interests because their son owned the corporation that purchased the assets of
Moneta.56
No inflexible rule can be established by which to test the "fairness" of a
transaction. It depends largely on the nature and circumstances of the business
action. But generally, a director must act in good faith, and the transaction must,
"as a whole, [be] open, fair and honest at the time it was consummated." Deford
v. Ballentine Realty Corp., 164 Va. 436, 449, 180 S.E. 164, 169 (1935); accord
Adelman v. Conotti Corp., 215 Va. 782, 789-90, 213 S.E.2d 774, 779 (1975). In
sum, a transaction in which a director has a conflict of interests should bear "the
earmarks of an arm's length bargain" in order to be deemed "fair to the
corporation" under Code § 13.1-691(A)(3). Pepper v. Litton, 308 U.S. 295, 30607, 60 S.Ct. 238, 84 L.Ed. 281 (1939).
Using these guidelines to review all aspects of the transaction in this case,
we conclude that A.S. and Rose Mary carried their burden of proving that the sale
of Moneta's assets to Capps was "fair to the corporation." Although we believe
that the standard by which a transaction is judged under Code § 13.1-691(A)(3)
is more exacting than that under § 13.1-690, the facts that support the circuit
court's conclusion that A.S. and Rose Mary exercised their "good faith business
judgment of the best interests of the corporation" equally sustain the court's
judgment on this issue and need not be repeated.
Furthermore, when A.S. and Rose Mary, acting as Moneta's directors,
accepted the offer from Capps, it was the only offer that had been presented to the
board of directors at that time. After Willard made his first offer, the directors
did not refuse to consider it. Instead, they believed it would be inappropriate to
take any action on the offer prior to the special meeting of the stockholders since
the notice for that meeting had already been given to the stockholders. Even
though Willard's first offer expired three days after he made it, A.S. encouraged
Willard to present his offer to the stockholders. Willard did not make his second
offer until one day before the stockholders' special meeting.57 However, that offer
56 Although the General Assembly did not define "direct personal interest," we note that the
RMBCA includes, in the definition of a "conflicting interest," a transaction with the corporation
when the director knows that he or a related person is a party to or has a beneficial interest in the
transaction. § 8.60(1). Under § 8.60(3), the term "related person" encompasses children of the
director.
57 In fact, Willard did not present his second offer until after his unsuccessful attempt to enjoin the
stockholders from convening the special meeting.
110
included Willard's request for 30 days in which to evaluate the value of Moneta's
assets.
During the stockholders' meeting, A.S. informed everyone about Willard's
offers. The stockholders had already received copies of the revised "Asset
Purchase Agreement" and the reports from Dr. Lynch and Player. Thus, the
directors and stockholders of this closely held corporation possessed all the
available information concerning the value and sale of Moneta's assets. When
the stockholders met on December 20, the options were either to accept the offer
from Capps or to forego that opportunity to sell Moneta's assets and wait for the
outcome of a further evaluation of the assets by Willard while David opened his
competing business. Therefore, we conclude that the transaction was, "as a
whole, open, fair and honest at the time it was consummated" and is, accordingly,
not voidable under Code § 13.1-691.
Willard, nevertheless, asserts that a finding that the sale of assets is not
voidable under Code § 13.1-691 does not necessarily resolve the question
whether A.S. and Rose Mary are liable for breach of their common law duty of
loyalty.
Generally, we agree with that proposition.
However, having
established the "fairness" of the transaction under Code § 13.1- 691(A)(3), it
necessarily follows that A.S. and Rose Mary discharged their duty of loyalty in
compliance with Code § 13.1-690.
Majority Stockholders' Rights
We next address Willard's contention that the circuit court erred by finding
that A.S. and Rose Mary could "avoid the fiduciary duties they owed as directors
by simply referring the asset sale to themselves as shareholders and then voting
'as shareholders' to approve the transaction." Willard argues that directors cannot
be allowed to abdicate their duties by replacing their "director[s'] hats" with their
"shareholder[s'] hats."
With regard to the duties of majority stockholders, the circuit court
determined that A.S.'s decision to vote his and Rose Mary's shares of stock to
accept the revised "Asset Purchase Agreement" was not "illegal, oppressive,
fraudulent, or wasteful." Absent a violation of Code § 13.1-747,58 the court
opined that stockholders own their stock and can vote it.
In Glass v. Glass, 228 Va. 39, 53-54, 321 S.E.2d 69, 78 (1984), we
recognized that "majority stockholders [have] rights for which they [are] entitled
to protection.
They [have] the right to retain their stock, to control the
management of the [c]orporation, and to act together to accomplish their
legitimate aims." Similarly, in Fein v. Lanston Monotype Mach. Co., 196 Va.
753, 766, 85 S.E.2d 353, 360 (1955), we stated that "[t]he holders of the majority
of the shares of a corporation have the right and the power, by the election of
58 Code § 13.1-747 provides, in part, that a circuit court may dissolve a corporation if, inter alia,
the directors are acting in a manner that is illegal, oppressive, or fraudulent.
111
directors and by the vote of their stock, to determine the policy of their
corporation and to manage and control its action."
Accordingly, we conclude that A.S. and Rose Mary were entitled to exercise
their rights as the majority stockholders by voting to approve the sale of assets to
Capps. We agree with the circuit court's judgment that their conduct was not
"illegal, oppressive, or fraudulent" under Code § 13.1-747. Any self-interest on
the part of a majority stockholder "is not a disqualification of the right to vote, in
the absence of fraud or other disqualification." 196 Va. at 766, 85 S.E.2d at 360.
Statutory Requirements For Selling Corporation's Assets
Willard next attacks the directors' compliance with the provisions of Code §
13.1-724.59 Specifically, Willard asserts that A.S. and Rose Mary failed to
follow the procedures contained in subsection (B)(1) in two respects: (1) that the
board of directors failed to communicate the "basis for its determination" that the
proposed transaction would be submitted to the stockholders with no
recommendation from the directors; and (2) that the proposed "Asset Purchase
Agreement" sent to the stockholders for approval was actually different from the
one approved by the board of directors.
The notice of the December 20, 1996 special meeting of stockholders
disclosed the familial relationship among A.S., Rose Mary, and David. According
to the circuit court, that relationship was a "special circumstance" that formed the
basis of the decision by the board to refer the proposed transaction to the
stockholders without a recommendation. We agree. Disclosure of the familial
relationship in the notice for the special meeting of stockholders was sufficient
notification of the basis for the board's decision. Thus, the disclosure satisfied
the requirements of Code § 13.1- 747(B)(1).
59 Code § 13.1-724 provides the following, in pertinent part:
A. A corporation may sell, lease, exchange, or otherwise dispose of all, or substantially all, of
its property, otherwise than in the usual and regular course of business, on the terms and
conditions and for the consideration determined by the corporation's board of directors, if the
board of directors adopts and its shareholders approve the proposed transaction.
B.
For a transaction to be authorized:
1.
The board of directors shall submit the proposed transaction to the shareholders with
its recommendation unless the board of directors determines that because of conflict of interests
or other special circumstances it should make no recommendation and communicates the basis
for its determination to the shareholders with the submission of the proposed transaction; and
2.
The shareholders entitled to vote shall approve the transaction as provided in
subsection E of this section.
112
The court also found that the terms of the revised "Asset Purchase
Agreement," which A.S. signed without board approval, fell within the authority
to negotiate that the board of directors had granted to him at the special meeting
on November 19, 1996. The minutes of the special meeting of the board of
directors on November 19 reflect that the board authorized A.S. to sign the
agreement but reserved the right for him to negotiate any matters of concern to
the stockholders. In the revised document, Capps agreed to assume certain
liabilities of Moneta; whereas, the original agreement stated that Capps "shall not
assume any liabilities of [Moneta]." While this modification resulted in a
reduction in the purchase price, we believe that the outstanding liabilities of the
seller and the extent to which the buyer will assume those liabilities are matters of
concern to stockholders. Thus, we conclude that A.S. acted within the authority
granted to him when he executed the revised "Asset Purchase Agreement" and
that the submission of that agreement to the stockholders for approval did not
violate the requirements of Code § 13.1- 724(B)(1), even though it contained
some terms that were different from those in the original agreement approved by
the board of directors.
Conclusion
To summarize, A.S. and Rose Mary, as the only remaining directors of
Moneta, discharged their duties in accordance with their "good faith business
judgment of the best interests of the corporation" by approving the sale of
Moneta's assets to Capps. They not only engaged in an informed decisionmaking process to the extent possible, given the limited amount of time in which
they had to evaluate the offers from Capps and Willard, but they also considered
both the quantity and quality of the offers. Moreover, the transaction was "fair to
the corporation" under the more demanding standard mandated by Code § 13.1691(A)(3). A.S. and Rose Mary also complied with the procedures required in
Code § 13.1-724 for the sale of a corporation's assets, not in the ordinary course
of business. Thus, for the reasons stated, we will affirm the judgment of the
circuit court.60
Affirmed.
KOONTZ, Justice, with whom Justice HASSELL joins, dissenting.
I respectfully dissent. In my view, only by placing form over substance can
the record in this case support the trial court's judgment that Ronald L. Willard
failed to carry his burden of proof that Amerigo S. and Rose Mary Cappellari, the
60 Willard also assigned error to the circuit court's refusal to impose a constructive trust on the
assets sold to Capps and to award Willard his attorney's fees and costs. However, on brief,
Willard asked this Court to reverse the circuit court's decision on this issue if we also reversed the
court's approval of the transaction. Since we are affirming the circuit court's judgment, we need
not address this assignment of error on its merits.
113
sole directors and majority stockholders of Moneta Building Supply, Inc.
(Moneta), did not discharge their duty of loyalty in compliance with Code § 13.1690.
Without repeating the generally undisputed facts recited in the majority
opinion, it is clear that the record establishes that Mr. and Mrs. Cappellari knew
that the transaction in question involved the sale of Moneta's operating assets to
Capps Home & Building Supply Center, Inc. (Capps), a corporation owned by
their son, David Lawrence Cappellari. In addition, the record establishes that
although Mr. and Mrs. Cappellari were unhappy with their son's decision to leave
Moneta and to open Capps in direct competition with it, they were aware that the
acquisition of Moneta's assets would shorten the time until Capps would become
operational and be a source of substantial income for their son. Indeed, this
transaction would permit their son to begin operating Capps in Moneta's real
estate with its entire inventory and, thus, become operational immediately upon
the close of the transaction without the delays inherent in opening any new
business. This benefit to their son is patent.
Under these circumstances, Mr. and Mrs. Cappellari had a conflict of
interests in this transaction because they had a "direct personal ... interest" in that
transaction as contemplated by Code § 13.1-691. That statute does not define this
term.
However, "direct ... personal interest" is a broad term and, absent
restrictive language in the statute, it is not limited to direct financial
considerations.
Rather, common sense dictates that where a parent is in a
position as a director of a closely held corporation to assist his or her child in
acquiring the assets of the corporation to the benefit of the child, that director has
a direct personal interest in such a transaction as contemplated by Code § 13.1691.
Notwithstanding this conflict of interests, I do not disagree with the
majority's conclusion that on this record this transaction was not void or voidable
under Code § 13.1-691. In the context of that code section, the record supports the
trial court's judgment, and the majority opinion, that the transaction was "fair to
the corporation" under Code § 13.1-691(A)(3). This is so because Capps' offer
was at least consistent with the value of Moneta's assets.
However, Code § 13.1-691 by its express terms merely protects a conflict of
interests transaction from being rendered void solely because of a director's
conflict. This code section does not address the potential liability of a director
who has a conflict of interests in a particular transaction. That issue is to be
resolved under Code § 13.1-690, which requires the director to discharge his
duties "in accordance with his good faith business judgment of the best interests
of the corporation."…It is in this context that I disagree with the conclusion of the
majority opinion, on the particular facts of this case, that because the transaction
in question was not voidable because it was "fair" under Code § 13.1-691(A)(3),
it necessarily follows that the directors discharged their duty of loyalty in
compliance with Code § 13.1- 690.
114
It is undisputed that on November 15, 1996, Capps offered $1.3 million to
purchase the assets of Moneta, including its real estate, inventory, equipment,
vehicles, supplies, office furniture, fixtures, improvements and the exclusive right
to use the trade name "Moneta Building Supply." Without question, once this
transaction was complete Moneta would cease to exist as an operating business.
All that would remain to be done would be a distribution of the proceeds of this
sale to the shareholders. It is also undisputed that prior to the shareholder
approval of this offer, the directors received two offers from Willard.
In
pertinent part, the last offer contained the following provisions:
I am now offering to pay $600,000.00 more than Capps for the same assets
as set forth in the November 15, 1996 Asset Purchase Agreement, and under the
same terms an [sic] conditions as set forth therein, provided that the business is
run in the ordinary course until closing and the telephone number of the business
is included in the assets.
....
I am making my offer without any real opportunity to investigate in detail
the value of the assets of Moneta Building Supply, Inc. I am confident that if
given that opportunity, I would further increase my offer substantially.
Accordingly, while the foregoing offer remains in effect, I would request 30 days
to fully evaluate the assets and determine whether a higher value is appropriate.
There is no suggestion in the record that Willard was not financially able to
consummate this offer if it was accepted. Willard's offer of $600,000 more than
the Capps offer was not conditioned upon being granted an additional 30 days in
which to review financial records of Moneta in more detail. Thus, the record
establishes that the directors had two competing offers to consider, and one in
which they had a direct personal interest. Significantly, the latter offer was the
lower of the two offers.
In this context, the record does not support the trial court's conclusion that
Mr. and Mrs. Cappellari "engaged in an informed decision making process that ...
produce[d] a defensible business decision." The record reflects that they never
met as directors to consider Willard's offer. Thus, the record does not support the
conclusion that they discharged their duties as directors in accordance with their
"good faith business judgment of the best interests of the corporation" as
contemplated by Code § 13.1-690. Rather, the record establishes that the directors
preferred their son to be able to purchase Moneta's assets and that they engaged
professional advice solely to shape a process under Code § 13.1-690 to
accomplish that end. This was mere form over substance.
While I agree with the majority that Mr. and Mrs. Cappellari were not
required to accept Willard's offer merely because it maximized the purchase price
and that they were entitled to consider not only the quantity of the offer but also
the quality of the offer, the record simply does not support the conclusion that this
was done. Moreover, because of their direct personal interest in the Capps
115
transaction, it is clear that they were not exercising good faith business judgment
because all their efforts were directed at upholding the Capps offer to the
exclusion of any consideration of the Willard offer. Under these circumstances
they were not entitled to the protection of Code § 13.2-690(C) and they failed to
discharge their duty of loyalty in not considering the offer that would maximize
the purchase price for Moneta's assets.
For these reasons, I would reverse the judgment of the trial court and
remand this case to the trial court for a determination of what damages, if any,
Willard might establish in a new trial limited to that issue.
Stockholders Derivative Action
In Simmons v. Miller, the minority stockholder, Calvert W. Simmons,
accused the majority stockholder, Margaret C. Miller, inter alia, of breach of her
fiduciary duty to him and their corporation, Las Palmos, when she participated in
the organization of a second corporation which acquired the assets of Las Palmos,
the sole owners of which were Miller and Simmons. On appeal, one of the issues
was whether Virginia law permits a minority stockholder in a closely held
corporation to assert individual claims, distinct from derivative claims, against a
corporate officer or director for breach of fiduciary duty. Simmons argued that he
was entitled to file a claim against Miller, both individually and on behalf of Las
Palmos, and then if he recovered on both claims, he was entitled to elect which
judgment to collect. The Supreme Court rejected Simmons argument that in a
closely held corporation an individual shareholder should be permitted to
maintain an individual claim against a director for breach of fiduciary duties.
Simmons v. Miller, et al.
261 VA. 561, 544 S.E.2d 666 (2001)
Lemons, J., delivered the opinion of the Court.
Analysis
A. Breach of Fiduciary Duty
Simmons maintains that a shareholder in a closely held corporation is not
confined to a derivative action on behalf of the corporation to redress claims against
a corporate officer or director for breach of fiduciary duty to the corporation. Rather,
Simmons contends that the shareholder may sue individually and representatively,
and if "double recovery" results, the claimant shareholder should be permitted to
elect between remedies. The jury returned verdicts in favor of Simmons individually
(Count 2) in the amount of $10,000, and in his derivative capacity (Count 14) in the
amount of $10,000, against Miller for breach of fiduciary duties. Noting that
upholding both verdicts "would constitute a penalty, not compensation," the trial
116
court struck the jury verdict on the individual claim, finding "that in Virginia, claims
like those Simmons brought in this case are cognizable as derivative, not individual,
actions."
A derivative action is an equitable proceeding in which a shareholder asserts,
on behalf of the corporation, a claim that belongs to the corporation rather than the
shareholder. Rales v Blasband, 634 A.2d 927, 932 (Del.1993). Derivative suits play
an "important role in protecting shareholders of corporations from the designing
schemes and wiles of insiders who are willing to betray their company's interests in
order to enrich themselves."Surowitz v Hilton Hotels Corp., 383 U.S. 363, 371, 86
S.Ct. 845, 15 L.Ed.2d 807 (1966). See also Brown v. Bedford City Land &
Improvement Co., 91 Va. 31, 38, 20 S.E. 968, 970 (1895).
The overwhelming majority rule is that an action for injuries to a corporation
cannot be maintained by a shareholder on an individual basis and must be brought
derivatively. See Crocker v. Fed. Deposit Ins. Corp., 826 F.2d 347, 349 (5th
Cir.1987); Cowin v. Bresler, 741 F.2d 410, 414 (D.C.Cir.1984); Lewis v. Chiles, 719
F.2d 1044, 1049 (9th Cir.1983); Lewis v. S.L. & E., Inc., 629 F.2d 764, 768 n. 10
(2nd Cir.1980); Brown v. Presbyterian Ministers Fund, 484 F.2d 998, 1005 (3rd
Cir.1973); Fifty States Management Corp. v. Niagara Permanent Savings & Loan
Ass'n, 58 A.D.2d 177, 179, 396 N.Y.S.2d 925 (1977); Landstrom v. Shaver, 561
N.W.2d 1, 12 (S.D.1997); Rose v. Schantz, 56 Wis.2d 222, 201 N.W.2d 593, 598
(1972).
The reasons underlying the general rule are that 1) it prevents a multiplicity of
lawsuits by shareholders; 2) it protects corporate creditors by putting the proceeds of
the recovery back in the corporation; 3) it protects the interests of all shareholders by
increasing the value of their shares, instead of allowing a recovery by one
shareholder to prejudice the rights of others not a party to the suit; and 4) it
adequately compensates the injured shareholder by increasing the value of his shares.
Thomas v. Dickson, 250 Ga. 772, 301 S.E.2d 49, 51 (1983).
As one leading commentator has noted:
A shareholder ordinarily cannot, as an individual as distinguished from a
representative of the corporation, sue directors or other corporate officers for
mismanagement, negligence or the like, on a cause of action which belongs to the
corporation. The remedial rights of minority shareholders with respect to wrongs
committed against the corporation by the officers and directors in the
management of corporate affairs are derivative rights and any action taken by the
shareholders to redress such wrongs must be for the benefit of the corporation.
12B William M. Fletcher, Cyclopedia of the law of Private Corporations §
5924, at 497-99 (perm. ed.2000 rev. vol.) (citations and footnotes omitted). See
also, 1 F. Hodge O'Neal, Close Corporations § 1.02 (1971, updated 1994).
Recognizing the general rule, Simmons, nonetheless, urges the adoption of a
closely held corporation exception permitting maintenance of an individual claim
for breach of fiduciary duties under limited circumstances. In Coastal
117
Pharmaceutical Co. v. Goldman, 213 Va. 831, 837, 195 S.E.2d 848, 853 (1973),
this Court noted:
[W]e are aware of the several definitions of a "close corporation" written by
various scholars on and off the bench, [but] ... [w]e fear the most precise
definition may be imperfect to every occasion, and we find it unnecessary to
choose among the scholars or to write a hard and fast definition of our own.
While it is also unnecessary in this case to write such a definition because
the parties agree that Las Palmas is a closely held corporation, we note that this
corporation has a small number of shareholders with no active trading market for
their shares, and substantial majority stockholder participation in the
management, direction, and operations of the corporation. See, e.g., Donahue v.
Rodd Electrotype Co. 367 Mass. 578, 328 N.E.2d 505, 511 (1975); see Masinter
v. WEBCO Co., 164 W.Va. 241, 262 S.E.2d 433, 435 (1980).
A number of states permit an individual claim under the following principle
advocated by the American Law Institute:
In the case of a closely held corporation [§ 1.06], the court in its discretion
may treat an action raising derivative claims as a direct action, exempt it from
those restrictions and defenses applicable only to derivative actions, and order an
individual recovery, if it finds that to do so will not (i) unfairly expose the
corporation or the defendants to a multiplicity of actions, (ii) materially prejudice
the interests of creditors of the corporation, or (iii) interfere with a fair
distribution of the recovery among all interested persons.
2 American Law Institute, Principles of Corporate Governance: Analysis
and Recommendations § 7.01(d), pg. 17.
The rationale for the proposed exception appears to be based upon concerns
that derivative claims inure to the benefit of all shareholders, including, in some
cases, those who have engaged in wrongdoing. Additionally, several courts have
suggested that closely held corporations, in some cases, function more like a
partnership than a corporate entity. Galbreath v. Scott, 433 So.2d 454, 457
(Ala.1983); Barth v. Barth, 659 N.E.2d 559, 562 (Ind.1995); Donahue, 328
N.E.2d at 512; Meiselman v. Meiselman, 309 N.C. 279, 307 S.E.2d 551, 557
(1983).
Despite gaining some judicial acceptance over the past decade, the closely
held corporation exception is not the majority rule and has been subject to
criticism. Delaware, for example, has yet to embrace the concept of a direct
shareholder action in a closely held corporation. In Bagdon v.
Bridgestone/Firestone, Inc., 916 F.2d 379, 384 (7th Cir.1990), the Seventh
Circuit noted that under Delaware law a claim that a majority shareholder
established a competing business should have been brought as a derivative suit
rather than a direct one. The Court noted that, "[c]ommercial rules should be
predictable; this objective is best served by treating corporations as what they are,
118
allowing the investors and other participants to vary the rules by contract if they
think deviations are warranted." Id.
We decline to adopt a closely held corporation exception to the rule
requiring that suits for breach of fiduciary duty against officers and directors must
be brought derivatively on behalf of the corporation and not as individual
shareholder claims. Adherence to the general rule without this proposed exception
prevents multiplicity of lawsuits by shareholders. A recovery by the corporation
protects all shareholders as well as creditors. Finally, as expressed in Bagdon,
consistent application of commercial rules promotes predictability. If
shareholders and the corporation desire to vary commercial rules by contract, they
are free to do so. Accordingly, the trial court did not err in striking the jury's
verdict on Count 2.
Although striking the jury's verdict on Simmons' individual claim for breach
of fiduciary duty, the trial court denied Miller's motion to strike the jury's verdict
on Simmons' derivative claim for breach of fiduciary duty. Miller asserts that she
was entitled to the benefit of the statutory business judgment rule61 codified at
Code § 13.1 690, which provides:
A. A director shall discharge his duties as a director, including his duties as
a member of a committee, in accordance with his good faith business judgment of
the best interests of the corporation.
B. Unless he has knowledge or information concerning the matter in
question that makes reliance unwarranted, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
1. One or more officers or employees of the corporation whom the
director believes, in good faith, to be reliable and competent in the matters
presented;
2. Legal counsel, public accountants, or other persons as to matters the
director believes, in good faith, are within the person's professional or expert
competence; or
61 Miller was sued in her capacity as "a director, officer and majority shareholder." By its express
terms Code § 13.1-690 applies to directors only. As one commentator has noted, "[t]he General
Assembly elected not to enact a statutory standard of conduct for officers. See Revised Model
Act § 8.42. As a result, development of the standard of conduct for officers will be left to the
courts." Allen C. Goolsby, Virginia Corporation Law and Practice § 9.7, n. 62. However, in this
case, the jury instruction on the business judgment rule was given without objection and made no
distinction between Miller's various roles. It became the law of the case. See Rice v. Charles, 260
Va. 157, 169, 532 S.E.2d 318, 325 (2000). Additionally, on appeal, Simmons does not argue any
theory of liability based upon Miller's status as majority shareholder.
119
3. A committee of the board of directors of which he is not a member if
the director believes, in good faith, that the committee merits confidence.
C. A director is not liable for any action taken as a director, or any failure
to take any action, if he performed the duties of his office in compliance with this
section.
D. A person alleging a violation of this section has the burden of proving
the violation.
Code § 13.1-690 applies to the "discharge [of] duties as a director," and
makes no distinction between duties of care and loyalty. We recognized in
Willard v. Moneta Building Supply, Inc., 258 Va. 140, 151, 515 S.E.2d 277, 284
(1999) that "Code § 13.1.690(A) does not abrogate the common law duties of a
director." However, the protection of § 13.1-690(C) applies only to acts "taken as
a director, or any failure to take any action," and is confined to the exercise of
business judgment on behalf of the corporation. When the acts in question do not
meet these criteria, Code § 13.1-690 does not apply.
The acts cited by Simmons as constituting Miller's breach of duty to Las
Palmas include "secretly organizing Las Palmas International/Profesor Sila."
Clearly, the organization of International, a competitor, was not a corporate act of
Las Palmas. In taking this action, Miller was not exercising business judgment on
behalf of Las Palmas. Although implicating a common law duty of loyalty, this
act does not fall within the scope of Code § 13.1- 690. Miller was not entitled to
protection under the statutory business judgment rule.
The evidence viewed in the light most favorable to Simmons amply
supports the jury's verdict that Miller breached her duty of loyalty to Las Palmas.
Accordingly, the trial court did not err in refusing to set aside the jury's verdict on
Simmons' derivative claim for breach of fiduciary duty against Miller.
Gina Chin & Associates, Inc. v. First Union Bank
260 Va. 533, 537 S.E.2d 573
Kootz, J., delivered the opinion of the Court.
In this appeal, we consider whether the trial court erred in striking the evidence
at the conclusion of the plaintiff's case-in-chief by ruling, as a matter of law, that a
bank teller who participated in a scheme to deposit forged checks was acting outside
the scope of his employment, thus relieving his employer from civil liability for those
acts.
Background
Under well settled principles of law, we will review the evidence in the light
most favorable to the plaintiff, the non-moving party. See, e.g., Lenders Financial
Corp. v. Talton, 249 Va. 182, 188, 455 S.E.2d 232, 236 (1995).
120
In 1994, Henry Steven Cardenas was employed as a teller by First Union Bank.
His duties included, among other things, the receiving of cash and checks for deposit
into the accounts of the bank's customers. At the beginning of his employment,
Cardenas received "about two weeks" of training. During that training, First Union
instructed Cardenas not to accept checks made payable to businesses for deposit into
personal accounts or to accept checks for more than $7,000 for deposit without a
supervisor's approval.
Prior to beginning his employment with First Union, Cardenas was acquainted
with Amie Cheryl Lehman, who was dating Cardenas' brother. Shortly after Cardenas
began working as a teller, he moved into an apartment with his brother and Lehman.
Lehman, who had formerly been a teller at Signet Bank, was employed at that time
by Gina Chin & Associates, Inc. (Chin), a food wholesaler, as the firm's accounts
payable clerk.
After Cardenas had been working at First Union "a little over a year," Lehman,
relying on her knowledge as a former bank teller, requested his assistance in
depositing a forged check into her First Union account. The check was drawn on
Chin's account at Signet Bank,62 and was made payable to one of Chin's suppliers.
Lehman created the check by entering a false invoice into Chin's accounts payable
computer program, which produced the check on a printer. Lehman then forged both
the signature of Gina Chin, Chin's president, as drawer and the endorsement of the
supplier making the check payable to Lehman.
Cardenas at first refused to assist Lehman, "but then she kept on insisting and
insisting and then she convinced me, I guess, by offering me some money on the
side." Lehman told Cardenas that "it wouldn't come back to [him] at all" because she
reconciled the bank statements for Chin's account and could intercept the statements
with the forged checks before they came to the attention of the firm's principals.
Cardenas thereafter deposited the check into Lehman's First Union account. The
drawer bank paid the check, debiting the amount from Chin's account.
Ultimately, using the forgery scheme outlined above, Lehman and Cardenas
succeeded in depositing $270,488.72 in forged checks into Lehman's personal
account at First Union.63 Cardenas received approximately 20 percent of the funds
deposited. After Lehman left her employment with Chin, Signet Bank discovered the
forgery scheme and reported its findings to Chin and the police. Lehman and
62 During the course of the ensuing forgery scheme conducted by Lehman and Cardenas, Chin
moved its account to Citizen's Bank of Washington, D.C. Checks drawn on both accounts were
deposited into Lehman's First Union account.
63 The total amount of the forged checks reflected here is taken from Chin's motion for judgment.
Chin concedes in that pleading that this amount is subject to amendment because some of the
forged checks were apparently deposited in another bank.
121
Cardenas subsequently were convicted of one count of bank fraud each in federal
court.
On June 11, 1996, Chin filed a motion for judgment against First Union seeking
$270,488.72 in damages resulting from the forgery scheme of Lehman and Cardenas.
Chin alleged that First Union was negligent when it accepted for payment checks
drawn on Chin's accounts bearing both forged signatures of the drawer and forged
endorsements of the payees. Chin further alleged that First Union was vicariously
liable for Cardenas' criminal acts.
The trial court initially sustained First Union's demurrer to Chin's motion for
judgment and entered summary judgment in favor of First Union on the ground that
under the factual circumstances asserted by Chin certain provisions of the Uniform
Commercial Code barred an action by the drawer of a check against the depository
bank. We awarded Chin an appeal from that judgment, reversed it, and remanded the
case for further proceedings. Gina Chin & Associates v. First Union Bank, 256 Va.
59, 63, 500 S.E.2d 516, 518 (1998). In doing so, we held that "Chin's motion for
judgment pled a cause of action pursuant to §§ 8.3A-404 and § 405 of the Uniform
Commercial Code, Code §§ 8.1-101 through 8.11-108." Id. at 61, 500 S.E.2d at 517.
We explained that pursuant to these statutes the concept of comparative negligence is
employed to determine liability to the person sustaining the loss based upon the
premise "that all participants in the process have a duty to exercise ordinary care in
the drawing and handling of [checks]." Id. at 62, 500 S.E.2d at 517. Thus, in the
context of the present case, the ultimate issue of comparative negligence, which is
solely a jury issue, centers upon the conduct of First Union through its employees and
that of Chin through its employees. In short, there is no dispute that while First
Union accepted the forged checks for payment and Chin permitted access to its
checks by its employee who forged them, the ultimate issue still undecided at that
point in the proceedings was whether First Union was negligent or whether First
Union and Chin were both negligent and, if so, to what comparative extent.
Upon remand, a jury trial was commenced in the trial court on July 17, 1999.
After First Union prevailed on its motion in limine to exclude the anticipated
testimony of Chin's expert witness regarding established banking customs and
standards, the trial court stated "the primary issue is scope of employment." Chin then
proceeded to produce its evidence to the jury.
Cardenas, Lehman, and Donald Chin, Chin's treasurer, were each called as
witnesses for Chin. Consistent with the facts previously related herein, Cardenas and
Lehman detailed the scheme to forge the checks and to deposit them into Lehman's
account. Cardenas further testified that after he left his employment with First Union,
Lehman continued the forgery scheme using her account at another bank where
Cardenas' brother worked as a teller. Donald Chin testified concerning the failure of
Chin to detect the forgery scheme. At the conclusion of Chin's case-in-chief, the jury
122
was read stipulations of fact, including the stipulation that Cardenas' acts were not
known to his supervisors.64
First Union moved to strike Chin's evidence, asserting that Chin had failed
to establish that Cardenas was acting within the scope of his employment in
knowingly accepting the forged checks for deposit. First Union argued that
"although taking these checks may have been incidental to First Union's business
because it takes checks for deposit, there was no evidence that it was in furtherance of
First Union's interest." First Union contended that this was so because Cardenas
willfully violated its policies concerning the deposit of commercial checks into
personal accounts and accepting certain checks without management approval. Thus,
First Union argued that Cardenas was not acting in furtherance of its interest and,
hence, not within the scope of his employment.
Chin, citing Commercial Business Systems, Inc. v. BellSouth Services, Inc., 249
Va. 39, 453 S.E.2d 261 (1995), and other cases, responded that the specific wrongful
act by the employee need not be in furtherance of the employer's interest so long as
the service that the employee was performing at the time was in the course of his
employment. Chin asserted that its evidence showed that Cardenas was acting as an
employee of First Union when he accepted the forged checks for deposit.
After a lengthy colloquy in which the trial court and counsel for both parties
discussed in detail the case law concerning the doctrine of respondeat superior, the
trial court sustained First Union's motion to strike Chin's evidence. In the final order
dismissing the case with prejudice, the trial court ruled as a matter of law that
Cardenas' acts "were not within the scope of the employee's authority, being in
contravention of First Union's directives, and they were not within the scope of
employment as they were shown not to be in furtherance of First Union's interests;
and ... reasonable persons cannot differ on the conclusion reached herein based on the
evidence presented by the Plaintiff, with all inferences most favorable to the
Plaintiff." We awarded Chin this appeal.
Discussion
Initially, we note that the procedural posture of this case, as will be
demonstrated, is significant. The case is before us following the trial court's grant of
the motion to strike Chin's evidence. In that posture, we are unable to review this
case in consideration of all the evidence that may have been produced on the issue in
question. Moreover, despite our consideration of this case in the prior appeal, we are
unable to reach the ultimate merits, or lack thereof, of Chin's claims against First
Union. However, for the reasons that follow, we will reverse the judgment of the trial
court and remand the case for further proceedings.
64 First Union had been permitted to call its expert witness out of turn at the end of the first day of
the trial, but had not formally begun presenting its case when it moved to strike Chin's evidence.
Accordingly, we will not consider the evidence received from that witness in reviewing the trial
court's ruling.
123
With respect to an assertion of liability based upon the doctrine of respondeat
superior, this Court made the following pertinent observation almost 80 years ago in
Davis v. Merrill, 133 Va. 69, 112 S.E. 628 (1922):
If a person, acting for himself, willfully and maliciously inflict an
injury upon another, he is liable in damages for such injury. And there is
no reason why a master should be permitted to turn his business over to
servants who have no regard for the public welfare and thereby escape
the responsibility which he would otherwise have to bear. It is manifestly
right and just that both corporations and individuals be required to
answer in damages for wanton and malicious assaults inflicted upon
others by their servants, while acting within the scope of the servant's
employment and duty, and it matters not whether the act of the servant is
due to lack of judgment, the infirmity of temper, or the influence of
passion, or that the servant goes beyond his strict line of duty and
authority in inflicting such injury....
Id. at 74, 112 S.E. at 630-31.
Almost from its first consideration by the courts of this Commonwealth,
however, the determination of the issue whether the employee's wrongful act was
within the scope of his employment under the facts of a particular case has proved
"vexatious." See, e.g., Kidd v. De Witt, 128 Va. 438, 443, 105 S.E. 124, 125 (1920);
Appalachian Power Company v. Robertson, 142 Va. 454, 456, 129 S.E. 224, 224
(1925).
We have defined "scope of employment" in the following terms:
Generally, an act is within the scope of the employment if (1) it was expressly
or impliedly directed by the employer, or is naturally incident to the business, and (2)
it was performed, although mistakenly or ill-advisedly, with the intent to further the
employer's interest, or from some impulse or emotion that was the natural
consequence of an attempt to do the employer's business....
Kensington Associates v. West, 234 Va. 430, 432, 362 S.E.2d 900, 901
(1987)(emphasis added). The emphasized language in this definition is the focal
point of First Union's assertion in the present case. First Union apparently interprets
this language to require that the specific act which caused the injury be performed by
the employee with an intent to benefit the employer. At first blush, this language is
susceptible to such an interpretation. However, our prior decisions do not support
that interpretation by implication, see, e.g., Plummer v. Center Psychiatrists, Ltd.,
252 Va. 233, 238, 476 S.E.2d 172, 175 (1996)(counselor engaging in unethical sexual
relationship with patient was potentially acting within scope of employment);
Commercial Business Systems, 249 Va. at 46, 453 S.E.2d at 266 (employee violating
company rule against self-dealing and accepting illegal bribes to award contracts was
potentially acting within the scope of employment), and we expressly reject it now.
In cases involving a willful and wrongful act of an employee, a narrow and
literal reading of the language in this definition, which would create a patent conflict
124
within it, is not to be applied as a matter of law to the facts of a particular case. The
present case and First Union's assertions in support of its motion to strike Chin's
evidence are illustrative of the point. Where an employee commits a willful and
wrongful act that results in injury to others, simple logic suggests that such employee
generally does not do so "with the intent to further the employer's interest." That is to
say, the employee generally does not intend to benefit the employer.
Here, it may well be reasonable to conclude that a bank teller does not intend to
further the interest of his employer bank when he knowingly accepts forged checks
for deposit for his own gain. However, that does not resolve the legal issue
presented, as a matter of law, to the trial court upon a motion to strike the injured
party's evidence. Rather, it should be apparent that the proper application of this
definition in the context of the doctrine of respondeat superior does not resolve into a
simplistic determination that an employee's willful and wrongful act was not done
with the intent to further the employer's interest or to benefit the employer in some
way. Any doubt that may have existed in that regard was clearly resolved in
Commercial Business Systems and in Plummer.
As in the present case, we recognize that the difficulty in applying this
definition to the facts of a particular case frequently arises where "[t]he real inquiry
is, was the question as to whether [the employee] was acting within the scope of his
employment ... one to be determined by the Court, or was it a question of fact to be
submitted to, and determined by, the jury?" Crowell v. Duncan, 145 Va. 489, 500,
134 S.E. 576, 579 (1926). In that regard, a motion to strike requires the trial court to
test the evidence against the applicable burdens of production before permitting the
jury to weigh that evidence against the applicable burden of persuasion.
Settled principles guide the trial court's considerations. While the plaintiff has
the burden of persuasion on the issue whether the employee was acting within the
scope of his employment at the time of the act complained of, we have consistently
held that proof of the employment relationship creates a prima facie rebuttable
presumption of the employer's liability. McNeill v. Spindler, 191 Va. 685, 694-95, 62
S.E.2d 13, 17-18 (1950). Thus, "[w]hen an employer-employee relationship has been
established, 'the burden is on the [employer] to prove that the [employee] was not
acting within the scope of his employment when he committed the act complained of,
and ... if the evidence leaves the question in doubt it becomes an issue to be
determined by the jury.' "Kensington Associates, 234 Va. at 432-33, 362 S.E.2d at
901 (quoting Broaddus v. Standard Drug Co., 211 Va. 645, 653-54, 179 S.E.2d 497,
504 (1971)); see also Plummer, 252 Va. at 235, 476 S.E.2d at 174; Turner v. Burford
Buick Corp., 201 Va. 693, 698, 112 S.E.2d 911, 915 (1960).
Admittedly, the trial court's task may be particularly difficult in cases in which
the injury is caused by an intentional, often criminal, tortious act which clearly would
not have been contemplated by the employer as being within the scope of
employment, but which nonetheless was performed incident to the employment and
125
even facilitated thereby.65 Such cases invoke consideration of whether the employee
deviated from the scope of his employment because of an "external, independent, and
personal motive ... to do the act upon his own account." Broaddus, 211 Va. at 653,
179 S.E.2d at 503- 04. In that regard, we have distinguished between the motive of
the employee and the relevant question whether the service performed was within the
scope of employment. In making this distinction, we have held that the motive of the
employee in committing the act complained of is not determinative of whether it took
place within the scope of the employment relationship. Commercial Business
Systems, 249 Va. at 45, 453 S.E.2d at 266; Tri-State Coach Corp. v. Walsh, 188 Va.
299, 305-06, 49 S.E.2d 363, 366 (1948). Rather, the issue is "whether the service
itself, in which the tortious act was done, was within the ordinary course of such
business." Davis v. Merrill, 133 Va. 69, 78, 112 S.E. 628, 631 (1922); accord
Commercial Business Systems, 249 Va. at 44, 453 S.E.2d at 265.
In Commercial Business Systems, an employee, in violation of conflict of
interest rules established by his employer, created a business to work with companies
that provided services to his employer. The employee then used his position as a
contract negotiator and administrator to funnel business to suppliers who agreed to
work with his company and pay him illegal "kickbacks." 249 Va. at 43, 453 S.E.2d
at 265. We held that these facts did not "conclusively establish that [the employee]
was not acting within the scope of his employment." Id. at 46, 453 S.E.2d at 266.
Although the employee's motive was to advance his self-interest, rather than the
interest of his employer, he was nonetheless "performing his duties ... in the
execution of the services for which he was employed." Id.
We emphasize that the employee's improper motive is not irrelevant to the issue
whether the act was within the scope of employment. Rather, it is merely a factor to
be considered in making that determination, and, unless the deviation from the
employer's business is slight on the one hand, or marked and unusual on the other, but
falls instead between those two extremes, the question is for the jury. McNeill, 191
Va. at 695, 62 S.E.2d at 18; accord Kensington Associates, 234 Va. at 433, 362
S.E.2d at 902. Thus, in Commercial Business Systems, we held that "the evidence
presents a jury issue whether [the employee] acted within the scope of his
65 An alternate approach in such circumstances has been to assign liability to the employer not
vicariously through respondeat superior, but directly through the torts of negligent hiring and
negligent retention. See, e.g., J. v. Victory Tabernacle Baptist Church, 236 Va. 206, 208-09, 372
S.E.2d 391, 393 (1988)(confirming prior recognition of the tort of negligent hiring); Philip
Morris Inc. v. Emerson, 235 Va. 380, 401, 368 S.E.2d 268, 279 (1988)(recognizing tort of
negligent retention). Chin did not allege either of these torts in its motion for judgment. Chin
did allege negligent failure to supervise as a theory of liability in its motion for judgment, but
abandoned that claim at the outset of trial on remand. Accordingly, the viability of that claim is
not before us in this appeal.
126
employment when he committed the wrongful acts." 249 Va. at 46, 453 S.E.2d at
266; see also Plummer, 252 Va. at 238, 476 S.E.2d at 175.
Applying these principles, the issue presented to the trial court by First Union's
motion to strike was whether the evidence presented by Chin was such that, as a
matter of law, a reasonable juror could not find that an employer-employee
relationship existed between Cardenas and First Union or that, although such a
relationship existed, Cardenas was acting within the scope of that employment at the
time of the commission of the acts which injured Chin. First Union does not contest
that Chin produced clear evidence that established the necessary employment
relationship between Cardenas and First Union. Accordingly, Chin's evidence
established a prima facie case of First Union's liability.
First Union contends, however, that Chin's evidence was also sufficient to meet
First Union's burden of production on the issue whether Cardenas' acts were
nevertheless outside the scope of that employment and, moreover, that this evidence
was sufficient to rebut the presumption of liability as a matter of law. We disagree.
First Union asserts that Chin's evidence establishes that Cardenas' wrongful acts
were not "expressly or impliedly directed by the employer" because he violated
directives in accepting commercial checks for deposit into a personal account, in
failing to obtain a manager's approval to accept high value checks for deposit, and in
knowingly accepting checks for deposit with forged endorsements. This assertion is
without merit because the act need not be expressly or impliedly directed by the
employer in order for the act to occur within the scope of the employment. Similarly,
an act committed in violation of an employer's direction is not always beyond the
scope of the employment. Rather, as previously noted, the test is "whether the
service itself, in which the tortious act was done, was within the ordinary course of"
the employer's business. In this instance, it is clear that accepting checks for deposit
by a bank teller is a service within the ordinary course of First Union's banking
business.
First Union further asserts that Chin's evidence also establishes that Cardenas
was acting exclusively for his own benefit and that of Lehman. Thus, First Union
contends that Cardenas was acting outside the scope of his employment because he
had an "external, independent, and personal motive" to perform the act.
There can be no doubt that Cardenas was not steadfast in the performance of his
duties and obligations to his employer when he chose to participate in a criminal
scheme to accept forged checks for deposit. Cardenas was acting out of self-interest
in participating in Lehman's scheme, and his conduct was "outrageous and violative
of his employer's rules." Commercial Business Systems, 249 Va. at 46, 453 S.E.2d at
266. Nonetheless, it is clear that in doing so he was performing a normal function of
a bank teller in accepting checks for deposit.
In sum, First Union's assertions, and the apparent basis of the trial court's
decision to strike Chin's evidence and to award summary judgment to First Union, are
premised not on the failure of Chin to present sufficient evidence to establish a prima
127
facie case of the necessary employment relationship at the time of the injury to Chin,
but on the failure of that evidence to prove that the acts complained of were
committed within the scope of that employment. As we have explained, Chin did not
have the burden of presenting evidence that Cardenas' acts were within the scope of
his employment. Rather, having established that the employment relationship
existed, Chin was entitled to have the case go forward with the burden on First Union
to prove that Cardenas acted outside the scope of his employment.
The procedural posture of the case, as we noted above, is significant. Chin's
evidence, without any additional evidence offered by First Union, was sufficient to
establish a jury issue whether Cardenas acted within the scope of his employment.
That issue therefore, on the evidence presented, did not lend itself to a resolution as a
matter of law by the trial court.
Conclusion
For these reasons, we hold that the trial court erred in sustaining First Union's
motion to strike Chin's evidence and awarding summary judgment to First Union.
Accordingly, we will reverse the judgment of the trial court and remand the case for
further proceedings consistent with the views expressed in this opinion.
Reversed and remanded.
Peace v. Conway
246 Va. 278, 435 S.E.2d 133 (1993)
Hassell, J. delivered the Opinion.
In this appeal from a judgment for an employer in an action for tortious
interference with contracts, we consider whether former employees' acts of soliciting
the business of their former employer's customers constitute "improper methods."
Hugh A. Conway, Jr., trading as Apollo Hair Systems, began to operate a hair
replacement business in 1978. He obtained a franchise from a hair replacement
company that conducts business nationally. Conway sold hair replacement units to
customers. The units, ordered from Conway's franchisor, were designed to match
the color and texture of the customers' natural hair. Conway's employees attached
the units to the customers' hair, then cut and styled each unit to blend with the
customers' natural hair. Each customer executed a written contract with Conway.
Wendy Dickens began to work for Conway in 1981. Conway hired Sally
Peace in 1984. Conway did not execute employment contracts with Peace and
Dickens; nor did either employee sign a covenant not to compete.
As Conway's employees, Peace and Dickens sold hair replacement units to
Conway's customers and serviced these units. Peace and Dickens were aware that
Conway had written contracts with 325 active customers.
On March 17, 1992, Peace and Dickens terminated their employment with
Conway without giving him prior notice. They did not take any supplies, equipment,
or products with them; nor did they take any written customer lists or documents.
128
On March 18, 1992, Peace and Dickens began to operate a competing business
and solicited Conway's customers by telephone, utilizing a list they had compiled
solely from their memories. Peace and Dickens informed Conway's customers that
they had terminated their association with Conway and had established their own
business in another location. They contacted more than 100 of Conway's customers,
and, eventually, Conway had only 37 active customers.
Conway filed a bill of complaint against Peace and Dickens, alleging, among
other things, that they had tortiously interfered with Conway's contracts with his
customers. Conway requested, and was granted, a temporary injunction restraining
Peace and Dickens from soliciting Conway's customers and "using any confidential
information belonging to [Conway], and from dealing with, in any way, any of
[Conway's] customers."
At the conclusion of a trial on the merits, the court held that the contracts
between Conway and his customers were terminable at will; that valid contractual
relationships or business expectancies existed between Conway and his customers;
that Peace and Dickens had knowledge of the relationships or expectancies; that they
had intentionally interfered with the contractual relationships or business
expectancies; that Conway had been damaged; and that Peace and Dickens had
employed improper methods.
The trial court entered a permanent injunction
prohibiting Peace and Dickens from contacting or dealing with any person who had
been Conway's customer as of March 1, 1992. We awarded Peace and Dickens an
appeal.
Peace and Dickens argue that they were entitled to rely upon their memories to
compile a list of Conway's customers and solicit their business and that these acts do
not constitute "improper methods" within the meaning of Duggin v. Adams, 234 Va.
221, 360 S.E.2d 832 (1987). In response, Conway argues that the trial court made a
factual determination that Peace and Dickens had utilized improper methods to solicit
his customers and that there is evidence in the record to support this conclusion.
In Duggin, we considered the elements of a cause of action for tortious
interference with a terminable at-will sales contract. We stated:
[W]hen a contract is terminable at will, a plaintiff, in order to present a prima
facie case of tortious interference, must allege and prove not only an intentional
interference that caused the termination of the at-will contract, but also that the
defendant employed "improper methods."
Methods of interference considered improper are those means that are illegal or
independently tortious, such as violations of statutes, regulations, or recognized
common-law rules....
Improper methods may include violence, threats or
intimidation, bribery, unfounded litigation, fraud, misrepresentation or deceit,
defamation, duress, undue influence, misuse of inside or confidential information, or
breach of a fiduciary relationship.
129
234 Va. at 226-27, 360 S.E.2d at 836 (citations omitted). Here, we must
decide whether the record supports a finding that Dickens and Peace misused
confidential information.
Our review of the record before us, including the trial transcript and exhibits,
reveals that it is uncontroverted that Dickens and Peace relied solely upon their
memories when they contacted Conway's customers.66 Peace and Dickens argue, and
we agree, that this fact does not support the conclusion that they used improper
methods of interference. We find the Restatement (Second) of Agency §396 (1958),
instructive here:
Unless otherwise agreed, after the termination of the agency, the agent:
(a) has no duty not to compete with the principal;
(b) has a duty to the principal not to use or to disclose to third persons, on his
own account or on account of others, in competition with the principal or to his
injury, trade secrets, written lists of names, or other similar confidential matters given
to him only for the principal's use or acquired by the agent in violation of duty.
The agent is entitled to use general information concerning the method of
business of the principal and the names of the customers retained in his memory, if
not acquired in violation of his duty as agent[.]
We hold that Peace and Dickens did not employ improper methods by utilizing
their memories to compile a list of the names of Conway's customers and soliciting
business from those customers. We reiterate that Peace and Dickens did not take any
documents or utilize any property that belonged to Conway when contacting his
customers.
Moreover, it is not unusual in the business world for an employee to leave his
employment and start a competing business. When this occurs, inevitably customers
of the former employer will desire to continue to deal with the former employee in
the new business. Therefore, had Conway desired to prevent Peace and Dickens
from soliciting his customers, he could have required his employees to execute
covenants not to compete. This would have prohibited Peace and Dickens from
soliciting those customers upon termination of the employment relationships. Even
though the record reveals that Conway discussed the possibility of executing such a
covenant with Dickens, for whatever reason, he chose not to require it.
66 Conway argues on brief that "[a]lthough no transcript is available for [the initial hearing on the
preliminary injunction, Peace] testified that she and Wendy Dickens compiled two lists of Apollo
customers containing a total of more than 100 names, and she claimed this was done only by
memory. However, upon questioning, Peace could only remember one [customer's name and
that name was not on either list.]" We cannot consider this argument because this transcript was
not made a part of the record. Rule 5:10.
130
We will reverse the judgment of the trial court and remand this case with
instructions to dissolve the injunction and enter final judgment on behalf of Dickens
and Peace.
Reversed and remanded.
Va. Code Section 8.01-15.1
Anonymous Plaintiff; Motion for Identification;
Factors to be Considered by Court
A. In any legal proceeding commenced anonymously, any party may move
for an order concerning the propriety of anonymous participation in the
proceeding. The trial court may allow maintenance of the proceeding under a
pseudonym if the anonymous litigant discharges the burden of showing special
circumstances such that the need for anonymity outweighs the public's interest in
knowing the party's identity and outweighs any prejudice to any other party. The
court may consider whether the requested anonymity is intended merely to avoid
the annoyance and criticism that may attend any litigation or is to preserve
privacy in a sensitive and highly personal matter; whether identification poses a
risk of retaliatory physical or mental harm to the requesting party or to innocent
nonparties; the ages of the persons whose privacy interests are sought to be
protected; whether the action is against a governmental or private party; and the
risk of unfairness to other parties if anonymity is maintained.
B. If the court initially permits a party to proceed anonymously, the issue of
the propriety of continued anonymous participation in the proceedings may be
raised at any stage of the litigation when circumstances warrant a reconsideration
of the issue. In all cases, all parties have the right to know the true identities of all
other parties under such provisions of confidentiality as the court may deem
appropriate.
C. If the court orders that the anonymous litigant be identified, the
pleadings and any relevant dockets shall be reformed to reflect the party's true
name, and the identification shall be deemed to relate back to the date of filing of
the proceeding by the anonymous party.
D. In any legal proceeding in which a party is proceeding anonymously, the
court shall enter appropriate orders to afford all parties the rights, procedures and
discovery to which they are otherwise entitled.
Added by Acts 2003, c. 572.
Miller v. Highland County
274 Va. 355; 650 S.E.2d 532; 2007 Va. LEXIS 119
Keenan, J., delivered the opinion for the court.
In these appeals, two issues assigned as cross-error determine the outcome
of the cases. Those issues are 1) whether a county board of supervisors is a
131
required party defendant in a legal action contesting the board's decision to grant a
conditional use permit; and 2) whether neighboring landowners may file a
declaratory judgment action contesting a county planning commission's decision
that a certain conditional use is in "substantial accord" with that county's
comprehensive plan.
I.
Factual Background
In July 2004, Highland New Wind Development, LLC (New Wind) filed an
application seeking a conditional use permit (CUP application) to build an electric
generation substation in the County on property that is located in an agricultural
zoning district, zone "A-2," as provided in the Highland County Zoning Ordinance
(zoning ordinance). In addition to the substation, New Wind sought approval to
construct 20 wind turbines about 400 feet in height, a height that exceeds the
maximum height permitted by the zoning ordinance.
The zoning ordinance designates zone "A-2" as a district in which
construction of an electric generation substation is permitted only after "the
[g]overning body finds, as a fact, that the proposed use is compatible with
surrounding uses, is consistent with the intent of this [o]rdinance and of the Land
Use Element of the Comprehensive Plan, is in the public interest, and will comply
with all other provisions of law and ordinances of Highland County or the Town
of Monterey." The Board of Supervisors (the Board) approved an amendment to
the zoning ordinance (the height amendment), which authorized the Board to issue
conditional use permits allowing structures that exceed the maximum heights
provided in the zoning ordinance.
After conducting a public hearing on the CUP application, the Board
adopted a resolution in July 2005, granting New Wind a conditional use permit
(the CUP) for construction of the wind turbine project. In its resolution, the Board
made several "findings," including that the CUP was compatible with surrounding
uses, was consistent with the intent of the zoning ordinance and the land use
element of the comprehensive plan, and would be in compliance with all other
statutes and ordinances. Additionally, the Board's resolution stated, "[t]he
authority granted by this [p]ermit shall be conditioned on the receipt of all
required state and federal approvals and review pursuant to Code § 15.2-2232."
In February 2006, New Wind filed an application asking that the planning
commission review the CUP under the provisions of Code § 15.2-2232. After
conducting a public hearing on New Wind's application, the planning commission
determined that the CUP was in "substantial accord" with the comprehensive plan
as required by Code § 15.2-2232.
II.
Miller's Proceedings in Circuit Court
Lucile Swift Miller and several other owners of property adjoining the
proposed wind turbine site (collectively, Miller) filed a bill of complaint for
declaratory judgment in the circuit court, alleging that the Board acted in an
arbitrary and capricious manner, and without authority, in approving the height
132
amendment. Miller named "Highland County, Virginia" as the sole defendant in
the bill of complaint.
Pendleton Stokes Goodall, III, and several other landowners adjoining the
proposed wind turbine site (collectively, Goodall), filed a separate bill of
complaint for declaratory judgment against "Highland County, Virginia," New
Wind, and the owners of the wind turbine project site, Tamarack of Highland,
LLC, and Red Oak Ranch, LLC (Tamarack and Red Oak). Goodall alleged that
the CUP was invalid because the planning commission had not made a
determination whether the CUP was in "substantial accord" with the
comprehensive plan before the Board issued the CUP and that, therefore, the CUP
did not satisfy the requirements of Code § 15.2-2232. Goodall also alleged, among
other things, that the CUP was inconsistent with the comprehensive plan and was
an arbitrary and capricious exercise of the Board's power. The circuit court
consolidated Miller's and Goodall's cases for trial.
New Wind, Red Oak, and Tamarack (collectively, New Wind) filed a
demurrer and a plea in bar, asserting that the actions filed by Miller and Goodall
(collectively, Miller) were barred because Miller failed to name the Board as a
party to the actions. The circuit court overruled the demurrer and plea in bar.
All parties filed motions for summary judgment. After conducting a hearing,
the circuit court granted partial summary judgment in favor of Highland County
and New Wind, holding that the height amendment was valid and that the CUP
was properly issued even though the planning commission did not make its
"substantial accord" determination under Code § 15.2-2232 before the Board
issued the CUP. The circuit court denied summary judgment and ordered a bench
trial on the separate issues whether the Board made factual findings that complied
with the requirements of the ordinance before the Board issued the CUP and
whether the Board's actions were arbitrary and capricious.
After a trial in which several witnesses testified concerning the subjects the
Board considered when it granted the CUP, the circuit court upheld the Board's
decision. The circuit court concluded that the Board made factual findings as
required by the ordinance, that the evidence was conflicting whether the Board's
decision to issue the CUP was "reasonable," and that, as a result, the Board's
decision issuing the CUP was "fairly debatable." The circuit court entered final
judgment in favor of New Wind and the County. Miller appeals.
III. Miller's Appeal
In Miller's appeal, New Wind and Highland County (collectively, New
Wind) argue as a matter of cross-error that the circuit court erred in denying New
Wind's plea in bar. According to New Wind, Miller's action is barred because she
failed to name the Board as a party to the action within 30 days after the Board's
decision as required by Code § 15.2-2285(F). New Wind asserts that we held in
Friends of Clark Mountain Found., Inc. v. Board of Supervisors, 242 Va. 16, 406
S.E.2d 19, 7 Va. Law Rep. 2773 (1991), that a local governing body is a required
133
party to an action contesting a decision by that governing body. New Wind further
contends that "Highland County, Virginia" is not the legal equivalent of the
"Board of Supervisors of Highland County," because "Highland County" is a
"locality," while the Board is a "governing body."
In response, Miller argues that "Highland County, Virginia" is a "locality" as
defined by Code § 15.2-102, and that Code § 15.2-1404 subjects a "locality" to
being sued in its own name regarding all matters connected with its duties. Miller
further asserts that Code § 15.2-2285(F) does not mandate that a local governing
body be named in an action challenging one of its decisions, but only requires that
such an action be filed within 30 days of the local governing body's decision.
Relying on our decision in Board of Supervisors v. Board of Zoning Appeals, 268
Va. 441, 604 S.E.2d 7 (2004), Miller contends that a person aggrieved by a local
governing body's decision may, pursuant to Code § 15.2-1404, contest that
decision by naming the "locality" as the defendant. Finally, Miller also argues that
if the Board is a necessary party, this Court may join the Board as a party to the
action or, if the Board is a required party, the name of Highland County is a
misnomer and may be amended to name the Board. We disagree with Miller's
arguments.
We resolve these issues by considering the provisions of several statutes, in
addition to some of our prior decisions. In interpreting the various statutory
provisions, we are presented with pure questions of law that we consider de novo
on appeal. Budd v. Punyanitya, 273 Va. 583, 591, 273 Va. 583, 643 S.E.2d 180,
184 (2007); Boynton v. Kilgore, 271 Va. 220, 227, 623 S.E.2d 922, 925 (2006);
Horner v. Dep't of Mental Health, 268 Va. 187, 192, 597 S.E.2d 202, 204 (2004);
Ainslie v. Inman, 265 Va. 347, 352, 577 S.E.2d 246, 248 (2003).
Our central focus is to ascertain and give effect to the intention of the
General Assembly. Boynton, 271 Va. at 227, 623 S.E.2d at 925; Chase v.
DaimlerChrysler Corp., 266 Va. 544, 547, 587 S.E.2d 521, 522 (2003); Halifax
Corp. v. First Union National Bank, 262 Va. 91, 99, 546 S.E.2d 696, 702 (2001).
We determine that legislative intent from the words used in the statute. Crawford
v. Haddock, 270 Va. 524, 528, 621 S.E.2d 127, 129 (2005); Horner, 268 Va. at
192, 597 S.E.2d at 204; Woods v. Mendez, 265 Va. 68, 74, 574 S.E.2d 263, 266
(2003). We must assume that the General Assembly chose, with deliberation and
care, the words it employed in the statute. Jackson v. Fidelity & Deposit Co., 269
Va. 303, 313, 608 S.E.2d 901, 906 (2005); Simon v. Forer, 265 Va. 483, 490, 578
S.E.2d 792, 796 (2003); Halifax Corp., 262 Va. at 100, 546 S.E.2d at 702.
Additionally, when construing statutes that impact the same subject, we
harmonize their provisions whenever possible. Peerless Ins. Co. v. County of
Fairfax, 274 Va. 236, 244, 274 Va. 236, 645 S.E.2d 478, 483 (2007); Alliance to
Save the Mattaponi v. Commonwealth, 270 Va. 423, 439-40, 621 S.E.2d 78, 87
(2005); Capelle v. Orange County, 269 Va. 60, 65, 607 S.E.2d 103, 105 (2005).
We conclude that, as employed in the statutes relevant to this case, the terms
"locality" and "board of supervisors" are not synonymous or interchangeable. Title
134
15.2 of the Code, which addresses the matters raised in these appeals, provides
distinct definitions of the two terms. A "locality," within the meaning of Title
15.2, "shall be construed to mean a county, city, or town as the context may
require." Code § 15.2-102. In contrast, the term "[b]oard of supervisors" refers to
the "governing body of a county." Id.
Title 15.2 contains several additional statutes that illustrate the General
Assembly's intent to recognize governing bodies as entities distinct from their
respective localities. These statutes clarify that although localities are given
certain powers by statute, those powers may only be exercised through the
authority of the governing bodies. For example, Code § 15.2-1401 provides that,
generally, "all powers granted to localities shall be vested in their respective
governing bodies." Id. More specific to the subject of Miller's appeal, Code §
15.2-1425 gives the "governing body" of each locality the authority to "adopt, as
appropriate, ordinances, resolutions and motions." Thus, while providing that
"[a]ny locality may, by ordinance, classify the territory under its jurisdiction" for
purposes of land use, Code § 15.2-2280, the General Assembly has vested the
actual power to make such decisions in each locality's governing body. See Code
§§ 15.2-1401 and -1425.
Because we must assume that the General Assembly acted with great
deliberation and care in choosing the words establishing this statutory scheme, we
conclude that the governing body of a locality is a distinct legal entity authorized
in Title 15.2 to exercise the statutory powers of that locality. Thus, we are faced
with the question whether this distinct legal entity must be joined as a party
defendant in a legal action contesting its legislative exercise of a zoning power.
In answering this question, we consider the language of Code § 15.22285(F), under which the present action was filed contesting the Board's decision
granting the CUP. This statutory provision states:
Every action contesting a decision of the local governing body
adopting or failing to adopt a proposed zoning ordinance or
amendment thereto or granting or failing to grant a special exception
shall be filed within thirty days of the decision with the circuit court
having jurisdiction of the land affected by the decision. However,
nothing in this subsection shall be construed to create any new right to
contest the action of a local governing body.
In drafting Code § 15.2-2285(F), the General Assembly employed plain
language in providing a right of appeal from various zoning decisions of a local
"governing body." The statute fixes a 30-day period from the date of the decision
by the local "governing body" for filing an action in the circuit court contesting
such decision. The complete absence of any language in Code § 15.2-2285(F)
referring to a "locality" indicates a legislative intent that only the "governing
body," the entity that rendered the contested decision, be a required party
defendant in an action challenging that decision.
135
Our decision in Friends of Clark Mountain directly supports this
construction of Code § 15.2-2285(F). There, we were presented with a question
under former Code § 15.1-493(G), the predecessor statute of Code § 15.2-2285(F),
regarding which parties were required to be named as defendants within the
statutory period of 30 days. We rejected the argument of a board of supervisors
that all parties having an interest in the property at issue had to be named as party
defendants within the 30-day period. We stated that:
[W]hen the action contesting the governing body's decision is filed,
the only required parties to a proceeding under [the statute] are the
contestant and the local governing body. After the contesting action
has been instituted and is pending, however, and the absence of a
necessary party is noted of record, the trial court should not adjudicate
the controversy until that party has intervened or has been brought into
the proceeding.
242 Va. at 21, 406 S.E.2d at 22; accord Riverview Farm Assocs. v. Board of
Supervisors, 259 Va. 419, 426, 528 S.E.2d 99, 102-03 (2000). Thus, in Friends of
Clark Mountain, we concluded that a local governing body is a required party
defendant to an action brought under Code § 15.2-2285(F) contesting certain types
of zoning decisions, including the type at issue here, made by the governing body.
242 Va. at 21, 406 S.E.2d at 22.
Miller's position advocating a contrary result in this appeal is unavailing.
Code § 15.2-1404, on which Miller relies, details the manner in which an action
may be brought against a "locality." This statute provides, in relevant part: "Every
locality may sue or be sued in its own name in relation to all matters connected
with its duties." Code § 15.2-1404. This general provision, however, does not
address the issue whether a board of supervisors is a required party defendant in a
legal action contesting that board's exercise of its legislative power, but merely
states that a locality may be a plaintiff or be named as a defendant in a legal action
involving the locality's duties.
Notably, Code § 15.2-1404 also provides that in actions brought against a
locality, process instituting such actions "shall be served as provided in [Code] §
8.01-300." Id. Those provisions of Code § 8.01-300 specify that when an action is
filed against a county, service of process generally is made on its county attorney.
Code § 8.01-300(2). However, when an action is filed against a county board of
supervisors, process may be served on "any member of the governing body of
such entity." Code § 8.01-300(3). In specifying these different methods of service
of process, the General Assembly further manifested its intent that a "locality" and
its "governing body" are not interchangeable terms but have separate legal
identities that must be observed in initiating an action against either as a party
defendant in a legal action.
Next, we disagree with Miller's contention that our decision in Board of
Supervisors v. Board of Zoning Appeals, 268 Va. at 446, 604 S.E.2d at 9,
identified Code § 15.2-1404 as the only source of authority for bringing suit
136
against a locality or a local governing body. In that decision, we simply stated that
the statute enables a local governing body to institute an action to ensure
compliance with that body's legislative enactments. 268 Va. at 446, 604 S.E.2d at
9. Moreover, we observe that our holding in that case is consistent with the
statutes in Title 15.2 vesting the powers of a locality in its local governing body.
See Code §§ 15.2-1401 and -1425.
Based on our consideration of the several statutes discussed above and on
our decision in Friends of Clark Mountain, we conclude that in an action under
Code § 15.2-2285(F) contesting a decision of a local "governing body," that body
is a required party defendant against whom suit must be initiated within the time
limit specified in the statute. Thus, we hold that the Board was a required party
defendant to Miller's action.
We find no merit in Miller's additional arguments that she should be
permitted to add the Board as a party to the present appeal or to "correct" as a
misnomer the naming of "Highland County, Virginia" and name the Board in
Highland County's stead. Even if we assume, without deciding, that such remedies
could in some cases be employed on appeal, they are inappropriate here. Because
the Board was a required party to Miller's action under Code § 15.2-2285(F), the
Board could not be added as a party after the 30-day period from the date of the
Board's decision had run. See Braddock, L.C. v. Board of Supervisors, 268 Va.
420, 426, 601 S.E.2d 552, 555 (2004) (action filed by person without standing is
nullity and could not be resurrected by addition of parties after 30-day period set
by Code § 15.2-2285(F) had expired); see also Harmon v. Sadjadi, 273 Va. 184,
198, 273 Va. 184, 639 S.E.2d 294, 301-02 (2007) (action filed by person without
standing was nullity and did not toll applicable statute of limitations).
Likewise, Miller cannot employ the statutory remedy provided by Code §
8.01-6 for correcting a misnomer. A misnomer occurs when the right person or
entity is incorrectly named. Cook v. Radford Cmty. Hosp., Inc., 260 Va. 443, 451,
536 S.E.2d 906, 910 (2000); Swann v. Marks, 252 Va. 181, 184, 476 S.E.2d 170,
172 (1996). Here, as we have explained, Miller did not incorrectly name the right
entity, but named a different entity. Therefore, we hold that the circuit court erred
in denying New Wind's plea in bar, and in entering judgment on the merits of
Miller's bill of complaint. We further hold that Miller's failure to name the Board,
a required party, as a defendant in the action requires us to dismiss Miller's appeal.
IV. Brody's Proceedings In Circuit Court
Tom Brody, Patty Reum, and several other landowners who own property
near the wind turbine project site (collectively, Brody) filed a motion for
declaratory judgment in the circuit court. Brody named as defendants Highland
County, Virginia, the Highland County Planning Commission, and the Highland
County Board of Supervisors (collectively, the Highland County Board), and
Highland New Wind Development, LLC, Tamarack of Highland, LLC, and Red
Oak Ranch, LLC (collectively, New Wind), and sought to invalidate the planning
commission's determination that the CUP was in "substantial accord" with
137
Highland County's comprehensive plan. Brody asked the circuit court to declare
that the planning commission did not have jurisdiction or authority to review the
CUP after it was issued by the Board. Alternatively, Brody asked the circuit court
to declare, among other things, that the planning commission decision was "not in
accord with law," was not "in accord with the existing County comprehensive
plan," and was "arbitrary and capricious, and void."
The Highland County Board filed a motion for summary judgment arguing
that Code § 15.2-2232 conferred jurisdiction on the planning commission to
review the permit, that the CUP was in "substantial accord" with the
comprehensive plan, and that Code § 15.2-2232 does not provide to a private
third-party a right of action for persons such as Brody to contest the planning
commission's decision. New Wind joined in the Highland County Board's motion
for summary judgment.
Brody also filed a motion for summary judgment. In his motion, Brody
asserted that the planning commission's decision that the CUP was in "substantial
accord" with the comprehensive plan was invalid because it was not supported by
factual findings.
The circuit court conducted a hearing on the motions and concluded that the
planning commission's decision that the CUP was in "substantial accord" with the
comprehensive plan was sufficiently supported by evidence in the record, despite
the fact that the planning commission review pursuant to Code § 15.2-2232
occurred after the Board issued the permit. The circuit court granted the motions
for summary judgment filed by the Highland County Board and New Wind but did
not address the Board's argument that Brody had no right of action under Code §
15.2-2232. Brody appeals.
V.
Brody's Appeal
In Brody's appeal, the Highland County Board argues as a matter of crosserror that Brody's action is barred because Code § 15.2-2232 does not create a
private third-party right of action to challenge a planning commission's finding
that a proposed use is in "substantial accord" with a comprehensive plan. The
Highland County Board contends that under Code § 15.2-2232(B), only a property
owner who has been denied a conditional use permit may appeal a planning
commission's "substantial accord" determination, and that this right of appeal lies
only to the local governing body. The Highland County Board also asserts that
Brody's attempted use of the declaratory judgment statutes to challenge the
planning commission's determination is invalid under this Court's holding in
Shilling v. Jimenez, 268 Va. 202, 597 S.E.2d 206 (2004).
Brody concedes that there is no specific statutory right to appeal a decision
by the planning commission. However, Brody responds that under these
circumstances, a declaratory judgment action provides the only mechanism for
review of the planning commission determination at issue.
138
In addressing these arguments, we consider both the general nature of a
declaratory judgment action and the particular language of Code § 15.2-2232.
[HN9] A circuit court has the power to issue declaratory judgments under Code §§
8.01-184 through -191. Pursuant to this authority, circuit courts may make
"binding adjudications of right" in cases of "actual controversy" when there is
"antagonistic assertion and denial of right." Code § 8.01-184; Hoffman Family,
L.L.C. v. Mill Two Assocs. P'ship, 259 Va. 685, 692, 529 S.E.2d 318, 323 (2000);
Blue Cross & Blue Shield v. St. Mary's Hosp., 245 Va. 24, 35, 426 S.E.2d 117,
123, 9 Va. Law Rep. 726 (1993); Erie Ins. Group v. Hughes, 240 Va. 165, 170,
393 S.E.2d 210, 212, 6 Va. Law Rep. 2698 (1990).
The purpose of the declaratory judgment statutes is to provide a mechanism
for resolving uncertainty in controversies over legal rights, without requiring one
party to invade the asserted rights of another in order to permit an ordinary civil
action for damages. Code § 8.01-191; Umstattd v. Centex Homes, G.P., 274 Va.
____, ____, ____ S.E.2d ____, ____, 274 Va. 541, 650 S.E.2d 527, 2007 Va.
LEXIS 98, (2007) (this day decided); Hoffman, 259 Va. at 693, 529 S.E.2d at 323;
Cupp v. Board of Supervisors, 227 Va. 580, 592, 318 S.E.2d 407, 413 (1984);
Liberty Mutual Ins. Co. v. Bishop, 211 Va. 414, 418, 177 S.E.2d 519, 522 (1970).
Thus, the remedy that may be obtained in a declaratory judgment action is
preventive relief, upon assertion of an actual controversy. Chaffinch v.
Chesapeake & Potomac Tel. Co., 227 Va. 68, 72, 313 S.E.2d 376, 378 (1984);
Bishop, 211 Va. at 419, 177 S.E.2d at 522; Williams v. Southern Bank of Norfolk,
203 Va. 657, 662, 125 S.E.2d 803, 807 (1962).
Our declaratory judgment statutes do not create or alter any substantive
rights, or bring any other additional rights into being. Bishop, 211 Va. at 419, 177
S.E.2d at 522; Williams, 203 Va. at 662, 125 S.E.2d at 807. We emphasized this
basic principle in our decision in Cupp v. Board of Supervisors, stating:
The intent of the declaratory judgment statutes is not to give parties
greater rights than those which they previously possessed, but to
permit the declaration of those rights before they mature. In other
words, the intent of the act is to have courts render declaratory
judgments which may guide parties in their future conduct in relation
to each other, thereby relieving them from the risk of taking undirected
action incident to their rights, which action, without direction, would
jeopardize their interests.
227 Va. at 592, 318 S.E.2d at 413 (quoting Bishop, 211 Va. at 421, 177 S.E.2d at
524) (emphasis omitted).
Viewed in this context, Brody's pleadings do not assert a valid request for
declaratory relief because, among other reasons, the pleadings do not seek
preventive relief but effectively attempt to create a right of appeal that does not
exist by statute. Code § 15.2-2232, which addresses the planning commission's
duty to render a "substantial accord" determination in certain cases, provides in
relevant part:
139
(A) Whenever a local planning commission recommends a
comprehensive plan or part thereof for the locality and such plan has
been approved and adopted by the governing body, . . . [t]hereafter,
unless a feature is already shown on the adopted master plan . . . no
street or connection to an existing street, park or other public area,
public building or public structure, public utility facility or public
service corporation facility other than railroad facility, whether
publicly or privately owned, shall be constructed, established or
authorized, unless and until the general location or approximate
location, character, and extent thereof has been submitted to and
approved by the commission as being substantially in accord with the
adopted comprehensive plan or part thereof. . . .
(B) The commission shall communicate its findings to the governing
body, indicating its approval or disapproval with written reasons
therefor. The governing body may overrule the action of the
commission by a vote of a majority of its membership. . . . The owner
or owners or their agents may appeal the decision of the commission
to the governing body within ten days after the decision of the
commission. The appeal shall be by written petition to the governing
body setting forth the reasons for the appeal. The appeal shall be heard
and determined within sixty days from its filing. A majority vote of the
governing body shall overrule the commission.
Id.
Under the plain language of these statutory provisions, only the owner of the
property at issue, or the owner's agent, may appeal to the governing body from a
"substantial accord" determination of the planning commission. Notably, the
statute does not provide third parties with a right of appeal from such a
determination.
We have previously held that the declaratory judgment statutes may not be
used to attempt a third-party challenge to a governmental action when such a
challenge is not otherwise authorized by statute. In Shilling, a neighboring
landowner filed a declaratory judgment action asking a circuit court to declare
void the creation of a certain "family subdivision" approved under an ordinance
permitting conveyances to members of a landowner's immediate family. 268 Va.
at 205-06, 597 S.E.2d at 208. The neighboring landowner alleged that the
subdivision was "wrongfully" approved by local officials based on
misrepresentations of fact made by the applicant. Id. at 205-06, 597 S.E.2d at 208.
The defendants filed demurrers alleging that the local governing body was
the sole entity authorized to enforce the ordinance, and that the complainants
could not seek to enforce the ordinance provisions by using the remedy of
declaratory judgment. The circuit court sustained the demurrers and dismissed the
bill of complaint with prejudice. Id. at 206, 597 S.E.2d at 208. We affirmed the
circuit court's judgment, holding that the complainants did not have a third-party
140
right of action to enforce a county's application of its subdivision ordinance in a
declaratory judgment suit when there was no specific statutory authorization
allowing third parties this right. Id. at 208, 597 S.E.2d at 209-10.
The rationale underlying our decision in Shilling applies equally well here.
The declaratory judgment statutes are not intended to provide, and do not create, a
right of appeal that does not otherwise exist. In attempting to create such a right in
his bill of complaint, Brody failed to state a cause of action. Therefore, we hold
that the circuit court erred in concluding that Brody had a right to bring an action
in the circuit court challenging the planning commission's "substantial accord"
determination.
The circuit court, however, reached the correct result in Brody's case by
granting the defendants' motion for summary judgment, although on grounds
incorrectly addressing the merits of the suit. When a circuit court has reached the
correct result for the wrong reason, we will assign the correct reason and affirm
the relevant portion of the circuit court's judgment. Almy v. Grisham, 273 Va. 68,
82, 273 Va. 68, 639 S.E.2d 182, 189 (2007); Mitchem v. Counts, 259 Va. 179,
191, 523 S.E.2d 246, 253 (2000); Hartzell Fan, Inc. v. Waco, Inc., 256 Va. 294,
303, 505 S.E.2d 196, 202 (1998).
VI. Conclusion
Based on our holdings in these appeals, we will reverse the circuit court's
final judgment in favor of New Wind and Highland County in Miller's case, and
we will dismiss Miller's bill of complaint with prejudice because Miller failed to
join the Board as a party to the action within 30 days of the Board's decision. We
also will affirm the circuit court's award of summary judgment in favor of New
Wind and the Highland County Board, because Brody failed to assert a valid
request for declaratory relief.
Reversed and dismissed.
VEPCO v. Dungee
524 S.E.2nd 164, 258 Va. 235
LACY, J.
James A. Dungee, a minor (James or the plaintiff), by his next friend, filed a
motion for judgment against Virginia Electric and Power Company (Virginia
Power) seeking damages for burns he sustained while he was in a Virginia Power
substation and came in contact with 13,200 volts of electricity. James alleged that
Virginia Power was negligent in failing to properly install, maintain, and inspect
the fence surrounding the substation. Virginia Power denied that it was negligent
and asserted the affirmative defenses of contributory negligence and assumption
of risk. A jury returned a verdict in favor of James in the amount of $20,000,000.
The trial court denied Virginia Power's motion to set aside the verdict or order
remittitur and entered judgment on the jury's verdict. Virginia Power filed an
141
appeal assigning error to a number of rulings of the trial court. Because we find no
error in these rulings, we will affirm the judgment of the trial court.
Venue
Virginia Power first assigns error to the trial court's denial of its motion to
transfer the action from Charles City County to the City of Richmond. Virginia
Power contends that although Charles City County is a permissible venue under
Code § 8.01-262(3) because it conducts business there, application of the
principles set out in Norfolk & Western Railway Co. v. Williams, 239 Va. 390,
389 S.E.2d 714 (1990), required that the action be transferred because Charles
City County has no practical nexus with the litigation. We disagree.
For negligence cases, among others, the Code of Virginia provides a plaintiff
with a choice of forums in which an action can be brought. Code § 8.01-262.
However, Code § 8.01-265, the so-called forum non-conveniens statute, allows the
transfer of any action, even if it was originally filed in a proper venue, to "any fair
and convenient forum" in the Commonwealth upon a motion by the defendant and
"for good cause shown." Code § 8.01-265. "Good cause" under the statute
includes, but is not limited to, "the avoidance of substantial inconvenience to the
parties or the witnesses." Id. Whether to grant such a motion is within the
discretion of the trial court, and the trial court's denial of the motion will not be
reversed absent an abuse of that discretion. Williams, 239 Va. at 392, 389 S.E.2d
at 715.
To secure a change in venue, Virginia Power had the burden of showing that
there was good cause to transfer the case from Charles City County to the City of
Richmond. In ruling on Virginia Power's motion, the trial court considered the
impact on the witnesses and parties of holding the trial in Charles City County, as
compared with holding it in Richmond. It concluded that traveling thirty miles to
Charles City County from Richmond imposed minimal cost and inconvenience on
those parties and witnesses who lived in Richmond, and that holding the trial in
Charles City County would not impose any material inconvenience on witnesses
coming from other areas of the country because the Richmond airport is located
midway between Richmond and Charles City County. The court also concluded
that there was no evidence that overnight stays in Charles City County would be
required for those witnesses who lived in Richmond. Based on these factors, the
trial court concluded that traveling thirty miles imposed minimal inconvenience
and that there was no showing of substantial inconvenience to the parties or
witnesses. Virginia Power argues that the test for good cause is not exclusively
substantial inconvenience. According to Virginia Power, our decision in Williams
established that "a trial court abuses its discretion under Va.Code § 8.01-265 if it
declines to transfer venue from a forum with no practical nexus to the cause of
action to a more convenient forum with a strong nexus." We agree with Virginia
Power that Code § 8.01-265 does not limit the definition of "good cause" to "the
avoidance of substantial inconvenience to the parties or the witnesses;" however,
we disagree with Virginia Power's characterization of our holding in Williams.
142
The plaintiff in Williams was an employee of a railroad company based in
Roanoke. He was injured when he fell from a chair in his office in Roanoke. He
filed a personal injury action against the railroad company in Portsmouth, a
permissible venue. The information before the trial court relevant to the question
of transfer was that all the witnesses were from Roanoke and they all "faced the
inconvenience of being away from families, homes, and jobs while traveling to
Portsmouth to testify,...." 239 Va. at 395, 389 S.E.2d at 717. Given the location of
the parties and witnesses as well as the accident itself, we concluded that the
litigation had "no practical nexus" with Portsmouth but had "a strong nexus" with
Roanoke. Id. at 396, 389 S.E.2d at 717. However, contrary to Virginia Power's
contention, the degree of the "nexus" does not alone provide the good cause
required for transfer under the statute.
In Williams, we stated that the circumstances to be considered when ruling
on motions to transfer venue included accessibility of sources of proof,
compulsory process, cost of witness attendance, possibility of a view of the
premises, and other "practical problems," in addition to the statutory ground of
avoiding substantial inconvenience to the parties and witnesses. Id. at 393, 389
S.E.2d at 716. We concluded that the trial court abused its discretion in failing to
transfer the action to Roanoke, not simply because Portsmouth had "no practical
nexus" with the action, but because the railroad company met its burden of
presenting "sufficient information to show good cause to transfer, including
substantial inconvenience to the parties and witnesses" and other factors. Id. at
396, 389 S.E.2d at 718. This holding does not support the construction Virginia
Power advocates--that transfer is required based solely on the lack of a practical
nexus of the venue with the litigation. We thus reject Virginia Power's argument
on this issue.
Finding that the trial court did not abuse its discretion, we will affirm the
trial court's denial of Virginia Power's motion to transfer venue.
International Shoe v. State of Washington et al.
326 U.S. 310, 66 S.Ct. 154 (1945)
Stone, J., delivered the opinion of the Court.
The questions for decision are (1) whether, within the limitations of the due
process clause of the Fourteenth Amendment, appellant, a Delaware corporation, has
by its activities in the State of Washington rendered itself amenable to proceedings in
the courts of that state to recover unpaid contributions to the state unemployment
compensation fund exacted by state statutes, Washington Unemployment
Compensation Act, Washington Revised Statutes, § 9998-103(a) through §
9998-123(a), 1941 Supp., and (2) whether the state can exact those contributions
consistently with the due process clause of the Fourteenth Amendment.
The statutes in question set up a comprehensive scheme of unemployment
compensation, the costs of which are defrayed by contributions required to be made
by employers to a state unemployment compensation fund. The contributions are a
143
specified percentage of the wages payable annually by each employer for his
employees' services in the state. The assessment and collection of the contributions
and the fund are administered by appellees. Section 14 (c) of the Act (Wash. Rev.
Stat., 1941 Supp., § 9998-114(c) authorizes appellee Commissioner to issue an order
and notice of assessment of delinquent contributions upon prescribed personal
service of the notice upon the employer if found within the state, or, if not so found,
by mailing the notice to the employer by registered mail at his last known address.
That section also authorizes the Commissioner to collect the assessment by distraint
if it is not paid within ten days after service of the notice. By §§ 14(e) and 6(b) the
order of assessment may be administratively reviewed by an appeal tribunal within
the office of unemployment upon petition of the employer, and this determination is
by § 6(i) made subject to judicial review on questions of law by the state Superior
Court, with further right of appeal in the state Supreme Court as in other civil cases.
In this case notice of assessment for the years in question was personally
served upon a sales solicitor employed by appellant in the State of Washington, and a
copy of the notice was mailed by registered mail to appellant at its address in St.
Louis, Missouri. Appellant appeared specially before the office of unemployment
and moved to set aside the order and notice of assessment on the ground that the
service upon appellant's salesman was not proper service upon appellant; that
appellant was not a corporation of the State of Washington and was not doing
business within the state; that it had no agent within the state upon whom service
could be made; and that appellant is not an employer and does not furnish
employment within the meaning of the statute.
The motion was heard on evidence and a stipulation of facts by the appeal
tribunal which denied the motion and ruled that appellee Commissioner was entitled
to recover the unpaid contributions. That action was affirmed by the Commissioner;
both the Superior Court and the Supreme Court affirmed. 22 Wash. 2d 146, 154 P.
2d 801. Appellant in each of these courts assailed the statute as applied, as a
violation of the due process clause of the Fourteenth Amendment, and as imposing a
constitutionally prohibited burden on interstate commerce. The cause comes here on
appeal under § 237 (a) of the Judicial Code, 28 U.S.C. § 344 (a), appellant assigning
as error that the challenged statutes as applied infringe the due process clause of the
Fourteenth Amendment and the commerce clause.
The facts as found by the appeal tribunal and accepted by the state Superior
Court and Supreme Court, are not in dispute. Appellant is a Delaware corporation,
having its principal place of business in St. Louis, Missouri, and is engaged in the
manufacture and sale of shoes and other footwear. It maintains places of business in
several states, other than Washington, at which its manufacturing is carried on and
from which its merchandise is distributed interstate through several sales units or
branches located outside the State of Washington.
Appellant has no office in Washington and makes no contracts either for sale or
purchase of merchandise there. It maintains no stock of merchandise in that state and
makes there no deliveries of goods in intrastate commerce. During the years from
144
1937 to 1940, now in question, appellant employed eleven to thirteen salesmen under
direct supervision and control of sales managers located in St. Louis. These
salesmen resided in Washington; their principal activities were confined to that state;
and they were compensated by commissions based upon the amount of their sales.
The commissions for each year totaled more than $31,000. Appellant supplies its
salesmen with a line of samples, each consisting of one shoe of a pair, which they
display to prospective purchasers. On occasion they rent permanent sample rooms,
for exhibiting samples, in business buildings, or rent rooms in hotels or business
buildings temporarily for that purpose. The cost of such rentals is reimbursed by
appellant.
The authority of the salesmen is limited to exhibiting their samples and
soliciting orders from prospective buyers, at prices and on terms fixed by appellant.
The salesmen transmit the orders to appellant's office in St. Louis for acceptance or
rejection, and when accepted the merchandise for filling the orders is shipped f.o.b.
from points outside Washington to the purchasers within the state. All the
merchandise shipped into Washington is invoiced at the place of shipment from
which collections are made. No salesman has authority to enter into contracts or to
make collections.
The Supreme Court of Washington was of opinion that the regular and
systematic solicitation of orders in the state by appellant's salesmen, resulting in a
continuous flow of appellant's product into the state, was sufficient to constitute
doing business in the state so as to make appellant amenable to suit in its courts. But
it was also of opinion that there were sufficient additional activities shown to bring
the case within the rule frequently stated, that solicitation within a state by the agents
of a foreign corporation plus some additional activities there are sufficient to render
the corporation amenable to suit brought in the courts of the state to enforce an
obligation arising out of its activities there. International Harvester Co. v. Kentucky,
234 U.S. 579, 587; People's Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 87;
Frene v. Louisville Cement Co., 77 U.S. App. D.C. 129, 134 F. 2d 511, 516. The
court found such additional activities in the salesmen's display of samples sometimes
in permanent display rooms, and the salesmen's residence within the state, continued
over a period of years, all resulting in a substantial volume of merchandise regularly
shipped by appellant to purchasers within the state. The court also held that the
statute as applied did not invade the constitutional power of Congress to regulate
interstate commerce and did not impose a prohibited burden on such commerce.
Appellant's argument, renewed here, that the statute imposes an
unconstitutional burden on interstate commerce need not detain us. For 53 Stat.
1391, 26 U.S.C. § 1606 (a) provides that "No person required under a State law to
make payments to an unemployment fund shall be relieved from compliance
therewith on the ground that he is engaged in interstate or foreign commerce, or that
the State law does not distinguish between employees engaged in interstate or
foreign commerce and those engaged in intrastate commerce." It is no longer
debatable that Congress, in the exercise of the commerce power, may authorize the
states, in specified ways, to regulate interstate commerce or impose burdens upon it.
145
Kentucky Whip & Collar Co. v. Illinois Central R. Co., 299 U.S. 334; Perkins v.
Pennsylvania, 314 U.S. 586; Standard Dredging Corp. v. Murphy, 319 U.S. 306,
308; Hooven & Allison Co. v. Evatt, 324 U.S. 652, 679; Southern Pacific Co. v.
Arizona, 325 U.S. 761, 769.
Appellant also insists that its activities within the state were not sufficient to
manifest its "presence" there and that in its absence the state courts were without
jurisdiction, that consequently it was a denial of due process for the state to subject
appellant to suit. It refers to those cases in which it was said that the mere
solicitation of orders for the purchase of goods within a state, to be accepted without
the state and filled by shipment of the purchased goods interstate, does not render the
corporation seller amenable to suit within the state. See Green v. Chicago, B. & Q.R.
Co., 205 U.S. 530, 533; International Harvester Co. v. Kentucky, supra, 586-587;
Philadelphia & Reading R. Co. v. McKibbin, 243 U.S. 264, 268; People's Tobacco
Co. v. American Tobacco Co., supra, 87. And appellant further argues that since it
was not present within the state, it is a denial of due process to subject it to taxation
or other money exaction. It thus denies the power of the state to lay the tax or to
subject appellant to a suit for its collection.
Historically the jurisdiction of courts to render judgment in personam is
grounded on their de facto power over the defendant's person. Hence his presence
within the territorial jurisdiction of a court was prerequisite to its rendition of a
judgment personally binding him. Pennoyer v. Neff, 95 U.S. 714, 733. But now that
the capias ad respondendum has given way to personal service of summons or other
form of notice, due process requires only that in order to subject a defendant to a
judgment in personam, if he be not present within the territory of the forum, he have
certain minimum contacts with it such that the maintenance of the suit does not
offend "traditional notions of fair play and substantial justice." Milliken v. Meyer,
311 U.S. 457, 463. See Holmes, J., in McDonald v. Mabee, 243 U.S. 90, 91.
Compare Hoopeston Canning Co. v. Cullen, 318 U.S. 313, 316, 319. See Blackmer
v. United States, 284 U.S. 421; Hess v. Pawloski, 274 U.S. 352; Young v. Masci, 289
U.S. 253.
Since the corporate personality is a fiction, although a fiction intended to be
acted upon as though it were a fact, Klein v. Board of Supervisors, 282 U.S. 19, 24, it
is clear that unlike an individual its "presence" without, as well as within, the state of
its origin can be manifested only by activities carried on in its behalf by those who
are authorized to act for it. To say that the corporation is so far "present" there as to
satisfy due process requirements, for purposes of taxation or the maintenance of suits
against it in the courts of the state, is to beg the question to be decided. For the terms
"present" or "presence" are used merely to symbolize those activities of the
corporation's agent within the state which courts will deem to be sufficient to satisfy
the demands of due process. L. Hand, J., in Hutchinson v. Chase & Gilbert, 45 F. 2d
139, 141. Those demands may be met by such contacts of the corporation with the
state of the forum as make it reasonable, in the context of our federal system of
government, to require the corporation to defend the particular suit which is brought
there. An "estimate of the inconveniences" which would result to the corporation
146
from a trial away from its "home" or principal place of business is relevant in this
connection. Hutchinson v. Chase & Gilbert, supra, 141.
"Presence" in the state in this sense has never been doubted when the activities
of the corporation there have not only been continuous and systematic, but also give
rise to the liabilities sued on, even though no consent to be sued or authorization to
an agent to accept service of process has been given. St. Clair v. Cox, 106 U.S. 350,
355; Connecticut Mutual Co. v. Spratley, 172 U.S. 602, 610-611; Pennsylvania
Lumbermen's Ins. Co. v. Meyer, 197 U.S. 407, 414-415; Commercial Mutual Co. v.
Davis, 213 U.S. 245, 255-256; International Harvester Co. v. Kentucky, supra; cf. St.
Louis S.W.R. Co. v. Alexander, 227 U.S. 218. Conversely it has been generally
recognized that the casual presence of the corporate agent or even his conduct of
single or isolated items of activities in a state in the corporation's behalf are not
enough to subject it to suit on causes of action unconnected with the activities there.
St. Clair v. Cox, supra, 359, 360; Old Wayne Life Assn. v. McDonough, 204 U.S. 8,
21; Frene v. Louisville Cement Co., supra, 515, and cases cited. To require the
corporation in such circumstances to defend the suit away from its home or other
jurisdiction where it carries on more substantial activities has been thought to lay too
great and unreasonable a burden on the corporation to comport with due process.
While it has been held, in cases on which appellant relies, that continuous
activity of some sorts within a state is not enough to support the demand that the
corporation be amenable to suits unrelated to that activity, Old Wayne Life Assn. v.
McDonough, supra; Green v. Chicago, B. & Q.R. Co., supra; Simon v. Southern R.
Co., 236 U.S. 115; People's Tobacco Co. v. American Tobacco Co., supra; cf. Davis
v. Farmers Co-operative Co., 262 U.S. 312, 317, there have been instances in which
the continuous corporate operations within a state were thought so substantial and of
such a nature as to justify suit against it on causes of action arising from dealings
entirely distinct from those activities. See Missouri, K. & T.R. Co. v. Reynolds, 255
U.S. 565; Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 115 N.E. 915; cf. St. Louis
S.W.R. Co. v. Alexander, supra.
Finally, although the commission of some single or occasional acts of the
corporate agent in a state sufficient to impose an obligation or liability on the
corporation has not been thought to confer upon the state authority to enforce it,
Rosenberg Bros. & Co. v. Curtis Brown Co., 260 U.S. 516, other such acts, because
of their nature and quality and the circumstances of their commission, may be
deemed sufficient to render the corporation liable to suit. Cf. Kane v. New Jersey,
242 U.S. 160; Hess v. Pawloski, supra; Young v. Masci, supra. True, some of the
decisions holding the corporation amenable to suit have been supported by resort to
the legal fiction that it has given its consent to service and suit, consent being implied
from its presence in the state through the acts of its authorized agents. Lafayette
Insurance Co. v. French, 18 How. 404, 407; St. Clair v. Cox, supra, 356;
Commercial Mutual Co. v. Davis, supra, 254; Washington v. Superior Court, 289
U.S. 361, 364-365. But more realistically it may be said that those authorized acts
were of such a nature as to justify the fiction. Smolik v. Philadelphia & Reading Co.,
147
222 F. 148, 151. Henderson, The Position of Foreign Corporations in American
Constitutional Law, 94-95.
It is evident that the criteria by which we mark the boundary line between those
activities which justify the subjection of a corporation to suit, and those which do
not, cannot be simply mechanical or quantitative. The test is not merely, as has
sometimes been suggested, whether the activity, which the corporation has seen fit to
procure through its agents in another state, is a little more or a little less. St. Louis
S.W.R. Co. v. Alexander, supra, 228; International Harvester Co. v. Kentucky, supra,
587. Whether due process is satisfied must depend rather upon the quality and
nature of the activity in relation to the fair and orderly administration of the laws
which it was the purpose of the due process clause to insure. That clause does not
contemplate that a state may make binding a judgment in personam against an
individual or corporate defendant with which the state has no contacts, ties, or
relations. Cf. Pennoyer v. Neff, supra; Minnesota Commercial Assn. v. Benn, 261
U.S. 140.
But to the extent that a corporation exercises the privilege of conducting
activities within a state, it enjoys the benefits and protection of the laws of that state.
The exercise of that privilege may give rise to obligations, and, so far as those
obligations arise out of or are connected with the activities within the state, a
procedure which requires the corporation to respond to a suit brought to enforce
them can, in most instances, hardly be said to be undue. Compare International
Harvester Co. v. Kentucky, supra, with Green v. Chicago, B. & Q.R. Co., supra, and
People's Tobacco Co. v. American Tobacco Co., supra. Compare Connecticut
Mutual Co. v. Spratley, supra, 619, 620 and Commercial Mutual Co. v. Davis, supra,
with Old Wayne Life Assn. v. McDonough, supra. See 29 Columbia Law Review,
187-195.
Applying these standards, the activities carried on in behalf of appellant in the
State of Washington were neither irregular nor casual. They were systematic and
continuous throughout the years in question. They resulted in a large volume of
interstate business, in the course of which appellant received the benefits and
protection of the laws of the state, including the right to resort to the courts for the
enforcement of its rights. The obligation which is here sued upon arose out of those
very activities. It is evident that these operations establish sufficient contacts or ties
with the state of the forum to make it reasonable and just, according to our traditional
conception of fair play and substantial justice, to permit the state to enforce the
obligations which appellant has incurred there. Hence we cannot say that the
maintenance of the present suit in the State of Washington involves an unreasonable
or undue procedure.
We are likewise unable to conclude that the service of the process within the
state upon an agent whose activities establish appellant's "presence" there was not
sufficient notice of the suit, or that the suit was so unrelated to those activities as to
make the agent an inappropriate vehicle for communicating the notice. It is enough
that appellant has established such contacts with the state that the particular form of
148
substituted service adopted there gives reasonable assurance that the notice will be
actual. Connecticut Mutual Co. v. Spratley, supra, 618, 619; Board of Trade v.
Hammond Elevator Co., 198 U.S. 424, 437-438; Commercial Mutual Co. v. Davis,
supra, 254-255. Cf. Riverside Mills v. Menefee, 237 U.S. 189, 194, 195; see
Knowles v. Gaslight & Coke Co., 19 Wall. 58, 61; McDonald v. Mabee, supra;
Milliken v. Meyer, supra. Nor can we say that the mailing of the notice of suit to
appellant by registered mail at its home office was not reasonably calculated to
apprise appellant of the suit. Compare Hess v. Pawloski, supra, with McDonald v.
Mabee, supra, 92, and Wuchter v. Pizzutti, 276 U.S. 13, 19, 24; cf. Becquet v.
MacCarthy, 2 B. & Ad. 951; Maubourquet v. Wyse, 1 Ir. Rep. C.L. 471. See
Washington v. Superior Court, supra, 365.
Only a word need be said of appellant's liability for the demanded contributions
to the state unemployment fund. The Supreme Court of Washington, construing and
applying the statute, has held that it imposes a tax on the privilege of employing
appellant's salesmen within the state measured by a percentage of the wages, here the
commissions payable to the salesmen. This construction we accept for purposes of
determining the constitutional validity of the statute. The right to employ labor has
been deemed an appropriate subject of taxation in this country and England, both
before and since the adoption of the Constitution. Steward Machine Co. v. Davis,
301 U.S. 548, 579, et seq. And such a tax imposed upon the employer for
unemployment benefits is within the constitutional power of the states. Carmichael
v. Southern Coal Co., 301 U.S. 495, 508, et seq.
Appellant having rendered itself amenable to suit upon obligations arising out
of the activities of its salesmen in Washington, the state may maintain the present
suit in personam to collect the tax laid upon the exercise of the privilege of
employing appellant's salesmen within the state. For Washington has made one of
those activities, which taken together establish appellant's "presence" there for
purposes of suit, the taxable event by which the state brings appellant within the
reach of its taxing power. The state thus has constitutional power to lay the tax and
to subject appellant to a suit to recover it. The activities which establish its
"presence" subject it alike to taxation by the state and to suit to recover the tax.
Equitable Life Society v. Pennsylvania, 238 U.S. 143, 146; cf. International
Harvester Co. v. Department of Taxation, 322 U.S. 435, 442, et seq.; Hoopeston
Canning Co. v. Cullen, supra, 316-319; see General Trading Co. v. Tax Comm'n,
322 U.S. 335. Affirmed.
Hanson, executrix, et al. v. Denckla, et al.
357 U.S. 235, 78 S.Ct. 1228 (1958)
Warren, C.J., delivered the opinion of the Court.
This controversy concerns the right to $400,000, part of the corpus of a trust
established in Delaware by a settlor who later became domiciled in Florida. One
group of claimants, "legatees," urge that this property passed under the residuary
149
clause of the settlor's will, which was admitted to probate in Florida. The Florida
courts have sustained this position. 100 So. 2d 378. Other claimants, "appointees"
and "beneficiaries," contend that the property passed pursuant to the settlor's exercise
of the inter vivos power of appointment created in the deed of trust. The Delaware
courts adopted this position and refused to accord full faith and credit to the Florida
determination because the Florida court had not acquired jurisdiction over an
indispensable party, the Delaware trustee. --- Del. ---, 128 A. 2d 819. We postponed
the question of jurisdiction in the Florida appeal, No. 107, 354 U.S. 919, and granted
certiorari to the Delaware Supreme Court, No. 117, 354 U.S. 920.
The trust whose validity is contested here was created in 1935. Dora Browning
Donner, then a domiciliary of Pennsylvania, executed a trust instrument in Delaware
naming the Wilmington Trust Co., of Wilmington, Delaware, as trustee. The corpus
was composed of securities. Mrs. Donner reserved the income for life, and stated
that the remainder should be paid to such persons or upon such trusts as she should
appoint by inter vivos or testamentary instrument. The trust agreement provided that
Mrs. Donner could change the trustee, and that she could amend, alter or revoke the
agreement at any time. A measure of control over trust administration was assured
by the provision that only with the consent of a trust "advisor" appointed by the
settlor could the trustee (1) sell trust assets, (2) make investments, and (3) participate
in any plan, proceeding, reorganization or merger involving securities held in the
trust. A few days after the trust was established Mrs. Donner exercised her power of
appointment. That appointment was replaced by another in 1939. Thereafter she left
Pennsylvania, and in 1944 became domiciled in Florida, where she remained until
her death in 1952. Mrs. Donner's will was executed Dec. 3, 1949. On that same day
she executed the inter vivos power of appointment whose terms are at issue here.67
After making modest appointments in favor of a hospital and certain family retainers
(the "appointees"),68 she appointed the sum of $200,000 to each of two trusts
previously established with another Delaware trustee, the Delaware Trust Co. The
balance of the trust corpus, over $1,000,000 at the date of her death, was appointed to
her executrix. That amount passed under the residuary clause of her will and is not at
issue here.
The two trusts with the Delaware Trust Co. were created in 1948 by Mrs.
Donner's daughter, Elizabeth Donner Hanson, for the benefit of Elizabeth's children,
Donner Hanson and Joseph Donner Winsor. In identical terms they provide that the
income not required for the beneficiary's support should be accumulated to age 25,
when the beneficiary should be paid 1/4 of the corpus and receive the income from
the balance for life. Upon the death of the beneficiary the remainder was to go to
such of the beneficiary's issue or Elizabeth Donner Hanson's issue as the beneficiary
should appoint by inter vivos or testamentary instrument; in default of appointment
67 The appointment was partially revoked July 7, 1950 in a respect not material to the instant
controversy.
68 The hospital received $ 10,000. Six servants qualified for appointments totaling $ 7,000.
150
to the beneficiary's issue alive at the time of his death, and if none to the issue of
Elizabeth Donner Hanson.
Mrs. Donner died Nov. 20, 1952. Her will, which was admitted to probate in
Florida, named Elizabeth Donner Hanson as executrix. She was instructed to pay all
debts and taxes, including any which might be payable by reason of the property
appointed under the power of appointment in the trust agreement with the
Wilmington Trust Co. After disposing of personal and household effects, Mrs.
Donner's will directed that the balance of her property (the $1,000,000 appointed
from the Delaware trust) be paid in equal parts to two trusts for the benefit of her
daughters Katherine N. R. Denckla and Dorothy B. R. Stewart.
This controversy grows out of the residuary clause that created the lastmentioned trusts. It begins:
"All the rest, residue and remainder of my estate, real, personal and
mixed, whatsoever and wheresoever the same may be at the time of my
death, including any and all property, rights and interest over which I
may have power of appointment which prior to my death has not been
effectively exercised by me or has been exercised by me in favor of my
Executrix, I direct my Executrix to deal with as follows . . . ".
Residuary legatees Denckla and Stewart, already the recipients of over $500,000
each, urge that the power of appointment over the $400,000 appointed to sister
Elizabeth's children was not "effectively exercised" and that the property should
accordingly pass to them. Fourteen months after Mrs. Donner's death these parties
petitioned a Florida chancery court for a declaratory judgment "concerning what
property passes under the residuary clause" of the will. Personal service was had
upon the following defendants: (1) executrix Elizabeth Donner Hanson, (2)
beneficiaries Donner Hanson and Joseph Donner Winsor, and (3) potential
beneficiary William Donner Roosevelt, also one of Elizabeth's children. Curtin
Winsor, Jr., another of Elizabeth's children and also a potential beneficiary of the
Delaware trusts, was not named as a party and was not served. About a dozen other
defendants were nonresidents and could not be personally served. These included
the Wilmington Trust Co. ("trustee"), the Delaware Trust Co. (to whom the $400,000
had been paid shortly after Mrs. Donner's death), certain individuals who were
potential successors in interest to complainants Denckla and Stewart, and most of the
named appointees in Mrs. Donner's 1949 appointment. A copy of the pleadings and
a "Notice to Appear and Defend" were sent to each of these defendants by ordinary
mail, and notice was published locally as required by the Florida statutes dealing
with constructive service.69 With the exception of two individuals whose interests
69 Fla. Stat., 1957, c. 48, § 48.01: "Service of process by publication may be had, in any of the
several courts of this state, and upon any of the parties mentioned in § 48.02 in any suit or
proceeding:
151
coincided with complainants Denckla and Stewart, none of the nonresident
defendants made any appearance.
The appearing defendants (Elizabeth Donner Hanson and her children) moved
to dismiss the suit because the exercise of jurisdiction over indispensable parties, the
Delaware trustees, would offend Section 1 of the Fourteenth Amendment. The
Chancellor ruled that he lacked jurisdiction over these nonresident defendants
because no personal service was had and because the trust corpus was outside the
territorial jurisdiction of the court. The cause was dismissed as to them. As far as
parties before the court were concerned, however, he ruled that the power of
appointment was testamentary and void under the applicable Florida law. In a decree
dated Jan. 14, 1955, he ruled that the $400,000 passed under the residuary clause of
the will.
After the Florida litigation began, but before entry of the decree, the executrix
instituted a declaratory judgment action in Delaware to determine who was entitled
to participate in the trust assets held in that State. Except for the addition of
beneficiary Winsor and several appointees, the parties were substantially the same as
in the Florida litigation. Nonresident defendants were notified by registered mail.
All of the trust companies, beneficiaries, and legatees except Katherine N. R.
Denckla, appeared and participated in the litigation. After the Florida court enjoined
executrix Hanson from further participation, her children pursued their own interests.
When the Florida decree was entered the legatees unsuccessfully urged it as res
judicata of the Delaware dispute. In a decree dated Jan. 13, 1956, the Delaware
Chancellor ruled that the trust and power of appointment were valid under the
applicable Delaware law, and that the trust corpus had properly been paid to the
Delaware Trust Co. and the other appointees. --- Del. Ch. ---, 119 A. 2d 901.
Alleging that she would be bound by the Delaware decree, the executrix moved
the Florida Supreme Court to remand with instructions to dismiss the Florida suit
then pending on appeal. No full faith and credit question was raised. The motion was
denied. The Florida Supreme Court affirmed its Chancellor's conclusion that Florida
law applied to determine the validity of the trust and power of appointment. Under
"(1) To enforce any legal or equitable lien upon or claim to any title or interest in real or
personal property within the jurisdiction of the court or any fund held or debt owing by any party
upon whom process can be served within this state.
.....
"(5) For the construction of any will, deed, contract or other written instrument and for a
judicial declaration or enforcement of any legal or equitable right, title, claim, lien or interest
thereunder."
§ 48.02: "Where personal service of process cannot be had, service of process by
publication may be had upon any party, natural or corporate, known or unknown, including: (1)
Any known or unknown natural person ... (2) Any corporation or other legal entity, whether its
domicile be foreign, domestic or unknown . . . ."
152
that law the trust was invalid because the settlor had reserved too much power over
the trustee and trust corpus, and the power of appointment was not independently
effective to pass the property because it was a testamentary act not accompanied by
the requisite formalities. The Chancellor's conclusion that there was no jurisdiction
over the trust companies and other absent defendants was reversed. The court ruled
that jurisdiction to construe the will carried with it "substantive" jurisdiction "over
the persons of the absent defendants" even though the trust assets were not
"physically in this state." Whether this meant jurisdiction over the person of the
defendants or jurisdiction over the trust assets is open to doubt. In a motion for
rehearing the beneficiaries and appointees urged for the first time that Florida should
have given full faith and credit to the decision of the Delaware Chancellor. The
motion was denied without opinion, Nov. 28, 1956.
The full faith and credit question was first raised in the Delaware litigation by
an unsuccessful motion for new trial filed with the Chancellor Jan. 20, 1956. After
the Florida Supreme Court decision the matter was renewed by a motion to remand
filed with the Delaware Supreme Court. In a decision of Jan. 14, 1957, that court
denied the motion and affirmed its Chancellor in all respects. The Florida decree
was held not binding for purposes of full faith and credit because the Florida court
had no personal jurisdiction over the trust companies and no jurisdiction over the
trust res.
The issues for our decision are, first, whether Florida erred in holding that it
had jurisdiction over the nonresident defendants, and second, whether Delaware
erred in refusing full faith and credit to the Florida decree. We need not determine
whether Florida was bound to give full faith and credit to the decree of the Delaware
Chancellor since the question was not seasonably presented to the Florida court.
Radio Station WOW v. Johnson, 326 U.S. 120, 128.
No. 107, The Florida Appeal. The question of our jurisdiction was postponed
until the hearing of the merits. The appeal is predicated upon the contention that as
applied to the facts of this case the Florida statute providing for constructive service
is contrary to the Federal Constitution. 28 U.S.C. § 1257 (2). But in the state court
appellants (the "beneficiaries") did not object that the statute was invalid as applied,
but rather that the effect of the state court's exercise
of jurisdiction in the
circumstances of this case deprived them of a right under the Federal Constitution.70
Accordingly, we are without jurisdiction of the appeal and it must be dismissed.
Wilson v. Cook, 327 U.S. 474, 482; Charleston Fed. Sav. & L. Assn. v. Alderson, 324
70 The record discloses no mention of the state statute until the petition for rehearing in the Florida
Supreme Court. In the trial court, appellant's motion to dismiss raised the federal question in this
manner: "The exercise by this Court of the jurisdiction sought to be invoked by the plaintiffs
herein would contravene the Constitution and Laws of the State of Florida and the Constitution
of the United States, and, in particular, Section 1 of the Fourteenth Amendment to the United
States Constitution." No. 107, R. 41.
153
U.S. 182. Treating the papers whereon appeal was taken as a petition for certiorari,
28 U.S.C. 2103, certiorari is granted.
Relying upon the principle that a person cannot invoke the jurisdiction of this
Court to vindicate the right of a third party,71 appellees urge that appellants lack
standing to complain of a defect in jurisdiction over the nonresident trust companies,
who have made no appearance in this action. Florida adheres to the general rule that
a trustee is an indispensable party to litigation involving the validity of the trust.72 In
the absence of such a party a Florida court may not proceed to adjudicate the
controversy.73 Since state law required the acquisition of jurisdiction over the
nonresident trust company74 before the court was empowered to proceed with the
action, any defendant affected by the court's judgment has that "direct and substantial
personal interest in the outcome" that is necessary to challenge whether that
jurisdiction was in fact acquired. Chicago v. Atchison, T. & S.F.R. Co., 357 U.S. 77.
Appellants charge that this judgment is offensive to the Due Process Clause of
the Fourteenth Amendment because the Florida court was without jurisdiction. There
is no suggestion that the court failed to employ a means of notice reasonably
calculated to inform nonresident defendants of the pending proceedings,75 or denied
them an opportunity to be heard in defense of their interests.76 The alleged defect is
the absence of those "affiliating circumstances"77 without which the courts of a
State may not enter a judgment imposing obligations on persons (jurisdiction in
personam) or affecting interests in property (jurisdiction in rem or quasi in rem).78
71 See Liberty Warehouse Co. v. Burley T.G. Co-op. M. Assn., 276 U.S. 71, 88; Smith v. Indiana,
191 U.S. 138, 148; Tyler v. Judges of the Court of Registration, 179 U.S. 405; Robertson and
Kirkham, Jurisdiction of the Supreme Court (Wolfson and Kurland ed.), 298.
72 Trueman Fertilizer Co. v. Allison, 81 So. 2d 734, 738; Winn v. Strickland, 34 Fla. 610, 633, 16
So. 606, 613; Wilson v. Russ, 17 Fla. 691, 697; McArthur v. Scott, 113 U.S. 340, 396; Sadler v.
Industrial Trust Co., 327 Mass. 10, 97 N.E. 2d 169.
73 Martinez v. Balbin, 76 So. 2d 488, 490; Florida Land Rock Phosphate Co. v. Anderson, 50 Fla.
501, 512-513, 39 So. 392, 396.
74 Hereafter the terms "trust," "trust company" and "trustee" have reference to the trust established
in 1935 with the Wilmington Trust Co., the validity of which is at issue here. It is unnecessary to
determine whether the Delaware Trust Co., to which the $ 400,000 remainder interest was
appointed and was paid after Mrs. Donner's death, is also an indispensable party to this
proceeding.
75 Walker v. City of Hutchinson, 352 U.S. 112; Mullane v. Central Hanover B. & T. Co., 339 U.S.
306; McDonald v. Mabee, 243 U.S. 90.
76 Roller v. Holly, 176 U.S. 398.
77 Sunderland, The Problem of Jurisdiction, Selected Essays on Constitutional Law, 1270, 1272.
78 A judgment in personam imposes a personal liability or obligation on one person in favor of
another. A judgment in rem affects the interests of all persons in designated property. A
154
While the in rem and in personam classifications do not exhaust all the situations that
give rise to jurisdiction,79 they are adequate to describe the affiliating circumstances
suggested here, and accordingly serve as a useful means of approach to this case.
In rem jurisdiction. Founded on physical power, McDonald v. Mabee, 243 U.S.
90, 91, the in rem jurisdiction of a state court is limited by the extent of its power and
by the coordinate authority of sister States.80 The basis of the jurisdiction is the
presence of the subject property within the territorial jurisdiction of the forum State.
Rose v. Himely, 4 Cranch 241, 277; Overby v. Gordon, 177 U.S. 214, 221-222.
Tangible property poses no problem for the application of this rule, but the situs of
intangibles is often a matter of controversy.81 In considering restrictions on the
power to tax, this Court has concluded that "jurisdiction" over intangible property is
not limited to a single State. Tax Commission v. Aldrich, 316 U.S. 174; Curry v.
McCanless, 307 U.S. 357. Whether the type of "jurisdiction" with which this
opinion deals may be exercised by more than one State we need not decide. The
parties seem to assume that the trust assets that form the subject matter of this
action82 were located in Delaware and not in Florida. We can see nothing in the
record contrary to that assumption, or sufficient to establish a situs in Florida.83
judgment quasi in rem affects the interests of particular persons in designated property. The
latter is of two types. In one the plaintiff is seeking to secure a pre-existing claim in the subject
property and to extinguish or establish the nonexistence of similar interests of particular persons.
In the other the plaintiff seeks to apply what he concedes to be the property of the defendant to
the satisfaction of a claim against him. Restatement, Judgments, 5-9. For convenience of
terminology this opinion will use "in rem" in lieu of "in rem and quasi in rem."
79 E.g., Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 312; Williams v. North
Carolina, 317 U.S. 287, 297. Fraser, Jurisdiction by Necessity, 100 U. of Pa. L. Rev. 305.
80 Baker v. Baker, Eccles & Co., 242 U.S. 394, 400; Riley v. New York Trust Co., 315 U.S. 343,
349; Overby v. Gordon, 177 U.S. 214, 221-222; Pennoyer v. Neff, 95 U.S. 714; Rose v. Himely,
4 Cranch 241, 277.
81 See Andrews, Situs of Intangibles in Suits against Non-Resident Claimants, 49 Yale L.J. 241.
82 This case does not concern the situs of a beneficial interest in trust property. These appellees
were contesting the validity of the trust. Their concern was with the legal interest of the trustee
or, if the trust was invalid, the settlor. Therefore, the relevant factor here is the situs of the stocks,
bonds, and notes that make up the corpus of the trust. Properly speaking such assets are
intangibles that have no "physical" location. But their embodiment in documents treated for
most purposes as the assets themselves makes them partake of the nature of tangibles. Cf.
Wheeler v. Sohmer, 233 U.S. 434, 439.
83 The documents evidencing ownership of the trust property were held in Delaware, cf. Bank of
Jasper v. First Nat. Bank, 258 U.S. 112, 119, by a Delaware trustee who was the obligee of the
credit instruments and the record owner of the stock. The location of the obligors and the
domicile of the corporations do not appear. The trust instrument was executed in Delaware by a
155
The Florida court held that the presence of the subject property was not
essential to its jurisdiction. Authority over the probate and construction of its
domiciliary's will, under which the assets might pass, was thought sufficient to
confer the requisite jurisdiction.84 But jurisdiction cannot be predicated upon the
contingent role of this Florida will. Whatever the efficacy of a so-called "in rem"
jurisdiction over assets admittedly passing under a local will, a State acquires no in
rem jurisdiction to adjudicate the validity of inter vivos dispositions simply because
its decision might augment an estate passing under a will probated in its courts. If
such a basis of jurisdiction were sustained, probate courts would enjoy nationwide
service of process to adjudicate interests in property with which neither the State nor
the decedent could claim any affiliation. The settlor-decedent's Florida domicile is
equally unavailing as a basis for jurisdiction over the trust assets. For the purpose of
jurisdiction in rem the maxim that personalty has its situs at the domicile of its
owner85 is a fiction of limited utility. Green v. Van Buskirk, 7 Wall. 139, 150. The
maxim is no less suspect when the domicile is that of a decedent. In analogous
cases, this Court has rejected the suggestion that the probate decree of the State
where decedent was domiciled has an in rem effect on personalty outside the forum
State that could render it conclusive on the interests of nonresidents over whom there
settlor then domiciled in Pennsylvania. Without expressing any opinion on the significance of
these or other factors unnamed, we note that none relates to Florida.
84 The Florida Supreme Court's opinion states: "We held [in Henderson v. Usher, 118 Fla. 688, 160
So. 9] that constructive service was valid in that state of the record because substantive
jurisdiction existed in the Florida court by virtue of construction of a will, which was also
involved, the testator having been domiciled in Florida. We observed that it was not essential
that the assets of the trust be physically in this state in order that constructive service be binding
upon a non-resident where the problem presented to the court was to adjudicate, inter alia, the
status of the securities incorporated in the trust estate and the rights of the non-resident therein. It
is entirely consistent with the Henderson case to hold, as we do, that the court below erred in
ruling that it lacked jurisdiction over the persons of the absent defendants." 100 So. 2d, at 385.
The foregoing leaves unclear whether the court was invoking in personam jurisdiction over
the trustee, or in rem jurisdiction over the trust assets. Henderson v. Usher, supra, which was an
action by testamentary trustees for a construction of the will establishing a trust whose assets
were held in New York, found it unnecessary to decide the basis of the jurisdiction exercised. In
response to the jurisdictional objections of a specially appearing nonresident defendant, the
Florida Supreme Court ruled: "Since the interpretation of the will is the primary question with
which we are confronted we are impelled to hold that the res is at least constructively in this state
and that the Florida courts are empowered to advise the trustees how to proceed under it and
what rights those affected have in it. For the immediate purpose of this suit the will is the res and
when that is voluntarily brought into the courts of Florida to be construed the trust created by it is
to all intents and purposes brought with it." 118 Fla., at 692, 160 So., at 10.
85 We assume arguendo for the purpose of this discussion that the trust was invalid so that Mrs.
Donner was the "owner" of the subject property.
156
was no personal jurisdiction. Riley v. New York Trust Co., 315 U.S. 343, 353; Baker
v. Baker, Eccles & Co., 242 U.S. 394, 401; Overby v. Gordon, 177 U.S. 214.86 The
fact that the owner is or was domiciled within the forum State is not a sufficient
affiliation with the property upon which to base jurisdiction in rem. Having
concluded that Florida had no in rem jurisdiction, we proceed to consider whether a
judgment purporting to rest on that basis is invalid in Florida and must therefore be
reversed.
Prior to the Fourteenth Amendment an exercise of jurisdiction over persons or
property outside the forum State was thought to be an absolute nullity,87 but the
matter remained a question of state law over which this Court exercised no authority.
88 With the adoption of that Amendment, any judgment purporting to bind the
person of a defendant over whom the court had not acquired in personam jurisdiction
was void within the State as well as without. Pennoyer v. Neff, 95 U.S. 714. Nearly a
century has passed without this Court being called upon to apply that principle to an
in rem judgment dealing with property outside the forum State. The invalidity of
such a judgment within the forum State seems to have been assumed -- and with
good reason. Since a State is forbidden to enter a judgment attempting to bind a
person over whom it has no jurisdiction, it has even less right to enter a judgment
purporting to extinguish the interest of such a person in property over which the
court has no jurisdiction.89 Therefore, so far as it purports to rest upon jurisdiction
over the trust assets, the judgment of the Florida court cannot be sustained. Sadler v.
Industrial Trust Co., 327 Mass. 10, 97 N.E. 2d 169.
In personam jurisdiction. Appellees' stronger argument is for in personam
jurisdiction over the Delaware trustee. They urge that the circumstances of this case
amount to sufficient affiliation with the State of Florida to empower its courts to
exercise personal jurisdiction over this nonresident defendant. Principal reliance is
placed upon McGee v. International Life Ins. Co., 355 U.S. 220. In McGee the
Court noted the trend of expanding personal jurisdiction over nonresidents. As
technological progress has increased the flow of commerce between States, the need
for jurisdiction over nonresidents has undergone a similar increase. At the same
86 Though analogous, these cases are not squarely in point. They concerned the efficacy of such
judgments in the courts of another sovereign, while the issue here is the validity of such an
exercise of jurisdiction within the forum State.
87 See Pennoyer v. Neff, 95 U.S. 714, 720-728, 732; Story, Commentaries on the Conflict of Laws
(6th ed. 1865), §§ 539, 550-551; Cooley, Constitutional Limitations (1st ed. 1868), 404-405;
Rheinstein, The Constitutional Bases of Jurisdiction, 22 U. of Chi. L. Rev. 775, 792-793.
88 See Baker v. Baker, Eccles & Co., 242 U.S. 394, 403.
89 This holding was forecast in Pennoyer v. Neff, supra. When considering the effect of the
Fourteenth Amendment, this Court declared that in actions against nonresidents substituted
service was permissible only where "property in the State is brought under the control of the
court, and subjected to its disposition by process adapted to that purpose . . . ." (Emphasis
supplied.) 95 U.S., at 733.
157
time, progress in communications and transportation has made the defense of a suit
in a foreign tribunal less burdensome. In response to these changes, the requirements
for personal jurisdiction over nonresidents have evolved from the rigid rule of
Pennoyer v. Neff, 95 U.S. 714, to the flexible standard of International Shoe Co. v.
Washington, 326 U.S. 310. But it is a mistake to assume that this trend heralds the
eventual demise of all restrictions on the personal jurisdiction of state courts. See
Vanderbilt v. Vanderbilt, 354 U.S. 416, 418. Those restrictions are more than a
guarantee of immunity from inconvenient or distant litigation. They are a
consequence of territorial limitations on the power of the respective States. However
minimal the burden of defending in a foreign tribunal, a defendant may not be called
upon to do so unless he has had the "minimal contacts" with that State that are a
prerequisite to its exercise of power over him. See International Shoe Co. v.
Washington, 326 U.S. 310, 319.
We fail to find such contacts in the circumstances of this case. The defendant
trust company has no office in Florida, and transacts no business there. None of the
trust assets has ever been held or administered in Florida, and the record discloses no
solicitation of business in that State either in person or by mail. Cf. International
Shoe Co. v. Washington, 326 U.S. 310; McGee v. International Life Ins. Co., 355
U.S. 220; Travelers Health Assn. v. Virginia, 339 U.S. 643.
The cause of action in this case is not one that arises out of an act done or
transaction consummated in the forum State. In that respect, it differs from McGee v.
International Life Ins. Co., 355 U.S. 220, and the cases there cited. In McGee, the
nonresident defendant solicited a reinsurance agreement with a resident of
California. The offer was accepted in that State, and the insurance premiums were
mailed from there until the insured's death. Noting the interest California has in
providing effective redress for its residents when nonresident insurers refuse to pay
claims on insurance they have solicited in that State, the Court upheld jurisdiction
because the suit "was based on a contract which had substantial connection with that
State." In contrast, this action involves the validity of an agreement that was entered
without any connection with the forum State. The agreement was executed in
Delaware by a trust company incorporated in that State and a settlor domiciled in
Pennsylvania. The first relationship Florida had to the agreement was years later
when the settlor became domiciled there, and the trustee remitted the trust income to
her in that State. From Florida Mrs. Donner carried on several bits of trust
administration that may be compared to the mailing of premiums in McGee.90 But
the record discloses no instance in which the trustee performed any acts in Florida
that bear the same relationship to the agreement as the solicitation in McGee.
Consequently, this suit cannot be said to be one to enforce an obligation that arose
from a privilege the defendant exercised in Florida. Cf. International Shoe Co. v.
90 By a letter dated Feb. 5, 1946, Mrs. Donner changed the compensation to be paid the trust
advisor. April 2, 1947, she revoked the trust as to $ 75,000, returning that amount to the trustee
December 22, 1947. To these acts may be added the execution of the two powers of appointment
mentioned earlier.
158
Washington, 326 U.S. 310, 319. This case is also different from McGee in that there
the State had enacted special legislation (Unauthorized Insurers Process Act) to
exercise what McGee called its "manifest interest" in providing effective redress for
citizens who had been injured by nonresidents engaged in an activity that the State
treats as exceptional and subjects to special regulation. Cf. Travelers Health Assn. v.
Virginia, 339 U.S. 643, 647-649; Doherty & Co. v. Goodman, 294 U.S. 623, 627;
Hess v. Pawloski, 274 U.S. 352.
The execution in Florida of the powers of appointment under which the
beneficiaries and appointees claim does not give Florida a substantial connection
with the contract on which this suit is based. It is the validity of the trust agreement,
not the appointment, that is at issue here.91 For the purpose of applying its rule that
the validity of a trust is determined by the law of the State of its creation, Florida
ruled that the appointment amounted to a "republication" of the original trust
instrument in Florida. For choice-of-law purposes such a ruling may be justified, but
we think it an insubstantial connection with the trust agreement for purposes of
determining the question of personal jurisdiction over a nonresident defendant. The
unilateral activity of those who claim some relationship with a nonresident defendant
cannot satisfy the requirement of contact with the forum State. The application of
that rule will vary with the quality and nature of the defendant's activity, but it is
essential in each case that there be some act by which the defendant purposefully
avails itself of the privilege of conducting activities within the forum State, thus
invoking the benefits and protections of its laws. International Shoe Co. v.
Washington, 326 U.S. 310, 319. The settlor's execution in Florida of her power of
appointment cannot remedy the absence of such an act in this case.
It is urged that because the settlor and most of the appointees and beneficiaries
were domiciled in Florida the courts of that State should be able to exercise personal
jurisdiction over the nonresident trustees. This is a non sequitur. With personal
jurisdiction over the executor, legatees, and appointees, there is nothing in federal
law to prevent Florida from adjudicating concerning the respective rights and
liabilities of those parties. But Florida has not chosen to do so. As we understand its
law, the trustee is an indispensable party over whom the court must acquire
jurisdiction before it is empowered to enter judgment in a proceeding affecting the
validity of a trust.92 It does not acquire that jurisdiction by being the "center of
gravity" of the controversy, or the most convenient location for litigation. The issue
91 The Florida Supreme Court's opinion makes repeated references to the "invalidity" of the trust,
and uses other language of like import. See 100 So. 2d, at 381, 382, 383, 384, 385. Its ruling
that the 1949 and 1950 "appointments" were ineffective to pass title to the property (because
lacking the requisite testamentary formalities) proceeded from this initial ruling that the trust
agreement was "invalid," 100 So. 2d, at 383, or "illusory," 100 So. 2d, at 384, and therefore
created no power of appointment. There was no suggestion that the appointment was ineffective
as an exercise of whatever power was created by the trust agreement.
92 See note 6, supra.
159
is personal jurisdiction, not choice of law. It is resolved in this case by considering
the acts of the trustee. As we have indicated, they are insufficient to sustain the
jurisdiction.93
Because it sustained jurisdiction over the nonresident trustees, the Florida
Supreme Court found it unnecessary to determine whether Florida law made those
defendants indispensable parties in the circumstances of this case. Our conclusion
that Florida was without jurisdiction over the Delaware trustee, or over the trust
corpus held in that State, requires that we make that determination in the first
instance. As we have noted earlier, the Florida Supreme Court has repeatedly held
that a trustee is an indispensable party without whom a Florida court has no power to
adjudicate controversies affecting the validity of a trust.94 For that reason the
Florida judgment must be reversed not only as to the nonresident trustees but also as
to appellants, over whom the Florida court admittedly had jurisdiction.
No. 117, The Delaware Certiorari. The same reasons that compel reversal of
the Florida judgment require affirmance of the Delaware one. Delaware is under no
obligation to give full faith and credit to a Florida judgment invalid in Florida
because offensive to the Due Process Clause of the Fourteenth Amendment. 28
U.S.C. ' 1738. Even before passage of the Fourteenth Amendment this Court
sustained state courts in refusing full faith and credit to judgments entered by courts
that were without jurisdiction over nonresident defendants. D'Arcy v. Ketchum, 11
How. 165; Hall v. Lanning, 91 U.S. 160. See Baker v. Baker, Eccles & Co., 242
U.S. 394; Riley v. New York Trust Co., 315 U.S. 343. Since Delaware was entitled to
conclude that Florida law made the trust company an indispensable party, it was
under no obligation to give the Florida judgment any faith and credit -- even against
parties over whom Florida's jurisdiction was unquestioned.
It is suggested that this disposition is improper -- that the Delaware case should
be held while the Florida cause is remanded to give that court an opportunity to
determine whether the trustee is an indispensable party in the circumstances of this
case. But this is not a case like Herb v. Pitcairn, 324 U.S. 117, where it is
appropriate to remand for the state court to clarify an ambiguity in its opinion that
may reveal an adequate state ground that would deprive us of power to affect the
result of the controversy. Nor is this a circumstance where the state court has never
ruled on the question of state law that we are deciding. Although the question was
left open in this case, there is ample Florida authority from which we may determine
the appropriate answer.
The rule of primacy to the first final judgment is a necessary incident to the
requirement of full faith and credit. Our only function is to determine whether
judgments are consistent with the Federal Constitution. In determining the
93 This conclusion makes unnecessary any consideration of appellants' contention that the contacts
the trust agreement had with Florida were so slight that it was a denial of due process of law to
determine its validity by Florida law. See Home Insurance Co. v. Dick, 281 U.S. 397.
94 See notes 6 and 7, supra.
160
correctness of Delaware's judgment we look to what Delaware was entitled to
conclude from the Florida authorities at the time the Delaware court's judgment was
entered. To withhold affirmance of a correct Delaware judgment until Florida has
had time to rule on another question would be participating in the litigation instead of
adjudicating its outcome.
The judgment of the Delaware Supreme Court is affirmed, and the judgment of
the Florida Supreme Court is reversed and the cause is remanded for proceedings not
inconsistent with this opinion.
It is so ordered.
Keeton v. Hustler Magazine, Inc., et al.
465 U.S. 770, 104 S.Ct. 1473 (1984)
Rehnquist, J., delivered the opinion of the Court.
Petitioner Kathy Keeton sued respondent Hustler Magazine, Inc., and other
defendants in the United States District Court for the District of New Hampshire,
alleging jurisdiction over her libel complaint by reason of diversity of citizenship.
The District Court dismissed her suit because it believed that the Due Process Clause
of the Fourteenth Amendment to the United States Constitution forbade the
application of New Hampshire's long-arm statute in order to acquire personal
jurisdiction over respondent. The Court of Appeals for the First Circuit affirmed,
682 F. 2d 33 (1982), summarizing its concerns with the statement that "the New
Hampshire tail is too small to wag so large an out-of-state dog." Id., at 36. We
granted certiorari, 459 U.S. 1169 (1983), and we now reverse.
Petitioner Keeton is a resident of New York. Her only connection with New
Hampshire is the circulation there of copies of a magazine that she assists in
producing. The magazine bears petitioner's name in several places crediting her with
editorial and other work. Respondent Hustler Magazine, Inc., is an Ohio
corporation, with its principal place of business in California. Respondent's contacts
with New Hampshire consist of the sale of some 10,000 to 15,000 copies of Hustler
Magazine in that State each month. See App. 81a-86a. Petitioner claims to have
been libeled in five separate issues of respondent's magazine published between
September 1975 and May 1976.95
The Court of Appeals, in its opinion affirming the District Court's dismissal of
petitioner's complaint, held that petitioner's lack of contacts with New Hampshire
rendered the State's interest in redressing the tort of libel to petitioner too attenuated
for an assertion of personal jurisdiction over respondent. The Court of Appeals
observed that the "single publication rule" ordinarily applicable in multistate libel
95 Initially, petitioner brought suit for libel and invasion of privacy in Ohio, where the magazine
was published. Her libel claim, however, was dismissed as barred by the Ohio statute of
limitations, and her invasion-of-privacy claim was dismissed as barred by the New York statute
of limitations, which the Ohio court considered to be "migratory." Petitioner then filed the
present action in October 1980.
161
cases would require it to award petitioner "damages caused in all states" should she
prevail in her suit, even though the bulk of petitioner's alleged injuries had been
sustained outside New Hampshire. 682 F. 2d, at 35.96 The court also stressed New
Hampshire's unusually long (6-year) limitations period for libel actions. New
Hampshire was the only State where petitioner's suit would not have been timebarred when it was filed. Under these circumstances, the Court of Appeals
concluded that it would be "unfair" to assert jurisdiction over respondent. New
Hampshire has a minimal interest in applying its unusual statute of limitations to, and
awarding damages for, injuries to a nonresident occurring outside the State,
particularly since petitioner suffered such a small proportion of her total claimed
injury within the State. Id., at 35-36.
We conclude that the Court of Appeals erred when it affirmed the dismissal of
petitioner's suit for lack of personal jurisdiction. Respondent's regular circulation of
magazines in the forum State is sufficient to support an assertion of jurisdiction in a
libel action based on the contents of the magazine. This is so even if New
Hampshire courts, and thus the District Court under Klaxon Co. v. Stentor Co., 313
U.S. 487 (1941), would apply the so-called "single publication rule" to enable
petitioner to recover in the New Hampshire action her damages from "publications"
of the alleged libel throughout the United States.97
The District Court found that "[t]he general course of conduct in circulating
magazines throughout the state was purposefully directed at New Hampshire, and
inevitably affected persons in the state." App. to Pet. for Cert. 5a. Such regular
monthly sales of thousands of magazines cannot by any stretch of the imagination be
characterized as random, isolated, or fortuitous. It is, therefore, unquestionable that
New Hampshire jurisdiction over a complaint based on those contacts would
ordinarily satisfy the requirement of the Due Process Clause that a State's assertion of
personal jurisdiction over a nonresident defendant be predicated on "minimum
contacts" between the defendant and the State. See World-Wide Volkswagen Corp.
v. Woodson, 444 U.S. 286, 297-298 (1980); International Shoe Co. v. Washington,
326 U.S. 310, 317 (1945). And, as the Court of Appeals acknowledged, New
Hampshire has adopted a "long-arm" statute authorizing service of process on
nonresident corporations whenever permitted by the Due Process Clause. 682 F. 2d,
96 The "single publication rule" has been summarized as follows:
"As to any single publication, (a) only one action for damages can be maintained; (b) all
damages suffered in all jurisdictions can be recovered in the one action; and (c) a judgment for or
against the plaintiff upon the merits of any action for damages bars any other action for damages
between the same parties in all jurisdictions." Restatement (Second) of Torts 577A(4) (1977).
97 "It is the general rule that each communication of the same defamatory matter by the same
defamer, whether to a new person or to the same person, is a separate and distinct publication, for
which a separate cause of action arises." Id., 577A, Comment a. The "single publication rule" is
an exception to this general rule.
162
at 33.98 Thus, all the requisites for personal jurisdiction over Hustler Magazine, Inc.,
in New Hampshire are present.
We think that the three concerns advanced by the Court of Appeals, whether
considered singly or together, are not sufficiently weighty to merit a different result.
The "single publication rule," New Hampshire's unusually long statute of limitations,
and plaintiff's lack of contacts with the forum State do not defeat jurisdiction
otherwise proper under both New Hampshire law and the Due Process Clause.
In judging minimum contacts, a court properly focuses on "the relationship
among the defendant, the forum, and the litigation," Shaffer v. Heitner, 433 U.S. 186,
204 (1977). See also Rush v. Savchuk, 444 U.S. 320, 332 (1980). Thus, it is certainly
relevant to the jurisdictional inquiry that petitioner is seeking to recover damages
suffered in all States in this one suit. The contacts between respondent and the forum
must be judged in the light of that claim, rather than a claim only for damages
sustained in New Hampshire. That is, the contacts between respondent and New
Hampshire must be such that it is "fair" to compel respondent to defend a multistate
lawsuit in New Hampshire seeking nationwide damages for all copies of the five
issues in question, even though only a small portion of those copies were distributed
in New Hampshire.
The Court of Appeals expressed the view that New Hampshire's "interest" in
asserting jurisdiction over plaintiff's multistate claim was minimal. We agree that the
"fairness" of haling respondent into a New Hampshire court depends to some extent
on whether respondent's activities relating to New Hampshire are such as to give that
State a legitimate interest in holding respondent answerable on a claim related to
those activities. See World-Wide Volkswagen Corp. v. Woodson, supra, at 292;
McGee v. International Life Ins. Co., 355 U.S. 220, 223 (1957). But insofar as the
State's "interest" in adjudicating the dispute is a part of the Fourteenth Amendment
due process equation, as a surrogate for some of the factors already mentioned, see
Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694,
702-703, n. 10 (1982), we think the interest is sufficient.
The Court of Appeals acknowledged that petitioner was suing, at least in part,
for damages suffered in New Hampshire. 682 F. 2d, at 34. And it is beyond dispute
98 New Hampshire Rev. Stat. Ann.
300:14 (1977) provides in relevant part:
"If a foreign corporation . . . commits a tort in whole or in part in New Hampshire, such ac[t]
shall be deemed to be doing business in New Hampshire by such foreign corporation and shall be
deemed equivalent to the appointment by such foreign corporation of the secretary of the state of
New Hampshire and his successors to be its true and lawful attorney upon whom may be served
all lawful process in any actions or proceedings against such foreign corporation arising from or
growing out of such . . . tort."
This statute has been construed in the New Hampshire courts to extend jurisdiction over
nonresident corporations to the fullest extent permitted under the Federal Constitution. See, e.g.,
Roy v.. North American Newspaper Alliance, Inc., 106 N.H. 92, 95, 205 A. 2d 844, 846 (1964).
163
that New Hampshire has a significant interest in redressing injuries that actually
occur within the State. S
"'A state has an especial interest in exercising judicial jurisdiction
over those who commit torts within its territory. This is because torts
involve wrongful conduct which a state seeks to deter, and against which
it attempts to afford protection, by providing that a tort-feasor shall be
liable for damages which are the proximate result of his tort.'" Leeper v.
Leeper, 114 N.H. 294, 298, 319 A. 2d 626, 629 (1974) (quoting
Restatement (Second) of Conflict of Laws 36, Comment c (1971)).I
This interest extends to libel actions brought by nonresidents. False statements
of fact harm both the subject of the falsehood and the readers of the statement. New
Hampshire may rightly employ its libel laws to discourage the deception of its
citizens. There is "no constitutional value in false statements of fact." Gertz v.
Robert Welch, Inc., 418 U.S. 323, 340 (1974).
New Hampshire may also extend its concern to the injury that in-state libel
causes within New Hampshire to a nonresident. The tort of libel is generally held to
occur wherever the offending material is circulated. Restatement (Second) of Torts
577A, Comment a (1977). The reputation of the libel victim may suffer harm even
in a State in which he has hitherto been anonymous.99 The communication of the
libel may create a negative reputation among the residents of a jurisdiction where the
plaintiff's previous reputation was, however small, at least unblemished.
New Hampshire has clearly expressed its interest in protecting such persons
from libel, as well as in safeguarding its populace from falsehoods. Its criminal
defamation statute bears no restriction to libels of which residents are the victim.100
Moreover, in 1971 New Hampshire specifically deleted from its long-arm statute the
requirement that a tort be committed "against a resident of New Hampshire."101
New Hampshire also has a substantial interest in cooperating with other States,
through the "single publication rule," to provide a forum for efficiently litigating all
issues and damages claims arising out of a libel in a unitary proceeding.102 This rule
reduces the potential serious drain of libel cases on judicial resources. It also serves
to protect defendants from harassment resulting from multiple suits. Restatement
99 We do not, therefore, rely for our holding on the fact that petitioner's name appears in fine print
in several places in a magazine circulating in New Hampshire.
100 New Hampshire Rev. Stat. Ann. § 644:11(I) (1974) makes it a misdemeanor for anyone to
"purposely communicat[e] to any person, orally or in writing, any information which he knows to
be false and knows will tend to expose any other living person to public hatred, contempt or
ridicule." (Emphasis added.)
101 See N.H. Rev. Stat. Ann. § 300:14 (1977), History.
102 The great majority of the States now follow the "single publication rule." Restatement (Second)
of Torts § 577A, Appendix, Reporter's Note (1977).
164
(Second) of Torts 577A, Comment f (1977). In sum, the combination of New
Hampshire's interest in redressing injuries that occur within the State and its interest
in cooperating with other States in the application of the "single publication rule"
demonstrates the propriety of requiring respondent to answer to a multistate libel
action in New Hampshire.103
The Court of Appeals also thought that there was an element of due process
"unfairness" arising from the fact that the statutes of limitations in every jurisdiction
except New Hampshire had run on the plaintiff's claim in this case.104 Strictly
speaking, however, any potential unfairness in applying New Hampshire's statute of
limitations to all aspects of this nationwide suit has nothing to do with the
jurisdiction of the court to adjudicate the claims. "The issue is personal jurisdiction,
not choice of law." Hanson v. Denckla, 357 U.S. 235, 254 (1958). The question of
the applicability of New Hampshire's statute of limitations to claims for out-of-state
damages presents itself in the course of litigation only after jurisdiction over
respondent is established, and we do not think that such choice-of-law concerns
should complicate or distort the jurisdictional inquiry.
The chance duration of statutes of limitations in nonforum jurisdictions has
nothing to do with the contacts among respondent, New Hampshire, and this
multistate libel action. Whether Ohio's limitations period is six months or six years
does not alter the jurisdictional calculus in New Hampshire. Petitioner's successful
search for a State with a lengthy statute of limitations is no different from the
litigation strategy of countless plaintiffs who seek a forum with favorable substantive
of procedural rules or sympathetic local populations. Certainly Hustler Magazine,
Inc., which chose to enter the New Hampshire market, can be charged with
knowledge of its laws and no doubt would have claimed the benefit of them if it had
a complaint against a subscriber, distributor, or other commercial partner.
103 Of course, to conclude that petitioner may properly seek multistate damages in this New
Hampshire suit is not to conclude that such damages should, in fact, be awarded if petitioner
makes out her case for libel. The actual applicability of the "single publication rule" in the
peculiar circumstances of this case is a matter of substantive law, not personal jurisdiction. We
conclude only that the District Court has jurisdiction to entertain petitioner's multistate libel suit.
104 Under traditional choice-of-law principles, the law of the forum State governs on matters of
procedure. See Restatement (Second) of Conflict of Laws § 122 (1971). In New Hampshire,
statutes of limitations are considered procedural. Gordon v.. Gordon, 118 N.H. 356, 360, 387 A.
2d 339, 342 (1978); Barrett v.. Boston & Maine R. Co., 104 N.H. 70, 178 A. 2d 291 (1962).
There has been considerable academic criticism of the rule that permits a forum State to apply its
own statute of limitations regardless of the significance of contacts between the forum State and
the litigation. See, e.g., R. Weintraub, Commentary on the Conflict of Laws § 9.2B, p. 517 (2d
ed. 1980); Martin, Constitutional Limitations on Choice of Law, 61 Cornell L. Rev. 185, 221
(1976); Comment, The Statute of Limitations and the Conflict of Laws, 28 Yale L.J. 492,
496-497 (1919). But we find it unnecessary to express an opinion at this time as to whether any
arguable unfairness rises to the level of a due process violation.
165
Finally, implicit in the Court of Appeals' analysis of New Hampshire's interest
is an emphasis on the extremely limited contacts of the plaintiff with New
Hampshire. But we have not to date required a plaintiff to have "minimum contacts"
with the forum State before permitting that State to assert personal jurisdiction over
a nonresident defendant. On the contrary, we have upheld the assertion of
jurisdiction where such contacts were entirely lacking. In Perkins v. Benguet Mining
Co., 342 U.S. 437 (1952), none of the parties was a resident of the forum State;
indeed, neither the plaintiff nor the subject matter of his action had any relation to
that State. Jurisdiction was based solely on the fact that the defendant corporation
had been carrying on in the forum "a continuous and systematic, but limited, part of
its general business." Id., at 438. In the instant case, respondent's activities in the
forum may not be so substantial as to support jurisdiction over a cause of action
unrelated to those activities.105 But respondent is carrying on a "part of its general
business" in New Hampshire, and that is sufficient to support jurisdiction when the
cause of action arises out of the very activity being conducted, in part, in New
Hampshire.
The plaintiff's residence is not, of course, completely irrelevant to the
jurisdictional inquiry. As noted, that inquiry focuses on the relations among the
defendant, the forum, and the litigation. Plaintiff's residence may well play an
important role in determining the propriety of entertaining a suit against the
defendant in the forum. That is, plaintiff's residence in the forum may, because of
defendant’s relationship with the plaintiff enhance defendant’s contacts with the
forum. Plaintiff's residence may be the focus of the activities of the defendant out of
which the suit arises. See Calder v. Jones, post, at 788-789; McGee v. International
Life Ins. Co., 355 U.S. 220 (1957). But plaintiff's residence in the forum State is not a
separate requirement, and lack of residence will not defeat jurisdiction established on
the basis of defendant's contacts.
It is undoubtedly true that the bulk of the harm done to petitioner occurred
outside New Hampshire. But that will be true in almost every libel action brought
somewhere other than the plaintiff's domicile. There is no justification for restricting
105 The defendant corporation's contacts with the forum State in Perkins were more substantial than
those of respondent with New Hampshire in this case. In Perkins, the corporation's mining
operations, located in the Philippine Islands, were completely halted during the Japanese
occupation. The president, who was also general manager and principal stockholder of the
company, returned to his home in Ohio where he carried on "a continuous and systematic
supervision of the necessarily limited wartime activities of the company." 342 U.S., at 448. The
company's files were kept in Ohio, several directors' meetings were held there, substantial
accounts were maintained in Ohio banks, and all key business decisions were made in the State.
Ibid. In those circumstances, Ohio was the corporation's principal, if temporary, place of business
so that Ohio jurisdiction was proper even over a cause of action unrelated to the activities in the
State.
166
libel actions to the plaintiff's home forum.106 The victim of a libel, like the victim of
any other tort, may choose to bring suit in any forum with which the defendant has
"certain minimum contacts . . . such that the maintenance of the suit does not offend
'traditional notions of fair play and substantial justice.' Milliken v. Meyer, 311 U.S.
457, 463 [(1940)]." International Shoe Co. v. Washington, 326 U.S., at 316.
Where, as in this case, respondent Hustler Magazine, Inc., has continuously
and deliberately exploited the New Hampshire market, it must reasonably anticipate
being haled into court there in a libel action based on the contents of its magazine.
World-Wide Volkswagen Corp. v. Woodson, 444 U.S., at 297-298. And, since
respondent can be charged with knowledge of the "single publication rule," it must
anticipate that such a suit will seek nationwide damages. Respondent produces a
national publication aimed at a nationwide audience. There is no unfairness in
calling it to answer for the contents of that publication wherever a substantial number
of copies are regularly sold and distributed.
The judgment of the Court of Appeals is reversed,107 and the cause is
remanded for proceedings consistent with this opinion.
Brennan, J., concurring in the judgment.
I agree with the Court that "[r]espondent's regular circulation of
magazines in the forum State is sufficient to support an assertion of jurisdiction in
a libel action based on the contents of the magazine." Ante, at 773-774. These
contacts between the respondent and the forum State are sufficiently important
106 As noted in Calder v.. Jones, post, at 790-791, we reject categorically the suggestion that
invisible radiations from the First Amendment may defeat jurisdiction otherwise proper under the
Due Process Clause.
107 In addition to Hustler Magazine, Inc., Larry Flynt, the publisher, editor, and owner of the
magazine, and L.F.P., Inc., Hustler's holding company, were named as defendants in the District
Court. It does not of course follow from the fact that jurisdiction may be asserted over Hustler
Magazine, Inc., that jurisdiction may also be asserted over either of the other defendants. In
Calder v.. Jones, post, at 790, we today reject the suggestion that employees who act in their
official capacity are somehow shielded from suit in their individual capacity. But jurisdiction
over an employee does not automatically follow from jurisdiction over the corporation which
employs him; nor does jurisdiction over a parent corporation automatically establish jurisdiction
over a wholly owned subsidiary. Consolidated Textile Co. v.. Gregory, 289 U.S. 85, 88 (1933);
Peterson v.. Chicago, R.I. & P.R. Co., 205 U.S. 364, 391 (1907). Each defendant's contacts with
the forum State must be assessed individually. See Rush v.. Savchuk, 444 U.S. 320, 332 (1980)
("The requirements of International Shoe . . . must be met as to each defendant over whom a state
court exercises jurisdiction"). Because the Court of Appeals concluded that jurisdiction could
not be had even against Hustler Magazine, Inc., it did not inquire into the propriety of jurisdiction
over the other defendants. Such inquiry is, of course, open upon remand.
167
and sufficiently related to the underlying cause of action to foreclose any concern
that the constitutional limits of the Due Process Clause are being violated. This is
so, moreover, irrespective of the State's interest in enforcing its substantive libel
laws or its unique statute of limitations. Indeed, as we recently explained in
Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694
(1982), these interests of the State should be relevant only to the extent that they
bear upon the liberty interests of the respondent that are protected by the
Fourteenth Amendment. "The restriction on state sovereign power described in
World-Wide Volkswagen Corp. [v. Woodson, 444 U.S. 286, 291-292 (1980)]
must be seen as ultimately a function of the individual liberty interest preserved
by the Due Process Clause. That Clause is the only source of the personal
jurisdiction requirement and the Clause itself makes no mention of federalism
concerns." Id., at 702-703, n. 10.
Shaffer et al. v. Heitner
433 U.S. 186, 97 S.Ct. 2569 (1977)
Marshall, J., delivered the opinion of the Court.
The controversy in this case concerns the constitutionality of a Delaware
statute that allows a court of that State to take jurisdiction of a lawsuit by
sequestering any property of the defendant that happens to be located in Delaware.
Appellants contend that the sequestration statute as applied in this case violates the
Due Process Clause of the Fourteenth Amendment both because it permits the state
courts to exercise jurisdiction despite the absence of sufficient contacts among the
defendants, the litigation, and the State of Delaware and because it authorizes the
deprivation of defendants' property without providing adequate procedural
safeguards. We find it necessary to consider only the first of these contentions.
I.
Appellee Heitner, a nonresident of Delaware, is the owner of one share of stock
in the Greyhound Corp., a business incorporated under the laws of Delaware with its
principal place of business in Phoenix, Ariz. On May 22, 1974, he filed a
shareholder's derivative suit in the Court of Chancery for New Castle County, Del.,
in which he named as defendants Greyhound, its wholly owned subsidiary
Greyhound Lines, Inc.,108 and 28 present or former officers or directors of one or
both of the corporations. In essence, Heitner alleged that the individual defendants
had violated their duties to Greyhound by causing it and its subsidiary to engage in
actions that resulted in the corporations being held liable for substantial damages in a
108 Greyhound Lines, Inc., is incorporated in California and has its principal place of business in
Phoenix, Ariz.
168
private antitrust suit109 and a large fine in a criminal contempt action.110 The
activities which led to these penalties took place in Oregon.
Simultaneously with his complaint, Heitner filed a motion for an order of
sequestration of the Delaware property of the individual defendants pursuant to Del.
Code Ann., Tit. 10, § 366 (1975).111 This motion was accompanied by a supporting
affidavit of counsel which stated that the individual defendants were nonresidents of
Delaware. The affidavit identified the property to be sequestered as
109 A judgment of $13,146,090 plus attorney's fees was entered against Greyhound in Mt. Hood
Stages, Inc. v. Greyhound Corp., 1972-3 Trade Cas. P74,824, aff'd, 555 F.2d 687 (CA9 1977);
App. 10.
110 See United States v. Greyhound Corp., 363 F.Supp. 525 (ND Ill. 1973) and 370 F.Supp. 881 (ND
Ill.), aff'd, 508 F.2d 529 (CA7 1974). Greyhound was fined $100,000 and Greyhound Lines
$500,000.
111 Section 366 provides:
"(a) If it appears in any complaint filed in the Court of Chancery that the defendant or any
one or more of the defendants is a nonresident of the State, the Court may make an order
directing such nonresident defendant or defendants to appear by a day certain to be designated.
Such order shall be served on such nonresident defendant or defendants by mail or otherwise, if
practicable, and shall be published in such manner as the Court directs, not less than once a week
for 3 consecutive weeks. The Court may compel the appearance of the defendant by the seizure
of all or any part of his property, which property may be sold under the order of the Court to pay
the demand of the plaintiff, if the defendant does not appear, or otherwise defaults. Any
defendant whose property shall have been so seized and who shall have entered a general
appearance in the cause may, upon notice to the plaintiff, petition the Court for an order releasing
such property or any part thereof from the seizure. The Court shall release such property unless
the plaintiff shall satisfy the Court that because of other circumstances there is a reasonable
possibility that such release may render it substantially less likely that plaintiff will obtain
satisfaction of any judgment secured. If such petition shall not be granted, or if no such petition
shall be filed, such property shall remain subject to seizure and may be sold to satisfy any
judgment entered in the cause. The Court may at any time release such property or any part
thereof upon the giving of sufficient security.
"(b) The Court may make all necessary rules respecting the form of process, the manner of
issuance and return thereof, the release of such property from seizure and for the sale of the
property so seized, and may require the plaintiff to give approved security to abide any order of
the Court respecting the property.
"(c) Any transfer or assignment of the property so seized after the seizure thereof shall be
void and after the sale of the property is made and confirmed, the purchaser shall be entitled to
and have all the right, title and interest of the defendant in and to the property so seized and sold
and such sale and confirmation shall transfer to the purchaser all the right, title and interest of the
defendant in and to the property as fully as if the defendant had transferred the same to the
purchaser in accordance with law."
169
"common stock, 3% Second Cumulative Preferenced Stock and stock
unit credits of the Defendant Greyhound Corporation, a Delaware
corporation, as well as all options and all warrants to purchase said stock
issued to said individual Defendants and all contractural [sic] obligations,
all rights, debts or credits due or accrued to or for the benefit of any of the
said Defendants under any type of written agreement, contract or other
legal instrument of any kind whatever between any of the individual
Defendants and said corporation."
The requested sequestration order was signed the day the motion was filed.112
Pursuant to that order, the sequestrator113 "seized" approximately 82,000 shares of
Greyhound common stock belonging to 19 of the defendants,114 and options
belonging to another 2 defendants.115 These seizures were accomplished by placing
"stop transfer" orders or their equivalents on the books of the Greyhound Corp. So
far as the record shows, none of the certificates representing the seized property was
physically present in Delaware. The stock was considered to be in Delaware, and so
subject to seizure, by virtue of Del. Code Ann., Tit. 8, 169 (1975), which makes
Delaware the situs of ownership of all stock in Delaware corporations.116
112 As a condition of the sequestration order, both the plaintiff and the sequestrator were required to
file bonds of $1,000 to assure their compliance with the orders of the court. App. 24.
Following a technical amendment of the complaint, the original sequestration order was vacated
and replaced by an alias sequestration order identical in its terms to the original.
113 The sequestrator is appointed by the court to effect the sequestration. His duties appear to consist
of serving the sequestration order on the named corporation, receiving from that corporation a list
of the property which the order affects, and filing that list with the court. For performing those
services in this case, the sequestrator received a fee of $100 under the original sequestration order
and $100 under the alias order.
114 The closing price of Greyhound stock on the day the sequestration order was issued was $14 3/8.
New York Times, May 23, 1974, p. 62.
approximately $1.2 million.
Thus, the value of the sequestered stock was
115 Debentures, warrants, and stock unit credits belonging to some of the defendants who owned
either stock or options were also sequestered. In addition, Greyhound reported that it had an
employment contract with one of the defendants calling for payment of $250,000 over a 12month period. Greyhound refused to furnish any further information on that debt on the ground
that since the sums due constituted wages, their seizure would be unconstitutional. See Sniadach
v. Family Finance Corp., 395 U. S. 337 (1969). Heitner did not challenge this refusal.
The remaining defendants apparently owned no property subject to the sequestration order.
116 Section 169 provides:
"For all purposes of title, action, attachment, garnishment and jurisdiction of all courts held
in this State, but not for the purpose of taxation, the situs of the ownership of the capital stock of
170
All 28 defendants were notified of the initiation of the suit by certified mail
directed to their last known addresses and by publication in a New Castle County
newspaper. The 21 defendants whose property was seized (hereafter referred to as
appellants) responded by entering a special appearance for the purpose of moving to
quash service of process and to vacate the sequestration order. They contended that
the ex parte sequestration procedure did not accord them due process of law and that
the property seized was not capable of attachment in Delaware. In addition,
appellants asserted that under the rule of International Shoe Co. v. Washington, 326
U. S. 310 (1945), they did not have sufficient contacts with Delaware to sustain the
jurisdiction of that State's courts.
The Court of Chancery rejected these arguments in a letter opinion which
emphasized the purpose of the Delaware sequestration procedure:
"The primary purpose of 'sequestration' as authorized by 10 Del. C. §
366 is not to secure possession of property pending a trial between
resident debtors and creditors on the issue of who has the right to retain
it. On the contrary, as here employed, 'sequestration' is a process used to
compel the personal appearance of a nonresident defendant to answer and
defend a suit brought against him in a court of equity. Sands v. Lefcourt
Realty Corp., Del. Supr., 117 A. 2d 365 (1955). It is accomplished by the
appointment of a sequestrator by this Court to seize and hold property of
the nonresident located in this State subject to further Court order. If the
defendant enters a general appearance, the sequestered property is
routinely released, unless the plaintiff makes special application to
continue its seizure, in which event the plaintiff has the burden of proof
and persuasion." App. 75-76.I
This limitation on the purpose and length of time for which sequestered
property is held, the court concluded, rendered inapplicable the due process
requirements enunciated in Sniadach v. Family Finance Corp., 395 U. S. 337 (1969);
Fuentes v. Shevin, 407 U.S. 67 (1972); and Mitchell v. W. T. Grant Co., 416 U.S. 600
(1974). App. 75-76, 80, 83-85. The court also found no state-law or federal
constitutional barrier to the sequestrator's reliance on Del. Code Ann., Tit. 8, § 169
(1975). App. 76-79. Finally, the court held that the statutory Delaware situs of the
stock provided a sufficient basis for the exercise of quasi in rem jurisdiction by a
Delaware court. Id., at 85-87.
On appeal, the Delaware Supreme Court affirmed the judgment of the Court of
Chancery. Greyhound Corp. v. Heitner, 361 A. 2d 225 (1976). Most of the Supreme
Court's opinion was devoted to rejecting appellants' contention that the sequestration
procedure is inconsistent with the due process analysis developed in the Sniadach
line of cases. The court based its rejection of that argument in part on its agreement
with the Court of Chancery that the purpose of the sequestration procedure is to
all corporations existing under the laws of this State, whether organized under this chapter or
otherwise, shall be regarded as in this State."
171
compel the appearance of the defendant, a purpose not involved in the Sniadach
cases. The court also relied on what it considered the ancient origins of the
sequestration procedure and approval of that procedure in the opinions of this
Court,117 Delaware's interest in asserting jurisdiction to adjudicate claims of
mismanagement of a Delaware corporation, and the safeguards for defendants that it
found in the Delaware statute. 361 A. 2d, at 230-236.
Appellants' claim that the Delaware courts did not have jurisdiction to
adjudicate this action received much more cursory treatment. The court's analysis of
the jurisdictional issue is contained in two paragraphs: S
"There are significant constitutional questions at issue here but we say
at once that we do not deem the rule of International Shoe to be one of
them.... The reason, of course, is that jurisdiction under § 366 remains...
quasi in rem founded on the presence of capital stock here, not on prior
contact by defendants with this forum. Under 8 Del. C. § 169 the 'situs of
the ownership of the capital stock of all corporations existing under the
laws of this State... [is] in this State,' and that provides the initial basis for
jurisdiction. Delaware may constitutionally establish situs of such shares
here,... it has done so and the presence thereof provides the foundation for
§ 366 in this case.... On this issue we agree with the analysis made and the
conclusion reached by Judge Stapleton in U.S. Industries, Inc. v. Gregg,
D. Del., 348 F.Supp. 1004 (1972).118
I
117 The court relied, 361 A. 2d, at 228, 230-231, on our decision in Ownbey v. Morgan, 256 U.S. 94
(1921), and references to that decision in North Georgia Finishing, Inc. v. Di-Chem, Inc., 419
U.S. 601, 610 (1975) (POWELL, J., concurring in judgment); Calero-Toledo v. Pearson Yacht
Leasing Co., 416 U.S. 663, 679 n. 14 (1974); Mitchell v. W. T. Grant Co., 416 U.S. 600, 613
(1974); Fuentes v. Shevin, 407 U.S. 67, 91 n. 23 (1972); Sniadach v. Family Finance Corp.,
supra, at 339. The only question before the Court in Ownbey was the constitutionality of a
requirement that a defendant whose property has been attached file a bond before entering an
appearance. We do not read the recent references to Ownbey as necessarily suggesting that
Ownbey is consistent with more recent decisions interpreting the Due Process Clause.
Sequestration is the equity counterpart of the process of foreign attachment in suits at law
considered in Ownbey. Delaware's sequestration statute was modeled after its attachment statute.
See Sands v. Lefcourt Realty Corp., 35 Del. Ch. 340, 344-345, 117 A. 2d 365, 367 (Sup. Ct.
1955); Folk & Moyer, Sequestration in Delaware: A Constitutional Analysis, 73 Colum. L. Rev.
749, 751-754 (1973).
118 The District Court judgment in U.S. Industries was reversed by the Court of Appeals for the
Third Circuit. 540 F.2d 142 (1976), cert. pending, No. 76-359. The Court of Appeals
characterized the passage from the Delaware Supreme Court's opinion quoted in text as "cryptic
conclusions." Id., at 149.
172
"We hold that seizure of the Greyhound shares is not invalid because
plaintiff has failed to meet the prior contacts tests of International Shoe."
We noted probable jurisdiction. 429 U.S. 813. 119 We reverse.
II
The Delaware courts rejected appellants' jurisdictional challenge by noting that
this suit was brought as a quasi in rem proceeding. Since quasi in rem jurisdiction is
traditionally based on attachment or seizure of property present in the jurisdiction,
not on contacts between the defendant and the State, the courts considered appellants'
claimed lack of contacts with Delaware to be unimportant. This categorical analysis
assumes the continued soundness of the conceptual structure founded on the centuryold case of Pennoyer v. Neff, 95 U. S. 714 (1878).
Pennoyer was an ejectment action brought in federal court under the diversity
jurisdiction. Pennoyer, the defendant in that action, held the land under a deed
purchased in a sheriff's sale conducted to realize on a judgment for attorney's fees
obtained against Neff in a previous action by one Mitchell. At the time of Mitchell's
suit in an Oregon State court, Neff was a nonresident of Oregon. An Oregon statute
allowed service by publication on nonresidents who had property in the State,120 and
Mitchell had used that procedure to bring Neff before the court. The United States
Circuit Court for the District of Oregon, in which Neff brought his ejectment action,
119 Under Delaware law, defendants whose property has been sequestered must enter a general
appearance, thus subjecting themselves to in personam liability, before they can defend on the
merits. See Greyhound Corp. v. Heitner, 361 A. 2d 225, 235-236 (1976). Thus, if the judgment
below were considered not to be an appealable final judgment, 28 U. S. C. § 1257 (2), appellants
would have the choice of suffering a default judgment or entering a general appearance and
defending on the merits. This case is in the same posture as was Cox Broadcasting Corp. v.
Cohn, 420 U. S. 469, 485 (1975):
"The [Delaware] Supreme Court's judgment is plainly final on the federal issue and is not subject
to further review in the state courts. Appellants will be liable for damages if the elements of the
state cause of action are proved. They may prevail at trial on nonfederal grounds, it is true, but if
the [Delaware] court erroneously upheld the statute, there should be no trial at all."
Accordingly, "consistent with the pragmatic approach that we have followed in the past in
determining finality," Id., at 486, we conclude that the judgment below is final within the
meaning of § 1257.
120 The statute also required that a copy of the summons and complaint be mailed to the defendant if
his place of residence was known to the plaintiff or could be determined with reasonable
diligence. 95 U. S., at 718. Mitchell had averred that he did not know and could not determine
Neff's address, so that the publication was the only "notice" given. Id., at 717.
173
refused to recognize the validity of the judgment against Neff in Mitchell's suit, and
accordingly awarded the land to Neff.121 This Court affirmed.
Mr. Justice Field's opinion for the Court focused on the territorial limits of the
States' judicial powers. Although recognizing that the States are not truly
independent sovereigns, Mr. Justice Field found that their jurisdiction was defined by
the "principles of public law" that regulate the relationships among independent
nations. The first of those principles was "that every State possesses exclusive
jurisdiction and sovereignty over persons and property within its territory." The
second was "that no State can exercise direct jurisdiction and authority over persons
or property without its territory." Id., at 722. Thus, "in virtue of the State's
jurisdiction over the property of the non-resident situated within its limits," the state
courts "can inquire into that non-resident's obligations to its own citizens... to the
extent necessary to control the disposition of the property." Id., at 723. The Court
recognized that if the conclusions of that inquiry were adverse to the nonresident
property owner, his interest in the property would be affected. Ibid. Similarly, if the
defendant consented to the jurisdiction of the state courts or was personally served
within the State, a judgment could affect his interest in property outside the State.
But any attempt "directly" to assert extraterritorial jurisdiction over persons or
property would offend sister States and exceed the inherent limits of the State's
power. A judgment resulting from such an attempt, Mr. Justice Field concluded,
was not only unenforceable in other States,122 but was also void in the rendering
State because it had been obtained in violation of the Due Process Clause of the
Fourteenth Amendment. Id., at 732-733. See also, e.g., Freeman v. Alderson, 119
U.S. 185, 187-188 (1886).
This analysis led to the conclusion that Mitchell's judgment against Neff could
not be validly based on the State's power over persons within its borders, because
Neff had not been personally served in Oregon, nor had he consensually appeared
before the Oregon court. The Court reasoned that even if Neff had received personal
notice of the action, service of process outside the State would have been ineffectual
since the State's power was limited by its territorial boundaries. Moreover, the Court
held, the action could not be sustained on the basis of the State's power over property
within its borders because that property had not been brought before the court by
121 The Federal Circuit Court based its ruling on defects in Mitchell's affidavit in support of the order
for service by publication and in the affidavit by which publication was proved. Id., at 720. Mr.
Justice Field indicated that if this Court had confined itself to considering those rulings, the
judgment would have been reversed. Id., at 721.
122 The doctrine that one State does not have to recognize the judgment of another State's courts if
the latter did not have jurisdiction was firmly established at the time of Pennoyer. See, e.g.,
D'Arcy v. Ketchum, 11 How. 165 (1851); Boswell's Lessee v. Otis, 9 How. 336 (1850); Kibbe v.
Kibbe, 1 Kirby 119 (Conn. Super. Ct. 1786).
174
attachment or any other procedure prior to judgment.123 Since the judgment which
authorized the sheriff's sale was therefore invalid, the sale transferred no title. Neff
regained his land.
From our perspective, the importance of Pennoyer is not its result, but the fact
that its principles and corollaries derived from them became the basic elements of the
constitutional doctrine governing state-court jurisdiction. See, e.g., Hazard, A
General Theory of State-Court Jurisdiction, 1965 Sup. Ct. Rev. 241 (hereafter
Hazard). As we have noted, under Pennoyer state authority to adjudicate was based
on the jurisdiction's power over either persons or property. This fundamental
concept is embodied in the very vocabulary which we use to describe judgments. If
a court's jurisdiction is based on its authority over the defendant's person, the action
and judgment are denominated "in personam" and can impose a personal obligation
on the defendant in favor of the plaintiff. If jurisdiction is based on the court's power
over property within its territory, the action is called "in rem" or "quasi in rem." The
effect of a judgment in such a case is limited to the property that supports jurisdiction
and does not impose a personal liability on the property owner, since he is not before
the court.124 In Pennoyer's terms, the owner is affected only "indirectly" by an in
rem judgment adverse to his interest in the property subject to the court's disposition.
By concluding that "[t]he authority of every tribunal is necessarily restricted
by the territorial limits of the State in which it is established," 95 U. S., at 720,
Pennoyer sharply limited the availability of in personam jurisdiction over defendants
not resident in the forum State. If a nonresident defendant could not be found in a
State, he could not be sued there. On the other hand, since the State in which
property was located was considered to have exclusive sovereignty over that
property, in rem actions could proceed regardless of the owner's location. Indeed,
since a State's process could not reach beyond its borders, this Court held after
Pennoyer that due process did not require any effort to give a property owner
123 Attachment was considered essential to the state court's jurisdiction for two reasons.
First,
attachment combined with substituted service would provide greater assurance that the defendant
would actually receive notice of the action than would publication alone. Second, since the
court's jurisdiction depended on the defendant's ownership of property in the State and could be
defeated if the defendant disposed of that property, attachment was necessary to assure that the
court had jurisdiction when the proceedings began and continued to have jurisdiction when it
entered judgment. 95 U. S., at 727-728.
124 "A judgment in rem affects the interests of all persons in designated property. A judgment quasi
in rem affects the interests of particular persons in designated property. The latter is of two
types. In one the plaintiff is seeking to secure a pre-existing claim in the subject property and to
extinguish or establish the nonexistence of similar interests of particular persons. In the other the
plaintiff seeks to apply what he concedes to be the property of the defendant to the satisfaction of
a claim against him. Restatement, Judgments, 5-9." Hanson v. Denckla, 357 U. S. 235, 246 n. 12
(1958). As did the Court in Hanson, we will for convenience generally use the term "in rem" in
place of "in rem and quasi in rem."
175
personal notice that his property was involved in an in rem proceeding. See, e.g.,
Ballard v. Hunter, 204 U. S. 241 (1907); Arndt v. Griggs, 134 U.S. 316 (1890);
Huling v. Kaw Valley R. Co., 130 U.S. 559 (1889).
The Pennoyer rules generally favored nonresident defendants by making them
harder to sue. This advantage was reduced, however, by the ability of a resident
plaintiff to satisfy a claim against a nonresident defendant by bringing into court any
property of the defendant located in the plaintiff's State. See, e.g., Zammit, Quasi-InRem Jurisdiction: Outmoded and Unconstitutional?, 49 St. John's L. Rev. 668, 670
(1975). For example, in the well-known case of Harris v. Balk, 198 U. S. 215
(1905), Epstein, a resident of Maryland, had a claim against Balk, a resident of North
Carolina. Harris, another North Carolina resident, owed money to Balk. When
Harris happened to visit Maryland, Epstein garnished his debt to Balk. Harris did not
contest the debt to Balk and paid it to Epstein's North Carolina attorney. When Balk
later sued Harris in North Carolina, this Court held that the Full Faith and Credit
Clause, U. S. Const., Art. IV, § 1, required that Harris' payment to Epstein be treated
as a discharge of his debt to Balk. This Court reasoned that the debt Harris owed
Balk was an intangible form of property belonging to Balk, and that the location of
that property traveled with the debtor. By obtaining personal jurisdiction over
Harris, Epstein had "arrested" his debt to Balk, 198 U. S., at 223, and brought it into
the Maryland court. Under the structure established by Pennoyer, Epstein was then
entitled to proceed against that debt to vindicate his claim against Balk, even though
Balk himself was not subject to the jurisdiction of a Maryland tribunal.125 See also,
e.g., Louisville & N.R. Co. v. Deer, 200 U. S. 176 (1906); Steele v. G. D. Searle &
Co., 483 F.2d 339 (CA5 1973), cert. denied, 415 U. S. 958 (1974).
125 The Court in Harris limited its holding to States in which the principal defendant (Balk) could
have sued the garnishee (Harris) if he had obtained personal jurisdiction over the garnishee in
that State. 198 U. S., at 222-223, 226. The Court explained:
"The importance of the fact of the right of the original creditor to sue his debtor in the
foreign State, as affecting the right of the creditor of that creditor to sue the debtor or garnishee,
lies in the nature of the attachment proceeding. The plaintiff, in such proceeding in the foreign
State is able to sue out the attachment and attach the debt due from the garnishee to his (the
garnishee's) creditor, because of the fact that the plaintiff is really in such proceeding a
representative of the creditor of the garnishee, and therefore if such creditor himself had the right
to commence suit to recover the debt in the foreign State his representative has the same right, as
representing him, and may garnish or attach the debt, provided the municipal law of the State
where the attachment was sued out permits it." Id., at 226.
The problem with this reasoning is that unless the plaintiff has obtained a judgment
establishing his claim against the principal defendant, see, e.g., Baltimore & O. R. Co. v.
Hostetter, 240 U. S. 620 (1916), his right to "represent" the principal defendant in an action
against the garnishee is at issue. See Beale, The Exercise of Jurisdiction in Rem to Compel
Payment of a Debt, 27 Harv. L. Rev. 107, 118-120 (1913).
176
Pennoyer itself recognized that its rigid categories, even as blurred by the kind
of action typified by Harris, could not accommodate some necessary litigation.
Accordingly, Mr. Justice Field's opinion carefully noted that cases involving the
personal status of the plaintiff, such as divorce actions, could be adjudicated in the
plaintiff's home State even though the defendant could not be served within that
State. 95 U. S., at 733-735. Similarly, the opinion approved the practice of
considering a foreign corporation doing business in a State to have consented to
being sued in that State. Id., at 735-736; see Lafayette Ins. Co. v. French, 18 How.
404 (1856). This basis for in personam jurisdiction over foreign corporations was
later supplemented by the doctrine that a corporation doing business in a State could
be deemed "present" in the State, and so subject to service of process under the rule
of Pennoyer. See, e.g., International Harvester Co. v. Kentucky, 234 U. S. 579
(1914); Philadelphia & Reading R. Co. v. McKibbin, 243 U. S. 264 (1917). See
generally Note, Developments in the Law, State-Court Jurisdiction, 73 Harv. L. Rev.
909, 919-923 (1960) (hereafter Developments).
The advent of automobiles, with the concomitant increase in the incidence of
individuals causing injury in States where they were not subject to in personam
actions under Pennoyer, required further moderation of the territorial limits on
jurisdictional power. This modification, like the accommodation to the realities of
interstate corporate activities, was accomplished by use of a legal fiction that left the
conceptual structure established in Pennoyer theoretically unaltered. Cf. Olberding
v. Illinois Central R. Co., 346 U. S. 338, 340-341 (1953). The fiction used was that
the out-of-state motorist, who it was assumed could be excluded altogether from the
State's highways, had by using those highways appointed a designated state official
as his agent to accept process. See Hess v. Pawloski, 274 U.S. 352 (1927). Since the
motorist's "agent" could be personally served within the State, the state courts could
obtain in personam jurisdiction over the nonresident driver.
The motorists' consent theory was easy to administer since it required only a
finding that the out-of-state driver had used the State's roads. By contrast, both the
fictions of implied consent to service on the part of a foreign corporation and of
corporate presence required a finding that the corporation was "doing business" in
the forum State. Defining the criteria for making that finding and deciding whether
they were met absorbed much judicial energy. See, e.g., International Shoe Co. v.
Washington, 326 U. S., at 317-319. While the essentially quantitative tests which
emerged from these cases purported simply to identify circumstances under which
presence or consent could be attributed to the corporation, it became clear that they
were in fact attempting to ascertain "what dealings make it just to subject a foreign
corporation to local suit." Hutchinson v. Chase & Gilbert, 45 F.2d 139, 141 (CA2
1930) (L. Hand, J.). In International Shoe, we acknowledged that fact.
The question in International Shoe was whether the corporation was subject to
the judicial and taxing jurisdiction of Washington. Mr. Chief Justice Stone's opinion
for the Court began its analysis of that question by noting that the historical basis of
in personam jurisdiction was a court's power over the defendant's person. That
power, however, was no longer the central concern:
177
"But now that the capias ad respondendum has given way to personal
service of summons or other form of notice, due process requires only
that in order to subject a defendant to a judgment in personam, if he be
not present within the territory of the forum, he have certain minimum
contacts with it such that the maintenance of the suit does not offend
'traditional notions of fair play and substantial justice.' Milliken v. Meyer,
311 U.S. 457, 463." 326 U.S., at 316.I
Thus, the inquiry into the State's jurisdiction over a foreign corporation
appropriately focused not on whether the corporation was "present" but on whether
there have been such contacts of the corporation with the state of the forum as make
it reasonable, in the context of our federal system of government, to require the
corporation to defend the particular suit which is brought there." Id., at 317.I
Mechanical or quantitative evaluations of the defendant's activities in the forum
could not resolve the question of reasonableness: S
"Whether due process is satisfied must depend rather upon the quality
and nature of the activity in relation to the fair and orderly administration
of the laws which it was the purpose of the due process clause to insure.
That clause does not contemplate that a state may make binding a
judgment in personam against an individual or corporate defendant with
which the state has no contacts, ties, or relations." Id., at 319.I 126
Thus, the relationship among the defendant, the forum, and the litigation, rather
than the mutually exclusive sovereignty of the States on which the rules of Pennoyer
rest, became the central concern of the inquiry into personal jurisdiction.127 The
immediate effect of this departure from Pennoyer's conceptual apparatus was to
increase the ability of the state courts to obtain personal jurisdiction over nonresident
defendants. See, e.g., Green, Jurisdictional Reform in California, 21 Hastings L. J.
1219, 1231-1233 (1970); Currie, The Growth of the Long Arm: Eight Years of
Extended Jurisdiction in Illinois, 1963 U. Ill. L. F. 533; Developments 1000-1008.
126 As the language quoted indicates, the International Shoe Court believed that the standard it was
setting forth governed actions against natural persons as well as corporations, and we see no
reason to disagree. See also McGee v. International Life Ins. Co., 355 U. S. 220, 222 (1957)
(International Shoe culmination of trend toward expanding state jurisdiction over "foreign
corporations and other nonresidents"). The differences between individuals and corporations
may, of course, lead to the conclusion that a given set of circumstances establishes state
jurisdiction over one type of defendant but not over the other.
127 Nothing in Hanson v. Denckla, 357 U. S. 235 (1958), is to the contrary. The Hanson Court's
statement that restrictions on state jurisdiction "are a consequence of territorial limitations on the
power of the respective States," id., at 251, simply makes the point that the States are defined by
their geographical territory. After making this point, the Court in Hanson determined that the
defendant over which personal jurisdiction was claimed had not committed any acts sufficiently
connected to the State to justify jurisdiction under the International Shoe standard.
178
No equally dramatic change has occurred in the law governing jurisdiction in
rem. There have, however, been intimations that the collapse of the in personam
wing of Pennoyer has not left that decision unweakened as a foundation for in rem
jurisdiction. Well-reasoned lower court opinions have questioned the proposition
that the presence of property in a State gives that State jurisdiction to adjudicate
rights to the property regardless of the relationship of the underlying dispute and the
property owner to the forum. See, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d 142
(CA3 1976), cert. pending, No. 76-359; Jonnet v. Dollar Savings Bank, 530 F.2d
1123, 1130-1143 (CA3 1976) (Gibbons, J., concurring); Camire v. Scieszka, 116
N.H. 281, 358 A. 2d 397 (1976); Bekins v. Huish, 1 Ariz. App. 258, 401 P. 2d 743
(1965); Atkinson v. Superior Court, 49 Cal. 2d 338, 316 P. 2d 960 (1957), appeal
dismissed and cert. denied sub nom. Columbia Broadcasting System v. Atkinson, 357
U. S. 569 (1958). The overwhelming majority of commentators have also rejected
Pennoyer's premise that a proceeding "against" property is not a proceeding against
the owners of that property. Accordingly, they urge that the "traditional notions of
fair play and substantial justice" that govern a State's power to adjudicate in
personam should also govern its power to adjudicate personal rights to property
located in the State. See, e.g., Von Mehren & Trautman, Jurisdiction to Adjudicate:
A Suggested Analysis, 79 Harv. L. Rev. 1121 (1966) (hereafter Von Mehren &
Trautman); Traynor, Is This Conflict Really Necessary?, 37 Texas L. Rev. 657
(1959) (hereafter Traynor); Ehrenzweig, The Transient Rule of Personal Jurisdiction:
The "Power" Myth and Forum Conveniens, 65 Yale L. J. 289 (1956); Developments;
Hazard.
Although this Court has not addressed this argument directly, we have held that
property cannot be subjected to a court's judgment unless reasonable and appropriate
efforts have been made to give the property owners actual notice of the action.
Schroeder v. City of New York, 371 U.S. 208 (1962); Walker v. City of Hutchinson,
352 U.S. 112 (1956); Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306
(1950). This conclusion recognizes, contrary to Pennoyer, that an adverse judgment
in rem directly affects the property owner by divesting him of his rights in the
property before the court. Schroeder v. City of New York, supra, at 213; cf.
Continental Grain Co. v. Barge FBL-585, 364 U. S. 19 (1960) (separate actions
against barge and barge owner are one "civil action" for purpose of transfer under 28
U.S.C. 1404(a)). Moreover, in Mullane we held that Fourteenth Amendment rights
cannot depend on the classification of an action as in rem or in personam, since that
is
"a classification for which the standards are so elusive and confused
generally and which, being primarily for state courts to define, may and
do vary from state to state." 339 U.S., at 312.
It is clear, therefore, that the law of state-court jurisdiction no longer stands
securely on the foundation established in Pennoyer.128 We think that the time is ripe
128 Cf. Restatement (Second) of Conflict of Laws § 59, Comment a (possible inconsistency between
principle of reasonableness which underlies field of judicial jurisdiction and traditional rule of in
179
to consider whether the standard of fairness and substantial justice set forth in
International Shoe should be held to govern actions n rem as well as in personam.
III.
The case for applying to jurisdiction in rem the same test of "fair play and
substantial justice" as governs assertions of jurisdiction in personam is simple and
straightforward. It is premised on recognition that "[t]he phrase, 'judicial jurisdiction
over a thing,' is a customary elliptical way of referring to jurisdiction over the
interests of persons in a thing." Restatement (Second) of Conflict of Laws § 56,
Introductory Note (1971) (hereafter Restatement). 129 This recognition leads to the
conclusion that in order to justify an exercise of jurisdiction in rem, the basis for
jurisdiction must be sufficient to justify exercising "jurisdiction over the interests of
persons in a thing."130 The standard for determining whether an exercise of
jurisdiction over the interests of persons is consistent with the Due Process Clause is
the minimum-contacts standard elucidated in International Shoe.
This argument, of course, does not ignore the fact that the presence of property
in a State may bear on the existence of jurisdiction by providing contacts among the
forum State, the defendant, and the litigation. For example, when claims to the
property itself are the source of the underlying controversy between the plaintiff and
the defendant,131 it would be unusual for the State where the property is located not
to have jurisdiction. In such cases, the defendant's claim to property located in the
State would normally132 indicate that he expected to benefit from the State's
protection of his interest.133 The State's strong interests in assuring the marketability
rem jurisdiction based solely on land in State); § 60, Comment a (same as to jurisdiction based
solely on chattel in State); § 68, Comment c (rule of Harris v. Balk "might be thought
inconsistent with the basic principle of reasonableness") (1971).
129 "All proceedings, like all rights, are really against persons. Whether they are proceedings or
rights in rem depends on the number of persons affected." Tyler v. Court of Registration, 175
Mass. 71, 76, 55 N. E. 812, 814 (Holmes, C.J.), appeal dismissed, 179 U. S. 405 (1900).
130 It is true that the potential liability of a defendant in an in rem action is limited by the value of the
property, but that limitation does not affect the argument. The fairness of subjecting a defendant
to state-court jurisdiction does not depend on the size of the claim being litigated.Cf. Fuentes v.
Shevin, 407 U. S., at 88-90; n. 32, infra.
131 This category includes true in rem actions and the first type of quasi in rem proceedings. See n.
17, supra.
132 In some circumstances the presence of property in the forum State will not support the inference
suggested in text. Cf., e.g., Restatement § 60, Comments c, d; Traynor 672-673; Note, The
Power of a State to Affect Title in a Chattel Atypically Removed to It, 47 Colum. L. Rev. 767
(1947).
133 Cf. Hanson v. Denckla, 357 U. S., at 253.
180
of property within its borders134 and in providing a procedure for peaceful resolution
of disputes about the possession of that property would also support jurisdiction, as
would the likelihood that important records and witnesses will be found in the
State.135 The presence of property may also favor jurisdiction in cases, such as suits
for injury suffered on the land of an absentee owner, where the defendant's
ownership of the property is conceded but the cause of action is otherwise related to
rights and duties growing out of that ownership.136
It appears, therefore, that jurisdiction over many types of actions which now
are or might be brought in rem would not be affected by a holding that any assertion
of state-court jurisdiction must satisfy the International Shoe standard.137 For the
type of quasi in rem action typified by Harris v. Balk and the present case, however,
accepting the proposed analysis would result in significant change. These are cases
where the property which now serves as the basis for state-court jurisdiction is
completely unrelated to the plaintiff's cause of action. Thus, although the presence of
the defendant's property in a State might suggest the existence of other ties among
the defendant, the State, and the litigation, the presence of the property alone would
not support the State's jurisdiction. If those other ties did not exist, cases over which
the State is now thought to have jurisdiction could not be brought in that forum.
Since acceptance of the International Shoe test would most affect this class of
cases, we examine the arguments against adopting that standard as they relate to this
category of litigation. 138 Before doing so, however, we note that this type of case
also presents the clearest illustration of the argument in favor of assessing assertions
of jurisdiction by a single standard. For in cases such as Harris and this one, the only
role played by the property is to provide the basis for bringing the defendant into
134 See, e.g., Tyler v. Court of Registration, supra.
135 We do not suggest that these illustrations include all the factors that may affect the decision, nor
that the factors we have mentioned are necessarily decisive.
136 Cf. Dubin v. Philadelphia, 34 Pa. D. & C. 61 (1938). If such an action were brought under the in
rem jurisdiction rather than under a long-arm statute, it would be a quasi in rem action of the
second type. See n. 17, supra.
137 Cf. Smit, The Enduring Utility of In Rem Rules: A Lasting Legacy of Pennoyer v. Neff, 43
Brooklyn L. Rev. 600 (1977). We do not suggest that jurisdictional doctrines other than those
discussed in text, such as the particularized rules governing adjudications of status, are
inconsistent with the standard of fairness. See, e.g., Traynor 660-661.
138 Concentrating on this category of cases is also appropriate because in the other categories, to the
extent that presence of property in the State indicates the existence of sufficient contacts under
International Shoe, there is no need to rely on the property as justifying jurisdiction regardless of
the existence of those contacts.
181
court. 139 Indeed, the express purpose of the Delaware sequestration procedure is to
compel the defendant to enter a personal appearance. 140 In such cases, if a direct
assertion of personal jurisdiction over the defendant would violate the Constitution, it
would seem that an indirect assertion of that jurisdiction should be equally
impermissible.
The primary rationale for treating the presence of property as a sufficient basis
for jurisdiction to adjudicate claims over which the State would not have jurisdiction
if International Shoe applied is that a wrongdoer S
"should not be able to avoid payment of his obligations by the
expedient of removing his assets to a place where he is not subject to an
in personam suit." Restatement § 66, Comment a.I
Accord, Developments 955. This justification, however, does not explain why
jurisdiction should be recognized without regard to whether the property is present in
the State because of an effort to avoid the owner's obligations. Nor does it support
jurisdiction to adjudicate the underlying claim. At most, it suggests that a State in
which property is located should have jurisdiction to attach that property, by use of
proper procedures,141 as security for a judgment being sought in a forum where the
litigation can be maintained consistently with International Shoe. See, e.g., Von
Mehren & Trautman 1178; Hazard 284-285; Beale, supra, n.18, at 123-124.
Moreover, we know of nothing to justify the assumption that a debtor can avoid
paying his obligations by removing his property to a State in which his creditor
cannot obtain personal jurisdiction over him.142 The Full Faith and Credit Clause,
after all, makes the valid in personam judgment of one State enforceable in all other
States.143
139 The value of the property seized does serve to limit the extent of possible liability, but that
limitation does not provide support for the assertion of jurisdiction. See n. 23, supra. In this case,
appellants' potential liability under the in rem jurisdiction exceeds $1 million. See nn. 7, 8, supra.
140 See supra, at 193, 194. This purpose is emphasized by Delaware's refusal to allow any defense
on the merits unless the defendant enters a general appearance, thus submitting to full in
personam liability. See n. 12, supra.
141 See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U. S. 601 (1975); Mitchell v. W. T.
Grant Co., 416 U. S. 600 (1974); Fuentes v. Shevin, 407 U.S. 67 (1972); Sniadach v. Family
Finance Corp., 395 U. S. 337 (1969).
142 The role of in rem jurisdiction as a means of preventing the evasion of obligations, like the
usefulness of that jurisdiction to mitigate the limitations Pennoyer placed on in personam
jurisdiction, may once have been more significant. Von Mehren & Trautman 1178.
143 Once it has been determined by a court of competent jurisdiction that the defendant is a debtor of
the plaintiff, there would seem to be no unfairness in allowing an action to realize on that debt in
a State where the defendant has property, whether or not that State would have jurisdiction to
determine the existence of the debt as an original matter. Cf. n. 18, supra.
182
It might also be suggested that allowing in rem jurisdiction avoids the
uncertainty inherent in the International Shoe standard and assures a plaintiff of a
forum.144 See Folk & Moyer, supra, n. 10, at 749, 767. We believe, however, that
the fairness standard of International Shoe can be easily applied in the vast majority
of cases. Moreover, when the existence of jurisdiction in a particular forum under
International Shoe is unclear, the cost of simplifying the litigation by avoiding the
jurisdictional question may be the sacrifice of "fair play and substantial justice." That
cost is too high.
We are left, then, to consider the significance of the long history of jurisdiction
based solely on the presence of property in a State. Although the theory that
territorial power is both essential to and sufficient for jurisdiction has been
undermined, we have never held that the presence of property in a State does not
automatically confer jurisdiction over the owner's interest in that property. 145 This
history must be considered as supporting the proposition that jurisdiction based
solely on the presence of property satisfies the demands of due process, cf. Ownbey
v. Morgan, 256 U. S. 94, 111 (1921), but it is not decisive. "[T]raditional notions of
fair play and substantial justice" can be as readily offended by the perpetuation of
144 This case does not raise, and we therefore do not consider, the question whether the presence of a
defendant's property in a State is a sufficient basis for jurisdiction when no other forum is
available to the plaintiff.
145 To the contrary, in Pennington v. Fourth Nat. Bank, 243 U. S. 269, 271 (1917), we said:
"The Fourteenth Amendment did not, in guaranteeing due process of law, abridge the
jurisdiction which a State possessed over property within its borders, regardless of the residence
or presence of the owner. That jurisdiction extends alike to tangible and to intangible property.
Indebtedness due from a resident to a non-resident - of which bank deposits are an example is
property within the State. Chicago, Rock Island & Pacific Ry. Co. v. Sturm, 174 U. S. 710. It is,
indeed, the species of property which courts of the several States have most frequently applied in
satisfaction of the obligations of absent debtors. Harris v. Balk, 198 U. S. 215. Substituted
service on a non-resident by publication furnishes no legal basis for a judgment in personam.
Pennoyer v. Neff, 95 U. S. 714. But garnishment or foreign attachment is a proceeding quasi in
rem. Freeman v. Alderson, 119 U. S. 185, 187. The thing belonging to the absent defendant is
seized and applied to the satisfaction of his obligation. The Federal Constitution presents no
obstacle to the full exercise of this power."
See also Huron Holding Corp. v. Lincoln Mine Operating Co., 312 U.S. 183, 193 (1941).
More recent decisions, however, contain no similar sweeping endorsements of jurisdiction
based on property. In Hanson v. Denckla, 357 U. S., at 246, we noted that a state court's in rem
jurisdiction is "[f]ounded on physical power" and that "[t]he basis of the jurisdiction is the
presence of the subject property within the territorial jurisdiction of the forum State." We found
in that case, however, that the property which was the basis for the assertion of in rem
jurisdiction was not present in the State. We therefore did not have to consider whether the
presence of property in the State was sufficient to justify jurisdiction. We also held that the
defendant did not have sufficient contact with the State to justify in personam jurisdiction.
183
ancient forms that are no longer justified as by the adoption of new procedures that
are inconsistent with the basic values of our constitutional heritage. Cf. Sniadach v.
Family Finance Corp., 395 U. S., at 340; Wolf v. Colorado, 338 U.S. 25, 27 (1949).
The fiction that an assertion of jurisdiction over property is anything but an assertion
of jurisdiction over the owner of the property supports an ancient form without
substantial modern justification. Its continued acceptance would serve only to allow
state-court jurisdiction that is fundamentally unfair to the defendant.
We therefore conclude that all assertions of state-court jurisdiction must be
evaluated according to the standards set forth in International Shoe and its
progeny.146
IV.
The Delaware courts based their assertion of jurisdiction in this case solely on
the statutory presence of appellants' property in Delaware. Yet that property is not
the subject matter of this litigation, nor is the underlying cause of action related to the
property. Appellants' holdings in Greyhound do not, therefore, provide contacts with
Delaware sufficient to support the jurisdiction of that State's courts over appellants.
If it exists, that jurisdiction must have some other foundation.147
Appellee Heitner did not allege and does not now claim that appellants have
ever set foot in Delaware. Nor does he identify any act related to his cause of action
as having taken place in Delaware. Nevertheless, he contends that appellants'
positions as directors and officers of a corporation chartered in Delaware148 provide
146 It would not be fruitful for us to re-examine the facts of cases decided on the rationales of
Pennoyer and Harris to determine whether jurisdiction might have been sustained under the
standard we adopt today. To the extent that prior decisions are inconsistent with this standard,
they are overruled.
147 Appellants argue that our determination that the minimum-contacts standard of International
Shoe governs jurisdiction here makes unnecessary any consideration of the existence of such
contacts. Brief for Appellants 27; Reply Brief for Appellants 9. They point out that they were
never personally served with a summons, that Delaware has no long-arm statute which would
authorize such service, and that the Delaware Supreme Court has authoritatively held that the
existence of contacts is irrelevant to jurisdiction under Del. Code Ann., Tit. 10, § 366 (1975). As
part of its sequestration order, however, the Court of Chancery directed its clerk to send each
appellant a copy of the summons and complaint by certified mail. The record indicates that those
mailings were made and contains return receipts from at least 19 of the appellants. None of the
appellants has suggested that he did not actually receive the summons which was directed to him
in compliance with a Delaware statute designed to provide jurisdiction over nonresidents. In
these circumstances, we will assume that the procedures followed would be sufficient to bring
appellants before the Delaware courts, if minimum contacts existed.
148 On the view we take of the case, we need not consider the significance, if any, of the fact that
some appellants hold positions only with a subsidiary of Greyhound which is incorporated in
California.
184
sufficient "contacts, ties, or relations," International Shoe Co. v. Washington, 326 U.
S., at 319, with that State to give its courts jurisdiction over appellants in this
stockholder's derivative action. This argument is based primarily on what Heitner
asserts to be the strong interest of Delaware in supervising the management of a
Delaware corporation. That interest is said to derive from the role of Delaware law
in establishing the corporation and defining the obligations owed to it by its officers
and directors. In order to protect this interest, appellee concludes, Delaware's courts
must have jurisdiction over corporate fiduciaries such as appellants.
This argument is undercut by the failure of the Delaware Legislature to assert
the state interest appellee finds so compelling. Delaware law bases jurisdiction, not
on appellants' status as corporate fiduciaries, but rather on the presence of their
property in the State. Although the sequestration procedure used here may be most
frequently used in derivative suits against officers and directors, Hughes Tool Co. v.
Fawcett Publications, Inc., 290 A. 2d 693, 695 (Del. Ch. 1972), the authorizing
statute evinces no specific concern with such actions. Sequestration can be used in
any suit against a nonresident,149 see, e.g., U.S. Industries, Inc. v. Gregg, 540 F.2d
142 (CA3 1976), cert. pending, No. 76-359 (breach of contract); Hughes Tool Co. v.
Fawcett Publications, Inc., supra (same), and reaches corporate fiduciaries only if
they happen to own interests in a Delaware corporation, or other property in the
State. But as Heitner's failure to secure jurisdiction over seven of the defendants
named in his complaint demonstrates, there is no necessary relationship between
holding a position as a corporate fiduciary and owning stock or other interests in the
corporation. 150 If Delaware perceived its interest in securing jurisdiction over
corporate fiduciaries to be as great as Heitner suggests, we would expect it to have
enacted a statute more clearly designed to protect that interest.
Moreover, even if Heitner's assessment of the importance of Delaware's
interest is accepted, his argument fails to demonstrate that Delaware is a fair forum
for this litigation. The interest appellee has identified may support the application of
Delaware law to resolve any controversy over appellants' actions in their capacities
as officers and directors. 151 But we have rejected the argument that if a State's law
can properly be applied to a dispute, its courts necessarily have jurisdiction over the
parties to that dispute. S
149 Sequestration is an equitable procedure available only in equity actions, but a similar procedure
may be utilized in actions at law. See n. 10, supra.
150 Delaware does not require directors to own stock. Del. Code Ann., Tit. 8, § 141 (b) (Supp.
1976).
151 In general, the law of the State of incorporation is held to govern the liabilities of officers or
directors to the corporation and its stockholders. See Restatement § 309. But see Cal. Corp.
Code § 2115 (West Supp. 1977). The rationale for the general rule appears to be based more on
the need for a uniform and certain standard to govern the internal affairs of a corporation than on
the perceived interest of the State of incorporation. Cf. Koster v. Lumbermens Mutual Casualty
Co., 330 U. S. 518, 527-528 (1947).
185
"[The State] does not acquire... jurisdiction by being the 'center of
gravity' of the controversy, or the most convenient location for litigation.
The issue is personal jurisdiction, not choice of law. It is resolved in this
case by considering the acts of the [appellants]." Hanson v. Denckla, 357
U. S. 235, 254 (1958).I152
Appellee suggests that by accepting positions as officers or directors of a
Delaware corporation, appellants performed the acts required by Hanson v. Denckla.
He notes that Delaware law provides substantial benefits to corporate officers and
directors,153 and that these benefits were at least in part the incentive for appellants
to assume their positions. It is, he says, "only fair and just" to require appellants, in
return for these benefits, to respond in the State of Delaware when they are accused
of misusing their power. Brief for Appellee 15.
But like Heitner's first argument, this line of reasoning establishes only that it is
appropriate for Delaware law to govern the obligations of appellants to Greyhound
and its stockholders. It does not demonstrate that appellants have "purposefully
avail[ed themselves] of the privilege of conducting activities within the forum State,"
Hanson v. Denckla, supra, at 253, in a way that would justify bringing them before a
Delaware tribunal. Appellants have simply had nothing to do with the State of
Delaware. Moreover, appellants had no reason to expect to be haled before a
Delaware court. Delaware, unlike some States,154 has not enacted a statute that
treats acceptance of a directorship as consent to jurisdiction in the State. And "[i]t
strains reason... to suggest that anyone buying securities in a corporation formed in
Delaware 'impliedly consents' to subject himself to Delaware's... jurisdiction on any
cause of action." Folk & Moyer, supra, n.10, at 785. Appellants, who were not
required to acquire interests in Greyhound in order to hold their positions, did not by
acquiring those interests surrender their right to be brought to judgment only in
States with which they had had "minimum contacts."
The Due Process Clause S
"does not contemplate that a state may make binding a judgment...
against an individual or corporate defendant with which the state has no
contacts, ties, or relations." International Shoe Co. v. Washington, 326 U.
S., at 319.I
Delaware's assertion of jurisdiction over appellants in this case is inconsistent
with that constitutional limitation on state power. The judgment of the Delaware
Supreme Court must, therefore, be reversed. It is so ordered.
152 Mr. Justice Black, although dissenting in Hanson, agreed with the majority that "the question
whether the law of a State can be applied to a transaction is different from the question whether
the courts of that State have jurisdiction to enter a judgment...." 357 U.S., at 258.
153 See, e.g., Del. Code Ann., Tit. 8, §§ 143, 145 (1975 ed. and Supp. 1976).
154 See, e.g., Conn. Gen. Stat. Rev. § 33-322 (1976); N. C. Gen. Stat. § 55-33 (1975); S.C. Code
Ann. § 33-5-70 (1977).
186
Volkswagen v. Woodson
444 U.S. 286, 100 S. Ct. 559 (1980)
White, J., delivered the opinion of the court.
The issue before us is whether, consistently with the Due Process Clause of the
Fourteenth Amendment, an Oklahoma court may exercise in personam jurisdiction
over a nonresident automobile retailer and its wholesale distributor in a productsliability action, when the defendants' only connection with Oklahoma is the fact that
an automobile sold in New York to New York residents became involved in an
accident in Oklahoma.
I.
Respondents Harry and Kay Robinson purchased a new Audi automobile from
petitioner Seaway Volkswagen, Inc. (Seaway), in Massena, N.Y., in 1976. The
following year the Robinson family, who resided in New York, left that State for a
new home in Arizona. As they passed through the State of Oklahoma, another car
struck their Audi in the rear, causing a fire which severely burned Kay Robinson and
her two children.155
The Robinsons156 subsequently brought a products-liability action in the
District Court for Creek County, Okla., claiming that their injuries resulted from
defective design and placement of the Audi's gas tank and fuel system. They joined
as defendants the automobile's manufacturer, Audi NSU Auto Union
Aktiengesellschaft (Audi); its importer, Volkswagen of America, Inc. (Volkswagen);
its regional distributor, petitioner World-Wide Volkswagen Corp. (World-Wide);
and its retail dealer, petitioner Seaway. Seaway and World-Wide entered special
appearances,157 claiming that Oklahoma's exercise of jurisdiction over them would
offend the limitations on the State's jurisdiction imposed by the Due process Clause
of the Fourteenth Amendment. 158
The facts presented to the District Court showed that World-Wide is
incorporated and has its business office in New York. It distributes vehicles, parts,
155 The driver of the other automobile does not figure in the present litigation.
156 Kay Robinson sued on her own behalf. The two children sued through Harry Robinson as their
father and next friend.
157 Volkswagen also entered a special appearance in the District Court, but unlike World-Wide and
Seaway did not seek review in the Supreme Court of Oklahoma and is not a petitioner here. Both
Volkswagen and Audi remain as defendants in the litigation pending before the District Court in
Oklahoma.
158 The papers filed by the petitioners also claimed that the District Court lacked "venue of the
subject matter," App. 9, or "venue over the subject matter," Id., at 11.
187
and accessories, under contract with Volkswagen, to retail dealers in New York,
New Jersey, and Connecticut. Seaway, one of these retail dealers, is incorporated
and has its place of business in New York. Insofar as the record reveals, Seaway and
World-Wide are fully independent corporations whose relations with each other and
with Volkswagen and Audi are contractual only. Respondents adduced no evidence
that either World-Wide or Seaway does any business in Oklahoma, ships or sells any
products to or in that State, has an agent to receive process there, or purchases
advertisements in any media calculated to reach Oklahoma. In fact, as respondents'
counsel conceded at oral argument, Tr. of Oral Arg. 32, there was no showing that
any automobile sold by World-Wide or Seaway has ever entered Oklahoma with the
single exception of the vehicle involved in the present case.
Despite the apparent paucity of contacts between petitioners and Oklahoma,
the District Court rejected their constitutional claim and reaffirmed that ruling in
denying petitioners' motion for reconsideration159. Petitioners then sought a writ of
prohibition in the Supreme Court of Oklahoma to restrain the District Judge,
respondent Charles S. Woodson, from exercising in personam jurisdiction over them.
They renewed their contention that, because they had no "minimal contacts," App.
32, with the State of Oklahoma, the actions of the District Judge were in violation of
their rights under the Due Process Clause.
The Supreme Court of Oklahoma denied the writ, 585 P. 2d 351 (1978),160
holding that personal jurisdiction over petitioners was authorized by Oklahoma's
"long-arm" statute, Okla. Stat., Tit. 12, § 1701.03(a)(4) (1971).161 Although the
court noted that the proper approach was to test jurisdiction against both statutory
and constitutional standards, its analysis did not distinguish these questions, probably
because § 1701.03(a)(4) has been interpreted as conferring jurisdiction to the limits
159 The District Court's rulings are unreported, and appear at App. 13 and 20.
160 Five judges joined in the opinion.
Two concurred in the result, without opinion, and one
concurred in part and dissented in part, also without opinion.
161 This subsection provides:
"A court may exercise personal jurisdiction over a person, who acts directly or by an agent,
as to a cause of action or claim for relief arising from the person's... causing tortious injury in this
state by an act or omission outside this state of he regularly does or solicits business or engages
in any other persistent course of conduct, or derives substantial revenue from goods used or
consumed or services rendered, in this state...."
The State Supreme Court rejected jurisdiction based on § 1701.03(a)(3), which authorizes
jurisdiction over any person "causing tortious injury in this state by an act or omission in this
state." Something in addition to the infliction of tortious injury was required.
188
permitted by the United States Constitution. 162 The court's rationale was contained
in the following paragraph, 585 P.2d, at 354:
"In the case before us, the product being sold and distributed by the
petitioners is by its very design and purpose so mobile that petitioners
can foresee its possible use in Oklahoma. This is especially true of the
distributor, who has the exclusive right to distribute such automobile in
New York, New Jersey and Connecticut. The evidence presented below
demonstrated that goods sold and distributed by the petitioners were used
in the State of Oklahoma, and under the facts we believe it reasonable to
infer, given the retail value of the automobile, that the petitioners derive
substantial income from automobiles which from time to time are used in
the State of Oklahoma. This being the case, we hold that under the facts
presented, the trial court was justified in concluding that the petitioners
derive substantial revenue from goods used or consumed in this State."
We granted certiorari, 440 U.S. 907 (1979), to consider an important
constitutional question with respect to state-court jurisdiction and to resolve a
conflict between the Supreme Court of Oklahoma and the highest courts of at least
four other States. 163 We reverse.
II.
The Due Process Clause of the Fourteenth Amendment limits the power of a
state court to render a valid personal judgment against a nonresident defendant.
Kulko v. California Superior Court, 436 U.S. 84, 91 (1978). A judgment rendered in
violation of due process is void in the rendering State and is not entitled to full faith
and credit elsewhere. Pennoyer v. Neff, 95 U.S. 714, 732-733 (1878). Due process
requires that the defendant be given adequate notice of the suit, Mullanev. Central
Hanover Trust Co., 339 U.S. 306, 313-314 (1950), and be subject to the personal
jurisdiction of the court, International Shoe Co. v. Washington, 326 U.S. 310 (1945).
In the present case, it is not contended that notice was inadequate; the only question
is whether these particular petitioners were subject to the jurisdiction of the
Oklahoma courts.
As has long been settled, and as we reaffirm today, a state court may exercise
personal jurisdiction over a nonresident defendant only so long as there exist
"minimum contacts" between the defendant and the forum State. International Shoe
Co. v. Washington, supra, at 316. The concept of minimum contacts, in turn, can be
162 Fields v. Volkswagen of America, Inc., 555 P. 2d 48 (Okla. 1976); Carmack v. Chemical Bank
New York Trust Co., 536 P. 2d 897 (Okla. 1975); Hines v. Clendenning, 465 P. 2d 460 (Okla.
1970).
163 Cf. Tilley v. Keller Truck & Implement Corp., 200 Kan. 641, 438 P. 2d 128 (1968); Granite
States Volkswagen, Inc. v. District Court, 177 Colo. 42, 492 P. 2d 624 (1972); Pellegrini v. Sachs
& Sons, 522 P. 2d 704 (Utah 1974); Oliver v. American Motors Corp., 70 Wash. 2d 875, 425 P.
2d 647 (1967).
189
seen to perform two related, but distinguishable, functions. It protects the defendant
against the burdens of litigating in a distant or inconvenient forum. And it acts to
ensure that the States, through their courts, do not reach out beyond the limits
imposed on them by their status as coequal sovereigns in a federal system.
The protection against inconvenient litigation is typically described in terms of
"reasonableness" or "fairness." We have said that the defendant's contacts with the
forum State must be such that maintenance of the suit "does not offend 'traditional
notions of fair play and substantial justice.'" International Shoe Co. v. Washington,
supra, at 316, quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940). The relationship
between the defendant and the forum must be such that it is "reasonable... to require
the corporation to defend the particular suit which is brought there." 326 U.S., at 317.
Implicit in this emphasis on reasonableness is the understanding that the burden on
the defendant, while always a primary concern, will in an appropriate case be
considered in light of other relevant factors, including the forum State's interest in
adjudicating the dispute, see McGee v. International interest in obtaining convenient
and effective relief, see Kulko v. California Superior Court, supra, at 92, at least
when that interest is not adequately protected by the plaintiff's power to choose the
forum, cf. Shaffer v. Heitner, 433 U.S. 186, 211, n. 37 (1977); the interstate judicial
system's interest in obtaining the most efficient resolution of controversies; and the
shared interest of the several States in furthering fundamental substantive social
policies, see Kulko v. California Superior Court, supra, at 93, 98.
The limits imposed on state jurisdiction by the Due Process Clause, in its role
as a guarantor against inconvenient litigation, have been substantially relaxed over
the years. As we noted in McGee v. International Life Ins. Co., supra, at 222-223,
this trend is largely attributable to a fundamental transformation in the American
economy:
"Today many commercial transactions touch two or more States and
may involve parties separated by the full continent. With this increasing
nationalization of commerce has come a great increase in the amount of
business conducted by mail across state lines. At the same time modern
transportation and communication have made it much less burdensome
for a party sued to defend himself in a State where he engages in
economic activity."
The historical developments noted in McGee, of course, have only accelerated in the
generation since that case was decided.
Nevertheless, we have never accepted the proposition that state lines are
irrelevant for jurisdictional purposes, nor could we, and remain faithful to the
principles of interstate federalism embodied in the Constitution. The economic
interdependence of the States was foreseen and desired by the Framers. In the
Commerce Clause, they provided that the Nation was to be a common market, a
"free trade unit" in which the States are debarred from acting as separable economic
entities. H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 538 (1949). But the
Framers also intended that the States retain many essential attributes of sovereignty,
190
including, in particular, the sovereign power to try causes in their courts. The
sovereignty of each State, in turn, implied a limitation on the sovereignty of all of its
sister States -- a limitation express or implicit in both the original scheme of the
Constitution and the Fourteenth Amendment.
Hence, even while abandoning the shibboleth that "[t]he authority of every
tribunal is necessarily restricted by the territorial limits of the State in which it is
established," Pennoyer v. Neff, supra, at 720, we emphasized that the reasonableness
of asserting jurisdiction over the defendant must be assessed "in the context of our
federal system of government," International Shoe Co. v. Washington, 326 U. S. at
317, and stressed that the Due Process Clause ensures not only fairness, but also the
"orderly administration of the laws," id., at 319. As we noted in Hanson v. Denckla,
357 U.S. 235, 250-251 (1958):
"As technological progress has increased the flow of commerce
between the States, the need for jurisdiction over nonresidents has
undergone a similar increase.
At the same time, progress in
communications and transportation has made the defense of a suit in a
foreign tribunal less burdensome. In response to these changes, the
requirements for personal jurisdiction over nonresidents have evolved
from the rigid rule of Pennoyer v. Neff, 95 U.S. 714, to the flexible
standard of International Shoe Co. v. Washington, 326 U.S. 310. But it is
a mistake to assume that this trend heralds the eventual demise of all
restrictions on the personal jurisdiction of state courts. [Citation
omitted.] Those restrictions are more than a guarantee of immunity from
inconvenient or distant litigation. They are a consequence of territorial
limitations on the power of the respective States."
Thus, the Due Process Clause "does not contemplate that a state may make
binding a judgment in personam against an individual or corporate defendant with
which the state has no contacts, ties, or relations." International Shoe Co. v.
Washington, 326 U.S., at 319. Even if the defendant would suffer minimal or no
inconvenience from being forced to litigate before the tribunals of another State;
even if the forum State has a strong interest in applying its law to the controversy;
even if the forum State is the most convenient location for litigation, the Due Process
Clause, acting as an instrument of interstate federalism, may sometimes act to divest
the State of its power to render a valid judgment. Hanson v. Denckla, supra, at 251,
254.
III.
Applying these principles to the case at hand,164 we find in the record before
us a total absence of those affiliating circumstances that are a necessary predicate to
164 Respondents argue, as a threshold matter, that petitioners waived any objections to personal
jurisdiction by (1) joining with their special appearances a challenge to the District Court's
subject-matter jurisdiction, see n. 4, supra, and (2) taking depositions on the merits of the case in
Oklahoma. The trial court, however, characterized the appearances as "special," and the
191
any exercise of state-court jurisdiction. Petitioners carry on no activity whatsoever in
Oklahoma. They close no sales and perform no services there. They avail
themselves of none of the privileges and benefits of Oklahoma law. They solicit no
business there either through salespersons or through advertising reasonably
calculated to reach the State. Nor does the record show that they regularly sell cars
at wholesale or retail to Oklahoma customers or residents or that they indirectly,
through others, serve or seek to serve the Oklahoma market. In short, respondents
seek to base jurisdiction on one, isolated occurrence and whatever inferences can be
drawn therefrom: the fortuitous circumstance that a single Audi automobile, sold in
New York to New York residents, happened to suffer an accident while passing
through Oklahoma.
It is argued, however, that because an automobile is mobile by its very design
and purpose it was "foreseeable" that the Robinsons' Audi would cause injury in
Oklahoma. Yet "foreseeability" alone has never been a sufficient benchmark for
personal jurisdiction under the Due Process Clause. In Hanson v. Denckla, supra, it
was no doubt foreseeable that the settlor of a Delaware trust would subsequently
move to Florida and seek to exercise a power of appointment there; yet we held that
Florida courts could not constitutionally exercise jurisdiction over a Delaware trustee
that had no other contacts with the forum State. In Kulko v. California Superior
Court, 436 U.S. 84 (1978), it was surely "foreseeable" that a divorced wife would
move to California from New York, the domicile of the marriage, and that a minor
daughter would live with the mother. Yet we held that California could not exercise
jurisdiction in a child-support action over the former husband who had remained in
New York.
If foreseeability were the criterion, a local California tire retailer could be
forced to defend in Pennsylvania when a blowout occurs there, see Erlanger Mills,
Inc. v. Cohoes Fibre Mills, Inc., 239 F.2d 502, 507 (CA4 1956); a Wisconsin seller
of a defective automobile jack could be haled before a distant court for damage
caused in New Jersey, Reilly v. Phil Tolkan Pontiac, Inc., 372 F. Supp. 1205 (NJ
1974); or a Florida soft-drink concessionaire could be summoned to Alaska to
account for injuries happening there, see Uppgren v. Executive Aviation Services,
Inc., 304 F. Supp. 165, 170-171 (Minn. 1969). Every seller of chattels would in
effect appoint the chattel his agent for service of process. His amenability to suit
would travel with the chattel. We recently abandoned the outworn rule of Harris v.
Balk, 198 U.S. 215 (1905), that the interest of a creditor in a debt could be
extinguished or otherwise affected by any State having transitory jurisdiction over
the debtor. Shaffer v. Heitner, 433 U.S. 186 (1977). Having interred the mechanical
Oklahoma Supreme Court, rather than finding jurisdiction waived, reached and decided the
statutory and constitutional questions. Cf. Kulko v. California Superior Court, 436 U.S. 84, 91,
n. 5 (1978).
192
rule that a creditor's amenability to a quasi in rem action travels with his debtor, we
are unwilling to endorse an analogous principle in the present case. 165
This is not to say, of course, that foreseeability is wholly irrelevant. But the
foreseeability that is critical to due process analysis is not the mere likelihood that a
product will find its way into the forum State. Rather, it is that the defendant's
conduct and connection with the forum State are such that he should reasonably
anticipate being haled into court there. See Kulko v. California Superior Court,
supra, at 97-98; Shaffer v. Heitner, 433 U.S., at 216; and see id., at 217-219
(STEVENS, J., concurring in judgment). The Due Process Clause, by ensuring the
"orderly administration of the laws," International Shoe Co. v. Washington, 326
U.S., at 319, gives a degree of predictability to the legal system that allows potential
defendants to structure their primary conduct with some minimum assurance as to
where that conduct will and will not render then liable to suit.
When a corporation "purposefully avails itself of the privilege of conducting
activities within the forum State," Hanson v. Denckla, 357 U.S., at 253, it has clear
notice that it is subject to suit there, and can act to alleviate the risk of burdensome
litigation by procuring insurance, passing the expected costs on to customers, or, if
the risks are too great, severing its connection with the State. Hence if the sale of a
product of a manufacturer or distributor such as Audi or Volkswagen is not simply
an isolated occurrence, but arises from the efforts of the manufacturer or distributor
to serve, directly or indirectly, the market for its product in other States, it is not
unreasonable to subject it to suit in one of those States if its allegedly defective
merchandise has there been the source of injury to its owner or to others. The forum
State does not exceed its powers under the Due Process Clause if it asserts personal
jurisdiction over a corporation that delivers its products into the stream of commerce
with the expectation that they will be purchased by consumers in the forum State.
Compare Gray v. American Radiator & Standard Sanitary Corp., 22 Ill. 2d 432, 176
N.E. 2d 761 (1961).
But there is no such or similar basis for Oklahoma jurisdiction over WorldWide or Seaway in this case. Seaway's sales are made in Massena, N.Y. WorldWide's market, although substantially larger, is limited to dealers in New York, New
165 Respondents' counsel, at oral argument, see Tr. of Oral Arg. 19-22, 29, sought to limit the reach
of the foreseeability standard by suggesting that there is something unique about automobiles. It
is true that automobiles are uniquely mobile, see Tyson v. Whitaker & Son, Inc., 407 A.2d 1, 6,
and n. 11 (Me. 1979) (McKusick, C.J.), that they did play a crucial role in the expansion of
personal jurisdiction through the fiction of implied consent, e.g., Hess v. Pawloski, 274 U.S. 352
(1927), and that some of the cases have treated the automobile as a "dangerous instrumentality."
But today, under the regime of International Shoe, we see no difference for jurisdictional
purposes between an automobile and any other chattel. The "dangerous instrumentality" concept
apparently was never used to support personal jurisdiction; and to the extent it has relevance
today it bears not on jurisdiction but on the possible desirability of imposing substantive
principles of tort law such as strict liability.
193
Jersey, and Connecticut. There is no evidence of record that any automobiles
distributed by World-Wide are sold to retail customers outside this tri-state area. It is
foreseeable that the purchasers of automobiles sold by World-Wide and Seaway may
take them to Oklahoma. But the mere "unilateral activity of those who claim some
relationship with a nonresident defendant cannot satisfy the requirement of contact
with the forum State." Hanson v. Denckla, supra, at 253.
In a variant on the previous argument, it is contended that jurisdiction can be
supported by the fact that petitioners earn substantial revenue from goods used in
Oklahoma. The Oklahoma Supreme Court so found, 585 P. 2d, at 354-355, drawing
the inference that because one automobile sold by petitioners had been used in
Oklahoma, others might have been used there also. While this inference seems less
than compelling on the facts of the instant case, we need not question the court's
factual findings in order to reject its reasoning.
This argument seems to make the point that the purchase of automobiles in
New York, from which the petitioners earn substantial revenue, would not occur but
for the fact that the automobiles are capable of use in distant States like Oklahoma.
Respondents observe that the very purpose of an automobile is to travel, and that
travel of automobiles sold by petitioners is facilitated by an extensive chain of
Volkswagen service centers throughout the country, including some in Oklahoma.
166 However, financial benefits accruing to the defendant from a collateral relation
to the forum State will not support jurisdiction if they do not stem from a
constitutionally cognizable contact with that State. See Kulko v. California Superior
Court, 436 U.S., at 94-95. In our view, whatever marginal revenues petitioners may
receive by virtue of the fact that their products are capable of use in Oklahoma is far
too attenuated a contact to justify that State's exercise of in personam jurisdiction
over them.
Because we find that petitioners have no "contacts, ties, or relations" with the
State of Oklahoma, International Shoe Co. v. Washington, supra, at 319, the
judgment of the Supreme Court of Oklahoma is reversed.
Womack v. Eldridge
215 Va. 338; 210 S.E.2d 145 (1974)
Hanson, C.J., delivered the opinion of the court.
Plaintiff, Danny Lee Womack, instituted this action against the defendant,
Rosalie Eldridge, to recover compensatory and punitive damages for mental shock
and distress allegedly caused by the defendant's willful, wanton, malicious,
fraudulent and deceitful acts and conduct toward him. The question of punitive
damages was stricken by the trial court and the jury returned a verdict for the
166 As we have noted, petitioners earn no direct revenues from these service centers. See supra, at
288-289.
194
plaintiff in the amount of $45,000. The trial court set aside the verdict non obstante
veredicto on the ground that there could be no recovery for emotional distress in the
absence of "physical damage or other bodily harm." We granted plaintiff a writ of
error. Defendant did not assign cross-error, although the record shows she excepted
to many rulings in the court below and several of them are relied upon in her brief
and argument before us.
Plaintiff assigned numerous errors, but the controlling question is whether one
who by extreme and outrageous conduct intentionally or recklessly causes severe
emotional distress to another is subject to liability for such emotional distress absent
any bodily injury.
The evidence shows that defendant had been engaged in the business of
investigating cases for attorneys for many years. She was employed by Richard E.
Seifert and his attorney to obtain a photograph of the plaintiff to be used as evidence
in the trial of Seifert, who was charged with sexually molesting two young boys. On
May 27, 1970, about 8 a.m., defendant went to plaintiff's home and upon gaining
admittance told him that she was a Mrs. Jackson from the newspaper and that she
was writing an article on Skateland. Defendant asked plaintiff, who was a coach at
Skateland, if she could take a picture of him for publication with the article, and he
readily consented.
Shortly thereafter defendant delivered the photograph to Seifert's counsel while
he was representing Seifert at his preliminary hearing. Seifert's counsel showed
plaintiff's photograph to the two young boys and asked if he was the one who
molested them. When they replied that he was not, counsel withdrew the photograph
and put it in his briefcase. However, the Commonwealth's Attorney then asked to
see the photograph and requested additional information about the person shown in
it. Defendant was then called to the stand and she supplied the plaintiff's name and
address. Plaintiff's photograph in no way resembled Seifert, and the only excuse
given by defendant for taking plaintiff's picture was that he was at Skateland when
Seifert was arrested. However, the offenses alleged against Seifert did not occur at
Skateland.
The Commonwealth's Attorney then directed a detective to go to plaintiff's
home and bring him to court. The detective told plaintiff that his photograph had
been presented in court; that the Commonwealth's Attorney wanted him to appear at
the proceedings; and that he could either appear voluntarily then or he would be
summoned. Plaintiff agreed to go voluntarily. When called as a witness, plaintiff
testified as to the circumstances under which defendant had obtained his photograph.
He also said that he had not molested any children and that he knew nothing about
the charges against Seifert.
A police officer questioned plaintiff several times thereafter. Plaintiff was also
summoned to appear as a witness before the grand jury but he was not called.
However, he was summoned to appear several times at Seifert's trial in the circuit
court because of continuances of the cases.
195
Plaintiff testified that he suffered great shock, distress and nervousness because
of defendant's fraud and deceit and her wanton, willful and malicious conduct in
obtaining his photograph and turning it over to Seifert's attorney to be used in court.
He suffered great anxiety as to what people would think of him and feared that he
would be accused of molesting the boys. He had been unable to sleep while the
matter was being investigated. While testifying in the instant case he became
emotional and incoherent. Plaintiff's wife also testified that her husband experienced
great shock and mental depression from the involvement.
The precise issue presented on this appeal has not been decided by this court.
In the recent case of Hughes v. Moore, 214 Va. 27, 31, 197 S.E.2d 214, 219
(1973), where we also clarified Bowles v. May, 159 Va. 419, 437-38, 166 S.E. 550,
557 (1932), we held that when conduct is merely negligent, not willful, wanton or
vindictive, and physical impact is lacking, there can be no recovery for emotional
disturbance alone. However, where emotional disturbance is accompanied by
physical injury there may be a recovery for negligent conduct, notwithstanding the
lack of physical impact, provided the injured party proves by clear and convincing
evidence a causal connection between the negligent act, the emotional disturbance
and the physical injury.
We have also said that a recovery is permitted for mental distress and physical
injuries unaccompanied by actual physical contact where the injuries were caused by
a willful, intentional tort. Moore v. Jefferson Hospital, Inc., 208 Va. 438, 441, 158
S.E.2d 124, 127 (1967).
The case of Awtrey v. Norfolk & W. Ry. Co., 121 Va. 284, 93 S.E. 570 (1917),
relied upon by the defendant, is distinguishable on the facts from the present case.
There, liability was based on a negligent wrongful act; here, liability is based on
willful, wanton, fraudulent and deceitful conduct.
Courts from other jurisdictions are not in accord on whether there can be a
recovery for emotional distress unaccompanied by physical injury. However, most
of the courts which have been presented with the question in recent years have held
that there may be a recovery against one who by his extreme and outrageous conduct
intentionally or recklessly causes another severe emotional distress.167 Annot., 64
A.L.R.2d 100, 8 at 120, and the many cases there cited.
The Restatement (Second) of Torts, 46 at 71, provides:
"(1) One who by extreme and outrageous conduct intentionally or
recklessly causes severe emotional distress to another is subject to liability for such
emotional distress, and if bodily harm to the other results from it, for such bodily
harm."
167 Our research reveals that at least 26 jurisdictions permit such causes of action, while apparently 7
do not.
196
In comment (i) to the Restatement it is expressly stated that this rule also covers a
situation where the actor knows that distress is certain, or substantially certain, to
result from his conduct.
A great majority of cases allowing recovery for such a cause of action do so
when the act was intentional and the wrongdoer desired the emotional distress or
knew or should have known that it would likely result. Aetna Life Insurance Co. v.
Burton, 104 Ind.App. 576, 580, 12 N.E.2d 360, 362 (1938); Kirksey v. Jernigan, 45
So.2d 188, 189 (Fla. 1950); Boyle v. Chandler, 33 Del. 323, 329, 138 A. 273, 276
(1927); Samms v. Eccles, 11 Utah 2d 289, 293, 358 P.2d 344, 346-47 (1961); Prosser
on Torts, "Infliction of Mental Distress," § 12 at 60 (4th ed. 1971).
In Samms, the Supreme Court of Utah aptly stated:
". . . [The] best considered view recognizes an action for severe
emotional distress, though not accompanied by bodily impact or physical
injury, where the defendant intentionally engaged in some conduct
toward the plaintiff, (a) with the purpose of inflicting emotional distress,
or, (b) where any reasonable person would have known that such would
result; and his actions are of such a nature as to be considered outrageous
and intolerable in that they offend against the generally accepted
standards of decency and morality." (Footnote omitted; emphasis added.)
11 Utah 2d at 293, 358 P.2d at 346-47.
We adopt the view that a cause of action will lie for emotional distress,
unaccompanied by physical injury, provided four elements are shown: One, the
wrongdoer's conduct was intentional or reckless. This element is satisfied where the
wrongdoer had the specific purpose of inflicting emotional distress or where he
intended his specific conduct and knew or should have known that emotional distress
would likely result. Two, the conduct was outrageous and intolerable in that it
offends against the generally accepted standards of decency and morality. This
requirement is aimed at limiting frivolous suits and avoiding litigation in situations
where only bad manners and mere hurt feelings are involved. Three, there was a
causal connection between the wrongdoer's conduct and the emotional distress.
Four, the emotional distress was severe.
"It is for the court to determine, in the first instance, whether the
defendant's conduct may reasonably be regarded as so extreme and
outrageous as to permit recovery, or whether it is necessarily so. Where
reasonable men may differ, it is for the jury, subject to the control of the
court, to determine whether, in the particular case, the conduct has been
sufficiently extreme and outrageous to result in liability." Restatement
(Second) of Torts, supra, at 77.
In the case at bar, reasonable men may disagree as to whether defendant's
conduct was extreme and outrageous and whether plaintiff's emotional distress was
severe. Thus, the questions presented were for a jury to determine. A jury could
conclude from the evidence presented that defendant willfully, recklessly,
197
intentionally and deceitfully obtained plaintiff's photograph for the purpose of
permitting her employers to use it as a defense in a criminal case without considering
the effect it would have on the plaintiff. There is nothing in the evidence that even
suggests that plaintiff may have been involved in the child molesting cases. The
record shows that the only possible excuse for involving the plaintiff was that Seifert
was arrested at the place where plaintiff was employed. A reasonable person would
or should have recognized the likelihood of the serious mental distress that would be
caused in involving an innocent person in child molesting cases. If the two boys had
hesitated in answering that the man in the photograph was not the one who had
molested them, it is evident that the finger of suspicion would have been pointed at
the plaintiff.
Defendant contended in her brief, and in oral argument before us, that the trial
court erred in granting instruction 1-A in that it was contradictory and misled the
jury; that the amount of damages fixed by the jury was excessive; and that the action
of the Commonwealth's Attorney in causing plaintiff's name to be revealed was an
intervening cause which absolved her of any liability.
We will not consider those contentions because defendant did not assign crosserror. Beasley v. Barnes, 201 Va. 593, 598, 113 S.E.2d 62, 65 (1960); Blue Ridge
Poultry and Egg Co., Inc. v. Clark, 211 Va. 139, 141, 176 S.E.2d 323, 325 (1970);
Rule 5:7, Rules of Court.
For the reasons stated, the judgment of the court below is reversed, the jury
verdict reinstated, and final judgment hereby entered for the plaintiff.
Miller v. Johnson
231 Va. 177, 343 S.E.2d 301 (1986)
Cochran, J., delivered the opinion of the court.
The appeal in each of these cases arises from an action by a mother against a
physician for damages from what has been characterized as "wrongful pregnancy."
In each case, the mother sought an abortion, the abortion failed, and subsequently a
child was born. In each case, the mother sought to recover damages related to the
unsuccessful abortion, the continuing pregnancy, and the childbirth and, in addition,
the costs of rearing the child to majority.
In one case, the trial court entered judgment on the jury verdict awarding
damages under an instruction permitting consideration of all these elements. In the
other case, the trial court sustained a demurrer to the motion for judgment on the
ground that no such action could be maintained. The appeals, therefore, coming
from opposite results in the respective trial courts, present the question whether a
cause of action for wrongful pregnancy is maintainable in Virginia and, if so, the
damages recoverable in such an action.
Laura Johnson
198
For economic reasons, Laura Johnson -- a mother of four children, the oldest
physically handicapped -- and her husband sought to avoid having any more
children. She consulted Dr. Donald Miller, an obstetrician and gynecologist, who
agreed to perform a tubal ligation. Because she was then being treated for a vision
problem with a drug which might cause complications, Miller delayed the
sterilization operation. In September 1979, Johnson learned she was pregnant and
asked Miller to perform an abortion and the sterilization procedure. In October, he
performed a bilateral tubal ligation and attempted to perform a suction abortion.
Miller noticed nothing unusual about her condition when he examined her a week
later. A pathology report on the material removed during the attempted abortion,
which showed the abortion was not successfully completed, was sent to Miller's
office and filed without first being reviewed by a physician in his office. In
November, Johnson telephoned Miller complaining of nausea and, upon
examination, she was found still to be pregnant.
Johnson was advised by both Miller and a second doctor that neither could
perform a suction abortion at this stage of her pregnancy. The second doctor testified
he presented Johnson with the options of going elsewhere for a suction abortion,
having a more dangerous saline abortion, or continuing the pregnancy. Johnson
denied that he told her that a second suction abortion was still possible. Johnson
decided to continue the pregnancy and gave birth in May 1980 to a healthy, normal
boy. She and her husband did not consider placing the child for adoption.
In December 1980, Johnson filed suit against Miller, alleging that his
negligence resulted in the wrongful birth of her son. A jury heard the case and was
instructed that, upon a finding of negligence, it could award damages for Johnson's
past and future pain and suffering, inconvenience, and medical expenses, her past
loss of wages related to the pregnancy and birth, and the reasonable costs of rearing
the child to the age of 18 years. The jury awarded Johnson $100,000, and the trial
court entered judgment on this verdict. On appeal, Miller challenges only the
allowance of damages for the costs of rearing the child to majority.
Fung Mai Hwang
Fung Mai Hwang and Yuh Chin Hwang, her husband, brought an action
against Gerald J. Ruth, M.D., and Gerald J. Ruth, M.D., P.C., a professional
corporation of which Gerald J. Ruth, M.D., was an employee, alleging, inter alia, that
Ruth's negligent attempt to perform an abortion on Fung Mai Hwang was
unsuccessful and resulted in the birth of her child. She sought damages for her lost
wages, pain and suffering, expenses of pregnancy and childbirth, and the costs of
rearing the child to majority. Yuh Chin Hwang also sought damages. The Hwangs
did not allege that the child was healthy, nor did they allege to the contrary.
Defendants filed a motion to dismiss and a demurrer based on several grounds, one
of which was that the law does not recognize a cause of action for the "alleged
wrongful birth of a healthy child." On Yuh Chin Hwang's motion, he was nonsuited
as a party plaintiff.
199
The trial court sustained the demurrer and dismissed the action with prejudice,
concluding that public policy prohibits recovery of damages for the birth of a healthy
child. On appeal, Fung Mai Hwang challenges this ruling and, in addition, contends
that the trial court erred in dismissing her action in which she also sought damages
for negligence in performing an abortion, failure to obtain informed consent to a
medical procedure, failure to provide proper post-treatment care, and failure to
perform the abortion properly and terminate the pregnancy as agreed.
The Law
Some confusion has existed in the terminology applied to the relatively new
field of tort law involving actions in which negligence is alleged to have resulted in
the birth of a child. The terms "wrongful birth," "wrongful life," "wrongful
pregnancy," and "wrongful conception" have gained recent acceptance and
distinguish the various birth-related tort actions.
A wrongful birth action is brought by parents on their own behalf, seeking
damages resulting from the birth of a defective child after a failed abortion or the
failure of a physician to advise the parents of risk of genetic or birth defects and
thereby allow an informed decision as to termination of the pregnancy. See Naccash
v. Burger, 223 Va. 406, 409, 290 S.E.2d 825, 826-27 (1982) (action for wrongful
birth of child afflicted with Tay-Sachs disease).
A wrongful life action is a similar action brought by or on behalf of the
defective child for the physician's failure to warn of potential defects or failure to
prevent or terminate the pregnancy in light of known risks. Most courts have
rejected this theory that the life of the defective child is worth less than the child's
nonexistence. See, e.g., Elliott v. Brown, 361 So. 2d 546, 548 (Ala. 1978); Blake v.
Cruz, 108 Idaho 253, 259-60, 698 P.2d 315, 322 (1984); Becker v. Schwartz, 46
N.Y.2d 401, 412, 386 N.E.2d 807, 812, 413 N.Y.S.2d 895, (1978); Azzolino v.
Dingfelder, 315 N.C. 103, 109, 337 S.E.2d 528, 533 (1985); Nelson v. Krusen, 678
S.W.2d 918, 925 (Tex. 1984); Dumer v. St. Michael's Hospital, 69 Wis. 2d 766, 773,
233 N.W.2d 372, 375-76 (1975); Beardsley v. Wierdsman, 650 P.2d 288, 292 (Wyo.
1982). Those few courts allowing wrongful life claims have limited the damages
recoverable to the extraordinary expenses attributable to the child's impaired
condition. See, e.g., Turpin v. Sortini, 31 Cal. 3d 220, 237, 643 P.2d 954, 965, 182
Cal. Rptr. 337, 348-49 (1982); Procanik v. Cillo, 97 N.J. 339, 352, 478 A.2d 755,
762 (1984); Harbeson v. Parke-Davis, Inc., 98 Wash. 2d 460, 475, 656 P.2d 483,
496-67 (1983).
Wrongful conception and wrongful pregnancy actions are suits by parents for
damages arising from the negligent performance of a sterilization procedure or an
abortion and the subsequent birth of a child. See Boone v. Mullendore, 416 So. 2d
718, 720 (Ala. 1982); University of Ariz. v. Superior Court, 136 Ariz. 579, 581 n.1,
667 P.2d 1294, 1296 n.1 (1983); Garrison v. Foy, 486 N.E.2d 5, 7 (Ind. App. 3 Dist.
1985); Nanke v. Napier, 346 N.W.2d 520, 521 (Iowa 1984); Kingsbury v. Smith, 122
N.H. 237, 240, 442 A.2d 1003, 1004 (1982). These actions most frequently have
involved normal, healthy children, although they may involve children with a disease
200
or abnormality where the disease or abnormality was not foreseeable and its
prevention was not the purpose of the failed abortion or sterilization procedure. See,
e.g., Garrison, 486 N.E.2d at 7; see also Boone, 416 So. 2d at 723 (court expressly
restricted holding in wrongful pregnancy case, reserving decision on the measure of
damages in cases involving children "born and afflicted with predetermined or
readily foreseeable genetic or hereditary defects").
The trial court in Hwang (Record No. 841536) relied on dicta in McNeal v.
United States, 689 F.2d 1200, 1202 (4th Cir. 1982), predicting that Virginia would
not permit recovery of damages for wrongful pregnancy as a matter of public policy.
Such reliance is misplaced.
We have held that whether a cause of action exists for wrongful birth, where
the child is fatally defective, is a question to be determined in accordance with
traditional tort principles. Naccash, 223 Va. at 413, 290 S.E.2d at 829. Holding such
an action exists, we approved damages for the extraordinary care and treatment of
the fatally defective child during the 31 months of her life. Id. at 414, 290 S.E.2d at
829-30. We reaffirm the inclusion of the expenses of such care and treatment as
allowable damages in a wrongful birth case. We see no reason not to apply
traditional tort principles to determine whether a cause of action exists for wrongful
pregnancy or wrongful conception, where the child is reasonably healthy, both
physically and mentally.
Within specified limits a woman is entitled to have an abortion if she so
chooses. See Roe v. Wade, 410 U.S. 113, 153-54 (1973); Code
18.2-71 to -76.2.
Individuals are likewise free to practice contraception to further their
constitutionally-protected choice not to have children. See Eisenstadt v. Baird, 405
U.S. 438, 453-54 (1972); Griswold v. Connecticut, 381 U.S. 479, 485-86 (1965).
Under traditional tort principles, it is clear that a physician who performs an
abortion or sterilization procedure owes a legal duty to the patient. Where the patient
can establish failure to perform the procedure with reasonable care and damages
proximately resulting from breach of the duty, she is entitled to recover as in any
other medical malpractice action. See Naccash, 223 Va. at 414, 290 S.E.2d at
829-30; Fulton-DeKalb Hosp. Authority v. Graves, 252 Ga. 441, 443, 314 S.E.2d
653, 654 (1984); Jones v. Malinowski, 299 Md. 257, 263, 473 A.2d 429, 432 (1984);
Sherlock v. Stillwater Clinic, 260 N.W.2d 169, 174-75 (Minn. 1977); Kingsbury, 122
N.H. at 242, 442 A.2d at 1005-06; Mason v. Western Pennsylvania Hosp., 499 Pa.
484, 486, 453 A.2d 974, 975 (1982); James G. v. Caserta, 332 S.E.2d 872, 876 (W.
Va. 1985); Beardsley, 650 P.2d at 292. As the New Hampshire court reasoned:
Non-recognition of any cause of action for wrongful conception [or wrongful
pregnancy] leaves a void in the area of recovery for medical malpractice and dilutes
the standard of professional conduct and expertise in the area of family planning,
which has been clothed with constitutional protection. Kingsbury, 122 N.H. at 242,
442 A.2d at 1005-06 (citations omitted); accord Garrison, 486 N.E.2d at 8.
Accordingly, we hold that an action for wrongful pregnancy or wrongful conception
may be maintained in Virginia.
201
What then is the proper measure of damages in a wrongful pregnancy action
where the child is born reasonably sound and healthy? Under traditional tort
principles, which we held to be applicable in Naccash, recoverable damages are
those which are the reasonable and proximate consequences of the breach of duty.1
223 Va. at 414, 290 S.E.2d at 830. The mother, therefore, may recover damages, if
proven, for medical expenses, pain and suffering, and lost wages for a reasonable
period, directly resulting from the negligently performed abortion, the continuing
pregnancy, and the ensuing childbirth. The mother is also entitled under the general
rule to recover damages, if proven, for emotional distress causally resulting from the
tortiously caused physical injury. See Naccash, 223 Va. at 416, 290 S.E.2d at 831;
Hughes v. Moore, 214 Va. 27, 34, 197 S.E.2d 214, 219 (1973).
The divisive issue which has troubled the courts, however, is whether, in a
wrongful pregnancy action, allowable damages may include the expenses of rearing
the healthy child to the age of majority. A substantial majority of jurisdictions
exclude such child-rearing expenses. See Boone v. Mullendore, 416 So. 2d 718 (Ala.
1982); Wilbur v. Kerr, 275 Ark. 239, 628 S.W.2d 568 (1982); Coleman v. Garrison,
349 A.2d 8 (Del. 1975); Flowers v. District of Columbia, 478 A.2d 1073 (D.C.
1984); Fassoulas v. Ramey, 450 So. 2d 822 (Fla. 1984); Fulton-DeKalb Hosp.
Authority v. Graves, 252 Ga. 441, 314 S.E.2d 653 (1984); Cockrum v. Baumgartner,
95 Ill. 2d 193, 447 N.E.2d 385, cert. denied sub nom. Raja v. Michael Reese Hosp. &
Med. Center, 464 U.S. 846 (1983); Garrison v. Foy, 486 N.E.2d 5 (Ind. App. 3 Dist.
1985); Nanke v. Napier, 346 N.W.2d 520 (Iowa 1984); Byrd v. Wesley Medical
Center, 237 Kan. 215, 699 P.2d 459 (1985); Schork v. Huber, 648 S.W.2d 861 (Ky.
1983); Macomber v. Dillman, 505 A.2d 810 (Me. 1986); Kingsbury v. Smith, 122
N.H. 237, 442 A.2d 1003 (1982); P. v. Portadin, 179 N.J. Super. 465, 432 A.2d 556
(1981); O'Toole v. Greenberg, 64 N.Y.2d 427, 477 N.E.2d 445, 488 N.Y.S.2d 143
(1985); Mason v. Western Pennsylvania Hosp., 499 Pa. 484, 453 A.2d 974 (1982);
Hickman v. Myers, 632 S.W.2d 869 (Tex. Ct. App. 1982); McKernan v. Aasheim,
102 Wash. 2d 411, 687 P.2d 850 (1984); James G. v. Caserta, 332 S.E.2d 872 (W.
Va. 1985); Rieck v. Medical Protective Co. of Fort Wayne, Ind., 64 Wis. 2d 514, 219
N.W.2d 242 (1974); Beardsley v. Wierdsman, 650 P.2d 288 (Wyo. 1982).
The rationale for denying recovery for child-rearing expenses varies from court
to court. Many courts have held that the birth of a normal, healthy child is not a
compensable injury. See, e.g., Boone, 416 So. 2d at 721; Fassoulas, 450 So. 2d at
823-24; Fulton-DeKalb, 252 Ga. at 444, 314 S.E.2d at 655-56; Cockrum, 95 Ill. 2d at
202-03, 447 N.E.2d at 389; Nanke, 346 N.W.2d at 522-23; Byrd, 237 Kan. at 225,
699 P.2d at 468; Macomber, 505 A.2d at 813; O'Toole, 64 N.Y.2d at 429, 477
N.E.2d at 448, 488 N.Y.S.2d at 146; Hickman, 632 S.W.2d at 871; Beardsley, 650
1
In Naccash, the basis of our holding that extraordinary costs were recoverable was that parents of
a fatally defective child could recover costs of care and treatment as "consequences that a
reasonable and informed person could have foreseen or anticipated." 223 Va. at 414, 290 S.E.2d
at 830. We did not decide in that case whether such damages would be recoverable upon the
birth of a defective or diseased child when the defect or disease was not reasonably foreseeable.
202
P.2d at 293. These courts have reasoned that as a matter of law the benefits derived
from the birth of a normal, healthy child outweigh the expenses of rearing the child.
See Cockrum, 95 Ill. 2d at 200-01, 447 N.E.2d at 389; Public Health Trust v. Brown,
388 So. 2d 1084, 1085-86 (Fla. Ct. App. 1980), pet. for rev. denied, 399 So. 2d 1140
(Fla. 1981).
Other courts as a matter of policy have denied recovery to avoid what they
believed would otherwise be an unreasonable burden on the tortfeasor and an
unjustified windfall for the parent or parents who would retain the parental benefits
but transfer the financial responsibility to another. See, e.g., Kingsbury, 122 N.H. at
243, 442 A.2d at 1006; Hickman, 632 S.W.2d at 871; Rieck, 64 Wis. 2d at 518-19,
219 N.W.2d at 244-45; Beardsley, 650 P.2d at 292. Thus, these courts conclude that
the result would be disproportionate to the degree of culpability.
Some courts, concerned about the emotional or psychological harm to the child
upon his discovery that he was unwanted and worth less to his parents than the costs
of his care, conclude as a matter of policy that allowance of child-rearing expenses
will undermine society's need for strong family relationships. See, e.g., Boone, 416
So. 2d at 722; Wilbur, 275 Ark. at 244, 628 S.W.2d at 571; McKernan, 102 Wash. 2d
at 421, 687 P.2d at 855-56. A few courts have based denial of recovery of childrearing costs in part on the fear of a proliferation of fraudulent claims. See, e.g.,
Rieck, 64 Wis. 2d at 517, 219 N.W.2d at 245; Beardsley, 650 P.2d at 292.
Other courts have concluded that the principle of tort law prohibiting recovery
of remote or speculative damages precludes recovery for child-rearing expenses.
See, e.g., Boone, 416 So. 2d at 722; Coleman, 349 A.2d at 12; Schork, 648 S.W.2d at
863; Sorkin v. Lee, 78 A.D.2d 180, 181, 434 N.Y.S.2d 300, 303 (1980); Terrell v.
Garcia, 496 S.W.2d 124, 127-28 (Tex. Civ. App. 1973), cert. denied, 415 U.S. 927
(1974); McKernan, 102 Wash. 2d at 419, 687 P.2d at 855; James G., 332 S.E.2d at
878.
A minority of jurisdictions addressing this issue have concluded that the costs
of rearing the child to majority are recoverable as the proximate result of the
physician's negligence in performing the sterilization procedure or abortion.
Applying the rule of tort law which requires any benefit conferred by the tortious
conduct to be considered in mitigation of damages, see Restatement (Second) of
Torts §§ 920 (1979), these courts have limited the recovery of child-rearing expenses
by requiring that they be offset by the value of any benefits conferred on the parents
by the existence of the child.2 See University of Ariz. v. Superior Court, 136 Ariz.
2
Some courts have stated that Bowman v. Davis, 48 Ohio St. 2d 41, 356 N.E.2d 496 (1976), and
Custodio v. Bauer, 251 Cal. App. 2d 303, 59 Cal. Rptr. 463 (1967), allow full recovery of childrearing costs without any offset of the value of benefits received. In Bowman, however, the
court expressly declined to rule on the issue whether damages should be limited to the expenses
of the pregnancy because that issue was not properly before the court. 48 Ohio St. 2d at 44 n.1,
356 N.E.2d at 498 n.1. Furthermore, in Custodio, the court had an insufficient record to
determine the damages to which the parents would be entitled, and it is therefore unclear whether
203
579, 584, 667 P.2d 1294, 1299 (1983); Stills v. Gratton, 55 Cal. App. 3d 698, 709,
127 Cal. Rptr. 652, 658-59 (1976); Ochs v. Borrelli, 187 Conn. 253, 260-61, 445
A.2d 883, 885-86 (1982); Jones v. Malinowski, 299 Md. 257, 273-74, 473 A.2d 429,
437 (1984); Green v. Sudakin, 81 Mich. App. 545, 548, 265 N.W.2d 411, 412 (1978)
(unperformed tubal ligation), following Troppi v. Scarf, 31 Mich. App. 240, 261, 187
N.W.2d 511, 517-19 (improperly filled prescription for birth control pills), leave to
appeal denied, 385 Mich. 753 (1971); Sherlock v. Stillwater Clinic, 260 N.W.2d 169,
176 (Minn. 1977).
We find the cases permitting recovery of child-rearing expenses unpersuasive.
The parent is placed in the degrading position of disparaging her child to establish
that the expenses of rearing him exceed the benefits derived from his existence.
Moreover, in addition to the "benefits rule" there is the rule that a plaintiff must act
reasonably to minimize her damages. Lawrence v. Wirth, 226 Va. 408, 412, 309
S.E.2d 315, 317 (1983); Haywood v. Massie, 188 Va. 176, 182, 49 S.E.2d 281, 284
(1948); Restatement, supra, § 918. Application of this principle may raise an issue
whether the plaintiff should have submitted to another abortion or should have
placed the child for adoption.
We conclude that the costs of rearing a reasonably healthy child to majority are
not recoverable in a wrongful pregnancy or wrongful conception action. We do not
presume, however, to base our ruling on public policy. We are unwilling to hold that
as a matter of law the birth of a child, even a healthy, normal child, can never result
in tortious injury to the parents. Moreover, we deem it inappropriate for us to weigh
the potential impact on a child of litigation in which his parents seek to impose on
another the expenses of rearing him. Such policy decisions are best left to the
General Assembly. Nor do we base our holding on a fear that fraudulent claims may
be brought or that damages disproportionate to the tort may be awarded; we trust that
our jury system could effectively prevent such occurrences. See McKernan, 102
Wash. 2d at 418, 687 P.2d at 854. To the contrary, we rely on traditional principles
of tort law.
Damages which cannot be established with reasonable certainty are speculative
or conjectural and may not be recovered. Cassady v. Martin, 220 Va. 1093, 1100,
266 S.E.2d 104, 108 (1980); Phillips v. Stewart, 207 Va. 214, 221, 148 S.E.2d 784,
789 (1966); Barnes v. Quarries, Inc., 204 Va. 414, 418-19, 132 S.E.2d 395, 397-98
(1963). We conclude that a court or jury is not capable of determining with any
reasonable certainty the costs of bringing a child to maturity less the offsetting value
of the child's life.
an offset would have been allowed. 251 Cal. App. 2d at 325-26, 59 Cal. Rptr. at 477-78. With
respect to a separate element of damages, however, the court noted the "benefits rule" and
acknowledged that offset would be appropriate. Id. at 323, 59 Cal. Rptr. at 476. The later case of
Stills v. Gratton approved the Custodio holding allowing recovery of child-rearing costs but
required an offset for benefits conferred. 55 Cal. App. 3d 698, 709, 127 Cal. Rptr. 652, 658-59.
204
Juries may routinely determine the damages resulting from a life that has been
terminated or permanently injured. But even those courts that allow recovery of
damages for the expenses of child-rearing concede the difficulty of determining the
value of the offsetting benefits from the child's life. See, e.g., Troppi, 31 Mich. App.
at 261, 187 N.W.2d at 521. Nevertheless, they are willing to impose this burden on
juries. We are unwilling to do so because of our conclusion that the results would
necessarily be based on speculation and conjecture. Who, indeed, can strike a
pecuniary balance between the triumphs, the failures, the ambitions, the
disappointments, the joys, the sorrows, the pride, the shame, the redeeming hope that
the child may bring to those who love him?
Conclusion
Donald Miller, M.D. v. Laura Johnson (Record No. 822020).
We will reverse the judgment of the trial court and remand the case for a new
trial limited to the issue of damages consistent with the views herein expressed.
Fung Mai Hwang v. Gerald J. Ruth, M.D., et al. (Record No. 841536).
We will reverse the judgment of the trial court and remand the case for further
proceedings consistent with the views herein expressed.
Record No. 822020 - Reversed and remanded.
Record No. 841536 - Reversed and remanded.
Naccash v. Burger
223 Va. 406, 290 S.E.2d 825 (1982)
Carrico, C.J., delivered the opinion of the court.
The determinative question presented by this appeal is whether a cause of
action exists in favor of parents for the so-called "wrongful birth" of a child. The
question arose in the context of a motion for judgment filed in the trial court by
Joseph Burger and Trudy Burger against Edmund P. Naccash, M.D., and certain
other health care providers. The motion alleged that the defendants had negligently
failed to discover that the fetus carried by Trudy Burger was affected by an incurable
genetic disorder, causing her to forego an abortion and carry the child to term. The
Burgers sought damages for the care and treatment of the child and for their mental
anguish and suffering.
All the defendants except Dr. Naccash were dismissed by the trial court. The
case against Dr. Naccash was submitted to a jury, which returned a verdict in favor
of the Burgers for $180,948.06. We awarded Dr. Naccash an appeal from the final
order confirming the verdict.
The record shows that Carrie Burger, the child in question, was born February
20, 1974, and that she died October 6, 1976, of Tay-Sachs disease. Tay-Sachs is an
invariably fatal disease of the brain and spinal cord that occurs in Jewish infants of
eastern European ancestry. A diseased child appears normal at birth, but, at four to
205
six months, its central nervous system begins to degenerate, and it suffers eventual
blindness, deafness, paralysis, seizures, and mental retardation. The life expectancy
of an afflicted child is two to four years.
At the time of the events in question, a blood test was in general use throughout
the country to identify carriers of the Tay-Sachs trait among potential parents having
Jewish ancestry. A carrier is not affected by Tay-Sachs, but a child whose parents
both are carriers stands a 25% chance of having the disease. If tests show that both
parents are carriers, a further test known as amniocentesis is recommended to
determine whether the fetus is afflicted with Tay-Sachs.1
Both Joseph and Trudy Burger are of eastern European ancestry. On
September 5, 1973, when Mrs. Burger was three and one-half months pregnant with
Carrie, her first child, the Burgers went to Arlington Hospital for Tay-Sachs tests.
They were interviewed by Rosalie Green, a technician in the Cytogenetics
Laboratory. Ms. Green advised the Burgers that there was no need to test Mrs.
Burger unless Mr. Burger tested positive. Accordingly, Ms. Green withdrew blood
from Mr. Burger alone. The blood was placed in two tubes labeled only with a
number ostensibly assigned to Joseph Burger. The blood sample then was forwarded
to a medical facility in Richmond for analysis, pursuant to arrangements previously
made by Dr. Naccash and Ms. Green.
Subsequently, Ms. Green reported to the Burgers that the test results showed
Mr. Burger was not a Tay-Sachs carrier. Satisfied with the report, Mrs. Burger
"went ahead and had" her baby. Although the child developed normally at first, at
four months she began showing signs of abnormality. She was examined and found
to have Tay-Sachs.
Further tests showed that both Mr. and Mrs. Burger were Tay-Sachs carriers.
The original blood sample purportedly withdrawn from Mr. Burger on September 5,
1973, was retested and again found negative. A positive sample supposedly
withdrawn from another man at Arlington Hospital on the same date was also
retested and again found positive. However, new tests of the other man's blood
showed he was not a Tay-Sachs carrier. These circumstances prompted an expert
witness to testify below that "only one conclusion... can be drawn, and that is [Mr.
Burger's] blood sample was incorrectly labeled [by Arlington Hospital]." The same
witness stated that the error could have been averted simply by identifying each
sample with the initials as well as the number of the particular donor.
Both Joseph and Trudy Burger testified that, had they known they were TaySachs carriers, they would have insisted upon an amniocentesis and, if that test
showed the fetus was afflicted with Tay-Sachs, Mrs. Burger would have had an
1
Amniocentesis involves the analysis of amniotic fluid withdrawn from the mother's uterus. The
analysis reveals whether there are gross chromosome defects present in the fetus.
206
abortion.2 Mrs. Burger expressed her feeling in these words: "There is nothing on
this earth that would have made me have a baby with Tay-Sachs Disease."
The Burgers outlined for the jury the tragic course of the disease in Carrie and
the nature and extent of the care and treatment she required as her condition
degenerated; in her final months, she was confined in the Northern Virginia Training
Center where she ultimately died. The parents also recounted the emotional stress
and mental anguish they suffered as a result of the child's worsening condition.
Finally, the Burgers detailed the expenses they claimed for Carrie's care and
treatment. The expenses totaled $30,948.06, including $2,274.26 for costs connected
with Carrie's funeral and grave marker.
On appeal, Dr. Naccash contends that the essence of the parents' claim is for
"wrongfully permitting the birth of the child to occur" and that, if a cause of action
exists for this claim, it exists on behalf of the child alone and not the parents.
Nothing that this is a case of first impression in Virginia, Dr. Naccash cites Howard
v. Lecher, 42 N.Y.2d 109, 366 N.E.2d 64, 397 N.Y.S.2d 363 (1977), where a
physician had failed to test Jewish parents to determine whether their child would be
affected by Tay-Sachs disease. When the child was born with Tay-Sachs, the parents
brought a damage action against the doctor for their emotional stress and for the
expenses of the child's care and treatment. By stipulation, the claim for care and
treatment expenses was discontinued. On the claim for emotional stress, the court
held that "[n]o cause of action exists... for the unintentional infliction of harm to a
person solely by reason of that person's mental and emotional reaction to a direct
injury suffered by another." 42 N.Y.2d at 112, 366 N.E.2d at 66, 397 N.Y.S.2d at
365.
As the Burgers point out, however, Howard does not stand for the proposition
that parents have no cause of action at all for damages sustained as a result of the
birth of an impaired child; the decision disallowed only emotional damages. Eighteen
months after Howard, the New York court decided in Becker v. Schwartz, 46 N.Y.2d
401, 386 N.E.2d 807, 413 N.Y.S.2d 895 (1978), that parents can recover care and
treatment damages resulting from a wrongful birth.
The Burgers rely upon Becker and a New Jersey decision, Berman v. Allan, 80
N.J. 421, 404 A.2d 8 (1979). In Berman, the parents of a child born afflicted with
Down's Syndrome, or mongolism, brought an action against physicians for their
failure to inform the parents of the availability of amniocentesis to determine whether
the fetus was defective. The parents claimed damages both for the expenses
necessary to raise the child and for their own past and future mental and emotional
suffering. The New Jersey court held that the parents could not recover the expenses
necessary to raise the child, stating that the parents desired to retain all the benefits
2
In 1973, when the Burgers were given the erroneous Tay-Sachs report, Code § 18.1-62.1
provided that it was lawful for a physician to perform an abortion if in his medical opinion there
was "a substantial medical likelihood that the child will be born with an irremediable and
incapacitating mental or physical defect."
207
inhering in the birth of the infant while saddling the defendants with the enormous
expense of raising the child. This result, the court opined, would be wholly
disproportionate to the culpability involved, would constitute a windfall to the
parents, and would place an unreasonable financial burden upon the physicians. 80
N.J. at 432, 404 A.2d at 14.
However, the court upheld the parents' right to recover emotional damages.
The court stated that, in failing to inform the mother of the availability of
amniocentesis, the physicians "directly deprived her -- and, derivatively, her husband
-- of the option to accept or reject a parental relationship with the child and thus
caused them to experience mental and emotional anguish upon their realization that
they had given birth to a child afflicted with Down's Syndrome." 80 N.J. at 433, 404
A.2d at 14.3
The Burgers rely also upon Gildiner v. Thomas Jefferson Univ. Hospital, 451
F. Supp. 692 (E.D. Pa. 1978). There, blood tests of the prospective parents revealed
that both were Tay-Sachs carriers. An amniocentesis showed, however, that the
fetus was unaffected by the disease. Foregoing the option of abortion, the mother
proceeded with the pregnancy and gave birth to a child afflicted with Tay-Sachs.
Contending that no cause of action existed on behalf of the parents, the defendants
argued, inter alia, that the damages sought were not recoverable and that any cause of
action should be created by the legislature. The court rejected these arguments and,
anticipating what the Pennsylvania Supreme Court would decide, ruled that the
parents could recover the expenses for the medical treatment of the child.4
Because Dr. Naccash's argument suggests this court should defer to the
legislature, we note with special interest the Gildiner court's observation on the
question:
[The] holding that the [parents] have stated a cause of action for damages
caused by negligence in the performance and interpretation of an amniocentesis
involves the application of the doctrine of negligence... to a recently developed
medical procedure. The determination of the scope of the common law doctrine of
negligence is within the province of the judiciary. 451 F.Supp. at 696. Whether a
cause of action exists for the wrongs complained of and the damages sought here is a
3
The Berman decision to permit recovery of emotional damages is of special interest because it
represents the reversal of a position taken by the New Jersey court twelve years earlier in
Gleitman v. Cosgrove, 49 N.J. 22, 227 A.2d 689 (1967). One of the reasons assigned by the
court for its change in view was that the Supreme Court's ruling in Roe v. Wade, 410 U.S. 113
(1973), had altered the public policy against allowing damages for "the denial of the opportunity
to take an embryonic life." 80 N.J. at 431, 404 A.2d at 14.
4
The court reserved judgment on the question whether the parents could also recover damages for
emotional pain and suffering. In a case decided subsequently, Speck v. Finegold, _____ Pa.
_____, 439 A.2d 110 (1981), the Pennsylvania Supreme Court recognized a cause of action
permitting parents to recover damages for their mental distress and physical inconvenience and
for expenses attributable to the birth and raising of their genetically afflicted child.
208
question that should be determined, in our opinion, according to traditional tort
principles. Only a novel twist in the medical setting differentiates the present
situation from the ordinary malpractice action. Hence, like the Gildiner court, we
believe we need not defer to the legislature, but may appropriately decide the
question ourselves.5
Essential to the recognition of a cause of action in favor of the Burgers is the
existence of a legal duty owed them. Clearly, when the Burgers presented
themselves to the Cytogenetics Laboratory at Arlington Hospital for Tay-Sachs
testing, they were owed the duty of reasonable care in the handling of the blood
withdrawn for the tests; this duty encompassed the obligation to provide them with
reasonably accurate information concerning the condition of their unborn child so
they could make an informed decision regarding abortion.
Then, there must be a breach of the duty. Beyond question, there was a breach
in this case; indeed, the negligence of Rosalie Green in mislabeling Joseph Burger's
blood is virtually conceded.
Also essential to a cause of action for the Burgers is a showing of a causal
connection between the breach of duty and any claimed injury or damage. The
evidence establishes that, as a result of the negligent mislabeling of Mr. Burger's
blood, his sample was switched with the sample withdrawn from another man on the
same date; because the Burgers received a negative Tay-Sachs report, they decided
to continue the pregnancy rather than abort the fetus.
The final link essential to the recognition of a cause of action in favor of the
Burgers is the existence of actionable injury, meaning direct, rather than indirect,
injury. Following the lead of the New Jersey court in Berman, we hold that the
erroneous Tay-Sachs report given Mrs. Burger deprived her, and, derivatively, her
husband, of the opportunity to accept or reject the continuance of her pregnancy and
the birth of her fatally defective child; this, in our opinion, was direct injury.
It follows that the Burgers are entitled to recover those damages which are the
reasonable and proximate consequences of the breach of the duty owed them, viz.,
consequences that a reasonable and informed person could have foreseen or
anticipated. Tullock v. Hoops, 206 Va. 665, 668-69, 145 S.E.2d 152, 154 (1965). In
applying these standards, we agree with the New York court's holding in Becker that
parents injured as the Burgers have been injured are entitled to recover damages for
expenses incurred in the care and treatment of their afflicted child. In this respect,
5
In addition to New Jersey, New York, and Pennsylvania, whose cases have been previously cited
herein, courts in Illinois, Michigan, South Carolina, Texas, and Wisconsin have recognized a
cause of action in favor of parents for the wrongful birth of a child. Robak v. United States, 658
F.2d 471 (7th Cir. 1981) (applying Alabama law); Eisbrenner v. Stanley, 106 Mich. App. 357,
308 N.W. 2d 209 (1981); Phillips v. United States, 508 F.Supp. 537 (D.S.C. 1980); Jacobs v.
Theimer, 519 S.W.2d 846 (Tex. 1975); Dumer v. St. Michael's Hospital, 69 Wis.2d 766, 233
N.W.2d 372 (1975).
209
we disagree with the New Jersey court's holding in Berman to the extent that it
disallowed the claim for care and treatment expenses.
The consideration that prompted the New Jersey court's disallowance, viz., the
enormity of the financial burden that might be imposed upon the negligent physician,
is not present here. The child in Berman was still alive and could anticipate an
extended life span. Carrie Burger's life span was measured in months, and the cost of
her care and treatment was relatively inexpensive. Even so, we do not necessarily
agree that, if liability is established and the damages claimed are compensable and
just, the court should perform a balancing test between competing economic interests
in determining whether an injured party is entitled to a particular category of
damages.
We do agree with Dr. Naccash, however, concerning part of the expenses the
trial court permitted the jury to consider. That part, obviously allowed by the jury,
consists of the costs connected with Carrie's funeral and grave marker. These items
of damage were not proximate consequences of the breach of duty involved in this
case. Carrie Burger's death was caused by Tay-Sachs disease. The disease was not
caused by Rosalie Green's failure to handle properly Joseph Burger's blood, but by
hereditary factors. Yet, we need not reverse the trial court's judgment for this error;
we can simply modify the judgment by subtracting the amount of the expenses we
now disallow.
This bring us to the question of the Burgers' entitlement to damages for
emotional distress. As a general rule, such damages are not recoverable unless they
result directly from tortiously caused physical injury. Our decisions demonstrate,
however, that there are exceptions to this general rule.
In Hughes v. Moore, 214 Va. 27, 34, 197 S.E.2d 214, 219 (1973), we held that
where the claim is for emotional distress and physical injury resulting therefrom,
recovery is permissible notwithstanding the lack of physical impact, provided there is
shown by "clear and convincing evidence" an "unbroken chain of causal connection
between the negligent act, the emotional disturbance, and the physical injury." And
in Womack v. Eldridge, 215 Va. 338, 342, 210 S.E.2d 145, 148 (1974), we held that
emotional distress resulting directly from a non-tactile tort may be compensable,
provided "four elements are shown," viz., that the tort is intentional or reckless, that
the tort feasor's conduct is outrageous and intolerable, that the wrongful conduct and
the emotional distress are causally connected, and that the emotional distress is
severe.
Dr. Naccash contends that the Burgers have not brought their claim for
emotional damages within the rationale of either Hughes or Womack. He argues that
the Burgers have proved neither physical injury resulting from emotional distress nor
emotional distress resulting from intentional or reckless conduct. Therefore, Dr.
Naccash maintains, the parents' "entire claim rests on their witnessing the birth,
suffering, and death of their child," and thus any injury to the parents was "indirect
rather than direct."
210
We believe, however, that the circumstances of this case justify another
exception to the general rule that damages for emotional distress are not allowable
unless they result directly from tortiously caused physical injury. The restrictions
upon recovery imposed by the provisos in Hughes and Womack were designed to
discourage spurious claims asserted by chance witnesses to physical torts involving
others. The considerations prompting imposition of the limitations do not exist here;
no one suggests that the Burgers' emotional distress was feigned or that their claim
was fraudulent. Indeed, to apply the restrictions here, or to refuse to recognize an
exception to he general rule, "would constitute a perversion of fundamental
principles of justice." Berman, 80 N.J. at 433, 404 A.2d at 15.
Furthermore, we believe it would be wholly unrealistic to say that the Burgers
were mere witnesses to the consequences of the tortious conduct involved in this
case. In our view, the parents' emotional distress was no less a direct result of
wrongful conduct than the distress endured by the plaintiffs in Hughes and Womack;
the evidence shows an unbroken chain of causal connection directly linking the
erroneous Tay-Sachs report, the deprivation of the parents' opportunity to accept or
reject the continuance of Mrs. Burger's pregnancy, and the emotional distress the
parents suffered following the birth of their fatally defective child.
Before leaving the subject of emotional damages, we note an argument
advanced by Dr. Naccash concerning an instruction granted by the trial court that
permitted the jury to award damages for any humiliation or embarrassment suffered
by the Burgers. Dr. Naccash asserts that one may recover damages for humiliation
and embarrassment only if he suffers some disfigurement or deformity resulting from
an injury, and the Burgers offered no evidence to support such a proposition. We
believe, however, that, while the jury properly might have inferred the Burgers were
humiliated and embarrassed by the course of events involving their daughter's illness,
the granting of the instruction, if error, was harmless; the evidence of other factors
affecting emotional distress was so overwhelming that the instruction could have had
only inconsequential impact upon the jury.
Remaining for disposition is a contention by Dr. Naccash that, even if a cause
of action exists in favor of the Burgers, he is not liable thereon. The evidence fails to
show, Dr. Naccash maintains, that a doctor-patient relationship ever existed between
him and the Burgers or their afflicted child. He would be liable for the negligence of
Rosalie Green, Dr. Naccash submits, only on the basis of the doctrine of respondeat
superior, and the evidence fails to establish the necessary master-servant relationship
between him and Ms. Green to support liability under that doctrine.
The record discloses that the case was submitted to the jury upon instructions
delineating the respective positions of the parties concerning the doctrine of
respondeat superior. The jury's verdict in favor of the Burgers necessarily
determined that a master-servant relationship existed between Dr. Naccash and Ms.
Green. The question, therefore, is whether the evidence supports that determination.
The evidence shows that the Cytogenetics Laboratory at Arlington Hospital
formerly was under the supervision of Dr. William Dolan, chief of pathology. He
211
employed Rosalie Green in 1969, and she worked under him as a technician in the
Laboratory, although her salary was paid by the hospital. In February, 1973, Dr.
Dolan determined that the workload of the Laboratory did not justify continuance of
the facility, and he terminated Ms. Green's employment. Dr. Dolan testified below
that it was his belief Dr. Naccash then hired Ms. Green and that she was under Dr.
Naccash's supervision thereafter.
Dr. Naccash, a private-physician member of the staff, was chief of the
department of obstetrics and gynecology at the hospital. When he learned of Dr.
Dolan's plan to close the Cytogenetics Laboratory, Dr. Naccash urged that it be kept
open "so the community... and the doctors in the community" could "make use of it."
He proposed that, if the Board of Trustees would provide "some space," he would be
willing, without compensation, to oversee the operation of the Laboratory and
supervise Ms. Green in her work; under the arrangement, "the hospital would have
nothing to do with hiring, firing, making decisions or anything." The Board agreed to
the proposal and directed the hospital administrator to prepare a written contract, but
one was never prepared.
In his testimony, Dr. Naccash took the position that, because his agreement
with the hospital was never formalized by a written instrument, he was without "any
authority or power" with respect to the Cytogenetics Laboratory; he claimed the
"department was running by itself." He admitted, however, that he had testified in a
pretrial deposition that he was the acting head of the Laboratory pending the
formalization of his agreement with the hospital.
Ms. Green testified that, when Dr. Dolan indicated an intention to close the
Laboratory, it was transferred to Dr. Naccash and the latter thereafter supervised her
work. She testified further that she reported directly to Dr. Naccash; that she had
frequent communications with him and consulted him "[m]ost of the time" about
problems and policies; that he made the decision to add the Tay-Sachs program to
the Laboratory's activities and participated in making arrangements for the program's
implementation; and that he approved using numbers alone on test tubes containing
blood intended for Tay-Sachs analysis.
Ms. Green was placed on administrative leave in September, 1974, and her
employment was terminated effective December 31, 1974. The personnel from
terminating Ms. Green's employment, admitted as an exhibit, states:
The Cytogenetics Laboratory has been abolished pursuant to the
recommendation of the Medical Staff of the hospital. Mrs. Green functioned as the
Cytogeneticist under the direction of Dr. Naccash who was responsible for the overall operation of the Laboratory. With the abolishment of the Laboratory the position
of the Cytogeneticist was also abolished.
Dr. Dolan was asked at trial whether Dr. Naccash had terminated Ms. Green's
employment; the witness stated, "[a]apparently so."
For factors enter into determination of the question whether a master-servant
relationship exists within the contemplation of the doctrine of respondeat superior,
212
(1) selection and engagement of the servant, (2) payment of compensation, (3) power
of dismissal, and (4) power of control. The first three factors are not essential to the
existence of the relationship; the fourth, the power of control, is determinative.
Whitfield v. Whittaker Mem. Hospital, 210 Va. 176, 181, 169 S.E.2d 563, 567
(1969); A.C.L.R. Co. v. Tredway's Admx., 120 Va. 735, 744-45, 93 S.E. 560, 562-63
(1917), cert. denied, 245 U.S. 670 (1918).
It is clear that, during the period pertinent to this case, Ms. Green's salary was
paid by the hospital and not Dr. Naccash; hence, any question concerning factor (2)
must be resolved in Dr. Naccash's favor. With respect to the existence or
nonexistence of factors (1) and (3), there was evidence from which the jury could
have decided either way. But, with respect to factor (4), viz., the power of control,
the evidence was overwhelming that Dr. Naccash not only held the power to control
Ms. Green's actions but also exercised the power whenever necessary; indeed, the
only contrary evidence is Dr. Naccash's assertion that the "department was running
by itself." Hence, there was ample evidence to support the jury's finding that a
master-servant relationship existed between Dr. Naccash and Ms. Green.
Citing Whitfield, however, Dr. Naccash argues that a fifth factor must be
considered in determining whether a master-servant relationship exists. He quotes
from the Whitfield opinion, where we said that "the work has to be done on the
business of the principal or for his benefit." 210 Va. at 181, 169 S.E.2d at 567. Dr.
Naccash asserts that Ms. Green's activities were not on his business or for his benefit.
But the quoted statement means only that the servant must have acted within the
scope of his or her employment to render the master liable for the agent's torts.
There can be no question in this case that Ms. Green was acting within the scope of
her employment when she handled the blood sample withdrawn from Mr. Burger.
We will modify the judgment of the trial court by subtracting therefrom
$2,274.26, representing the costs connected with Carrie Burger's funeral and grave
marker, thus reducing the award to $178,673.80. In all other respects, the judgment
will be affirmed.
Modified and, as modified, affirmed.
Sea-Land v. O'Neal
224 Va. 343, 297 S.E.2d 647, 115 L.R.R.M. 4242 (1982)
Carrico, C.J., delivered the opinion of the court.
In the court below, Nancy O'Neal (O'Neal) filed a motion for judgment seeking
compensatory and punitive damages against Sea-Land Service, Inc. (Sea-Land), for
its alleged breach of an employment contract and its alleged fraud in inducing O'Neal
to resign from one position in return for a promise, never fulfilled, of employment in
another. A jury awarded O'Neal $125,000 in compensatory damages but denied her
any punitive award. Sea-Land has appealed.
213
The record shows that O'Neal was first employed by Sea-Land in 1970 as a
teletype operator-messenger in its Portsmouth terminal. Through a series of
promotions, she advanced to management level. At the time of the incidents in
question, she occupied the position of sales representative in one of the company's
divisions, earning in excess of $19,000 annually, with extensive fringe benefits. Her
most recent performance appraisal was "excellent," and she intended to remain in
Sea-Land's employ until retirement.6
In the performance appraisal form, a space was provided to indicate the
"performance improvement plan" the "evaluator" and the employee agreed upon "for
the next year." One of the suggestions listed in this space on O'Neal's appraisal form
was that she "[a]ttend junior college - spring or summer 1978." It was O'Neal's desire
to secure a college education that brought about the incidents in question.
Stated in the light most favorable to O'Neal, the evidence relating to these
incidents shows that in late December, 1977, or the early part of January, 1978,
O'Neal learned that her old job of teletype operator/messenger was or soon would be
vacant. This position required less travel than the sales representative job, and she
believed it would permit her to attend school at night while providing her with
sufficient funds to support herself until a better-paying position at Sea-Land became
available.7 She discussed the possibility of a transfer with James Chang, her
immediate supervisor, with Ruby Porter, under whom she would work if transferred,
and with Louis Nappi, the terminal manager whose approval of the transfer was
necessary.
Chang, Porter, and Nappi all approved the transfer. They told O'Neal,
however, that she would have to resign from her position as sales representative
before "they could officially say that [she] had the teletype and messenger job."
Nappi expressly stated to O'Neal that she "could have the other job" if she "turned
the letter [of resignation] in." Accordingly, on Friday, January 13, O'Neal signed and
delivered to Chang a letter in which she resigned as sales representative and accepted
the teletype position. At an operational sales meeting held in the office the same day
and attended by O'Neal, Chang announced that she was leaving his division and
Nappi stated that she "would be taking the teletype and the messenger's job."
When O'Neal reported for work Monday morning, Nappi informed her she
"could not have the job" as teletype operator/messenger because she was "over
qualified [and] all he needed was somebody with two legs and a driver's license."
When she asked him why he was "doing this," he replied that he "didn't have time to
be bothered with [her]."
O'Neal then telephoned Charles Hauser, Chang's superior in Jacksonville,
Florida, and asked whether she could retract her letter of resignation. He agreed to
6
O'Neal was 39 years old at time of trial and would have been eligible to retire at age 55.
7
The teletype operator/messenger job paid $168.68 per 35-hour week, with the opportunity for
overtime pay.
214
look into the matter, but told her afterward that "it was too late" to retract the letter.
Hauser did tell her "not to worry about it," for there were "a couple other positions
that might be coming open," and he would be "getting back to [her]." No other offers
of employment with Sea-Land developed, however, and O'Neal's last day of work
was March 10, 1978, after she had spent eight weeks training her replacement. At
the time of trial, she was employed as a "sales representative" in a furniture store,
working on a "straight commission" basis.
On appeal, Sea-Land assigns ten separate errors and condenses them into these
four questions, as quoted from its brief:
I. Whether Nancy O'Neal had an employment contract with the
defendant and if she did what was the nature of the contract?
II. Whether the evidence was sufficient as a matter of law to permit
Nancy O'Neal's claim of fraud and deceit to go to the jury?
III. Whether the matter of damages was properly submitted to the
jury under either the contract or the fraud and deceit theories?
IV. Whether, if either... Nancy O'Neal's contract or tort claim is
deficient, the rendering of a general verdict requires remand?
I.
With respect to the contract question, Sea-Land first complains of the trial
court's failure "to require Mrs. O'Neal to identify and describe the contract which she
alleged was breached by [Sea-Land]." Sea-Land points out that, in her motion for
judgment, O'Neal alleged the breach of a "contract of employment," and later, in
response to an interrogatory seeking the terms of the contract, she identified two
contracts of employment, "#1" being the contract covering her position as a sales
representative, and "#2" the agreement under which she "was to be" a teletype
operator/messenger. When Sea-Land moved to compel O'Neal to provide "more
specific answers as to the contract," the court deferred the motion to the date of trial.
Then, at trial, Sea-Land claims, the court not only failed to require O'Neal to identify
further the contract she relied upon but also permitted her to inject a third contract,
viz, an "agreement to exchange one job for the other." This action of the court, SeaLand maintains, was error.
We disagree with Sea-Land. It argued below that the contract O'Neal asserted
at trial was not "the contract... sued, on," that the "suit speaks in terms of a contract
of employment," and that O'Neal had changed her position "to say it's a contract to
exchange jobs." We fail to see, however, why a contract to exchange jobs should not
be considered a contract of employment; indeed, we do not believe it can logically be
considered otherwise.
Furthermore, O'Neal's identification at trial of a contract to exchange jobs did
not constitute the allegation of a third contract or even of a new theory. In her
answers to interrogatories, O'Neal stated that, under position "#2" she "was to be" a
teletype operator/messenger, that this represented a "switch from management to
215
[non-management] status," and that upon assuming her duties "under #2 [she] was to
relinquish [her] position under #1." These statements were sufficient to apprise SeaLand of O'Neal's theory of a contract based upon an exchange of positions.
But, Sea-Land argues, under all the alleged contracts, the "employments
involved were terminable at the will of either plaintiff or defendant and thus were
indefinite as to duration"; accordingly, "there was no contract whatsoever." O'Neal
admitted at trial, Sea-Land says, that there were "no 'terms' as to the duration of her
contract" of employment, either as a sales representative or as a teletype
operator/messenger, and that there was "no limitation on [Sea-Land's] right to
terminate her employment."
In a case cited by Sea-Land, we recognized that, where no specific time is fixed
for the duration of employment, it is presumed to be an employment terminable at
will, providing a dismissed employee no basis for recovery of damages against his
erstwhile employer. Hoffman Company v. Pelouze, 158 Va. 586, 164 S.E. 397
(1932). We said, however, that "this presumption... is rebuttable." Id. at 594, 164
S.E. at 399. We held that the presumption was rebutted in Hoffman by "the
interpretation which the parties themselves placed upon the matter"; although the
employer "undoubtedly had the right to terminate the contract at any time without
more ado," it did not do so, but asked the employee by letter to submit his resignation
and "threw out to him the gratuity of more than a month's salary as an inducement."
This, we said, "does not import overmuch confidence in [the employer's] contention
that the contract was of indefinite duration and so terminable at will." Id.
Here, as in Hoffman, although Sea-Land may have had the right to terminate
O'Neal's employment at will either while she was still a sales representative or in the
event she became a teletype operator/messenger, the company did not dismiss her
this way. Instead, it promised her that, if she resigned from the one position, she
would be employed in the other. This was an undertaking separate and apart from
any contract covering the particular position involved and was not subject to any
presumption of terminability at will that might have applied to such a contract. Once
O'Neal performed her part of the bargain by resigning from the first position, SeaLand became obligated to perform on its part and breached that obligation to her
damage when it refused to employ her in the teletype operator/messenger position.
Sea-Land suggests, however, that this separate agreement was not supported by
a valid consideration. Sea-Land cites Tow v. Miners Memorial Hospital Association,
Inc., 199 F. Supp. 926 (S.D. W. Va. 1961), aff'd 305 F.2d 73 (4th Cir. 1962), a case
interpreting West Virginia law, which Sea-Land says is "closely analogous to the
present matter." In Sea-Land's words, Tow stands for the proposition that "the
surrender by the employee of former employment as a necessary incident to the
acceptance of new employment is not such consideration as will make the contract of
employment anything other than terminable at will." The court did say this was the
law in West Virginia; however, it stated that "the rule in Virginia is to the contrary,"
199 F. Supp. at 937, citing Twohy v. Harris, 194 Va. 69, 72 S.E.2d 329 (1952).
216
Twohy involved an employee who threatened to resign because of inadequate
compensation. The employer promised to hold certain corporate stock for the benefit
of the employee if he would agree to continue his employment. We held that the
employer's promise concerning the stock was supported by consideration when the
employee refrained from exercising his right to resign and continued to perform the
services required of him. We quoted with approval the rule that:
[W]here one makes a promise conditioned upon the doing of an act by another,
and the latter does the act, the contract is not void for want of mutuality, and the
promisor is liable.... [U]pon the performance of the condition by the promisee, the
contract becomes clothed with a valid consideration which renders the promise
obligatory.
194 Va. at 81, 72 S.E.2d at 336. We believe this rule is applicable to the present case
and demonstrates that O'Neal's act of resigning furnished adequate consideration for
Sea-Land's promise to employ her in the teletype operator/messenger position.
As a corollary to its contract argument, Sea-Land contends that the trial court
erred in granting Instruction No. 4. This instruction permitted the jury to find a
plaintiff's verdict if it believed O'Neal and Sea-Land entered into "an employment
agreement whereby [she] was to resign as sales representative and be employed as
teletype operator and messenger." Sea-Land objected to the instruction on the ground
that it "assumes existence of a contract which has never been proven." Because, as
we have demonstrated, O'Neal did prove the existence of the contract specified in
Instruction No. 4, we hold that the granting of the instruction was not error.8
II.
Sea-Land contends that O'Neal failed, as a matter of law, to establish fraud by
clear, cogent, and convincing evidence. Sea-Land points out that O'Neal alleged the
fraud was intentional and with malice; intentional fraud "consists of deception,
intentionally practiced, to induce another to part with property or to surrender some
legal right, and which accomplishes the end designed." Further, Sea-Land maintains,
an action of fraud cannot be based upon a statement or promise relating to future
events. Yet, Sea-Land asserts, O'Neal failed to show any intentional act on its part,
to establish that any of its representatives bore her any ill will, or to prove that
anyone made her a promise based upon existing or past events.
A case called to our attention by Sea-Land provides a complete answer to this
argument. Sea-Land cites Lloyd v. Smith, 150 Va. 132, 142 S.E. 363 (1928), for the
proposition that "an action based upon fraud must aver the misrepresentation of
present [or] pre-existing facts, and cannot ordinarily be predicated on unfulfilled
promises or statements as to future events." 150 Va. at 145, 142 S.E. at 365. We
opined further that, "[w]ere the general rule otherwise, every breach of contract could
8
Sea-Land originally assigned error to the refusal of its proffered Instruction No. A1, relating to
the terminability at will of an employment contract of indefinite duration. Sea-Land did not
argue the refusal on brief, however; hence, we will not consider the point.
217
be made the basis of an action in tort for fraud." Id. But, in the very next paragraph of
the opinion, we said this:
There are, however, some real and apparent exceptions. The courts are not
agreed as to all of these exceptions, but there is much authority to the effect that an
action in tort for deceit and fraud may sometimes be predicated on promises which
are made with a present intention not to perform them.... It has been stated that the
gist of fraud in such case is not the breach of the agreement to perform, but the
fraudulent intent.
Id. See also Restatement (Second) of Torts § 530 comment c (1977).
The evidence in this case clearly, cogently, and convincingly supports the
conclusion that, when Nappi told O'Neal she "could have the [teletype
operator/messenger] job" if she "turned [in] the letter [of resignation from the sales
representative position]," he made this promise with the then present intention not to
perform it. Hence, O'Neal proved her allegation of intentional fraud, and it was not
error for the trial court to submit the fraud question to the jury.
III.
With respect to the damage issue, the trial court granted Instruction No. 8,
which reads:
The Court instructs the jury that if, from the evidence and the other instructions
of the Court, you find your verdict in favor of the plaintiff for compensatory
damages, then in assessing the damages to which she is entitled, you may take into
consideration any of the following:
1. Any loss of severance pay and any loss of earnings in the past and any
loss of earnings she may reasonably be expected to sustain in the future;
2. Any other financial losses directly related to the loss of a job with the
defendant;
3. Any damage caused by embarrassment or humiliation resulting from the
loss of employment;
And from these as proven by the evidence, your verdict should be for such
sum as will fully and fairly compensate the plaintiff for the damages sustained by
her.
In the court below, Sea-Land confined its objections concerning this instruction
to those portions permitting the jury to award damages for future loss of earnings and
for embarrassment and humiliation. Consequently, we will confine our consideration
to the same portions and the same objections.
Regarding future loss of earnings, Sea-Land argued below that Instruction No.
8 permitted the jury to speculate because there was no evidence of any future loss nor
were there any facts upon which the jury could intelligently assess the loss.
Particularizing, Sea-Land told the court there was no evidence "as to [O'Neal's]
future working life" and no showing she would remain in Sea-Land's employ.
218
It is true that O'Neal did not introduce any specific evidence to establish the
span of her "working life." She did tell the jury, however, that she was thirty-nine
years old and that she intended to work until she was at least fifty-five. This
testimony would have permitted the jury to make an informed and reasonable
estimate of the duration of O'Neal's "working life."
O'Neal also testified that she intended to remain in Sea-Land's employ until she
retired. Sea-Land argues, however, that, although the trial court failed to require
O'Neal to specify what contract she relied upon and, further, even instructed the jury
on a contract "never described," her employment was terminable at will under all the
alleged agreements. Hence, Sea-Land says, there was nothing to support an award
for future loss of earnings.
But, as we demonstrated in Part I, supra, the so-called "never described"
contract was properly submitted to the jury. We noted further that this contract
carried no presumption of terminability at will and that Sea-Land breached the
contract when it refused to employ O'Neal in the teletype operator/messenger
position.
Considering O'Neal's age, the past recognition of the quality of her work, and
her intention to remain in Sea-Land's employ, we believe there was an adequate basis
for the jury to determine a reasonable period during which O'Neal would have
continued in Sea-Land's employ as a teletype operator/messenger, had she been
given that position. Hence, she was entitled to have the jury consider whether she
suffered damage for future loss of earnings on her breach of contract theory.
On her tort theory, however, O'Neal was entitled to have the jury consider
damages resulting from future loss of earnings based upon her former position as a
sales representative. After all, it was that position from which she resigned as a
result of Sea-Land's trickery. Of course, she could not recover the same damages
twice, once on a contract basis and once on a tort theory, but the jury was warned
against this sort of duplication in an instruction granted at Sea-Land's request.9
Concerning the portion of Instruction No. 8 which permitted the jury to award
"damage caused by embarrassment or humiliation resulting from the loss of
employment," Sea-Land objected below on the ground there was no "physical harm
sustained by [O'Neal]" and "no evidence concerning intent or ill will" on Sea-Land's
part which would support such an award.10 Citing D. Dobbs, Handbook on the Law
of Remedies 12.25 (1973), Sea-Land argues "[i]t is settled law that an employee
cannot recover damages from an employer in a breach of contract for humiliation or
injury to feelings." Then, citing Bowles v. May, 159 Va. 419, 166 S.E. 550 (1932),
9
In Instruction No. G, also granted at Sea-Land's request, the trial court told the jury that the
amounts O'Neal "could have earned, did earn and will in the future earn, by accepting other
employment, must be deducted from such damages as the jury may award."
10 Sea-Land did not object below, and does not contend here, that O'Neal failed to show she was
embarrassed or humiliated by Sea-Land's conduct.
219
Sea-Land maintains there can be no recovery of damages for harm to feelings in the
absence of physical injury or wanton or willful conduct.
Sea-Land's analysis of Dobbs' views is correct as far as it goes. What the
author actually says is that, "absent some tort," damages for "humiliation or injury to
feelings" are not recoverable in an action for breach of contract. D. Dobbs, supra, §
12.25, at 927.
Sea-Land does state correctly the general rule applicable to tort cases that,
absent proof of physical injury or wanton or willful conduct, there can be no
recovery of damages for mental anguish, emotional distress, or humiliation. As with
most general rules, however, there are recognized exceptions.
We established in Part II, supra, that Sea-Land committed an intentional tort
against O'Neal. Previously, in at least five classes of cases involving intentional
torts, we have approved the recovery of damages for humiliation, embarrassment,
and similar harm to feelings, although unaccompanied by actual physical injury,
where a cause of action existed independently of such harm. The cases and the torts
are:
Peshine v. Shepperson, 58 Va. (17 Gratt.) 472, 486 (1867) (deliberate trespass);
Ches, & Pot. Tel. Co. v. Carless, 127 Va. 5, 9, 102 S.E. 569, 570 (1920) (wrongful
suspension of telephone service); W.T. Grant Co. v. Owens, 149 Va. 906, 925, 141
S.E. 860, 866 (1928) (false imprisonment); James v. Powell, 154 Va. 96, 117, 152
S.E. 539, 547 (1930) (libel); and Spitzer v. Clatterbuck, 202 Va. 1001, 1006-07, 121
S.E.2d 4668 469-70 (1961) (malicious prosecution).
By way of comparison, the potential for distress to O'Neal from the loss of her
job through Sea-Land's trickery was not substantially less than the harm caused by
the torts involved in the cases cited above. Similarly, the wrong committed by SeaLand was not materially less egregious than the conduct of at least several of the
defendants involved in the earlier decisions. In this case as well as each of those
cited, harm to the feelings of the prospective victim was readily foreseeable. We
perceive no logical reason, therefore, to permit recovery of distress damages there
and to deny similar damages here.
IV.
Finally, Sea-Land contends that, because the jury returned a general verdict,
the judgment appealed from must be reversed and the case remanded "if this court
determines that either the contract claim or fraud claim is deficient...." Having
determined that neither claim is deficient, and finding that Sea-Land has failed to
demonstrate reversible error otherwise, we will affirm the judgment of the trial court.
Affirmed.
Russo v. White
241 Va. 23, 400 S.E.2d 160
Compton, J., delivered the opinion of the Court.
220
In this tort action, the plaintiff seeks recovery in damages for alleged
intentional infliction of emotional distress, independent of any physical injury and
unaccompanied by any physical impact. On appeal, we determine whether the trial
court erred in sustaining the defendant's demurrer.
We will consider the plaintiff's allegations according to "the settled rule that a
demurrer admits the truth of all well-pleaded material facts. All reasonable factual
inferences fairly and justly drawn from the facts alleged must be considered in aid of
the pleading. However, a demurrer does not admit the correctness of the pleader's
conclusions of law." Fox v. Custis, 236 Va. 69, 71, 372 S.E.2d 373, 374 (1988).
In an amended motion for judgment, appellant Patricia B. Russo sought to
recover against appellee Burton White for his allegedly outrageous conduct. The
plaintiff asserted that she is a single parent who lives with her teen-age daughter.
She alleged that in the Spring of 1987 she "went on a date with defendant" and
thereafter "did not date defendant again."
According to the pleading, plaintiff began receiving numerous "hang-up" calls
from April through June, 1987. She asserted that in August 1987, defendant was
convicted under Code §18.2-429 of "causing telephone to ring with intent to annoy,"
a misdemeanor.
Plaintiff further alleged that the same type of calls resumed in the Fall of 1987
and she began "keeping a log." Between November 25, 1987 and January 28, 1988,
she received 340 "hang-up" calls, according to the plaintiff. Continuing, she alleged
that she contacted the police in January 1988, and, with the aid of the police and the
telephone company, "defendant was observed making 15 phone calls to plaintiff in
quick succession from a telephone booth." She asserted that defendant was served
with 15 warrants for committing the same crime for which he had been convicted
during the previous August. The charges, she noted, "were taken under advisement."
The plaintiff also alleged that some of the calls were made at times which made
"it apparent that defendant was watching plaintiff's house." According to plaintiff,
defendant's conduct caused her "extreme emotional distress" because "not knowing
defendant very well, she was not . . . aware of his proclivity for violence." She
asserted that this "consideration" weighed heavily on her, "due to her vulnerability as
a single parent, and since she must leave her minor daughter alone at times."
Concluding, plaintiff alleged that, as a proximate result of defendant's
"intentional acts," she suffered "severe emotional distress." This resulted, she
asserted, in "nervousness, sleeplessness, stress and its physical symptoms,
withdrawal from activities which might necessitate plaintiff leaving her daughter at
home, [and] lack of concentration at work to the point where she received a
reprimand."
In a demurrer to the amended motion, defendant contended that plaintiff failed
to sufficiently set forth "either the legal elements or factual basis" to support a claim
of "intentional infliction of emotional harm." Upon consideration of argument of
221
counsel, the trial court sustained the demurrer. We awarded the plaintiff this appeal
from the January 1990 judgment order dismissing the action.
In Womack v. Eldridge, 215 Va. 338, 210 S.E.2d 145 (1974), this Court joined
a growing number of jurisdictions which explicitly recognized the existence of an
independent tort referred to as "the intentional infliction of emotional distress,"
sometimes called the tort of "outrage." See annot., Modern Status of Intentional
Infliction of Mental Distress as Independent Tort; "Outrage." 38 A.L.R.4th 998
(1985). Academics take credit for the development of this modern tort, which was
finally defined in the Restatement (Second) of Torts
46 (1965) (hereinafter
Restatement). Givelber, The Right to Minimum Social Decency and the Limits of
Evenhandedness: Intentional Infliction of Emotional Distress by Outrageous
Conduct, 82 Colum. L. Rev. 42, 42-43 (1982).
The tort, however, "differs from traditional intentional torts in an important
respect: it provides no clear definition of the prohibited conduct." Id. at 51. Assault,
battery, and false imprisonment "describe specific forms of behavior," but the term
"outrageous" "does not objectively describe an act or series of acts; rather, it
represents an evaluation of behavior. The concept thus fails to provide clear
guidance either to those whose conduct it purports to regulate, or to those who must
evaluate that conduct." Id. Indeed, we have said recently that such torts are "not
favored" in the law. Ruth v. Fletcher, 237 Va. 366, 373, 377 S.E.2d 412, 415 (1989).
Nevertheless, in an effort to establish meaningful standards for adjudication of
such claims, we adopted a four-pronged approach in Womack, patterned after the
Restatement definition. We stated that emotional distress resulting from a non-tactile
tort may be compensated if the plaintiff alleges, and proves by clear and convincing
evidence, that: the wrongdoer's conduct is intentional or reckless; the conduct is
outrageous and intolerable; the alleged wrongful conduct and emotional distress are
causally connected; and, the distress is severe. 215 Va. at 342, 210 S.E.2d at 148.
In this case, the defendant does not dispute that the plaintiff's pleading
sufficiently alleges facts to comply with the first and third prongs of Womack. Thus,
we will address the remaining two prongs, keeping in mind that the trial court must
initially determine whether the facts alleged will support a finding of both
outrageousness and severe emotional distress. See Restatement comments h and j;
Ruth, 237 Va. at 368, 377 S.E.2d at 413.
Under the second prong, it is insufficient for a defendant to have "acted with an
intent which is tortious or even criminal." Restatement comment d. Even if a
defendant "has intended to inflict emotional distress," or his conduct can be
"characterized by 'malice,' or a degree of aggravation which would entitle the
plaintiff to punitive damages for another tort," the requirement of the second prong
has not been satisfied. Id. "Liability has been found only where the conduct has been
so outrageous in character, and so extreme in degree, as to go beyond all possible
bounds of decency, and to be regarded as atrocious, and utterly intolerable in a
civilized community." Id.
222
The plaintiff contends that for "White to call her over a two month period an
average of 5.6 times per day is intolerable and offends any sense of decency and
morality in a civilized society." Conceding that defendant did not speak during the
calls, plaintiff argues that they nonetheless were "threatening" because of "their
frequency and the fact that White was calling a single parent with a young child who
had extremely limited contact with him so as not to be able to judge White's
proclivity for violence." She contends that, given the persistence with which
defendant "harassed" her with "these threatening calls, it was more than reasonable
for her to feel that White was likely to escalate the matter to the point of violence."
Thus, according to plaintiff, defendant's conduct constituted intentional infliction of
emotional distress.
We will agree with the plaintiff and assume, without deciding, that defendant's
conduct rose to the level of outrageousness required to support the cause of action.
Consequently, we will focus on the fourth prong of Womack and decide whether the
plaintiff's emotional distress was "severe."
The term "emotional distress" travels under many labels, such as, "mental
suffering, mental anguish, mental or nervous shock . . . . It includes all highly
unpleasant mental reactions, such as fright, horror, grief, shame, humiliation,
embarrassment, anger, chagrin, disappointment, worry, and nausea." Restatement
comment j. But liability arises only when the emotional distress is extreme, and only
where the distress inflicted is so severe that no reasonable person could be expected
to endure it. Id.
Here, plaintiff alleged that she suffered "severe emotional distress" and
"extreme emotional distress." But, even on demurrer, the court is not bound by such
conclusory allegations when the issue involves, as here, a mixed question of law and
fact. This is not a negligence case where, according to Rule 3:16(b), an allegation of
"negligence" is sufficient without specifying the particulars. In the present claim, "a
plaintiff must allege all facts necessary to establish" the cause of action. Ely v.
Whitlock, 238 Va. 670, 677, 385 S.E.2d 893, 897 (1989) (trial court erred in failing
to sustain demurrer to count in motion for judgment alleging intentional infliction of
emotional distress).
The plaintiff has alleged that she was nervous, could not sleep, experienced
stress and "its physical symptoms," withdrew from activities, and was unable to
concentrate at work. There is no claim, for example, that she had any objective
physical injury caused by the stress, that she sought medical attention, that she was
confined at home or in a hospital, or that she lost income. Consequently, we
conclude that the alleged effect on the plaintiff's sensitivities is not the type of
extreme emotional distress that is so severe that no reasonable person could be
expected to endure it.
Therefore, we hold that the trial court correctly sustained the demurrer, and the
judgment of dismissal will be Affirmed.
223
Almy v. Grisham
273 Va. 68; 639 S.E.2d 182 (2007
Keenan, J., delivered the opinion of the court.
In this appeal involving an action for intentional infliction of emotional
distress and a related civil conspiracy claim, we consider whether the circuit court
erred in sustaining the defendants' demurrers. As part of our consideration, we
decide the issue of first impression whether a civil claim for conspiracy to
intentionally inflict emotional distress will be recognized as a cause of action in
this Commonwealth.
I.
Material Facts And Proceedings
In February 2004, Katharine Almy filed a motion for judgment against John
Grisham, Jr., Alan Swanson, Donna Swanson, David Liebman, and Cina L. Wong
(collectively, defendants), alleging claims including intentional infliction of
emotional distress and conspiracy to intentionally inflict emotional distress. Almy
had asserted similar claims in a previous action, which was dismissed without
prejudice on her motion for nonsuit.
The defendants each filed demurrers asserting that Almy had failed to state a
cause of action. At a hearing on the demurrers, defendant Grisham asked that the
circuit court take judicial notice of the deposition testimony of Dr. Stephen
Alexander, a licensed professional counselor and potential witness in the case,
who had given the deposition testimony in the previous action. Almy did not
object to Grisham's request.
After considering the parties' arguments, the circuit court issued a letter opinion
stating:
[T]he intentional infliction of emotional distress and conspiracy to
intentionally inflict emotional distress claims will not survive demurrer,
based on the depositions which are part of the record in this case. The
depositions allow the court to evaluate and decide the merits of claims
set forth in the motion for judgment.11
In a final order incorporating its letter opinion, the circuit court sustained
the defendants' demurrers and dismissed the action with prejudice.
Almy's motion for judgment recounted a series of events that allegedly
occurred between 1996 and 1999. Beginning in 1996 and continuing through
1998, Donna Swanson (Donna) received several anonymous, hand-written letters
that made various accusations, including allegations of marital infidelity on the
part of Alan Swanson (Alan), Donna's husband. In 1998, Grisham also received
an anonymous, hand-written letter. According to Almy's allegations, Grisham and
the Swansons decided together that they should determine the source of the
11 Although the circuit court did not identify which depositions it was considering, Dr. Alexander's
deposition was the only deposition before the court.
224
anonymous letters, suspecting that Almy was the author. Grisham allegedly stated
during a tape-recorded conversation that he "really, really wanted to make Ms.
Almy suffer for writing those letters."
As part of their effort to determine if Almy was the author of the letters,
Grisham and the Swansons contacted Liebman, a handwriting analyst. Liebman
asked to see the anonymous letters, along with known samples of Almy's
handwriting. Grisham produced for Liebman's analysis a "thank-you" note written
by Almy and a form Almy had completed when she registered her daughter to
play baseball in a league in which Grisham was a coach. Liebman later requested
additional samples of Almy's handwriting.
To provide Liebman with the requested additional samples, Grisham and
Alan allegedly agreed to obtain documents bearing Almy's handwriting from her
children's files at St. Anne's- Belfield School (St. Anne's). Grisham served on the
board of directors at St. Anne's, and Alan was a teacher there. Alan, without
permission from anyone at St. Anne's, allegedly obtained from the school files an
enrollment and medical release form that Almy had completed, which was
marked "Strictly Confidential" and contained confidential and personal
information. Alan provided a copy of the document to Grisham, who allegedly
sent it to Liebman.
Wong, a handwriting examiner who worked with Liebman, also analyzed
the submitted samples. Liebman and Wong concluded in a written report
(Liebman report) that it was possible Almy had written the letters, and that she
appeared to have addressed the envelopes containing the letters. Almy alleged
that Grisham, Liebman, and Wong collaborated regarding the desired contents
and phrasing of the Liebman report.
Grisham and the Swansons next met with Grisham's attorney, John Zunka.
Grisham allegedly told Zunka that the Liebman report concluded that Almy had
written the anonymous letters. Based on this information, Zunka advised Grisham
to contact the local Commonwealth's Attorney, James Camblos, to initiate
criminal proceedings against Almy.
Grisham and the Swansons met with Camblos and allegedly told him that
their handwriting experts concluded that Almy had written some of the
anonymous letters and had addressed the envelopes containing those letters.
Camblos contacted Detective Thomas Grimes of the Albemarle County Police
Department, who arranged a meeting with the Swansons. The Swansons provided
Grimes with copies of the anonymous letters and told him that they thought Almy
was the author.
In August 1998, Grimes confronted Almy at her residence and asked her if
she had written the anonymous letters. After Almy denied writing the letters,
Grimes informed Almy that she was not under arrest but that he "want[ed] the
letters to stop." Almy alleged that Grimes was "rude and demeaning" during the
visit, causing her to cry and become upset.
225
Almy asserted that as a result of Grimes' visit in August 1998, she suffered
severe emotional distress, including nervousness, sleeplessness, stress with
accompanying physical symptoms, and an inability to concentrate. Almy further
alleged that after Grimes' visit she withdrew from her customary activities, could
not perform her duties as wife and mother, was unable to manage her mother's
real estate properties, and could not perform her administrative duties at a
nonprofit organization.
In November 1998, Almy sought treatment for her emotional distress from
Dr. Alexander, who concluded that Almy suffered from a "major depressive
disorder." Almy refused medication for her depression but, over the next seven
months, she received therapy from Dr. Alexander on several occasions.
Almy alleged that her depressed condition improved until about August
1999, when she learned that Grisham and the Swansons earlier had obtained
materials from certain files at St. Anne's containing confidential information
about Almy's children. According to Almy's allegations, upon learning that
Grisham and the Swansons had made copies of documents from those files, Almy
felt "extremely violated, outraged, deeply disturbed and worried," and she "feared
for how her children would be treated during the upcoming school year." As a
result, Almy allegedly suffered a serious "setback" in her depression. She asserted
that her husband and several friends observed a "return of her depressive state and
debilitating functioning." Almy also alleged that she again sought counseling
from Dr. Alexander, who concluded that Almy's discovery concerning her
children's files had caused the "setback" in her depression.
II.
Arguments On Appeal
Almy argues that the circuit court erred in considering Dr. Alexander's
deposition testimony when ruling on the defendants' demurrers, because a
demurrer addresses only the legal sufficiency of the allegations of a motion for
judgment. Almy also contends that the circuit court erred in sustaining the
demurrers because Almy properly pleaded all required elements of intentional
infliction of emotional distress and an accompanying conspiracy claim.
In response, Grisham initially argues that Almy did not preserve for appeal
the issue whether the circuit court erred in relying on Dr. Alexander's deposition
testimony when ruling on the demurrers.12 Next, addressing the merits of Almy's
pleadings, Grisham contends that the pleadings fail to state a cause of action.
Grisham asserts that Almy's allegations of emotional distress are identical to the
plaintiff's allegations in Russo v. White, 241 Va. 23, 400 S.E.2d 160, 7 Va. Law
Rep. 1253 (1991), in which this Court held that the pleadings were insufficient to
support a claim of intentional infliction of emotional distress.
12 The Swansons and Wong assert essentially the same arguments as Grisham. Liebman has not
filed a brief in this appeal.
226
Grisham also argues that Almy's pleadings are deficient because they do not
allege facts sufficient to establish that the defendants' actions were intentional or
reckless and were outrageous. He further contends that because Almy's pleadings
do not support a claim for intentional infliction of emotional distress, her
conspiracy claim based on that underlying tort likewise fails.
III. Analysis
We first observe that when ruling on a demurrer, in contrast to ruling on a
motion for summary judgment, a court is not permitted to decide the merits of a
claim but only may decide whether a plaintiff's factual allegations are sufficient to
state a cause of action. Barber v. Vista RMS, Inc., 272 Va. 319, 327, 634 S.E.2d
706, 711 (2006); see Fun v. Virginia Mil. Inst., 245 Va. 249, 252, 427 S.E.2d 181,
183, 9 Va. Law Rep. 971 (1993); Elliott v. Shore Stop, Inc., 238 Va. 237, 239-40,
384 S.E.2d 752, 753, 6 Va. Law Rep. 346 (1989). Thus, a demurrer presents an
issue of law, not an issue of fact. See Code § 8.01-273; Harris v. Kreutzer, 271
Va. 188, 196, 624 S.E.2d 24, 28 (2006); Glazebrook v. Board of Supervisors, 266
Va. 550, 554, 587 S.E.2d 589, 591 (2003).
In the present case, the circuit court erred in considering the factual merit of
Almy's allegations in ruling on the defendants' demurrers.13 Our analysis does not
end here, however, because Almy asks us to review the circuit court's express
holding that her claims "will not survive demurrer." Almy's failure to object to the
circuit court's consideration of the deposition testimony does not affect our review
because, given the court's erroneous mode of procedure, we do not address the
substance of the court's analysis but consider only whether the court reached the
correct result, albeit for the wrong reason. Thus, we confine our review to the
legal sufficiency of Almy's pleadings.14 See Harris, 271 Va. at 195, 624 S.E.2d
at 28; Dreher v. Budget Rent-A-Car Sys., Inc., 272 Va. 390, 395, 634 S.E.2d 324,
13 We find no merit in the defendants' argument that, based on our decision in Fleming v. Anderson,
187 Va. 788, 48 S.E.2d 269 (1948), the circuit court properly considered Dr. Alexander's
deposition when ruling on the demurrer. Fleming is inapposite because, there, the circuit court
took judicial notice of prior judicial proceedings when ruling on a demurrer solely because the
plaintiff's cause of action arose from the outcome of those prior proceedings. Id. at 794-95, 48
S.E.2d at 272-73.
14 We observe, in contrast, that on at least two prior occasions when a circuit court erroneously
decided the merits of a case in ruling on a demurrer, we nevertheless reviewed the circuit court's
decision as if it were a ruling on a motion for summary judgment. See Shelor Motor Co. v.
Miller, 261 Va. 473, 544 S.E.2d 345 (2001); Carmel v. City of Hampton, 241 Va. 457, 403
S.E.2d 335, 7 Va. Law Rep. 2291 (1991). In those cases, however, the parties, as well as the
circuit court, treated the pleadings in this manner. Here, the parties did not ask the circuit court to
rule on the merits of the claims, and the defendants merely asserted that Dr. Alexander's
deposition supported their position that Almy had failed to state a claim upon which relief could
be granted.
227
326-27 (2006); Thompson v. Skate Am., Inc., 261 Va. 121, 128, 540 S.E.2d 123,
126-27 (2001).
We consider the factual allegations of the motion for judgment in the light
most favorable to the plaintiff. McDermott v. Reynolds, 260 Va. 98, 100, 530
S.E.2d 902, 903 (2000); W.S. Carnes, Inc. v. Board of Supervisors, 252 Va. 377,
384, 478 S.E.2d 295, 300 (1996). We will consider as true the facts alleged
therein, the facts impliedly alleged, and the reasonable inferences of fact that can
be drawn from the facts alleged. See McDermott, 260 Va. at 100, 530 S.E.2d at
903; Delk v. Columbia/HCA Healthcare Corp., 259 Va. 125, 129, 523 S.E.2d 826,
829 (2000); Breeding v. Hensley, 258 Va. 207, 211-12, 519 S.E.2d 369, 371
(1999).
A. Intentional Infliction of Emotional Distress
We first recognized this intentional tort as a cause of action in Womack v.
Eldridge, 215 Va. 338, 210 S.E.2d 145 (1974). There, we held the tort has four
elements that must be proved: 1) the wrongdoer's conduct was intentional or
reckless; 2) the conduct was outrageous or intolerable; 3) there was a causal
connection between the wrongdoer's conduct and the resulting emotional distress;
and 4) the resulting emotional distress was severe. Id. at 342, 210 S.E.2d at 148;
accord, Harris, 271 Va. at 203, 624 S.E.2d at 33; Delk, 259 Va. at 136, 523
S.E.2d at 833; Jordan v. Shands, 255 Va. 492, 498-99, 500 S.E.2d 215, 218-19
(1998).
Because of problems inherent in proving a tort alleging injury to the mind or
emotions in the absence of accompanying physical injury, the tort of intentional
infliction of emotional distress is "not favored" in the law. Harris, 271 Va. at 20304, 624 S.E.2d at 33; Russo, 241 Va. at 26, 400 S.E.2d at 162; Ruth v. Fletcher,
237 Va. 366, 373, 377 S.E.2d 412, 415-16, 5 Va. Law Rep. 1915 (1989). Thus, in
contrast to a claim of negligence, a plaintiff alleging a claim for intentional
infliction of emotional distress must allege in her motion for judgment all facts
necessary to establish the cause of action in order to withstand challenge on
demurrer. Harris, 271 Va. at 204, 624 S.E.2d at 33; Russo, 241 Va. at 28, 400
S.E.2d at 163. Accordingly, we must consider whether Almy alleged sufficient
facts to establish each element of the tort.
1) Intentional or Reckless Conduct
We conclude that Almy's pleadings sufficiently allege that Grisham, Alan,
and Donna intended to cause Almy severe emotional distress. This element of the
tort is set forth in Almy's allegations that Grisham, Alan, and Donna acted
intentionally to falsely accuse Almy, with the specific purpose of causing her
humiliation, ridicule, and severe emotional distress. Almy further alleged that
these three defendants intentionally manufactured evidence to cause her distress,
and that Grisham expressed his intent to have her "really, really, suffer" for
writing the letters.
228
Almy fails to allege in her motion for judgment, however, that Liebman and
Wong engaged in conduct with the intent to cause Almy emotional distress.
Likewise, Almy's pleadings do not contain allegations that the actions of Liebman
and Wong were reckless, such that they knew or should have known their act of
writing a false report likely would cause Almy severe emotional distress.
Therefore, we hold that Almy has failed to state a cause of action against Liebman
and Wong for intentional infliction of emotional distress.
2) Outrageous or Intolerable Conduct
We conclude that Almy sufficiently alleged the element of outrageous
conduct perpetrated by Grisham, Alan, and Donna. This conduct is described in
Almy's allegations that the three defendants devised a scheme to falsely accuse
Almy of writing the letters and that, in furtherance of this scheme, Alan and
Grisham provided Liebman with the confidential documents improperly obtained
from St. Anne's. Almy further alleged that Alan and Donna knew or should have
known that Grisham inappropriately influenced the wording of Liebman's report,
causing Liebman to issue a false report implicating Almy. In addition, Almy
alleged that Grisham, Alan, and Donna caused Officer Grimes to confront Almy
by providing false information that a handwriting examiner had determined that
Almy was the author of the letters.
In reviewing these allegations, we acknowledge that the term "outrageous"
does not objectively describe particular acts but instead represents an evaluation
of behavior. Russo, 241 Va. at 26, 400 S.E.2d at 162. Nevertheless, in the absence
of an objective definition of the term, we must make this threshold assessment in
determining the sufficiency of Almy's allegations. See id.
We hold that reasonable persons could view the conduct alleged, if proved,
as being "so outrageous in character, and so extreme in degree, as to go beyond
all possible bounds of decency, and to be regarded as atrocious, and utterly
intolerable in a civilized community." See Russo, 241 Va. at 27, 400 S.E.2d at
162 (quoting Ruth, 237 Va. at 368, 377 S.E.2d at 413). When reasonable persons
could view alleged conduct in this manner and the other elements of the tort are
properly pleaded, the controversy must be resolved at a trial on the merits of the
claim, rather than by a circuit court on demurrer. See Burroughs v. Keffer, 272 Va.
162, 168, 630 S.E.2d 297, 301 (2006); Chapman v. City of Virginia Beach, 252
Va. 186, 191, 475 S.E.2d 798, 804 (1996); Womack, 215 Va. at 342, 210 S.E.2d at
148.
3) Causal Connection Between Conduct and Distress
We hold that Almy alleged sufficient facts to support a conclusion that the
conduct of Grisham, Alan, and Donna proximately caused her severe emotional
distress. Almy's pleadings contain two primary allegations of proximate
causation. First, Almy alleged that these three defendants provided false
information to local law enforcement officials and that, as a result, Detective
Grimes confronted Almy, causing her to suffer severe emotional distress and
229
depression. Second, Almy alleged that she suffered severe emotional distress
caused by her discovery that Grisham and Alan had removed from school files
confidential information related to her family. Thus, these allegations of
proximate causation were sufficient to survive the defendants' demurrers.
4) Severity of Resulting Emotional Distress
Finally, we hold that Almy adequately alleged that she suffered severe
emotional distress. Almy asserted that the conduct of Grisham, Alan, and Donna
caused her to suffer from several debilitating conditions, including depression,
nervousness, and an inability to sleep, which ultimately caused a complete
disintegration of virtually every aspect of her life. She allegedly was unable to
manage her mother's financial affairs, to carry out her family duties, or to perform
her various charitable endeavors. Also relevant are Almy's allegations that due to
her "major depressive disorder" caused by the defendants' false accusations, she
was required to undergo extensive therapy from Dr. Alexander.15
We hold that these allegations are materially different from the allegations
of severe emotional distress in Russo, which we held were inadequate to survive a
demurrer. Unlike the plaintiff in Russo, Almy alleged that she was required to
seek professional counseling because of her depression occasioned by the
defendants' misconduct.
We likewise conclude that Almy's allegations of severe emotional distress
exceed those alleged by the plaintiff in Harris v. Kreutzer, 271 Va. 188, 624
S.E.2d 24 (2006). While both Almy and the plaintiff in Harris alleged that they
required counseling and suffered from severe psychological trauma, depression,
humiliation, and injury to reputation, Almy additionally alleged that the
defendants' actions rendered her functionally incapable of carrying out any of her
work or family responsibilities. See Id. at 204-05, 624 S.E.2d at 34.
According to Almy, her emotional distress reached such a level of severity
that "[e]very aspect of [her] life [was] fundamentally and severely altered," such
that she "had trouble even walking out of the front door." As a result, Almy's
motion for judgment sufficiently alleges emotional distress "so severe that no
reasonable person could be expected to endure it." See id. at 205, 624 S.E.2d at 34
(citing Russo, 241 Va. at 28, 400 S.E.2d at 163). Thus, we hold that Almy's
factual allegations describing her severe emotional distress are adequate to
survive a demurrer on this fourth and final element of the tort.
B.
Conspiracy Allegations
15 In addition, the motion for judgment alleges that Almy obtained a forensic psychiatric
assessment conducted by David Pickar, M.D. Although the assessment was obtained for
purposes of litigation and Almy did not seek treatment from Dr. Pickar, Dr. Pickar nevertheless
allegedly concluded that Almy suffered from a major depressive disorder as a result of the
defendants' actions.
230
We next consider Almy's conspiracy allegations. We decide the question
whether the tort of conspiracy to intentionally inflict emotional distress should be
recognized as a cause of action in this Commonwealth.
We begin our analysis with the observation that, in Virginia, a common law
claim of civil conspiracy generally requires proof that the underlying tort was
committed. See Commercial Bus. Sys. v. Halifax Corp., 253 Va. 292, 300, 484
S.E.2d 892, 896 (1997). This general rule reflects the view of a majority of states
that have considered the question. See, e.g., Macomber v. Travelers Prop. & Cas.
Corp., 277 Conn. 617, 894 A.2d 240, 254-55 (Conn. 2006); Paul v. Howard
Univ., 754 A.2d 297, 310 n. 27 (D.C. 2000); Alexander & Alexander Inc. v. B.
Dixon Evander & Assocs., 336 Md. 635, 650 A.2d 260, 265 (Md. 1994); Jones v.
BP Oil Co., 632 So.2d 435, 439 (Ala. 1993); Middlesex Concrete Prods. &
Excav. Corp. v. The Carteret Indus. Ass'n, 37 N.J. 507, 181 A.2d 774, 779 (N.J.
1962); Cook v. Robinson, 216 Ga. 328, 116 S.E.2d 742, 744-45 (Ga. 1960).
"The gist of the civil action of conspiracy is the damage caused by the acts
committed in pursuance of the formed conspiracy and not the mere combination
of two or more persons to accomplish an unlawful purpose or use an unlawful
means. "CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 28, 431 S.E.2d
277, 281-82, 9 Va. Law Rep. 1421 (1993) (quoting Gallop v. Sharp, 179 Va. 335,
338, 19 S.E.2d 84, 86 (1942)); accord, Commercial Business Sys. v. BellSouth
Servs., 249 Va. 39, 48, 453 S.E.2d 261, 267 (1995). As stated above, a claim for
intentional infliction of severe emotional distress requires proof of severe
emotional distress proximately caused by a defendant's outrageous conduct that is
intentional or reckless. See Harris, 271 Va. at 203, 624 S.E.2d at 33; Delk, 259
Va. at 136, 523 S.E.2d at 833; Jordan, 255 Va. at 499, 500 S.E.2d at 219;
Womack, 215 Va. at 342, 210 S.E.2d at 148. Thus, under the common law in
Virginia, a conspiracy claim based on this underlying tort would include these
same elements of proof. See Halifax, 253 Va. at 300, 484 S.E.2d at 896.
As we already have observed, the tort of intentional infliction of emotional
distress is "not favored" in the law. See Harris, 271 Va. at 204, 624 S.E.2d at 33;
Russo, 241 Va. at 16, 26, 400 S.E.2d at 162; Ruth, 237 Va. at 373, 377 S.E.2d at
416. A primary reason for the tort's disfavored status is that because the
prohibited conduct cannot be defined objectively, clear guidance is lacking, both
to those wishing to avoid committing the tort, and to those who must evaluate
whether certain alleged conduct satisfies all elements of the tort. See Russo, 241
Va. at 26, 400 S.E.2d at 162.
If we were to recognize a conspiracy claim based on an agreement to
commit this tort, the difficulties resulting from this absence of clear guidance
would be compounded. Courts and juries would be faced with the amorphous task
of determining whether parties have entered into an agreement to engage in
conduct that cannot be defined objectively. See id. Determinations of this nature
would invite great uncertainty and speculation on the part of the fact finder.
231
We also observe that, in Virginia, a plaintiff can allege joint liability of
parties who acted in concert to commit the tort of intentional infliction of
emotional distress without the need to assert a claim of conspiracy. The case
before us plainly illustrates this point. Accordingly, upon consideration of these
several factors, we hold that a plaintiff may not assert a cause of action in
Virginia for civil conspiracy to intentionally inflict severe emotional distress.
IV. Conclusion
When a circuit court has reached the correct result for the wrong reason, we
will assign the correct reason and affirm the relevant portion of the court's
judgment. Whitley v. Commonwealth, 260 Va. 482, 492, 538 S.E.2d 296, 301
(2000); Mitchem v. Counts, 259 Va. 179, 191, 523 S.E.2d 246, 253 (2000);
Hartzell Fan, Inc. v. Waco, Inc., 256 Va. 294, 303, 505 S.E.2d 196, 202 (1998).
Therefore, based on our holdings in this appeal, we will affirm the circuit court's
dismissal of Almy's conspiracy claim with regard to all defendants. We also will
affirm the circuit court's dismissal with prejudice the claims of intentional
infliction of emotional distress with regard to David Liebman and Cina L. Wong.
We will reverse the circuit court's dismissal of the claim of intentional infliction
of emotional distress with regard to John Grisham, Jr., Alan Swanson, and Donna
Swanson, and remand the case to the circuit court for a trial on the merits of the
remaining claims.
Sensenbrenner v. Rust, Orling & Neale
236 Va. 419, 374 S.E.2d 55 (1988)
Russell, J., delivered the opinion of the court.
Pursuant to Rule 5:42, the United States Court of Appeals for the Fourth
Circuit, on March 2, 1988, certified to this Court two questions of Virginia law,
which we accepted by order entered May 5, 1988. The certified questions were
stated as follows:
4. Does Virginia law permit recovery by a home purchaser against
the pool installer and the architect for damages to the indoor swimming
pool and to the foundation of the house caused by a leaking pool, where
the pool installer and the architect were not in privity of contract with the
home purchaser, on the basis that the damages were injuries to property
and not economic losses?
5. Whether, if the indoor swimming pool and its separate room
enclosure were built against the house but outside its foundation, would
that fact in any way affect the result?
The facts are stated as set forth in the complaint filed in the federal court and in
the certificate. On October 3, 1984, F. James Sensenbrenner, Jr., and Cheryl Warren
Sensenbrenner (the plaintiffs) entered into a contract with O'Hara and Company, Inc.
(O'Hara) under which O'Hara would construct a new home for the plaintiffs on a lot
in the city of Alexandria. The home was to include an enclosed swimming pool.
232
Rust, Orling & Neale, Architects, Inc. (the architect) was to design the home,
including the pool and its enclosure. The plaintiffs contracted only with O'Hara, who
in turn contracted with the architect.
After the architect had furnished the requisite plans, O'Hara subcontracted the
construction of the pool to KDI Sylvan Pools, Inc. (the pool contractor). The work
was completed in the summer of 1985 and O'Hara conveyed the property to the
plaintiffs at a closing held on August 15, 1985.
Plaintiffs allege that due to negligent design and supervision by the architect
and negligent construction work by the pool contractor, the pool, which was built on
fill rather than on natural soils, settled, causing water pipes to break; that water
effusing from the broken pipes has eroded the soil under the pool and under a part of
the foundation of the house next to the pool; and that the bottom of the pool and a
part of the foundation of the house have cracked as a result of the erosion.
The plaintiffs filed separate civil actions against the architect and the pool
contractor in the United States District Court for the Eastern District of Virginia,
based entirely upon theories of negligence. Both defendants moved to dismiss under
Fed. R. Civ. P. 12(b)(6) on the ground that the complaints had failed to state claims
upon which relief could be granted. The defendants took the position that the
plaintiffs claimed damages only for economic loss, for which there could be no
recovery in tort in the absence of privity. The plaintiffs took the position that their
claims were for property damage and, that under Virginia law, the defense of lack of
privity had been abolished by Code § 8.01-223. The district court, relying on Bryant
Elec. Co., Inc. v. City of Fredericksburg, 762 F.2d 1192 (4th Cir. 1985),16 agreed
with the defendants and dismissed both complaints. The plaintiffs appealed and this
certification followed.
In Blake Construction Co. v. Alley, 233 Va. 31, 353 S.E.2d 724 (1987), we
considered the economic loss rule in the context of a construction project. There, the
Commonwealth, as owner, entered into one contract with a builder and another
contract with an architect, both relating to the construction of an office building. The
builder sued the architect for professional negligence resulting in economic losses to
the builder. Although there was no privity between the builder and architect, the
builder relied on Code § 8.01-223,17 which abolishes the lack-of-privity defense in
16 The district court's final order, denying reconsideration, was entered October 24, 1986, prior to
our decision in Blake Construction Co. v. Alley, 233 Va. 31, 353 S.E.2d 724 (1987).
17 Code § 8.01-223 provides:
In cases not provided for in § 8.2-318 where recovery of damages for injury to person,
including death, or to property resulting from negligence is sought, lack of privity between the
parties shall be no defense.
Code § 8.2-318 provides:
Lack of privity between plaintiff and defendant shall be no defense in any action brought
against the manufacturer or seller of goods to recover damages for breach of warranty, express or
233
actions for the recovery of damages to persons or property resulting from negligence.
We held that Code 8.01-223, being in derogation of the common-law requirement
of privity in negligence actions, was to be strictly construed according to its terms.
Because its language restricted its effect to cases involving injuries to persons or
property, we held that it had no application to claims for purely economic losses.
Thus, the builder's lack of privity with the architect was fatal to the builder's claim.
Id. at 34, 353 S.E.2d at 727.
Here, the plaintiffs contend that Blake is inapposite because they are claiming
damages for injury to property, not purely economic losses. They argue that they are
not seeking to recover for the loss of use and enjoyment of the pool or diminution in
its value. Rather, they say, they seek to recover for the cost of repairing the damage
done to their home caused by the pool "as well as the cost of placing the pool in a
condition where it will cause no further damage to their home." The architect and the
pool contractor contend that the plaintiffs seek to recover purely economic losses,
notwithstanding the language they employ. The resolution of the dispute depends
entirely upon the classification in which the plaintiffs' claim properly belongs.
Many courts have been confronted with the problem of determining when a
claim for damages crosses the line dividing purely economic losses from injuries to
persons or property. Most jurisdictions equate economic losses, for which no action
in tort will lie, with disappointed economic expectations. See, e.g., Redarowicz v.
Ohlendorf, 92 Ill. 2d 171, 441 N.E.2d 324 (1982). This is clearly the prevailing rule
where damage is claimed because goods purchased fail to meet some standard of
quality. See Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443
(1982).18
In East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858 (1986), a
unanimous Supreme Court, applying product-liability concepts in an admiralty case,
held that when a product "injures itself" because one of its component parts is
defective, a purely economic loss results to the owner for which no action in tort will
lie. The Court rejected a rule adopted in some jurisdictions which would permit tort
recovery where the defective product fails as a result of a sudden, calamitous event.
Cf. Cloud v. Kit Mfg. Co., 563 P.2d 248 (Alaska 1977); East River, 476 U.S. at 870.
In East River, the Supreme Court observed that if, in product-liability cases,
no-privity concepts were "allowed to progress too far, contract law would drown in a
sea of tort." 476 U.S. at 866. To similar effect, we observed in Kamlar Corp. v.
implied, or for negligence, although the plaintiff did not purchase the goods from the defendant,
if the plaintiff was a person whom the manufacturer or seller might reasonably have expected to
use, consume, or be affected by the goods . . . .
18 Moorman defined economic loss as: "damages for inadequate value, costs of repair and
replacement of the defective product, or consequent loss of profits -- without any claim of
personal injury or damage to other property . . . as well as the diminution in the value of the
product because it is inferior in quality and does not work for the general purposes for which it
was manufactured and sold." 91 Ill.2d at 82, 435 N.E.2d at 449 (citations omitted).
234
Haley, 224 Va. 699, 706, 299 S.E.2d 514, 517 (1983), that the limitations which
apply to contract damages "have led to the 'more or less inevitable efforts of lawyers
to turn every breach of contract into a tort'" (quoting W. Prosser, Handbook of the
Law of Torts 92 at 614 (4th Ed. 1971)). Most jurisdictions have resisted such
efforts by following the economic loss rule, limiting tort recovery against parties not
in privity with the purchaser of a product to cases in which negligent manufacture or
design has resulted in a product which constitutes a danger to the safety of persons or
property other than the product itself. See Moorman, 91 Ill.2d at 77, 435 N.E.2d at
446.19
Although sales of real estate are not controlled by product-liability concepts in
other respects, the rule limiting recovery for economic losses to the law of contracts
does apply to sales of real property alleged to be qualitatively defective. See, e.g.,
Nastri v. Wood Bros. Homes, Inc., 142 Ariz. 439, 445, 690 P.2d 158, 163-64 (1984);
Redarowicz, supra; Crowder v. Vandendeale, 564 S.W.2d 879, 882 (Mo. 1978),
overruled on other grounds, Sharp Bros. v. American Hoist & Derrick Co., 703
S.W.2d 901 (Mo. 1986) (quoted with approval in Blake, 233 Va. at 34-35, 353 S.E.2d
at 726).
The law of torts is well equipped to offer redress for losses suffered by reason
of a "breach of some duty imposed by law to protect the broad interests of social
policy." Kamlar, 224 Va. at 706, 299 S.E.2d at 517. Tort law is not designed,
however, to compensate parties for losses suffered as a result of a breach of duties
assumed only by agreement. That type of compensation necessitates an analysis of
the damages which were within the contemplation of the parties when framing their
agreement. It remains the particular province of the law of contracts. See Id.
The controlling policy consideration underlying tort law is the safety of persons
and property -- the protection of persons and property from losses resulting from
injury. The controlling policy consideration underlying the law of contracts is the
protection of expectations bargained for. If that distinction is kept in mind, the
damages claimed in a particular case may more readily be classified between claims
for injuries to persons or property on one hand and economic losses on the other.
The plaintiffs here allege nothing more than disappointed economic
expectations. They contracted with a builder for the purchase of a package. The
package included land, design services, and construction of a dwelling. The package
also included a foundation for the dwelling, a pool, and a pool enclosure. The
package is alleged to have been defective -- one or more of its component parts was
sufficiently substandard as to cause damage to other parts. The effect of the failure of
the substandard parts to meet the bargained-for level of quality was to cause a
19 Cf. Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145 (1965). Chief Justice
Traynor's opinion in Seely, and cases which follow it, are inapposite here insofar as they refer to
strict liability. Virginia law has not adopted § 402A of the Restatement (Second) of Torts and
does not permit tort recovery on a strict-liability theory in products-liability cases.
235
diminution in the value of the whole, measured by the cost of repair. This is a purely
economic loss, for which the law of contracts provides the sole remedy.
Recovery in tort is available only when there is a breach of a duty "to take care
for the safety of the person or property of another." Blake, 233 Va. at 34, 353 S.E.2d
at 726 (citations omitted) (emphasis added). The architect and the pool contractor
assumed no such duty to the plaintiffs by contract, and the plaintiffs' complaint
alleges no facts showing a breach of any such duty imposed by law. Accordingly,
the first certified question is answered in the negative.
The second certified question asks, in effect, whether the result would differ if
the swimming pool were located elsewhere on the plaintiffs' lot. Under the analysis
we adopt, a change of location would make no difference. Accordingly,
The first certified question is answered in the negative.
The second certified question is answered in the negative.
Bowman v. Bank of Keysville
229 Va. 534, 331 S.E.2d 797 (1985)
Compton, J., delivered the opinion of the court.
Virginia adheres to the common-law rule that when a contract calls for the
rendition of services, but the period of its intended duration cannot be determined by
a fair inference from its provisions, either party is ordinarily at liberty to terminate
the contract at will upon giving reasonable notice of intention to terminate. Stonega
Coal and Coke Co. v. Louisville and Nashville R. R. Co., 106 Va. 223, 226, 55 S.E.
551, 552 (1906). This appeal presents a unique situation under the foregoing
employment-at-will doctrine.
We have consolidated for review two damage suits brought by separate
employees of a state bank who were also stockholders of the bank corporation. We
awarded the plaintiffs appeals from orders entered in February 1982, in which the
trial court sustained defendants' demurrers to virtually identical motions for
judgment.
A demurrer admits the truth of all material facts that are properly pleaded.
Under this rule, the facts admitted are: "(1) facts expressly alleged, (2) facts which
are by fair intendment impliedly alleged, and (3) facts which may be fairly and justly
inferred from the facts alleged." Ames v. American National Bank, 163 Va. 1, 37,
176 S.E. 204, 215 (1934) (footnote omitted). We shall recite the facts in accordance
with those principles.
Plaintiffs Betty P. Bowman and Joyce T. Bridges sued the State Bank of
Keysville as well as Reginald H. Pettus, William C. Ward, S.H. Brookes, John F.
Lyle, Thomas S. McKenzie, Jr., Daniel G. Van Clief, and Ralph J. Davis,
individually. Plaintiff Bowman had been employed by the Bank in various positions
for eight years until her termination on July 13, 1979. At that time, she was a
236
bookkeeper for the Bank. Plaintiff Bridges was terminated on the same day and had
been in the Bank's employ for 18 years. She was head bookkeeper for the Bank
when terminated. At all times pertinent to this controversy, plaintiff Bowman and
plaintiff Bridges owned five and six shares, respectively, of the Bank's common
stock.
The individual defendants, except defendant Davis, were members of the
Bank's nine-person Board of Directors at times pertinent to this litigation. Pettus was
chairman of the Board as well as the Bank's attorney. Ward was president of the
Bank. Davis was a vice president of NB Corporation.
Prior to February 8, 1979, the Bank's management commenced negotiations
with officials of NB which culminated in the execution of an agreement providing
for merger of the Bank into a subsidiary of NB and conversion of each share of
common stock of the Bank into 25 shares of common stock of NB. A special
meeting of shareholders was scheduled for June 26, 1979. The Board had a proxy
statement prepared and mailed to each stockholder of record. The plaintiffs alleged
that the proxy statement was false and misleading, in violation of federal securities
laws and laws of the Commonwealth. The plaintiffs also alleged that the Bank,
through its Board and management, solicited proxies in a manner that violated state
and federal securities laws. The plaintiffs assert that defendant Davis participated in
the foregoing illegal activity.
The defendants knew there was opposition to the merger and that the vote of
stockholders on the merger would be extremely close. Several days before the
special meeting, plaintiff Bowman was informed by Ward, in the presence of Davis,
that Davis and the members of the Board were aware of her opposition to the merger.
Bowman was told that if her shares were not voted in favor of the merger and the
merger was not consummated her employment with the Bank would be terminated.
She was also advised at the time that if the merger was approved, but her shares were
not voted in favor of the merger, her vote against the merger would have "a definite
adverse effect on her job."
Shortly before the date of the special meeting, plaintiff Bridges was given
essentially the same information by Ward, in the presence of Davis, that was
conveyed to Bowman. Bridges was told that if she refused to vote for the merger she
would not continue to be employed by the Bank, if the merger failed, or by the
resultant entity, if the merger were consummated.
The plaintiffs executed their proxy cards in favor of the merger against their
will, under duress, and out of fear of losing their jobs. At the special meeting, 2008
shares of the Bank's common stock, including the plaintiffs' 11 shares, were voted in
favor of the merger proposal. This was eight votes more than the number necessary
to constitute the required two-thirds majority for approval of the plan.
Two days after the special meeting, the plaintiffs wrote a joint letter to the
Bank president. They stated that their proxies were invalid, illegally obtained,
237
"improper and null and void." Accordingly, they wrote, only 1997 votes were cast
in favor of the merger, less than the votes necessary for approval.
On July 6, 1979, the Bank Board voted to abandon the merger. The merger
was aborted, according to the plaintiffs' allegations, because the defendants feared
that the illegal activities involved in obtaining the proxies of stockholders, including
the plaintiffs, would be discovered. Six days later, the Board, by a five to four vote,
decided to discharge the plaintiffs from their employment with the Bank. Directors
Pettus, Brookes, Lyle, McKenzie, and Van Clief voted for termination while Ward
voted against discharge.
On July 13, plaintiff Bowman was summoned to Ward's office. Pettus
informed her of the Board's action and notified her that her employment was
terminated. On the same day, Pettus called plaintiff Bridges by telephone, gave her
the same information, and terminated her employment. These suits were filed five
months later.
In their respective motions for judgment, the plaintiffs seek compensatory and
punitive damages. In one count, the plaintiffs seek recovery against the Bank and the
named directors for improper discharge from employment. In another count, the
plaintiffs seek damages against the named Board members and defendant Davis for
tortious interference with contractual relations.
On appeal, defendants assert that the trial court properly sustained the
demurrers. The Bank and defendant directors, relying on the employment-at-will
doctrine, assert that a contract of employment for an indefinite period is terminable at
any time, after reasonable notice, by either party for any reason or no reason at all.
These defendants contend that there is nothing in the contracts of employment from
which an inference can be drawn that the plaintiffs were employed for a definite
period of time. According to the argument, the employees agreed to furnish services
as bookkeepers for a certain sum of money, not for a definite time, and the employer
agreed to pay for the performance of the services, but not for a definite time. In
addition, these defendants say that if any change is to be made in the common-law
doctrine of employment at will to cover the facts of these cases, the change should be
made by the General Assembly and not this Court. They point to exceptions to the
doctrine already provided by the legislature for employees who are physically
handicapped, Code Sec. 40.1-28.7, employees who file safety or health complaints,
Code Sec. 40.1-51.2:1, and employees who exercise rights under the Workers'
Compensation Act, Code Sec. 65.1-40.1.
The plaintiffs, contending the trial court erred in sustaining the demurrers, say
they recognize the force and validity of the employment-at-will doctrine in Virginia.
Accordingly, they assert, they did not seek reinstatement in their positions with the
Bank. Nevertheless, they argue, the employment-at-will rule has exceptions which
temper its harsh application, and they urge the Court to invoke one of those
exceptions in these suits for damages.
238
The plaintiffs note that it is not contested, for purposes of this proceeding, that
they were performing their jobs in a satisfactory and capable manner. They point out
that the reasons for their discharges had nothing to do with their job performance or
their status as employees. The plaintiffs note their discharges were premised solely
upon the proper exercise of their protected rights as shareholders. Thus, the plaintiffs
assert, the question for decision is not whether the employment-at-will doctrine as it
exists in Virginia should be altered, but whether this employer can, with absolute
immunity, discharge these employees in retaliation for the proper exercise of rights
as stockholders, a reason which has nothing to do with the employees' job
performances. In sum, the plaintiffs assert that the Bank and the named Board
members, by actions which violated securities and corporation laws, sought to
influence the exercise of protected shareholder rights by bringing pressure to bear on
the vulnerable employee relationship, and that the employment-at-will rule does not
protect the defendants from such conduct. We agree.
Virginia has not deviated from the common-law doctrine of
employment-at-will set forth in the Stonega Coal case, supra. See, e.g., Wards Co.
v. Lewis & Dobrow, Inc., 210 Va. 751, 756, 173 S.E.2d 861, 865 (1970); Plaskitt v.
Black Diamond Trailer Co., 209 Va. 460, 164 S.E.2d 645 (1968); Title Ins. Co. v.
Howell, 158 Va. 713, 718, 164 S.E. 387, 389 (1932).20 And we do not alter the
traditional rule today. Nonetheless, the rule is not absolute. The unique facts of
these cases require us to apply one of the recognized exceptions to the rule of
terminability.
The courts of at least 20 states have granted exceptions to the strict application
of the doctrine in favor of at-will employees who claim to have been discharged in
violation of an established public policy. See, e.g., Sheets v. Teddy's Frosted Foods,
Inc., 179 Conn. 471, 427 A.2d 385 (1980) (at-will employee fired in retaliation for
his insistence that his employer comply with state laws relating to food labeling);
Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1979) (employee fired for refusing
employer's request to ask for excuse from jury duty); Sabine Pilot Service, Inc. v.
Hauck, 687 S.W.2d 733 (Tex.1985) (employee discharged for refusal to perform an
illegal act); Harless v. First National Bank in Fairmont, 162 W.Va. 116, 246 S.E.2d
20 The development and modern status of the employment-at-will doctrine is discussed in: Murg &
Scharman, Employment At Will, 23 B.C.L.Rev. 329 (1982); Note, Public Policy Limitations on
the Retaliatory Discharge of At Will Employees in the Private Sector, 14 U.C.D.L.Rev. 811
(1981); Comment, Guidelines for a Public Policy Exception to the Employment At Will Rule:
The Wrongful Discharge Tort, 13 Conn.L.Rev. 617 (1981); Annot., Modern Status of Rule That
Employer May Discharge At-Will Employee for Any Reason, 12 A.L.R.4th 544 (1982); Annot.,
Liability for Discharging At-Will Employee for Refusing to Participate in, or for Disclosing,
Unlawful or Unethical Acts of Employer or Coemployees, 9 A.L.R.4th 329 (1981); Annot.,
Right of Corporation to Discharge Employee Who Asserts Rights as Stockholder, 84 A.L.R.3d
1107 (1978); Special Report (BNA), The Employment-At-Will Issue (1982).
239
270 (1978) (bank employee discharged in retaliation for his efforts to require
employer to comply with state and federal consumer credit protection laws).
In the present cases, the retaliatory discharges were based on violations of
public policy by the defendants. Code Sec. 13.1-32 conferred on these plaintiffs as
stockholders the right to one vote, for each outstanding share of stock held, on each
corporate matter submitted to a vote at a meeting of stockholders. This statutory
provision contemplates that the right to vote shall be exercised free of duress and
intimidation imposed on individual stockholders by corporate management. In order
for the goal of the statute to be realized and the public policy fulfilled, the
shareholder must be able to exercise this right without fear of reprisal from corporate
management which happens also to be the employer. Because the right conferred by
statute is in furtherance of established public policy, the employer may not lawfully
use the threat of discharge of an at-will employee as a device to control the otherwise
unfettered discretion of a shareholder to vote freely his or her stock in the
corporation.
Consequently, applying a narrow exception to the employment-at-will rule, we
hold that the plaintiffs have stated a cause of action in tort against the Bank and the
named directors for improper discharge from employment.
In the second count of their motions for judgment, the plaintiffs alleged that the
defendants, other than the Bank, engaged in conduct which "constituted a conspiracy
to interfere with the Plaintiff's contractual relations with the Bank," and that such
interference constituted a proximate cause of their discharges and alleged damages.
On brief, the plaintiffs specifically assert tortious interference with their respective
employment contracts, as opposed to interference with any of their contractual rights
as shareholders. We conclude the trial court correctly sustained the demurrers to
these claims.
In Virginia, an action in tort lies against those who conspire to induce the
breach of a contract. Worrie v. Boze, 198 Va. 533, 540, 95 S.E.2d 192, 198 (1956).
The plaintiff must establish that there was a conspiracy to procure the breach of
contract and that pursuant to such conspiracy the contract was breached. Id. at
541-42, 95 S.E.2d at 199. Of course, there must be two persons to comprise a
conspiracy, and a corporation, like an individual, cannot conspire with itself. Nelson
Radio & Supply Co. v. Motorola, 200 F.2d 911, 914 (5th Cir.1952); Griffith v.
Electrolux Corp., 454 F.Supp. 29, 32 (E.D.Va.1978). See Cote v. Burroughs
Wellcome Co., 558 F.Supp. 883, 889 (E.D. Pa. 1982) (applying Virginia law). Thus,
a third party is necessary to create an actionable conspiracy to induce a breach of
contract.
The plaintiffs claim that Davis was the third party here. Articulating on brief
the basis of their conspiracy claims, the plaintiffs say that they "alleged in their
Motions for Judgment that the actions of the Officials and of Davis in instructing
them how to vote their shares and in discharging or sanctioning their discharge from
employment constituted a tortious interference with their contractual relations with
the bank." This, of course, is a contention that the conspiring parties were (1) the
240
"Officials" as a group, acting for the corporation and not acting individually, and (2)
Davis. Further on brief, the plaintiffs argue that "the actions of the Officials and of
Davis in inducing the bank to discharge the Employees were illegal and tortious,"
and that they sufficiently alleged a conspiracy to procure the breach of their
employment contracts. We disagree.
The plaintiffs' motions for judgment are devoid of any factual allegations to
support the idea that Davis induced the group of directors, "the Officials," to
terminate the plaintiffs' employment. The conspiracy theory is asserted in mere
conclusory language and the argument in support of the theory is based on inferences
that are not fairly and justly drawn from the facts alleged. The plaintiffs assert that
Davis and Ward threatened the plaintiffs several days before the June 26 special
meeting. The plaintiffs also allege that Davis was present at the July 12 directors
meeting when the decision was made to fire plaintiffs. Yet, Ward voted against
discharging the plaintiffs and there is no allegation that Davis met or talked with any
of the five directors who voted to terminate the plaintiffs. In sum, the allegations are
insufficient to conclude that Davis was the third party necessary to form a conspiracy
with the group of directors, the "Officials," or that any such conspiracy resulted in
the breach of the plaintiffs' employment contracts with the Bank.
Accordingly, the decision of the trial court will be affirmed, in part, and
reversed, in part. The cases will be remanded for further proceedings against the
Bank and the named bank directors on the first count of the motions for judgment.
Final judgment will be entered here in favor of Davis in each case.
Affirmed, in part, reversed, in part, and remanded.
Doss v. JAMCO, Inc.
254 Va. 362, 492 S.E.2d 441 (1997)
Carrico, J., delivered the opinion of the Court.
By a "Stipulated Order of Certification" entered April 9, 1997, the United
States District Court for the Western District of Virginia (Lynchburg Division)
certified to this Court, pursuant to our Rule 42, the following question of law:
Does Va. Code § 2.1-725(D) prohibit a common law cause of action based
upon the public policies reflected in the Virginia Human Rights Act, Va. Code §
2.1-714 et seq.?
By order dated April 28, 1997, we accepted the certified question of law.
The question arose when, on December 23, 1996, Laura L. Doss (Doss) filed in
the District Court a two-count complaint alleging that her former employer, Jamco,
Inc. (Jamco), had unlawfully terminated her employment "because of her sex and
because she was pregnant." In Count 1, which is not involved in this proceeding,
Doss sought to recover damages for Jamco's alleged violation of Title VII of the Civil
Rights Act of 1964 (42 U.S.C. § 2000e et seq.). In Count 2, which is implicated here,
Doss sought to recover damages for Jamco's alleged violation of "the statutorily
241
expressed public policy of the Commonwealth of Virginia as embodied in the
Virginia Human Rights Act (Va. Code § 2.1-714 et seq.) and as expressed in Title VII
of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.) and elsewhere."
The relevant facts are recited in the stipulated order of certification, as follows:
[Doss] was hired by [Jamco] and agreed to begin work on March 11,
1996. . . . [P]rior to reporting to work for [Jamco] on March 11, 1996,
[Doss] learned that she was pregnant. Upon reporting for work, [Doss]
told [Jamco's] employees who were to be her supervisors about her
pregnancy. . . . [O]n March 12, 1996, [Jamco's] supervisors informed
[Doss] that her employment was being terminated because her maternity
leave would cause her to be out during the Company's busy time which
was unacceptable to [Jamco].
We note that Doss grounds her claim for unlawful discharge upon the public
policy of Virginia as embodied in the Virginia Human Rights Act and "as expressed
in Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e et seq.) and
elsewhere." However, in answering the certified question, we are limited by the
terms of the certification order to "the public policies reflected in the Virginia Human
Rights Act." Therefore, we express no opinion concerning the public policy of
Virginia as it might be articulated in sources other than the Virginia Human Rights
Act.
Ever since this Court decided Stonega Coal and Coke Co. v. Louisville and
Nashville R.R., 106 Va. 223, 55 S.E. 551 (1906), Virginia has adhered to the rule that
when an employment contract provides for the rendition of services but its intended
duration cannot be determined from its provisions, "either party is ordinarily at
liberty to terminate it at will on giving reasonable notice of his intention to do so." Id.
at 226, 55 S.E. at 552. However, the rule is not absolute. Bowman v. State Bank of
Keysville, 229 Va. 534, 539, 331 S.E.2d 797, 801 (1985).
In Bowman, which predated the adoption of the Virginia Human Rights Act,
we recognized a limited exception to the employment-at-will rule. This exception
allowed two bank employees who were also stockholders of the bank corporation to
maintain a common law action in tort against their employer. The employees were
discharged after failing to heed a threat from the employer that their employment
would be terminated if they failed to vote their stock according to the wishes of
corporate management. Such action by the employer, we said, violated the public
policy established by Va. Code § 13.1-32 (now Va. Code § 13.1-662), which
contemplated "that the right to vote [shares of stock] shall be exercised free of duress
and intimidation imposed on individual stockholders by corporate management." Id.
at 540, 331 S.E.2d at 801.
Bowman was followed by Miller v. SEVAMP, Inc., 234 Va. 462, 362 S.E.2d
915 (1987), where the events giving rise to the litigation predated the adoption of the
Virginia Human Rights Act. There, the employee alleged that her termination was in
retaliation of her appearance as a witness at a co-employee's grievance hearing. The
242
trial court sustained a demurrer to the employee's motion for judgment, and we
affirmed. We noted the exception recognized in Bowman that allows recovery for
"discharges which violate public policy, that is, the policy underlying existing laws
designed to protect the property rights, personal freedoms, health, safety, or welfare
of the people in general." Id. at 468, 362 S.E.2d at 918. We held, however, that the
Bowman exception was not applicable because the "retaliatory act [of discharging
the employee] would impinge only upon private rights established by the employer's
internal regulations [and] would have no impact upon any public policy established
by existing laws for the protection of the public generally." Id., 362 S.E.2d at 919.
At its 1987 session, the General Assembly adopted the Virginia Human Rights
Act (the Act). 1987 Va. Acts ch. 581 (Chapter 43 of Title 2.1 of the Code of Virginia,
§ 2.1-714 through -725). In 1996, when Doss's termination occurred, Va. Code §
2.1-715 provided that "[i]t is the policy of the Commonwealth of Virginia . . . [t]o
safeguard all individuals within the Commonwealth from unlawful discrimination
because of race, color, religion, national origin, sex, age, marital status or disability . .
. in employment . . . ."21 Following adoption of the Act, this Court considered the
case of Lockhart v. Commonwealth Educ. Sys. Corp., 247 Va. 98, 439 S.E.2d 328
(1994).22 Lockhart involved the claims of two female at-will employees who alleged
they were wrongfully discharged from employment, one because of her race and the
other because of her sex. The claims of both employees were dismissed on demurrer,
and this Court reversed. After citing Va. Code § 2.1-715 as declarative of the
"Commonwealth's strong public policy against employment discrimination based
upon race or gender," 247 Va. at 105, 439 S.E.2d at 331, the Court stated as follows:
We recognize that the Virginia Human Rights Act does not create
any new causes of action. Code § 2.1-725. Here, we do not rely upon the
Virginia Human Rights Act to create new causes of action. Rather, we
rely solely on the narrow exception that we recognized in 1985 in
Bowman, decided two years before the enactment of the Virginia Human
Rights Act.
Id. Accordingly, the Court held that the two employees had "pled viable causes of
action." Id. at 104, 439 S.E.2d at 331.23
21 At its 1997 session, the General Assembly amended Va. Code § 2.1-715 by adding "pregnancy,
childbirth or related medical conditions" to the list of unlawful bases for discrimination in
employment.
22 Wright v. Donnelly & Co., Record No. 930205, was decided at the same time as Lockhart and by
the same opinion.
23 Subsequent to Lockhart, this Court applied the original version of the Virginia Human Rights
Act in deciding Bailey v. Scott-Gallaher, Inc., 253 Va. 121, 480 S.E.2d 502 (1997) (maintenance
of common law action in tort allowed for wrongful discharge based upon gender), and Bradick v.
Grumman Data Sys. Corp., 254 Va. 156, 486 S.E.2d 545 (1997) (maintenance of common law
action in tort allowed for wrongful discharge based upon disability). We decided another
wrongful discharge case post-Lockhart, but disallowed a common law recovery because the
243
Lockhart was decided in 1994. At the 1995 session of the General Assembly, a
bill was introduced that would have had the effect of overruling Lockhart. (S. 1025.)
Two versions submitted as amendments in the nature of substitutes expressly stated
their purpose was the "nullification" of Lockhart. (S. 1025, Committee Amendment in
the Nature of a Substitute; S. 1025, Floor Amendment in the Nature of a Substitute.)
However, in its enacted form, the legislation did not employ the "nullification"
language, but amended Va. Code § 2.1-725 in several respects.
As originally enacted, Va. Code § 2.1-725 provided as follows:
Nothing in this chapter creates, nor shall it be construed to create, an
independent or private cause of action to enforce its provisions. Nor shall
the policies or provisions of this chapter be construed to allow tort
actions to be instituted instead of or in addition to the current statutory
actions for unlawful discrimination.
The 1995 amendments deleted the second sentence of Va. Code § 2.1-275,
made the first sentence subsection A, and changed its language. The subsection reads
as follows: "Nothing in this chapter creates, nor shall it be construed to create, an
independent or private cause of action to enforce its provisions, except as specifically
provided in subsections B and C of this section."
Subsections B and C are new. They create a statutory cause of action against an
employer of more than five but less than fifteen persons. Subsection B provides that
no such employer shall discharge an employee "on the basis of race, color, religion,
national origin or sex, or of age if the employee is forty years or older."24
Subsection C provides that "[t]he employee may bring an action in a general district
or circuit court having jurisdiction over the employer who allegedly discharged the
employee in violation of this section." A court may award up to twelve months back
pay, with interest, and the award may be increased or decreased if either party
engages in tactics to delay resolution of the complaint. A court may also award
attorney's fees from the amount recovered, not to exceed twenty-five percent of the
back pay awarded, but the court shall not award other damages, compensatory or
punitive, nor shall it order reinstatement of the employee.
Subsection D, upon which the certified question focuses, is also new. It
provides in pertinent part as follows:
employee was unable to identify any Virginia statute establishing a public policy that was
violated by the employer. Lawrence Chrysler Plymouth Corp. v. Brooks, 251 Va. 94, 465 S.E.2d
806 (1996).
24 The stipulated order of certification notes that, because Jamco employs more than fifteen
persons, it is not subject to a claim under Va. Code § 2.1-725(B) and (C).
At its 1997 session, the General Assembly added "pregnancy, childbirth or related medical
conditions" to the prohibited bases for discharge listed in Va. Code § 2.1-725(B).
244
Causes of action based upon the public policies reflected in this chapter shall
be exclusively limited to those actions, procedures and remedies, if any, afforded by
applicable federal or state civil rights statutes or local ordinances.
Doss maintains, in effect, that nothing has changed. She says that Lockhart
remains the controlling law and that all the General Assembly accomplished with its
1995 amendments to the Act is the creation of a statutory cause of action against
employers of more than five but less than fifteen persons.
Doss points out that the cause of action recognized in Bowman and Lockhart
"is a tort action arising solely under common law." She says that although the
General Assembly may abrogate or alter the common law, its intent to do so must be
plainly manifested, Peoples Sec. Life Ins. Co. v. Arrington, 243 Va. 89, 92, 412
S.E.2d 705, 707 (1992), and she insists that the 1995 amendments to the Act do not
manifest an intent to alter the common law as articulated in Lockhart.
Doss maintains that despite the language in the original version of Va. Code §
2.1-725 disavowing the creation of an independent or private cause of action, this
Court had no trouble finding in Lockhart that the Act did not prohibit a
Bowman-type action in tort for the unlawful termination of employment. And Doss
says that nothing in new subsection D supports such a prohibition. Indeed, she
opines, with the 1995 deletion of the language in the second sentence of Va. Code §
2.1-725 abjuring tort actions, "any alleged prohibition against Lockhart-type tort
claims [is made] even less clear."
Furthermore, Doss submits, if a statute is ambiguous, the court may resort to
legislative history and the enactment process to ascertain legislative intent. Doss says
that the language in the Act is ambiguous and that we should examine the enactment
process involving the 1995 amendments to ascertain their meaning.
Doss says such an examination would reveal that while the original 1995 bill
and its subsequent substitute amendments all contained clear declarations of intent to
nullify Lockhart, these declarations were not retained in the final enacted version of
the bill. Hence, the fair inference to be drawn, Doss concludes, is that the General
Assembly did not intend to nullify Lockhart.
The issue, then, is whether, in the enactment of the 1995 amendments, the
General Assembly plainly manifested an intent to abrogate or alter the common law
with respect to causes of action for unlawful termination of employment. Settled
principles guide our resolution of this issue.
When the legislature has spoken plainly it is not the function of
courts to change or amend its enactments under the guise of construing
them. The province of construction lies wholly within the domain of
ambiguity, and that which is plain needs no interpretation.
Winston v. City of Richmond, 196 Va. 403, 407-08, 83 S.E.2d 728, 731 (1954).
In the absence of ambiguity, a court may look only to the words of the statute
to determine its meaning, and when the meaning is plain, resort to rules of
245
construction, legislative history, and extrinsic evidence is impermissible. Harrison &
Bates, Inc. v. Featherstone Assoc., 253 Va. 364, 368, 484 S.E.2d 883, 885 (1997);
Va. Dept. of Labor v. Westmoreland Coal Co., 233 Va. 97, 99, 353 S.E.2d 758, 760
(1987); Brown v. Lukhard, 229 Va. 316, 321, 330 S.E.2d 84, 87 (1985).
We disagree with Doss that the Act as amended in 1995 is ambiguous. What
we said of the statute involved in Harrison & Bates applies with equal force to the
enactment involved here:
Nothing in the language of this statute is inherently difficult to
comprehend, of doubtful import, or lacking in clarity and definiteness.
Accordingly, it is not necessary to look beyond the plain language of the
statute to ascertain its underlying legislative intent.
253 Va. at 369, 484 S.E.2d at 886.
In our opinion, in amending the Act by adding subsection D to Va. Code §
2.1-725 in 1995, the General Assembly plainly manifested its intention to alter the
common law rule with respect to "[c]auses of action based upon the public policies
reflected in [the Act]." (Emphasis added.) And, just as plainly, the General Assembly
altered the common law rule by providing that such causes of action "shall be
exclusively limited to those actions, procedures and remedies, if any, afforded by
applicable federal or state civil rights statutes or local ordinances." (Emphasis
added.)
This is what the Act as amended says, and this is the meaning that must be
given to the Act to carry out the clear intent of the General Assembly. To say, as
Doss would have us say, that the 1995 amendments changed nothing would render
meaningless the General Assembly's use of the words "exclusively limited" and
reduce to an absurdity its creation of a statutory cause of action against employers of
more than five but less than fifteen persons.
The rules of statutory interpretation argue against reading any
legislative enactment in a manner that will make a portion of it useless,
repetitious, or absurd. On the contrary, it is well established that every act
of the legislature should be read so as to give reasonable effect to every
word . . . .
Jones v. Conwell, 227 Va. 176, 181, 314 S.E.2d 61, 64 (1984).
Finally, in her reply brief, Doss cites Va. Code § 2.1-717, a part of the Act,
which provides in part as follows:
The provisions of this chapter shall be construed liberally for the
accomplishment of the policies herein. Nothing contained in this chapter
shall be deemed to repeal, supersede or expand upon any of the
provisions of any other state or federal law relating to discrimination
246
because of race, color, religion, national origin, sex, age, marital status or
disability.25
Doss argues that, in this Code section, the Act creates "its own rule of statutory
construction," and, under the rule, the Act "cannot be used as the basis for repealing
or superseding the common-law expressed in Bowman and Lockhart." The Act,
however, is not the basis for the General Assembly's authority to abrogate or alter the
common law. The basis for the General Assembly's authority is found in Va. Code §
1-10, which provides as follows:
The common law of England, insofar as it is not repugnant to the
principles of the Bill of Rights and Constitution of this Commonwealth,
shall continue in full force within the same, and be the rule of decision,
except as altered by the General Assembly.
(Emphasis added.) To adopt Doss's argument would lead to the conclusion that, in
enacting Va. Code §2.1-717, the General Assembly effectively repealed or
superseded Va. Code § 1-10 insofar as its authority to alter the common law with
respect to a substantial class of cases is concerned, and that would be an
unreasonable conclusion to reach. So we reject Doss's argument.
Finding that, in enacting the 1995 amendments to Va. Code § 2.1-725, the
General Assembly plainly manifested an intent to abrogate the common law with
respect to causes of action for unlawful termination of employment based upon the
public policies reflected in the Act, we will answer the certified question in the
affirmative.
Certified question answered in the affirmative.
Mitchem v. Counts
259 Va. 179, 523 S.E.2d 246 (2000)
Keenan, J., delivered Opinion in this case.
Former employee sued employer for wrongful discharge in violation of
public policy as set forth in several criminal statutes. The Circuit Court,
Allegheny County, Duncan M. Byrd, Jr., J., dismissed employee's claim, and she
appealed. The Supreme Court, Keenan, J., held that: (1) Virginia Human Rights
Act (VHRA) did not prohibit a common law cause of action for wrongful
termination based on public policies against fornication and lewd and lascivious
behavior; (2) allegations that employee was terminated for refusing to violate
laws against fornication and lewd and lascivious behavior stated claim for
wrongful discharge in violation of public policy; but (3) public policy embodied
in criminal assault statute did not support employee's claim for wrongful
25 A 1997 amendment to Va. Code § 2.1-717 added "pregnancy, childbirth or related medical
conditions" to the list of unlawful bases for discrimination in employment.
247
discharge based on allegation that she refused to consent to commission of battery
upon her person.
Affirmed in part, reversed in part, and remanded.
Kinser, J., dissented in part and concurred in part in separate opinion, in which
Carrico, C.J., and Compton, J., joined.
In this appeal, we consider two issues: 1) whether Code § 2.1-725(D) of the
Virginia Human Rights Act (VHRA), Code §§ 2.1-714 through -725, bars a
common law action for wrongful termination of employment based on a violation
of public policy not reflected in the VHRA, when the conduct alleged also
violates a public policy reflected in the VHRA; and 2) whether a violation of the
public policies embodied in two criminal statutes may support such a common
law action.
Vicki Lynn Mitchem a motion for judgment against her former employer
Durwood L. Counts,26 alleging that he had wrongfully discharged her from her
position as an insurance marketing representative after she refused to engage in a
sexual relationship with him. Mitchem asserted that Counts repeatedly tried to
persuade her to have a "sexual affair" with him and promised in return that she
would receive money and "a lot of nice things."
In her motion for judgment, Mitchem also asserted that, on many occasions,
Counts "massaged her shoulders, patted her buttocks, touched her leg, rubbed her
knee, and hugged her against her will." Mitchem further alleged that on another
occasion, Counts "pulled Mitchem onto his lap, wrapped both arms around her,
and tried to kiss her on the lips." Finally, Mitchem alleged that because she
"steadfastly refused to enter into a sexual relationship with Count," he retaliated in
several ways and ultimately fired her in May 1998.
Relying on these allegations, Mitchem asserted in Count I of her motion for
judgment that her discharge violated the Commonwealth's public policy "that all
persons ... are entitled to pursue and maintain employment free of discrimination
based upon gender." She also claimed, among other things, that the
Commonwealth's public policy is violated when a female employee "must either
consent to the commission of a crime against her person, or engage in a
conspiracy to commit a crime, or both, to maintain her employment." Mitchem
cited several sources of public policy in support of her claim, including the VHRA
and Code §§ 18.2-57, -344, and -345.27
26 Counts was an insurance agent who, at all times pertinent to this action, employed no more than
five persons.
27 In Count II of her motion for judgment, Mitchem asserted a claim of assault and battery against
Count, which the trial court dismissed without prejudice on Mitchem’s request for a nonsuit.
248
Counts filed a demurrer to Count I, which the trial court sustained. The court
concluded, in essence, that the 1995 amendments to the VHRA eliminated the
VHRA as a source of public policy to support a common law cause of action for
wrongful termination. The trial court also held that Code §§ 18.2-57, -344, and 345 do not articulate public policies that will support a common law action for
wrongful termination.28 The court entered an order dismissing Count I of
Mitchem's action with prejudice, and Mitchem appeals from this judgment.
Although Mitchem based her wrongful termination action in part on public
policies found in the VHRA and sources of law other than criminal statutes, she
withdrew this part of her claim during her oral argument before this Court. She
argued that the criminal statutes identified in her motion for judgment embody a
public policy against the commission of the stated acts of a sexual nature and,
thus, that an employer is subject to a common law wrongful termination claim if
he discharges an at-will employee because she refuses to commit those criminal
acts.
Mitchem contends on appeal that she was not discharged from her
employment because of her gender, but because she rejected her employer's
demands that she perform sexual acts in violation of Code § 18.2-344, which
prohibits fornication, and Code § 18.2-345, which prohibits lewd and lascivious
cohabitation. She also asserts that she was discharged because she would not
"consent to commission of a battery upon her person," in violation of Code § 18.257.29
In response, Counts (the employer) argues that Code § 2.1-725(D) abrogates
Mitchem’s common law cause of action because the allegations of wrongful
termination, if proved, would violate the public policies reflected in the VHRA. In
support of this argument, the employer notes that the facts in this case are very
similar to those alleged by a plaintiff in Lockhart v. Commonwealth Educ. Sys.
28 The trial court also held that Mitchem could not base a claim for wrongful discharge on Title VII
of the 1964 Civil Rights Act, the Constitution of the United States, the Declaration of
Independence, or the Constitution of Virginia. In addition, the trial court concluded that because
Count’s business had fewer than five employees, Mitchem could not seek recovery under the
limited statutory remedies provided by Code § 2.1-725(B) and (C) for workers whose employers
have more than five but fewer than 15 employees. Mitchem does not contest these rulings in this
appeal.
29 All these crimes are classified as misdemeanors. On brief, Mitchem also cited Code § 18.2-346,
which prohibits acts of prostitution, and § 18.2-67.4, which prohibits sexual battery. However,
since Mitchem did not cite these statutes in her motion for judgment, we will not consider these
additional statutes in reviewing the trial court's action sustaining the demurrer to Count I. See
Breeding v. Hensley, 258 Va. 207, 212, 519 S.E.2d 369, 371 (1999).
249
Corp., 247 Va. 98, 439 S.E.2d 328 (1994),30 in which we held that an employer's
conduct and termination of that plaintiff violated the public policy against gender
discrimination stated in the VHRA. The employer also asserts that our decision in
Conner v. National Pest Control Ass'n., 257 Va. 286, 513 S.E.2d 398 (1999),
requires dismissal of Mitchem's action based on our application in that case of the
preclusive language of Code § 2.1-725(D). Finally, the employer contends that
criminal statutes will not support Mitchem's common law action because they do
not "announce public policies in their texts" and to use the statutes in this manner
would eviscerate the employment-at-will doctrine.
Although Mitchem has withdrawn her reliance on the VHRA as a source of
public policy to support her wrongful termination action, we nevertheless begin
our analysis with the VHRA because its limiting provision in Code § 2.1-725(D)
is the controlling statute in this appeal. That provision, included in the 1995
amendments to the VHRA, states in relevant part: Causes of action based upon
the public policies reflected in this chapter shall be exclusively limited to those
actions, procedures and remedies, if any, afforded by applicable federal or state
civil rights statutes or local ordinances. Code § 2.1-725(D). Citing Doss v. Jamco,
254 Va. 362, 492 S.E.2d 441 (1997), the trial court held that the 1995
amendments to the VHRA bar Mitchem from asserting a common law action for
wrongful termination based on any of the sources of public policy set forth in her
motion for judgment. In Doss, we held that "in amending the [VHRA] by adding
subsection D to Code § 2.1-725 in 1995, the General Assembly plainly manifested
its intention to alter the common law rule with respect to '[c]auses of action based
upon the public policies reflected in [the VHRA].' " Id. at 371, 492 S.E.2d at 446.
Following Doss, we next addressed the scope of Code § 2.1-725(D) in
Conner. There, the plaintiff alleged that she had asserted a valid cause of action
for wrongful termination because, in addition to the public policy against gender
discrimination in the VHRA, her employer's conduct violated the same public
policy embodied in sources other than the VHRA. 257 Va. at 288, 513 S.E.2d at
399. We disagreed, holding that "the General Assembly, in enacting the 1995
amendments to the VHRA, eliminated a common law cause of action for wrongful
termination based on any public policy which is reflected in the VHRA, regardless
of whether the policy is articulated elsewhere." Id. at 290, 513 S.E.2d at 400.
Our holdings in Conner and Doss, however, do not address the issues before
us. In those cases, unlike the present case, the plaintiffs did not identify any public
policy different from those reflected in the VHRA as the basis for their common
law claims. Thus, in those cases, we did not address the central issue in the
present appeal, whether Code § 2.1-725(D) bars a common law action for
wrongful termination based on public policies not reflected in the VHRA, when
30 This Court's opinion in Lockhart addressed two separate cases. Nancy L. Wright was the plaintiff
in one of the cases. She alleged employment discrimination based on gender, while the other
plaintiff, Lawanda Lockhart, alleged employment discrimination based on race.
250
the conduct alleged in the motion for judgment also violates a public policy
reflected in the VHRA.
This issue of first impression is raised by Mitchem's allegations in her
motion for judgment that the employer's conduct violated the Commonwealth's
public policies against fornication and lewd and lascivious behavior embodied in
Code §§ 18.2-344 and -345. Code § 18.2-344 provides that an unmarried person
who voluntarily has sexual intercourse with any other person is guilty of
fornication. Code § 18.2-345, in relevant part, prohibits persons not married to
each other from lewdly and lasciviously associating and cohabiting together.
In considering whether Code § 2.1-725(D) defeats Mitchem's reliance on
these public policies as a basis for her wrongful termination action, we first
observe that the preclusive language of Code § 2.1-725(D) was enacted by the
legislature in derogation of the common law. Statutes in derogation of the
common law must be strictly construed and not enlarged by construction beyond
their express terms. Chesapeake & O. Ry. Co. v. Kinzer, 206 Va. 175, 181, 142
S.E.2d 514, 518 (1965); see Williams v. Matthews, 248 Va. 277, 282-83, 448
S.E.2d 625, 628 (1994); Wackwitz v. Roy, 244 Va. 60, 65, 418 S.E.2d 861, 864
(1992). A statutory change in the common law is limited to that which is expressly
stated in the statute or necessarily implied by its language because there is a
presumption that no change was intended. Boyd v. Commonwealth, 236 Va. 346,
349, 374 S.E.2d 301, 302 (1988); Strother v. Lynchburg Trust & Savings Bank,
155 Va. 826, 833, 156 S.E. 426, 428 (1931). Thus, "[w]hen an enactment does not
encompass the entire subject covered by the common law, it abrogates the
common-law rule only to the extent that its terms are directly and irreconcilably
opposed to the rule." Boyd, 236 Va. at 349, 374 S.E.2d at 302; Newport News v.
Commonwealth, 165 Va. 635, 650, 183 S.E. 514, 520 (1936).
We must construe Code § 2.1-725(D) narrowly under these principles
because the VHRA does not encompass the entire subject of common law causes
of action for wrongful termination of employment. The relevant language of Code
§ 2.1-725(D) provides that "[c]auses of action based upon the public policies
reflected in this chapter shall be exclusively limited to those actions, procedures
and remedies, if any, afforded by applicable federal or state civil rights statutes or
local ordinances." (Emphasis added.) This provision, by its plain terms, abrogates
only common law causes of action for wrongful termination that are based on the
public policies reflected in the VHRA. Thus, we conclude that Code § 2.1-725(D)
does not prohibit a common law cause of action for wrongful termination based on
the public policies against fornication and lewd and lascivious behavior, because
those policies are not reflected in the VHRA.
We find no merit in the employer's contention that since his alleged conduct
also violated the public policy in the VHRA against gender discrimination, he
cannot be subject to a wrongful termination action for firing an employee who
refused to commit the crimes at issue. First, as shown above, the plain language of
Code § 2.1-725(D) does not contain such a prohibition.
251
Second, the same conduct or occurrence can support more than one theory of
recovery. Balzer and Assoc. v. The Lakes on 360, 250 Va. 527, 531, 463 S.E.2d
453, 456 (1995); see Code § 8.01-272; Rule 1:4(k); Fox v. Deese, 234 Va. 412,
422-23, 362 S.E.2d 699, 705 (1987). Moreover, when a plaintiff has alleged facts
supporting more than one theory of recovery, the pleading of one theory is not
rendered insufficient by the insufficiency of the other theory. Balzer, 250 Va. at
531, 463 S.E.2d at 456. Thus, the legal insufficiency of Mitchem's allegations of
wrongful termination based on the public policies set forth in the VHRA does not
invalidate her claim founded on the public policies embodied in Code §§ 18.2-344
and -345.
Third, the employer's argument is untenable because, when extended to its
logical conclusion, the argument would permit an employer to discharge any
employee who refuses to commit a crime at the employer's direction, as long as
the employer's conduct also violates a public policy reflected in the VHRA. The
public policy stated in the VHRA "safeguard[s] all individuals within the
Commonwealth from unlawful discrimination because of race, color, [and]
religion." Code § 2.1-715 (emphasis added). Thus, under the employer's view, an
African-American employee could not pursue a common law action for wrongful
termination if she were discharged for refusing to burn a cross on the property of
another African-American with the intent to intimidate that person. The AfricanAmerican employee would be a member of the class of persons protected by the
VHRA public policy because she would have been fired based on "unlawful
discrimination because of race." Id.; see City of Virginia Beach v. Harris, 259 Va.
220, ----, 523 S.E.2d 239, 245 (2000), decided today; Dray v. New Market Poultry
Prod., Inc., 258 Va. 187, 191, 518 S.E.2d 312, 313 (1999).
The burning of a cross is a felony under Code § 18.2-423. Under the
employer's theory, the language of Code § 2.1-725(D) would shield the employer
from a common law action for wrongful termination for violation of the public
policy underlying Code § 18.2-423, because the conduct also would violate the
public policy against racial discrimination expressed in the VHRA.
Similarly, under the employer's view, a Jewish employee could not maintain
a common law action for wrongful termination if he were discharged for refusing
to paint a swastika on a synagogue with the intent to intimidate worshipers. This
employee would be a member of the class of persons protected by the public
policy stated in the VHRA because he would have been fired based on "unlawful
discrimination because of ... religion." Code § 2.1-715; see Harris, 259 Va. at ----,
523 S.E.2d at 245; Dray, 258 Va. at 191, 518 S.E.2d at 313. The placement of a
swastika on a synagogue is a felony under Code § 18.2-423.1. Under the
employer's theory, the language of Code § 2.1-725(D) would shield the employer
from a common law wrongful termination action for violation of the public policy
underlying Code § 18.2-423.1, because the employer's conduct also would violate
the VHRA public policy against religious discrimination.
252
Accordingly, we reject the employer's argument because it would require us
effectively to amend Code § 2.1-725(D) by adding a provision prohibiting causes
of action based on public policies not reflected in the VHRA. Such a holding
would usurp the function of the General Assembly, violate the proper construction
of a statute in derogation of common law, and allow repugnant consequences that
were never intended by the General Assembly when it enacted Code § 2.1-725(D).
The employer argues, however, that the public policies embodied in Code §§
18.2-344 and -345 cannot support a common law action for wrongful termination
because those statutes do not expressly state such public policies. We find no
merit in this contention. Laws that do not expressly state a public policy, but were
enacted to protect the property rights, personal freedoms, health, safety, or welfare
of the general public, may support a wrongful discharge claim if they further an
underlying, established public policy that is violated by the discharge from
employment. Harris, 259 Va. at ----, 523 S.E.2d at 245; see Miller v. SEVAMP,
Inc., 234 Va. 462, 468, 362 S.E.2d 915, 918 (1987); Bowman v. State Bank of
Keysville, 229 Va. 534, 540, 331 S.E.2d 797, 801 (1985). Further, as indicated
above, to rely on such a statute in support of a common law action for wrongful
termination, an employee must be a member of the class of persons that the
specific public policy was designed to protect. Harris, 259 Va. at ----, 523 S.E.2d
at 245; Dray, 258 Va. at 191, 518 S.E.2d at 313. For example, in Bowman, we
recognized a common law cause of action for wrongful termination based on the
public policy underlying former Code § 13.1- 32. That statute conferred on
stockholders the right to one vote for each outstanding share of stock held.
Although former Code § 13.1-32 did not expressly state a public policy, we held
that the statute provided a basis for a common law action for wrongful termination
brought by two employee stockholders of a bank. We concluded that the statute
embodied the public policy that a stockholder's right to vote shall be exercised
free of duress and intimidation by corporate management. 229 Va. at 540, 331
S.E.2d at 801.
In the present case, the absence of an express statement of public policy in
Code §§ 18.2-344 and -345 does not preclude their use as a basis for a common
law action for wrongful termination. These criminal statutes were enacted for the
protection of the general public, and Mitchem is a member of that class of persons
whom these statutes were designed to protect. See Harris, 259 Va. at ----, 523
S.E.2d at 245; Miller, 234 Va. at 468, 362 S.E.2d at 918; Dray, 258 Va. at 191,
518 S.E.2d at 313. Further, the public policies inherent in Code §§ 18.2-344 and 345 are equally, if not more, compelling than the public policy in Bowman that
provided the basis for our recognition of a narrow exception to the employmentat-will rule. We do not share the employer's concern that recognition of a
common law cause of action for violation of these public policies should be
rejected as an incursion into the employment-at-will doctrine. We have narrowly
construed the public policy exception to that doctrine, and we have applied that
exception in few instances. Certainly, the General Assembly did not intend that
the employment-at-will doctrine or the provisions of Code § 2.1-725(D) serve as a
253
shield for employers who seek to force their employees, under the threat of
discharge, to engage in criminal activity. Thus, we conclude that since Mitchem's
common law action based on the public policies embodied in Code §§ 18.2-344
and -345 is not abrogated by Code § 2.1- 725(D), her action based on those
policies falls within the scope of the narrow public policy exception to the
employment-at-will rule recognized in Bowman.
We disagree with the employer's assertion that our holding in Lockhart
requires a different result. There, we approved a wrongful termination action
involving conduct very similar to that alleged by Mitchem based on the public
policy against gender discrimination in the VHRA. 247 Va. at 101-02, 439 S.E.2d
at 329-30. However, the fact that this type of conduct will no longer support a
theory of recovery based on the VHRA, or other sources of law reflecting this
same public policy, does not affect Mitchem's alternate theory of recovery based
on the different public policies embodied in Code §§ 18.2- 344 and -345. Unlike
the VHRA provision against gender discrimination relied on in Lockhart,
Mitchem's theory of recovery based on Code §§ 18.2-344 and -345 does not rely
on any public policy reflected in the VHRA and, thus, is not precluded by Code §
2.1-725(D). Also, although the conduct Mitchem alleges would be an "unlawful
discriminatory practice" within the meaning of Code § 2.1-716,31 this conduct
may still form the factual basis of a common law cause of action for wrongful
termination when that action is not based on a public policy reflected in the
VHRA. See Code § 2.1-725(D).
Finally, we conclude that the trial court did not err in dismissing the part of
Count I in which Mitchem alleged that the employer wrongfully discharged her in
violation of the public policy embodied in Code § 18.2-57, which establishes the
crime of simple assault as a Class 1 misdemeanor. The trial court properly
dismissed this claim because Mitchem did not allege that her employer discharged
her for refusing to commit this crime. Instead, she alleged that she was fired for
refusing to "consent to commission of a battery upon her person." However, had
she consented to having the employer touch her, there would have been no crime
of battery. Gnadt v. Commonwealth, 27 Va.App. 148, 151, 497 S.E.2d 887, 888
(1998); see Banovitch v. Commonwealth, 196 Va. 210, 219, 83 S.E.2d 369, 375
(1954). Thus, the public policy embodied in Code § 18.2-57 does not support a
wrongful termination action based on this allegation. When the trial court has
reached the correct result for the wrong reason, we will assign the correct reason
and affirm that result. Hartzell Fan, Inc. v. Waco, Inc., 256 Va. 294, 303, 505
S.E.2d 196, 202 (1998); Ridgwell v. Brasco Bay Corp., 254 Va. 458, 462, 493
S.E.2d 123, 125 (1997); Harrison & Bates, Inc. v. Featherstone Assoc. Ltd.
Partnership, 253 Va. 364, 369, 484 S.E.2d 883, 886 (1997).
31 Code § 2.1-716 provides: "Conduct which violates any Virginia or federal statute or regulation
governing discrimination on the basis of race, color, religion, national origin, sex, pregnancy,
childbirth or related medical conditions, age, marital status or disability shall be an 'unlawful
discriminatory practice' for the purposes of this chapter."
254
For these reasons, we will affirm the trial court's judgment dismissing the part of
Mitchem's action for wrongful termination that is based on the public policy
embodied in Code § 18.2-57.32 We will reverse the trial court's judgment
dismissing the part of Mitchem's action for wrongful termination that is based on
the public policy embodied in Code §§ 18.2-344 and -345, and remand this
remaining part of her action for trial.33
Affirmed in part, reversed in part, and remanded.
KINSER, Justice, with whom Chief Justice CARRICO and Justice COMPTON
join, dissenting in part and concurring in part.
I dissent in part from the majority's decision because I conclude that the
employee in this case has not stated a viable cause of action. Thus, I would affirm
the circuit court's judgment sustaining the employer's demurrer.
The majority states the issue in this case as "whether Code § 2.1-725(D) bars
a common law action for wrongful termination based on public policies not
reflected in the VHRA, when the conduct alleged in the motion for judgment also
violates a public policy reflected in the VHRA." By accepting Vicki Lynn
Mitchem's purported distinction between being fired because of "sex"
discrimination and being fired because she refused to engage in sexual conduct
that would have allegedly violated certain criminal laws, the majority concludes
that Code § 2.1-725(D) does not bar Mitchem's claim. To understand why I do not
accept this distinction, it is important to first explain why the conduct in which
Durwood L. Counts allegedly engaged constitutes "sex" discrimination in
violation of a public policy reflected in the Virginia Human Rights Act (VHRA).
Mitchem’s allegations that Counts fired her because she rebuffed his alleged
sexual advances and refused to engage in a sexual relationship with him are
32 Since Mitchem has withdrawn from her motion for judgment any reliance on public policies not
based on criminal statutes, we do not consider the trial court's rulings with regard to those other
sources of law.
33 We distinguish our present holding from City of Virginia Beach v. Harris, 259 Va. 220, 523
S.E.2d 239 (2000), decided today. In that case, a police officer was discharged from his
employment for obtaining criminal warrants charging a superior officer with obstruction of
justice and a related offense, because the superior officer had directed the police officer not to
serve certain warrants on a criminal suspect. We held, among other things, that the officer did not
state a valid cause of action for wrongful termination in reliance on the public policy expressed in
Code § 18.2-460, which prohibits the obstruction of a law enforcement officer in the
performance of his duties. We concluded that the police officer was attempting to use the statute
as a shield to protect himself against the consequences of his decision to charge his superior
officer with crimes. Unlike Mitchem in the case before us, the officer in Harris was not a member
of the public for whose benefit the statute was enacted and, thus, could not state a claim for
wrongful discharge based on the public policy embodied in that statute. See also, Dray, 258 Va.
at 191, 518 S.E.2d at 313.
255
remarkably similar to the facts alleged by plaintiff Wright in Lockhart v.
Commonwealth Educ. Sys. Corp., 247 Va. 98, 439 S.E.2d 328 (1994). In that case,
Wright alleged that her employer "approached her from behind, kissed her cheek"
and " 'physically seized her, grabb[ed] her and hugg[ed] her without her consent.'
" Id. at 101-02, 439 S.E.2d at 329. She also alleged that her employer repeatedly
made abusive, inappropriate, and harassing remarks to her, and ultimately told her
to "get out" after she advised her employer that she did not intend to be subjected
to that kind of treatment at work. Id. at 102, 439 S.E.2d at 330.
Even though she was an at-will employee, plaintiff Wright alleged that her
termination was unlawful, and therefore actionable, because it violated the public
policy of Virginia as enunciated in the VHRA. The trial court disagreed and
sustained the employer's demurrer, but this Court reversed that judgment. Id. at
106, 439 S.E.2d at 332. We concluded that Wright had pled a viable cause of
action based upon "sex" discrimination. Id. at 104, 439 S.E.2d at 331. While not
"retreat[ing] from our strong adherence to the employment-at- will doctrine[,]" the
Court held that the narrow exception to that doctrine, which we recognized in
Bowman, includes instances where, as here, [an] employee[ ] [is] terminated
because of discrimination based upon gender.... The discharge [ ] of ... Ms. Wright
[is] allegedly tortious not because [she has] a vested right to continued
employment, but because [her] employer[ ] misused the freedom to terminate the
services of [an] at-will employee[ ] on the basis of ... gender.
Id. at 106, 439 S.E.2d at 332.
In reaching its decision in Lockhart, the Court concluded that the nature of
the alleged discriminatory conduct of Wright's employer fell within the scope of
the public policy enunciated in the VHRA, "[t]o safeguard all individuals ... from
unlawful discrimination [in employment] because of ... sex" Code § 2.1-715. In
order to hold that Wright had pled a cause of action for wrongful discharge based
on the public policy enunciated in the VHRA, we necessarily had to find that the
alleged actions of her employer fell within the scope of the phrase "discrimination
because of ... sex" in Code § 2.1- 715.34 Otherwise, Wright could not have
utilized the VHRA as the source of public policy upon which to base her common
law action for wrongful termination. Since the decision in Lockhart, we have
continued to categorize the type of discrimination alleged by Wright as "gender
discrimination." See Lawrence Chrysler Plymouth Corp. v. Brooks, 251 Va. 94,
98, 465 S.E.2d 806, 809 (1996); Bailey v. Scott-Gallaher, Inc., 253 Va. 121, 126,
480 S.E.2d 502, 505 (1997).
Accordingly, even though Mitchem disavows any reliance on the VHRA,
the sexual harassment that she allegedly endured prior to discharge, as well as
Count’ termination of her employment because she refused to have a sexual
34 None of the other types of discrimination included in Code § 2.1-715 was implicated by the facts
plaintiff Wright alleged.
256
relationship with him, if proven true, would violate a public policy reflected in the
VHRA. The distinction that Mitchem attempts to make and which the majority
accepts, that she was fired, not because of "sex," but because she refused to
engage in conduct that would have violated certain criminal statutes, merely
places a different label on "sex" discrimination and thus exalts form over
substance. The re-labeling of her claim does nothing to alter the facts alleged by
Mitchem or the law governing those allegations. Thus, I do not accept that
proffered distinction.35
Nevertheless, Mitchem insists that Counts discharged her because she
refused to commit the crimes of fornication, and lewd and lascivious cohabitation,
and would not consent to the commission of a battery upon her person.36 Thus,
according to Mitchem, her termination violated the public policies contained in
the criminal statutes making these acts unlawful, and the public policy that an
employer cannot fire an employee for refusing to commit a crime. I need not, as
the majority does, decide whether those criminal statutes sufficiently enunciate
public policies to support a Bowman-type cause of action by an at-will employee
for unlawful termination because, even if they do, I conclude that Mitchem
nonetheless is barred from maintaining her action against Counts.37
After this Court's decision in Lockhart, the General Assembly amended the
VHRA. One of the changes was the addition of subsection D to Code § 2.1- 725,
which prohibits a common law cause of action based upon the public policies
reflected in the VHRA. Doss v. Jamco, Inc., 254 Va. 362, 372, 492 S.E.2d 441,
447 (1997). In Conner v. National Pest Control, Ass'n, 257 Va. 286, 513 S.E.2d
398 (1999), we expanded upon the impact of subsection D, stating that "the
General Assembly, in enacting the 1995 amendments to the VHRA, eliminated a
common law cause of action for wrongful termination based on any public policy
which is reflected in the VHRA, regardless of whether the policy is articulated
elsewhere." Id. at 290, 513 S.E.2d at 400. Thus, after Conner, an at- will employee
in Virginia cannot maintain a cause of action based on the public policy exception
to the at-will employment doctrine if the public policy is one that is "reflected" in
35 Likewise, I do not believe that Mitchem stated alternative theories of recovery just because she
alleged that her termination violated several public policies.
36 I concur in the result the majority reaches with respect to Mitchem's reliance on Code § 18.2-57
proscribing assault and battery, but reach that conclusion for the reasons stated in this dissent.
37 The majority's statement that the public policies behind the prohibitions against fornication, a
class 4 misdemeanor punishable by a maximum $250 fine, and lewd and lascivious cohabitation,
a class 3 misdemeanor punishable by a maximum $500 fine, are "equally, if not more compelling
than the public policy in Bowman," which supported a stockholder's right to vote free of duress
and intimidation by corporate management, does not support the majority's conclusion that these
criminal statutes have a sufficient public policy underlying them to support a Bowman-type
cause of action.
257
the VHRA, even when the employee does not rely on or cite the VHRA because
the policy is found in other statutes.
Even if the majority is correct in concluding that Virginia's public policy
protects an at-will employee from being terminated as a result of refusing to
violate the Commonwealth's criminal laws, the facts alleged in this case, if
proven, would contravene not only that public policy, but also the public policy of
safeguarding individuals from sex discrimination in employment, as reflected in
the VHRA. Thus, I believe that Mitchem cannot maintain this cause of action. See
Conner, 257 Va. at 290, 513 S.E.2d at 400. I recognize that the present case is
slightly different from Conner to the extent that, in support of her claim that she
was discharged in contravention of a public policy, Mitchem cites a policy not
contained in the VHRA, specifically her right to refuse to commit a crime.
Conner, on the other hand, asserted that her discharge from employment violated
the public policy against discrimination based on gender, which is a policy
reflected in the VHRA, but she cited statutes other than the VHRA as the source
of that public policy. Id. at 288, 513 S.E.2d at 399. I believe that this is another
distinction without a difference, and that this Court's decision in Conner is
controlling because, as I have already noted, Counts' alleged conduct, if proven,
would violate the public policies reflected in the VHRA. Thus, I conclude that
Mitchem's "[c]ause[ ] of action [is one] based upon the public policies reflected in
[the VHRA]," Code § 2.1-725(D), despite her attempt to place a different label on
it. By permitting her cause of action to proceed, the majority creates an avenue
through which virtually all employees asserting allegations similar to Mitchem's
can bypass the General Assembly's clear intent, as expressed in Code § 2.1725(D), to "abrogate the common law with respect to causes of action for
unlawful termination of employment based upon the public policies reflected in
the [VHRA]." Doss, 254 Va. at 372, 492 S.E.2d at 447. The General Assembly's
purpose in enacting subsection D was to bar claims such as the one brought by
Wright in Lockhart, yet the majority today ignores that clear intent by allowing
allegations similar to those alleged by Wright to go forward despite the language
of Code § 2.1-725(D).
Contrary to the majority's argument that Counts' position would bar a
common law wrongful termination action by an employee discharged for refusing
to engage in intimidatory conduct such as burning a cross on the lawn of an
African-American, or painting a swastika on a synagogue, those causes of action
would not be barred by Code § 2.1-725(D). In the examples utilized by the
majority, the discharges would not be in violation of the policies reflected in the
VHRA because the employer's act of discrimination based on race or religion
would not be directed toward the employee, but instead would be directed toward
a third party. The public policies reflected in the VHRA are intended to prohibit
discrimination in, inter alia, employment, on the basis of the employee's "race,
color, religion, national origin, sex, pregnancy, childbirth or related medical
conditions, age, marital status, or disability." Code § 2.1-715. Those public
policies protect an employee, not a third party, from being the subject or object of
258
a discriminatory act. In the majority's hypotheticals, the employee would not be
the object of the discrimination but would be the person who refuses to engage in
the discriminatory conduct. In other words, Code § 2.1-725(D) abrogates causes
of action based on policies reflected in the VHRA, but before those policies are
implicated, the person against whom discriminatory conduct is directed must be a
member of the class of persons protected by those policies. Dray v. New Market
Poultry Prod., Inc., 258 Va. 187, 191, 518 S.E.2d 312, 313 (1999). See also
Brown v. McLean, 159 F.3d 898, 902 (4th Cir. 1998), cert. denied sub nom.
Brown v. Mayor and City Council of Baltimore, --- U.S. ----, 119 S.Ct. 1577, 143
L.Ed.2d 672 (1999) (under Title VII, proof that plaintiff is a member of a
protected group is required to establish a prima facie case); Childress v. City of
Richmond, 134 F.3d 1205, 1209 (4th Cir.) (Luttig, J., concurring), cert. denied,
524 U.S. 927, 118 S.Ct. 2322 (1998) ("in order to qualify as a 'person aggrieved'
... [under Title VII], a plaintiff must be a member of the class of direct victims of
conduct prohibited ... and allege that he, not someone else, has been 'discriminated
against.' ") (Emphasis added); Drake v. Minnesota Mining & Manuf. Co., 134
F.3d 878, 884 (7th Cir. 1998) (in a Title VII associational discrimination case,
"the key inquiries should be whether the employee has been discriminated against
and whether that discrimination was 'because of' the employee's race.") (Emphasis
added); Code § 2.1-725(B) (the plaintiff's age, not that of any other person, makes
age discrimination contrary to the Commonwealth's public policy).38 Thus, under
my view, employees terminated because they rightly refused to participate in such
illegal and improper actions would not be barred by Code § 2.1-725(D) from
pursuing common law wrongful termination claims.
Conclusion
My dissent may be viewed by some as sanctioning "sex" discrimination in
the workplace. In order to dispel any such misconception, I reiterate the thoughts
expressed in the concurring opinion in Conner: Gender discrimination should not
be countenanced in any manner and victims of such discrimination should be
accorded a tort remedy that fully and fairly compensates them for injuries caused
by an employer's repugnant conduct.
However, the General Assembly of this Commonwealth has chosen to
impose limitations on the right of a[n employee] to recover damages against an
employer who discriminates ... because of [the employee's] gender.... And, this
Court, which does not, and constitutionally cannot, act as a super-legislative body,
is required to apply these restrictions as expressed by the General Assembly.
Conner, 257 Va. at 290-91, 513 S.E.2d at 400 (Hassell, J., concurring).
38 "Associational discrimination cases," where, for example, a Caucasian claims he or she was
discriminated against due to his or her relationship with an African-American, are permitted,
Drake, 134 F.3d at 884; Fiedler v. Marumsco Christian School, 631 F.2d 1144, 1149-50 (4th
Cir.1980), but the hypotheticals presented by the majority do not fulfill the criteria for such an
action.
259
Unlike the majority, I continue to believe that the proper role of this Court is to
interpret the law as enacted by the General Assembly, and not to function as a
"super-legislative body." For these reasons, I respectfully dissent in part and
concur in part.
Packett v. Herbert
237 Va. 422 (1989)
Whiting, J., delivered the opinion of the Court.
Averring that the operation of a self-service car wash facility adjacent to her
home constituted a nuisance, Frances D. Packett filed this suit in equity against
William C. Herbert, II, Marianne Herbert, and Warsaw Super Wash, Inc. (the
Herberts) for an injunction and damages. On Packett's motion, she was permitted to
file an amended bill of complaint. In Count One, she made a claim for damages
arising out of the alleged nuisance, and in Count Two she prayed for an injunction
against its continued operation.
The Herberts filed a motion to require a severance of the two counts, and,
thereafter, to require Packett to elect "whether to pursue a remedy at law for
damages, as stated in Count One, or to pursue an equitable remedy such as an
injunction, as stated in Count Two."
According to the order39 entered in this suit, Packett advised the chancellor
that she had no objection to the motion to sever40, and she elected to "proceed first
with the action at law set forth in Count One, for which a jury trial was demanded."
The chancellor denied Packett's "election to proceed first at law" and her request for
a jury trial because he "must first find, in a Chancery action, whether a nuisance
exists before an action at law can be maintainable."
Relying on the provisions of Code § 8.01-28141 and of Rule 1:4(k)42, Packett
contends that she can join what she calls her action at law with this suit in equity.
39 For two reasons, we take no notice of Packett's unilateral statement of facts and "other incidents
of the case," or of the reference in both parties' briefs to what happened before the chancellor.
Because: (1) in ruling on a demurrer, we consider only the facts set forth in the complaint and the
reasonable inferences drawn therefrom, The Ryland Group v. Wills, 229 Va. 459, 461, 331
S.E.2d 399, 401 (1985); and (2) unilateral assertions of fact by counsel are not considered a part
of the record on review. See Rule 5:10.
40 Because Packett did not object to the severance of her "law action" for trial, we cannot review
that decision. Rule 5:25.
41 Code § 8.01-281 provides in pertinent part:
A. A party asserting. . .a claim. . .may plead alternative facts and theories of recovery . . . .
B. The court may, upon motion of any party, order a separate trial of any claim . . . and of
any separate issue . . . .
260
Neither the Code section nor the Rule support Packett's contention. Both provide for
the assertion of alternative theories of recovery in an equity suit or in an action at
law, whether based on legal or equitable grounds, but neither authorizes the assertion
of different rights of action, with varying procedural rights43, in the same
proceeding. If we adopted Packett's contention, we would be abolishing the
traditional and marked distinction between law and chancery. We declined an
invitation to do so in Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128
(1986). Because this is a suit in equity and there was no motion for an issue out of
chancery, we hold that the chancellor correctly held that he must first determine
whether the activities complained of constituted a nuisance.
Packett also complains that the chancellor erred in sustaining each ground of
the Herberts' demurrer and in dismissing the suit with prejudice. Count One of the
amended bill of complaint claims damages for: (1) an averred impairment to
Packett's health; (2) interference with her use of the property; and (3) impairment of
the value of the property. Count Two prays for a permanent injunction against the
averred nuisance. The amended bill of complaint also avers that
those who patronize the car wash, which is automated and unattended
at all times, talk, yell and curse in a loud and unseemly way . . . consume
alcoholic beverages . . . use and sell illegal drugs . . . play stereos in their
cars at loud and unreasonable volumes, engage in offensive conduct such
as urinating in sight of plaintiff's residence, and throwing cans, bottles,
wrappers and other trash onto plaintiff's property; moreover, the car wash
facilities themselves generate loud noises which are clearly audible in
plaintiff's home . . . 24 hours a day, seven days a week.
The grounds of the Herberts' demurrer are: (1) they could not be held
responsible for the acts of their customers; and (2) the damages demanded were
uncertain in origin and amount, and any damage award would subject the Herberts to
danger of future litigation for the same or similar damages. Neither ground has merit.
The Herberts cannot avoid responsibility for the maintenance of a nuisance
upon or near their property because the activities complained of were their
42 Rule 1:4(k) provides in pertinent part:
A party asserting . . . a claim . . . may plead alternative facts and theories of recovery .
. . . A party may also state as many separate claims . . . as he has regardless of consistency and
whether based on legal or equitable grounds.
43 The important difference in procedural rights in this case is that in this suit in equity Packett does
not have an absolute right to a jury trial on her claim that the activities were a nuisance or on the
issue of damages. If she had filed an action at law, the judge would have been required to order a
jury trial upon her request. See Stanardsville Vol. Fire Co. v. Berry, 229 Va. 578, 583, 331
S.E.2d 466, 469-70 (1985). In her suit in equity, the matter is discretionary, unless a plea is filed.
Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986).
261
customers', not their own. In our opinion, the Herberts could be responsible for their
patrons' offensive actions amounting to a nuisance, if those activities occur on or
near the premises, and are reasonably related to the operation of the car wash.
Courts of other states have indicated that one conducting a business or other
activity on his premises may be liable for a nuisance if his patrons' objectionable
conduct is shown to have some reasonable relation to the conduct of the business or
activity, even though the acts complained of occurred off the premises. Armory Park
v. Episcopal Community Services, 148 Ariz. 1, 6-7, 712 P.2d 914, 920 (1985);
Barrett v. Lopez, 57 N.M. 697, 701, 262 P.2d 981, 983 (1953); Wade v. Fuller, 12
Utah 2d 299, 302, 365 P.2d 802, 804-05 (1961). At least two jurisdictions have
indicated that a self-service facility's owner may be held responsible for permitting a
nuisance on the property arising out of the acts of the facility's customers. Guillot v.
Town of Lutcher, 373 So. 2d 1385 (La. Ct. App.), cert. denied, 377 So. 2d 119 (La.
1979); cf. People v. Raub, 9 Mich. App. 114, 155 N.W.2d 878 (1967) (facility owner
liable for criminal nuisance).
Although we have not passed on the precise issue, we have decided two cases
in which the activities of third parties, using a public park conducted on the
defendant's premises, were claimed to contribute to the alleged nuisance. In neither
case did we distinguish between the owners' acts and those of the facilities' users.
Newport News v. Hertzler, 216 Va. 587, 221 S.E.2d 146 (1976); City of Lynchburg v.
Peters, 145 Va. 1, 133 S.E. 674 (1926). Accordingly, in our opinion, the averments
of the bill of complaint are sufficient to create an issue of fact as to whether the
Herberts were responsible for the conduct of a nuisance upon their property.
The next ground of the demurrer is "[t]hat the damages are uncertain in origin
and amount and that any award of damages . . . would subject Defendants to the
[danger] of future litigation for the same or similar damages." The Herberts argue
that "[t]o allow Packett to pursue an award of damages through an equity claim for
an injunction would be to render the amount of damages awarded uncertain and
speculative." The Herberts cite no authority for this proposition, and we find none.
Both parties recognize that we have sustained jury damage awards in law actions
predicated on nuisance, despite claims that they were speculative. Nat. Energy Corp.
v. O'Quinn, 223 Va. 83, 90, 286 S.E.2d 181, 185 (1982); Southern Railway Co. v.
McMenamin, 113 Va. 121, 129, 73 S.E. 980, 982 (1912). We discern no reason for
requiring a different level of proof of damages arising from the maintenance of a
nuisance in an equity suit seeking an injunction and damages, as distinguished from
an action at law to recover damages for the same wrong.
If Packett recovers damages for the permanent diminution in the value of her
property, she may not recover those damages again in any later proceeding. Nor may
she be awarded such damages and obtain an injunction against the continued
operation of the nuisance. See Miller v. Trueheart and Others, 31 Va. (4 Leigh) 569
(1833) (injunction awarded against reconstruction of a mill dam destroyed by flood,
although moving party previously was awarded damages arising out of maintenance
of earlier mill pond, drained when mill dam destroyed). Any such injunction would
262
give her a double recovery in that she would have recovered for future loss of value
of her property in the award of damages and then had that value restored upon the
defendant's compliance with the injunction. Cf. Norfolk & W.R. Co. v. Allen, 118 Va.
428, 438, 87 S.E. 558, 561 (1916).
Arguing that because they would be subjected to future litigation for similar
damages if an initial award of damages should be made in the equity suit in the
absence of an injunction, the Herberts contend that no damages can be awarded
absent an injunction. Once having assumed jurisdiction of the cause, a chancellor
can make an award of all damages to the adjoining owner arising out of the
maintenance of a permanent nuisance if no injunction is awarded. See Hampton
Roads Sanitation District v. McDonnell, 234 Va. 235, 239, 360 S.E.2d 841, 842
(1987) (successive awards proper where nuisance not of permanent nature and
damage from nuisance occurs at intervals).
On the other hand, if the nuisance can be abated, the adjoining owner is only
entitled to such damages as he may have sustained up to the time of the abatement of
the nuisance, not including damages for the permanent diminution in the value of his
property.
Therefore, to the extent that the chancellor denied any of Packett's claims for
damages if she should seek an injunction, his ruling was also in error.
For the reasons assigned, we conclude that the chancellor erred in sustaining
the demurrer, and we will reverse and remand the case for further proceedings
consistent with this opinion.
Reversed and remanded.
Davis v. Marshall Homes
265 Va. 159, 576 S.E.2d 504
Hassell, C.J., delivered Opinion
I.
In this appeal, we consider whether the doctrine of res judicata bars a
plaintiff's action to recover damages because of the defendants' alleged failure to
pay deed of trust notes when the plaintiff had unsuccessfully filed a prior motion
for judgment for actual fraud against the defendants.
II.
In 1999, plaintiff, Anita Lee Davis, filed a motion for judgment against
Marshall Meredith, Inc., Marshall Homes, Inc., Marshall Meredith, individually,
Perpetual Homes, Inc., and John M. Scott. Plaintiff pled in her motion for
judgment that these defendants committed acts of actual fraud against her.
Plaintiff alleged that on several occasions in 1995 she loaned money to
defendants for the purpose of purchasing various real properties that defendants
263
agreed to refurbish and sell for a profit. Plaintiff alleged that defendants
intentionally misrepresented to her the value of the real properties and deceived
her because even though they told her that they would "refurbish" each property,
defendants never intended to do so. Plaintiff stated in her motion for judgment
that "[a]t the time of each request [by defendants] for a loan and representation as
to the value of each real estate, the defendants knew that the actual value of the
real estate was less than what they represented to the plaintiff, and as a result of
this misrepresentation, the plaintiff lent them money for the purpose of the
defendants purchasing the property, with additional funds available for
refurbishing the property, at a 10% rate of interest. Further, not only did the
defendants know that the value of the property was substantially less than what
they had represented, they also knew at the time of the purchase that they were
not going to refurbish the property and/or sell it for profit resulting in the plaintiff
being left with the property and an outstanding Note based on an inflated property
value."
Plaintiff stated in her motion for judgment that she sought "judgment
against the defendants, jointly and severally, in the amount of $528,486.00
representing the amount of the inflated price of the real estate, $250,000.00 in
punitive damages, attorney's fees, pre and post judgment interest and any and all
other costs expended herein." Subsequently, plaintiff's motion for judgment for
actual fraud was dismissed with prejudice against defendants Marshall Meredith,
Inc., Marshall Homes, Inc., and Marshall Meredith, individually.
In 2001, plaintiff filed her present action. She alleged in her amended
motion for judgment that Marshall Homes, Inc., and Marshall Meredith,
individually, executed four separate deed of trust notes and that these defendants
"failed and refused to make any payments on the [notes]" and that the defendants
"surrendered" the properties that secured the deed of trust notes to plaintiff.
Plaintiff alleged that she "spent money to improve the properties for sale and
incurred net losses ... after the sale of each property." Plaintiff requested a
"judgment against the defendants, jointly and severally, in the amount of One
Hundred Sixty Four Thousand, Two Hundred Twenty Dollars and Seventy Six
Cents ($164,220.76), plus interest at 10% per annum through date of sale, as well
as interest accruing thereafter on the loss at 9% per annum, attorney's fees, and
any and all other costs expended herein."
Defendants filed a plea of res judicata and asserted that plaintiff's action
was barred because the circuit court had entered an order that dismissed with
prejudice her prior action for actual fraud. Defendants argued that the factual
allegations and damages claimed in the fraud action were based upon the same
facts and damages described in the breach of contract action. The circuit court
agreed with the defendants and entered an order that sustained the plea of res
judicata and dismissed plaintiff's action with prejudice. Plaintiff appeals.
III. A.
264
The principles that this Court must apply to our resolution of this appeal are
well established and familiar. We have repeatedly stated that "[t]he bar of res
judicata precludes relitigation of the same cause of action, or any part thereof,
which could have been litigated between the same parties and their privies."
Smith v. Ware, 244 Va. 374, 376, 421 S.E.2d 444, 445 (1992). Accord Scales v.
Lewis, 261 Va. 379, 382, 541 S.E.2d 899, 901 (2001); Flora, Flora & Montague,
Inc. v. Saunders, 235 Va. 306, 310, 367 S.E.2d 493, 495 (1988); Bates v. Devers,
214 Va. 667, 670-71, 202 S.E.2d 917, 920-21 (1974). We have consistently held
that a litigant who seeks to bar a claim based upon the defense of res judicata
must establish four elements: identity of the remedy sought; identity of the cause
of action; identity of the parties; and identity of the quality of the persons for or
against whom the claim is made. State Water Control Bd. v. Smithfield Foods,
Inc., 261 Va. 209, 214, 542 S.E.2d 766, 769 (2001); Balbir Brar Assoc., Inc. v.
Consolidated Trading and Serv. Corp., 252 Va. 341, 346, 477 S.E.2d 743, 746
(1996); Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125, 128 (1986).
We have also stated that:
"The judicially created doctrine of res judicata rests upon public
policy considerations which favor certainty in the establishment of
legal relations, demand an end to litigation, and seek to prevent the
harassment of parties.... The doctrine prevents 'relitigation of the same
cause of action, or any part thereof which could have been litigated,
between the same parties and their privies.' ... A claim which 'could
have been litigated' is one which 'if tried separately, would constitute
claim-splitting.'
" 'Claim-splitting' is bringing successive suits on the same cause of
action where each suit addresses only a part of the claim. Jones v.
Morris Plan Bank of Portsmouth, 168 Va. 284, 291, 191 S.E. 608, 610
(1937). Courts have imposed a rule prohibiting claim-splitting based
on public policy considerations similar to those underlying the doctrine
of res judicata: avoiding a multiplicity of suits, protecting against
vexatious litigation, and avoiding the costs and expenses associated
with numerous suits on the same cause of action."
Bill Greever Corp. v. Tazewell Nat'l Bank, 256 Va. 250, 254, 504 S.E.2d
854, 856-57 (1998).
The doctrine of res judicata only applies if the cause of action a plaintiff
asserts in the pending proceeding is the same as the cause of action asserted in the
former proceeding. City of Virginia Beach v. Harris, 259 Va. 220, 229, 523
S.E.2d 239, 243 (2000). And, the litigant who asserts the defense of res judicata
has the burden of proving by a preponderance of the evidence that the claim is
precluded by a prior judgment. Scales, 261 Va. at 383, 541 S.E.2d at 901.
Applying these well-established principles, we hold that the circuit court
erred in concluding that plaintiff's cause of action for breach of contract is barred
265
by the doctrine of res judicata. As we have already stated, the litigant who
asserts the doctrine of res judicata as a bar to the plaintiff's claim must show,
among other things, the "identity of the cause of action." In this case, defendants
cannot satisfy this requirement.
In her first cause of action, plaintiff alleged acts of actual fraud on the part
of the defendants. The basis of plaintiff's actual fraud claim was that she was
damaged because of her reliance upon defendants' misrepresentations of the
values of collateral that secured the deed of trust notes. We have held "that a
'litigant who prosecutes a cause of action for actual fraud must prove by clear and
convincing evidence: (1) a false representation, (2) of a material fact, (3) made
intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party
misled, and (6) resulting damage to the party misled.' " Prospect Dev. Co., Inc. v.
Bershader, 258 Va. 75, 85, 515 S.E.2d 291, 297 (1999) (quoting Bryant v.
Peckinpaugh, 241 Va. 172, 175, 400 S.E.2d 201, 203 (1991)); accord Richmond
Metro. Auth. v. McDevitt Street Bovis, Inc., 256 Va. 553, 557-58, 507 S.E.2d 344,
346 (1998); Evaluation Research Corp. v. Alequin, 247 Va. 143, 148, 439 S.E.2d
387, 390 (1994); Winn v. Aleda Constr. Co., Inc., 227 Va. 304, 308, 315 S.E.2d
193, 195 (1984).
A review of the motion for judgment in the fraud action reveals that
plaintiff would have been required to establish by clear and convincing evidence
that defendants approached her and requested loans for the purpose of
refurbishing and selling the real properties for a profit, defendants misrepresented
the values of the real properties, plaintiff relied upon defendants'
misrepresentations and loaned funds to defendants for the purchases of the real
properties, defendants purchased the properties at their actual values, defendants
never intended to honor their promises to plaintiff that they would "refurbish and
sell the properties," and plaintiff incurred damages related to the
misrepresentations.
In her later contract action to recover for losses sustained because of
defendants' failure to pay the deed of trust notes, plaintiff would have been
required to prove, by a preponderance of the evidence, the existence of the notes,
the defendants' failure to pay the notes, and damages.
We reject defendants' contention that plaintiff only had one cause of action,
and that plaintiff improperly split her single cause of action because the "same
evidence" was necessary to prove plaintiff's fraud and breach of contract claims.
Defendants are incorrect for numerous reasons. This Court held in Brown v.
Haley, 233 Va. 210, 216, 355 S.E.2d 563, 567 (1987), that "[t]he test to determine
whether claims are part of a single cause of action is whether the same evidence is
necessary to prove each claim." Application of this test compels us to conclude
that plaintiff did not split her causes of action.
In her fraud action, plaintiff would have had to present evidence of the deed
of trust notes and defendants' failure to satisfy those notes to show that she was
damaged as a result of the misrepresentations. However, this evidence does not
266
satisfy the remaining elements that plaintiff would have had to prove to establish
a prima facie case of actual fraud by clear and convincing evidence. The mere
fact that some evidence relevant in plaintiff's action for fraud may be relevant to
prove her distinct and separate contract claim for nonpayment of the deed of trust
notes does not, for purposes of res judicata, mean that plaintiff only has one cause
of action. Evidence of defendants' failure to satisfy the deed of trust notes does
not prove that defendants made false representations of the values of the real
properties intentionally and knowingly, with the intent to mislead plaintiff.
Evidence of defendants' failure to satisfy the deed of trust notes does not establish
plaintiff's reliance upon defendants' alleged misrepresentations.
It is a fundamental principle of jurisprudence that evidence which is not
relevant is not admissible. Most of the evidence necessary to prove plaintiff's
fraud action would have been inadmissible at a trial of plaintiff's contract action
because of the lack of relevance. Surely, the circuit court would have committed
error during a jury trial of plaintiff's contract action had the court permitted
plaintiff to present evidence of defendants' acts of actual fraud.
Additionally, much of the evidence that plaintiff would have to present to
establish damages in her breach of contract action is different from and not
relevant to the damages she alleged in her fraud case. In her fraud action,
plaintiff sought to recover damages based upon defendants' alleged
misrepresentations of the values of the collateral that secured the deed of trust
notes, and she sought punitive damages. In contrast, in plaintiff's breach of
contract case, she sought to recover money spent to improve the real properties
and net losses she incurred after she sold the properties that she received from
defendants in lieu of foreclosure.
Our prior decisions plainly illustrate the principle that a plaintiff's assertion
of separate and distinct causes of action will defeat a defense of res judicata. For
example, in Brown v. Haley, supra, we considered whether the doctrine of res
judicata barred the plaintiffs' suit to enforce an implied easement. 233 Va. at 212,
355 S.E.2d at 565. In that case, Rufus R. Brown and Sallie W. Brown filed an
action at law for ejectment against the defendants and/or their privies. The
Browns alleged in the ejectment action that Dayton A. Haley and Lucy S. Haley
had no interest in certain land. The circuit court ruled that the Browns were
entitled to "sole possession" of the land. Subsequently, the Haleys filed an
amended motion for declaratory judgment and bill of complaint against the
Browns and requested that the circuit court declare that the Haleys possessed an
easement to cross the Browns' land. The circuit court held that the Haleys had an
implied easement over the Browns' land. The Browns argued before this Court
that the doctrine of res judicata barred the maintenance of the Haleys' suit for the
declaration of an implied easement because of the prior ejectment action. Id. at
213- 15, 355 S.E.2d at 566-67.
We observed in Haley that a judgment in favor of a litigant bars relitigation
of the same cause of action and any part thereof that could have been litigated
267
between the same parties and their privies, but we explained that "[t]he barring of
a cause of action 'which could have been litigated' is not directed to an unrelated
claim which might permissibly have been joined, but, to a claim which, if tried
separately, would constitute claim- splitting." Id. at 215-16, 355 S.E.2d at 567
(quoting Bates, 214 Va. at 670-71 n. 4, 202 S.E.2d at 920-21 n. 4).
We stated that "[t]he test to determine whether claims are part of a single
cause of action is whether the same evidence is necessary to prove each claim."
Haley, 233 Va. at 216, 355 S.E.2d at 567. Applying this test, we held that the
doctrine of res judicata did not bar the Haleys from prosecuting their suit to
establish an implied easement. We emphasized that ejectment is an action at law
to determine title and the right of possession of real property, whereas an
easement is a privilege to use the land of another in a particular manner and for a
particular purpose. We held that the existence of an easement is not relevant to
the issue of title. We observed that ejectment involves ownership rights and the
proof necessary to establish this action generally consists of documents that vest
title, whereas the proof necessary to establish the existence of an implied
easement generally consists of facts that gave rise to the easement. Id. at 215-17,
355 S.E.2d at 567-68.
We noted that the elements that the Haleys were required to prove to
establish their claim of an implied easement could not be proven by the facts
presented in the ejectment action that showed that the Browns were the owners of
the disputed land. Id. at 217, 355 S.E.2d at 568. We held that the ejectment
action and the proceeding to establish an implied easement "were not part of the
same cause of action because there was no identity of facts necessary to prove
each claim." Id.
In the present case, just as in Haley, the doctrine of res judicata is simply
not applicable. The facts necessary to prove plaintiff's action for actual fraud are
different from the facts she must prove for her action based upon nonpayment of
the deed of trust notes. In the present appeal, as in Haley, there is "no identity of
facts necessary to prove each claim." Id.
We also observe that our holding today is consistent with our decision in
Smith v. Ware, supra. In Ware, we considered whether the doctrine of res
judicata barred a claim to recover dower and damages asserted by a litigant who
had unsuccessfully filed a motion for judgment for unlawful detainer. 244 Va. at
375, 421 S.E.2d at 445. Presley M. Smith and Pauline A. Smith were husband
and wife. Mr. Smith, sole record owner of the real estate where the couple
resided, died testate and his will and codicil were probated in November 1982.
The will devised the residence to Mr. Smith's sister, Ellen Smith Ware. A codicil
contained a provision which devised to Mrs. Smith the balance of a debt owed to
Mr. Smith if any money remained after the estate's expenses were paid. The
expenses exceeded the balance of the debt, and Mrs. Smith received nothing from
her husband's estate. Id. at 375-76, 421 S.E.2d at 445.
268
Ware notified Mrs. Smith that she had to vacate the residence. Mrs. Smith
left the premises and filed a motion for judgment for unlawful detainer. The
circuit court ruled that the unlawful detainer action was barred by the applicable
statute of limitations, and the case was dismissed. Subsequently, Mrs. Smith filed
a bill of complaint against Ware seeking commutation of her dower interest in the
residence and damages for withholding of her dower interest. Ware argued that
the doctrine of res judicata barred any recovery. The circuit court agreed and
dismissed the suit. Id. at 376, 421 S.E.2d at 445.
We disagreed with the circuit court's holding that the doctrine of res
judicata precluded re-litigation of the same cause of action or any part thereof,
which could have been litigated between the same parties and their privies. We
held, among other things, that the doctrine of res judicata did not bar Mrs. Smith's
second suit because the cause of action in the second suit differed from the cause
of action in the first proceeding. We stated:
"The causes of action are ... different. Mrs. Smith asserted a right
to occupy the property in her motion for judgment for unlawful
detainer. There, she relied upon former Code § 64.1-33 ... which
permitted a surviving spouse to reside in the marital residence without
charge for rent, repairs, taxes, or insurance until dower or curtesy was
assigned. Mrs. Smith, in her bill of complaint, seeks a commutation of
her dower interest. She pled a different cause of action, relying upon
former Code § 64.1-37...."
Id. at 377, 421 S.E.2d at 446. Just like the plaintiff in Ware, the plaintiff in
this case filed separate causes of action and thus the doctrine of res judicata does
not bar her subsequent cause of action.
We recognize that in Flora, Flora & Montague, Inc. v. Saunders, supra, we
held that the doctrine of res judicata barred a plaintiff from prosecuting a
subsequent cause of action for breach of contract. 235 Va. at 311, 367 S.E.2d at
496. However, our decision in Saunders is clearly distinguishable from the
present appeal. In 1961, Willis E. Board owned a tract of land that contained
about 200 acres located in Franklin County near the waters of the Roanoke River.
Board and his wife, Annie L. Board, Saunders' predecessors in title, executed an
option agreement with John Hatcher Ferguson and John Hatcher Ferguson, Jr.,
who were Flora, Flora & Montague, Inc.'s (Flora's) predecessors in title. Pursuant
to the agreement, the Boards granted the Fergusons a 10-year option to purchase a
portion of the Boards' land, containing about 100 acres, subject to certain
conditions. The Fergusons notified Saunders that they intended to exercise the
option, but he refused to convey the real estate as provided in the option
agreement. Id. at 307-08, 367 S.E.2d at 493-94.
In July 1971, the Fergusons filed a suit against Saunders for specific
performance of the agreement. While the specific performance suit was pending,
the Fergusons assigned the option agreement to Flora and others, who were added
as complainants. The amended bill of complaint in this suit (the first suit)
269
contained a general recitation about the option agreement and stated that "[a]
copy of [the] Option is attached hereto and made a part hereof." Id. at 308-09,
367 S.E.2d at 494.
The circuit court entered an order that Flora and the
Fergusons were entitled to specific performance of the contract and the option
agreement. Id. at 309, 367 S.E.2d at 494.
In 1984, Flora filed a suit in chancery against Saunders and requested that
the court enforce certain terms of the option agreement that was the basis of the
first suit and enter a decree that would require Saunders to convey to Flora certain
land and easements. Saunders filed a plea of res judicata, and the circuit court,
after an ore tenus hearing, sustained the plea and dismissed the cause. Id. at 307,
367 S.E.2d at 493.
We held that the circuit court properly sustained the plea of res judicata
because "Flora could maintain only one suit to compel specific performance of
the option agreement. The agreement's subject matter related solely to the sale of
a tract of land and necessary appurtenances thereto. Indeed, the first suit was
instituted to have the court 'grant specific performance of [the] Contract,' not a
part thereof. Moreover, the option agreement was attached to and made a part of
the bill of complaint." Id. at 311, 367 S.E.2d at 496. We held that Flora sought
"to make severable an indivisible contract. Flora had but one cause of action;
thus, Flora's claim had to be determined in one suit." Id.
Unlike the circumstances in Saunders, the present case does not involve an
attempt by a plaintiff to file two separate lawsuits based upon the breach of one
indivisible contract. Rather, as we have already stated, plaintiff's two lawsuits
involved two separate and distinct causes of action.
B.
Our decision today also is supported by our holding in Allstar Towing, Inc.
v. City of Alexandria, 231 Va. 421, 344 S.E.2d 903 (1986). In Allstar, for
purposes of res judicata, we adopted a definition of the term "cause of action" as
"an assertion of particular legal rights which have arisen out of a definable factual
transaction." Id. at 425, 344 S.E.2d at 906 (quoting Bates v. Devers, 214 Va. 667,
672 n. 8, 202 S.E.2d 917, 921 n. 8 (1974)). We concluded in Allstar that the
doctrine of res judicata did not bar a second action involving a challenge to the
award of a contract by a municipality. In support of our holding, we emphasized
that the two actions did not involve the same "definable factual transaction,"
noting that "the facts giving rise to the second cause of action were not even in
existence when the first action was heard and decided on the merits." Allstar, 231
Va. at 425, 344 S.E.2d at 906.
In Allstar, we did not adopt a transactional analysis test when we decided
whether the claims at issue were barred by the doctrine of res judicata. We were
not even required to consider whether to use such a test because, as we just stated,
the facts that gave rise to the second cause of action in Allstar were not in
existence when the first cause of action arose. Moreover, just one year after this
270
Court decided Allstar, we implicitly rejected the transactional analysis test in
Brown v. Haley, supra, when we stated that "[t]he test to determine whether
claims are part of a single cause of action is whether the same evidence is
necessary to prove each claim." 233 Va. at 216, 355 S.E.2d at 567. Therefore, in
accordance with our precedent, we explicitly reject the application of the
transactional analysis test when deciding whether a claim is barred by res
judicata. See, e.g., Smithfield Foods, 261 Va. at 214, 542 S.E.2d at 769; Ware,
244 Va. at 376, 421 S.E.2d at 445; Saunders, 235 Va. at 310-11, 367 S.E.2d at
495; Haley, 233 Va. at 216, 355 S.E.2d at 567.
In the present appeal, while the facts supporting both the fraud and contract
actions arose from defendants' efforts to procure financing of the properties, we
nevertheless conclude that those facts did not arise out of the same "definable
factual transaction." The alleged misrepresentations by defendants constituted a
separate definable factual transaction. This separate definable factual transaction
consisted of alleged misrepresentations of the values of the properties and future
development plans designed to obscure the actual values of the properties as
collateral in order to obtain the money later secured by the notes. The contract
action arose from a distinct and separate definable factual transaction limited to
breach of the terms and conditions appearing on the face of the notes as well as
the damages related to the failure to satisfy the notes. Thus, the contract claim
before us is not defeated by the doctrine of res judicata on the grounds that it
arose from the same "definable factual transaction" as the fraud claim. Rather,
the existence of separate "definable factual transactions" supporting the two
claims before us requires rejection of the doctrine of res judicata.
Additionally, for purposes of res judicata, a "cause of action" involves an
assertion of particular legal rights arising out of a definable factual transaction.
In this case, plaintiff's fraud and contract actions arose from different definable
factual transactions and, just as important, these actions constituted assertions of
different particular legal rights. Clearly, the right to enforce a contract is a
separate and distinct particular legal right from the right to enforce an action for
fraud.
IV.
Accordingly, we will reverse the judgment of the circuit court and remand
this case for a trial on the merits.
Reversed and remanded.
Justice LEMONS, files a dissenting opinion.
Justice KINSER, with whom Justice LACY and Justice LEMONS join, dissenting.
The sole issue in this appeal is whether the breach of contract claim is part
of the "same cause of action" as the fraud claim and thus "could have been
litigated" with the motion for judgment alleging fraud. Because I conclude that
both claims assert legal rights that arose out of the same "definable factual
271
transaction," I respectfully dissent and would affirm the circuit court's judgment
sustaining the plea of res judicata.
The majority first holds that the doctrine of res judicata does not bar Davis'
breach of contract claim because the defendants did not show "identity of the
cause of action." The majority next holds that this Court's decision in Allstar
Towing v. City of Alexandria, 231 Va. 421, 344 S.E.2d 903 (1986), supports its
conclusion that Davis did not split her cause of action because the breach of
contract claim did not arise out of the same "definable factual transaction" as the
fraud claim. In reaching these two conclusions, the majority cites numerous
cases to support the "principle that a plaintiff's assertion of separate and distinct
causes of action will defeat a defense of res judicata." The majority does not,
however, consider the impact of Virginia's separation of law and equity upon the
application of the res judicata bar. In my view, the principles of res judicata
cannot be properly applied in this case without addressing that issue.
Res judicata is a judicially-created doctrine premised upon public policies
favoring certainty in legal relations, an end to litigation, and the prevention of
harassment of parties. Bates v. Devers, 214 Va. 667, 670, 202 S.E.2d 917, 920
(1974). However, as I will demonstrate, these policies cannot be fully realized in
Virginia because of certain procedural barriers that restrict the application of the
doctrine of res judicata. Those barriers include the separation of law and equity
and the absence of a compulsory counterclaim rule. Prior to 1977, the inability
to join tort and contract claims in the same proceeding also limited the use of the
res judicata bar. When such barriers are not implicated in a particular situation,
such as the present one, our decision in Allstar Towing provides the analytical
framework for deciding whether the res judicata bar applies. I will now review
the relevant cases that lead me to these conclusions and, in doing so, will explain
why I respectfully dissent.
"The doctrine [of res judicata] is firmly established in our jurisprudence and
should be maintained where applicable." Ward v. Charlton, 177 Va. 101, 115, 12
S.E.2d 791, 796 (1941); accord Bates, 214 Va. at 670, 202 S.E.2d at 920. This
Court has explained the effect of the doctrine:
When the second suit is between the same parties as the first, and on the
same cause of action, the judgment in the former is conclusive of the latter not
only as to every question which was decided, but also as to every other matter
which the parties might have litigated and had determined, within the issues as
they were made or tendered by the pleadings or as incident to or essentially
connected with the subject matter of the litigation, whether the same, as a matter
of fact, were or were not considered. As to such matters a new suit on the same
cause of action cannot be maintained between the same parties.
Gimbert v. Norfolk Southern R.R. Co., 152 Va. 684, 689-90, 148 S.E. 680,
682 (1929), quoted in Allstar Towing, 231 Va. at 424, 344 S.E.2d at 905. Stated
differently, the doctrine "bars the relitigation of the same cause of action, or any
part thereof which could have been litigated, between the same parties and their
272
privies." Bates, 214 Va. at 670-71, 202 S.E.2d at 920-21. A claim that " 'could
have been litigated' " is one that, if tried separately, would amount to " 'claimsplitting.' " Id. at 670 n. 4, 202 S.E.2d at 920 n. 4; accord Bill Greever Corp. v.
Tazewell Nat'l Bank, 256 Va. 250, 254, 504 S.E.2d 854, 856 (1998).
For many years, this Court has held that a party asserting the res judicata
bar must establish identity of the cause of action as well as identity of the remedy
sought, identity of the parties, and identity of the quality of the persons for or
against whom the claim is made. See Ferebee v. Hungate, 192 Va. 32, 36, 63
S.E.2d 761, 764 (1951); Mowry v. City of Virginia Beach, 198 Va. 205, 211, 93
S.E.2d 323, 327 (1956); Wright v. Castles, 232 Va. 218, 222, 349 S.E.2d 125,
128 (1986); Smith v. Ware, 244, Va. 374, 376, 421 S.E.2d 444, 445 (1992).
However, it was not until our decisions in Bates v. Devers and Allstar Towing that
we defined the term "cause of action."
In Bates, we explained that the scope of the term "cause of action" may
vary depending on the context but that, for purposes of res judicata, it is the
"assertion of particular legal rights which have arisen out of a definable factual
transaction." 214 Va. at 672 n. 8, 202 S.E.2d at 921 n. 8. Thus, we held in Bates
that a claim alleging breach of a 1968 instrument and claims based on earlier,
separate instruments were " 'distinct divisible claims, depending on separate
contracts, made at different times and upon different principles; and the evidence
to support one [was] not necessary to support the other, but much of it that would
be material to sustain the one would be irrelevant to the other.' " Id. at 672, 202
S.E.2d at 922 (quoting Kelly v. Board of Public Works, 66 Va. (25 Gratt.) 755,
762-63 (1875)). In that holding, we implicitly recognized that the legal rights
asserted by the plaintiff did not arise out of a single "definable factual
transaction."
The definition of the term "cause of action" enunciated in Bates was central
to our subsequent decision in Allstar Towing. In its first case, Allstar challenged a
determination by the City of Alexandria that Allstar was a " 'non-responsible'
bidder." 231 Va. at 425, 344 S.E.2d at 906. In a subsequent case filed by Allstar
after the City had issued a second invitation to bid, Allstar sought relief on the
basis that the City had awarded the contract to a bidder that allegedly did not
satisfy certain specifications. Id. Because the facts underlying the second cause
of action were not even in existence when the first case was decided, we
concluded that "the legal rights asserted in the second action arose from a factual
transaction that was different from the factual transaction giving rise to the
assertion of legal rights in the first action." Id.
One year after Allstar Towing, we decided Brown v. Haley, 233 Va. 210,
355 S.E.2d 563 (1987). There, the plaintiffs, Dayton A. and Lucy S. Haley and
others, asked the court to, among other things, declare that they had an easement
to cross the property of Rufus R. Brown to reach the waters of a lake and to
enjoin the defendants from impeding access to the lake. 233 Va. at 214, 355
S.E.2d at 566. However, invoking the principles of res judicata, Brown asserted
273
that a prior ejectment action at law filed by him and Sallie W. Brown against the
Haleys barred the second litigation concerning the easement. Id.
We disagreed with Brown, finding that the "proof necessary to support the
[ejectment] action consist[ed] of the documents which vest title in the owner and
any other evidence related to the issue of title[;]" whereas, "[t]he existence of an
easement is not relevant to the issue of title." Id. at 217, 355 S.E.2d at 568. The
easement claimed in the second action could not have been established by the
facts that proved ownership of the property in the ejectment action. Id. "The two
claims ... were not part of the same cause of action because there was no identity
of facts necessary to prove each claim." Id.
Nor was there an identity of remedies because the two claims could not
have been brought in one proceeding. If the Haleys had asserted what would
have been a counterclaim in the ejectment action, the court could not have granted
the requested relief regarding the easement in that action since the relief was
equitable in nature and the ejectment action was at law. Id. at 218, 355 S.E.2d at
568. Therefore, the plaintiffs' recourse was to file the separate suit in equity. Id.
If we had accepted Brown's position, the practical effect would have been to
implement, albeit implicitly, a compulsory counterclaim rule.
The holding in Brown did not mention the definition of the term "cause of
That
action" adopted the year before in Allstar Towing for good reasons.
definition was not relevant in Brown because of our distinction between law and
equity and its impact upon the application of the res judicata bar. That impact is
exemplified by our decision in Wright v. Castles, decided after Allstar Towing
and before Brown.
The issue in Wright was the effect of a chancery suit for injunctive relief
upon a subsequent action at law seeking compensatory and punitive damages. 232
Va. at 220, 349 S.E.2d at 127. In the chancery suit, the plaintiff sought to enjoin
the defendant from interfering with the plaintiff's use of a certain road. Id. The
bill of complaint contained no prayer for an award of damages. Id. In the
subsequent action at law, the plaintiff alleged that the defendant had falsely and
maliciously slandered his title by interfering with the use of the same road, and
that the defendant had tortiously interfered with the consummation of a contract
to sell the plaintiff's land. Id.
Although we acknowledged that the same events gave rise to both
proceedings, id., meaning that both claims arose out of a single "definable factual
transaction," we, nevertheless, refused to apply the res judicata bar. Declining the
defendant's invitation to abrogate Virginia's distinction between law and equity,
we pointed out that a party seeking monetary damages in a tort case must bring
the action on the law side of the court. Id. at 222, 349 S.E.2d at 128. However, a
party asking for injunctive relief must sue in equity. Id. Thus, we concluded that
"a chancery suit is not res judicata to a subsequent law action unless the very
matter in controversy in the pending action was decided in the prior suit." Id.
274
The decision in Wright, rather than that in Allstar Towing, also provided the
foundation for our refusal to apply the res judicata bar in Smith v. Ware. There,
the plaintiff initially filed a motion for judgment for unlawful detainer, seeking
not only possession of the residence in which she had resided after her husband's
death but also damages. 244 Va. at 375, 421 S.E.2d at 445. The trial court ruled
that the statute of limitations barred the unlawful detainer action. Id. at 376, 421
S.E.2d at 445. The plaintiff then filed a bill of complaint seeking commutation
of her dower interest in the residence and also damages for withholding that
interest. Id.
We reversed the trial court's judgment that res judicata barred litigation of
the second suit. Id. Citing Wright but not Allstar Towing, we held that there was
neither an identity of remedies nor an identity of causes of action as between the
motion for judgment for unlawful detainer and the bill of complaint for
commutation of the plaintiff's dower interest. Id. In the unlawful detainer action,
the plaintiff sought possession of the property based on the provisions of former
Code § 64.1-33; whereas, in the chancery suit, she asked for a commutation of
her dower interest, relying upon former Code § 64.1-37. Id. at 377, 421 S.E.2d at
446.
In contrast, the decision in Allstar Towing had a bearing on our application
of the res judicata bar in Flora, Flora & Montague, Inc. v. Saunders, 235 Va. 306,
367 S.E.2d 493 (1988), because the law-equity distinction was not a factor.
There, a vendee first sought specific performance of an option agreement to
purchase real estate and asked the court to convey the property at issue. Id. at
309, 367 S.E.2d at 494. The second suit, also filed in chancery, involved the
vendee's claim that, among other things, it was entitled to use certain rights-ofway, pursuant to the option agreement, over the residual land owned by the
vendor. Id. at 310, 367 S.E.2d at 495.
We held that the second suit was barred by the doctrine of res judicata. Id.
The vendee had but one cause of action to compel specific performance of the
option agreement because the agreement's subject matter concerned the sale of the
land and the necessary appurtenances thereto. Id. at 311-12, 367 S.E.2d at 496.
In other words, there was a single "definable factual transaction" out of which
both claims arose.
We did not apply the doctrine of res judicata in Brown, Wright, and Smith
because the respective plaintiff in each of those cases sought a remedy that was
not available in a prior proceeding due to the separation of law and equity. These
cases unquestionably demonstrate that the distinction between law and equity
limits the application of the res judicata bar in Virginia. Indeed, that distinction
was the essence of the Wright decision. However, the separation of law and
equity did not play a role in Bates or Flora, nor is it a factor in the case before us.
Like the plaintiffs in Bates and Flora, Davis sought relief on the same side of the
court in both of her cases.
275
A jurisdiction's separation of law from equity is recognized in the
Restatement of Judgments (Second) § 26(1)(c) (1982), as an exception to the
general rule concerning claim-splitting. The rule that "a valid and final judgment
rendered in an action extinguishes the plaintiff's claim ..., includ[ing] all rights of
the plaintiff to remedies against the defendant with respect to all or any part of the
transaction ... out of which the action arose," id. at § 24, does not apply when:
[t]he plaintiff was unable to rely on a certain theory of the case or to seek a
certain remedy or form of relief in the first action because of the limitations on the
subject matter jurisdiction of the courts or restrictions on their authority to
entertain multiple theories or demands for multiple remedies or forms of relief in
a single action, and the plaintiff desires in the second action to rely on that theory
or to seek that remedy or form of relief[.]
Id. at § 26(c). Instead, the rule against claim-splitting is predicated on the
assumption that the jurisdiction in which the first judgment was rendered was one
which put no formal barriers in the way of a litigant's presenting to a court in one
action the entire claim including any theories of recovery or demands for relief
that might have been available to him under applicable law.
Id. at § 26(1)(c) cmt. c. One of the formal barriers referenced in the
Restatement is the separation of law and equity. Id.; see also id. at § 25 cmt. i.
That such formal barriers affect the rule against claim-splitting is not a new
concept in Virginia. In Bates, where we first defined the term "cause of action"
for res judicata purposes, this Court acknowledged that procedural barriers can
restrict the application of res judicata principles. There, we cited the Restatement
of Judgments § § 47, 62, 83 (1942), in our discussion of a claim that "could have
been litigated." 214 Va. at 671, 202 S.E.2d at 921. Comment c to § 62 provided
that "[a]s a result of one tortious act or breach of contract there may be a number
of invasions of a single interest or of different interests."
Restatement of
Judgments § 62 cmt. c (1942). To decide whether there is a single cause of
action arising from the tortious act or breach of contract, the first question, being
one of procedure, was whether a plaintiff "can recover in one action for all of the
harms or breaches of contract[.]" Id. "[I]f because of procedural rules separate
actions must be brought," a judgment for one invasion would not prevent an
action for others wrongs. Id.
However, if all claims could have been brought in one proceeding, the next
question concerned the effect of a judgment for one invasion or breach on other
claims not included in that action. Id. "This [was] a question of substantive law.
The answer depend[ed] upon whether the events or series of events [were]
regarded as constituting one inseparable cause of action at the time of the
judgment." Id.
In addition to the separation of law and equity, another procedural barrier
affected the application of the res judicata bar in the past when tort and contract
claims could not be joined in the same proceeding in Virginia. See, e.g., Standard
276
Products Co. v. Wooldridge & Co., Ltd., 214 Va. 476, 481, 201 S.E.2d 801, 805
(1974); Kavanaugh v. Donovan, 186 Va. 85, 93, 41 S.E.2d 489, 493 (1947).
However, in 1977, the General Assembly eliminated that barrier with the
enactment of § 8.01-272. In pertinent part, that statute provides that "[a] party
may join a claim in tort with one in contract provided that all claims so joined
arise out of the same transaction or occurrence." In Code § 8.01-281, the General
Assembly also authorized the pleading of alternative facts and theories of
recovery "provided that such claims, defenses, or demands for relief so joined
arise out of the same transaction or occurrence."
As we stated in Fox v. Deese, 234 Va. 412, 423, 362 S.E.2d 699, 705
(1987), those statutes "represented a radical departure from the common-law
pleading rule[.]" Similarly, our implementation in Allstar Towing of the concept
that a cause of action, for purposes of res judicata, must be viewed in terms of a
"definable factual transaction" was a shift in our res judicata jurisprudence to the
approach employed by a majority of jurisdictions:
The present trend is to see [a] claim in factual terms and to make it
coterminous with the transaction regardless of the number of substantive theories,
or variant forms of relief flowing from those theories, that may be available to the
plaintiff; regardless of the number of primary rights that may have been invaded;
and regardless of the variations in the evidence needed to support the theories or
rights. The transaction is the basis of the litigative unit or entity which may not
be split.
Restatement of Judgments (Second) § 24(1) cmt. a. See also, Williamson v.
Columbia Gas & Electric Corp., 186 F.2d 464, 469-70 (3rd Cir.1950); Ramseyer
v. Ramseyer, 98 Idaho 554, 569 P.2d 358, 360 (1977); Kent County Bd. of Educ.
v. Bilbrough, 309 Md. 487, 525 A.2d 232, 236 (1987); Eastern Marine Constr.
Corp. v. First Southern Leasing, Ltd., 129 N.H. 270, 525 A.2d 709, 712 (1987).
Our shift was consistent with the General Assembly's transactional
approach employed in Code §§ 8.01-272 and -281, as evidenced by its use of the
language "same transaction or occurrence." Both concepts, "definable factual
transaction" and "same transaction or occurrence," advance public policies
embracing judicial economy, ending litigation, providing certainty in legal
relationships, and preventing party harassment.
However, a transactional
approach must "strike a delicate balance between, on one hand, the interests of the
defendant and the courts in bringing litigation to a close and, on the other hand,
the interests of the plaintiff in the vindication of a just claim." Restatement of
Judgments (Second) § 24 cmt. b.
The transactional analysis utilized in Allstar Towing is limited by the
distinction between law and equity. In determining whether the principles of res
judicata bar a particular proceeding, the Allstar Towing definition of the term
"cause of action" becomes relevant only when the law-equity distinction is not in
play. In other words, legal rights asserted in two separate cases could arise out of
a single "identifiable factual transaction," as they clearly did in Wright, but the
277
second proceeding would not be barred if the relief sought therein was not
available in the prior proceeding due to the separation of law and equity. See
Wright, 232 Va. at 222, 349 S.E.2d at 128. I believe that is the reason Allstar
Towing was not mentioned in the Brown, Wright, and Smith decisions.
The majority, however, states that this Court did not adopt a transactional
approach in Allstar Towing. I disagree. The definition of the term "cause of
action," first introduced in Bates and then explicitly relied upon in Allstar Towing
and Waterfront Marine Constr., Inc. v. North End 49ers Sandbridge Bulkhead
Groups, A, B and C, 251 Va. 417, 434, 468 S.E.2d 894, 904 (1996), employs the
phrase "definable factual transaction." I find no analytical difference between
that phrase and the phrase "same transaction or occurrence," which is the
language used by the General Assembly in Code § § 8.01-272 and 281 and
characterized by this Court as "so plain and unambiguous that it requires no
interpretation." Powers v. Cherin, 249 Va. 33, 37, 452 S.E.2d 666, 669 (1995).
If use of the language "definable factual transaction" in the definition of the term
"cause of action" was not indicative of this Court's decision to use a transactional
analysis when deciding whether to apply the res judicata bar, then what was the
intent of the Court?
In truth, the effect of the majority's explicit rejection of a transactional
approach is to overrule our decision in Allstar Towing. However, the majority
does not explain why this precedent should be cast aside. Despite rejecting a
transactional approach and overruling Allstar Towing, the majority, nevertheless,
utilizes the Allstar Towing definition of the term "cause of action," and the
majority states that its decision is supported by the holding in that case.
I find no reason to overrule the precedent established in Allstar Towing.
Thus, I conclude that the dispositive inquiry in this case, since the separation of
law and equity is not a factor, is whether Davis' claim alleging breach of contract
and the former claim alleging fraud arose out of a single "definable factual
transaction." In my opinion, they did.
The "definable factual transaction" was the events surrounding Anita Lee
Davis' loans to Marshall Homes, Inc. and others for the purpose of purchasing
certain parcels of real estate. In the present motion for judgment, Davis alleged
breach of contract for failure to pay four deed of trust notes. Those notes, signed
by Marshall Homes, evidenced the loans made by Davis to purchase four parcels
of real estate that previously had been deeded to her in lieu of foreclosure and
were executed in conjunction with Davis' loans to purchase those properties.
Although the majority asserts that Marshall's alleged misrepresentations
constituted one "definable factual transaction" and the terms and conditions of the
notes arose from a separate "definable factual transaction," those notes did not
come into existence at some later point in time or as a result of different
negotiations between the parties. Even the majority acknowledges that "the facts
supporting both the fraud and contract actions arose from defendants' efforts to
procure financing of the properties[.]"
278
The majority also calls Davis' claims different legal rights and emphasizes
that the elements of a claim for fraud are different from the elements of a claim
for breach of contract. However, the determination whether a particular claim
"could have been litigated" in a prior action and is, thus, barred by the doctrine of
res judicata does not depend on whether the elements of the prior claim and the
present claim are identical. In Jones v. Morris Plan Bank of Portsmouth, 168 Va.
284, 191 S.E. 608 (1937), this Court stated:
If suit is brought for a part of a claim, a judgment obtained in that
action precludes the plaintiff from bringing a second action for the
residue of the claim, notwithstanding [that] the second form of action
is not identical with the first, or different grounds for relief are set
forth in the second suit. Id. at 291, 191 S.E. at 610 (emphasis added);
accord Saunders, 235 Va. at 311, 367 S.E.2d at 495; Snyder v. Exum,
227 Va. 373, 377, 315 S.E.2d 216, 218 (1984); see also Restatement
of Judgments (Second) § 25 and § 24 cmt. c.44
If the application of res judicata turned on whether the elements of the legal
rights asserted were the same in both cases, the doctrine would bar only those
legal rights based on the same legal theory and asserting the same grounds for
relief. A claim that "could have been litigated" would seldom, if ever, be barred.
For example, under the majority's holding today, a plaintiff could assert claims
alleging intentional interference with contract and business expectancies, and
conspiracy to injure another in trade or business in separate proceedings without
fear of the second proceeding being barred by the principles of res judicata even
though the same events gave rise to both claims.
Davis' "second form of action" as well as the "grounds for relief" were
obviously not identical with the form of action and grounds of relief set forth in
the first case. Jones, 168 Va. at 291, 191 S.E. at 610. The second case alleged
breach of contract while the first alleged fraud. Those differences, however, do
not change the fact that the legal rights asserted by Davis arose out of a single
"definable factual transaction." Allstar Towing, 231 Va. at 425, 344 S.E.2d at
906.
My conclusion is consistent with this Court's decision in Waterfront Marine
Constr., Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C.
Applying the Allstar Towing definition of the term "cause of action," we held that
a second arbitration demand was barred by a prior arbitration award under the
principles of res judicata. 251 Va. at 435, 468 S.E.2d at 905. In the first
44 The Restatement of Judgments (Second) § 24 cmt. c. states:
That a number of different legal theories casting liability on an actor may apply to a given
episode does not create multiple transactions and hence multiple claims. This remains true
although the several legal theories depend on different shadings of the facts, or would emphasize
different elements of the facts, or would call for different measures of liability or different kinds
of relief.
279
arbitration proceeding, the landowners asserted a breach of contract based on
alleged design and construction defects in a bulkhead. Id. at 434, 468 S.E.2d at
904. The landowners argued that the second arbitration demand claiming breach
of warranty was not identical to the first because the bulkhead had not failed at
the time of the first demand. Id. We disagreed and specifically stated that
"[l]abeling the claim a breach of warranty rather than a breach of contract [did]
not alter the nature of the claim." Id. at 435, 468 S.E.2d at 904. Similarly,
different labeling does not alter the fact that both of Davis' claims arose out of a "
definable factual transaction."
By analyzing identity of the cause of action in terms of the elements of the
legal rights asserted and addressing that issue apart from the Allstar Towing
definition of the term "cause of action," the majority is also able to say that the
facts necessary to prove Davis' claim for fraud were different from the facts
required to establish her breach of contract claim. In Brown, we stated that "[t]he
test to determine whether claims are part of a single cause of action is whether the
same evidence is necessary to prove each claim." 233 Va. at 216, 355 S.E.2d at
567.
However, unlike the majority, I do not believe that the "same evidence test"
should be construed in terms of the elements of the legal rights asserted, nor
should it be applied so narrowly as to require each piece of evidence to be exactly
the same in both cases. See Restatement of Judgments (Second) § 25 cmt. b.
Otherwise, as I have already stated, a claim that "could have been litigated" in a
prior proceeding would never be barred. The doctrine of res judicata would
apply only when an unsuccessful plaintiff re-files the identical claim based on the
same legal theory.
Thus, I conclude that the focus must be on the evidence that is "necessary"
to successfully prove both claims. Here, in order to prevail on her fraud claim,
Davis had to establish the existence of the loans, the nonpayment of the notes
evidencing those loans, and the amounts due and owing. Although that evidence,
without more, would not have established fraud, it did prove the breach of
contract. In proving fraud, Davis at the same time proved breach of contract.
Under the particular facts of this case, the fraud claim subsumed the breach of
contract claim. For that reason, I conclude that the same evidence was necessary
to prove both claims.
Finally, I would be remiss if I failed to discuss the impact of my analysis
and conclusions on this Court's decision in Carter v. Hinkle, 189 Va. 1, 52 S.E.2d
135 (1949). The issue presented there was whether a person who had sustained
both property damage and personal injury as the result of a single negligent act of
a defendant could maintain two separate actions for the injuries or was a judgment
obtained in an action for the property damage a bar to a subsequent action to
recover for the personal injury. Id. at 3, 52 S.E.2d at 136. Aligning ourselves
with the minority view, this Court held that the common law rule allowing two
280
actions in this situation still applied because the General Assembly had not
changed or altered the common law in that respect. Id. at 12, 52 S.E.2d at 140.
I acknowledge that the separation of law and equity played no role in that
decision. However, I conclude that the rationale for the holding in Carter
remains sound in the particular situation presented there. In 1977, the General
Assembly abrogated the common law with regard to pleading tort and contract
claims in the same proceeding by enacting Code § § 8.01-272 and 281. But, it
did not alter the particular common law rule discussed in Carter even though the
enactment of those statutes promotes judicial economy and an end to litigation
while the common law rule in Carter does not.
Similarly, the General Assembly enacted Code § 8.01-6.1 in 1996. That
statute states that an amendment of a pleading changing or adding a claim or
defense relates back to the original pleading for purposes of the statute of
limitations if, among other things, "the claim or defense asserted in the amended
pleading arose of the conduct, transaction or occurrence set forth in the original
pleading." The statute altered the limited definition of the term "cause of action"
employed by this Court in Vines v. Branch, 244 Va. 185, 418 S.E.2d 890
(1992).45
As with the enactment of Code § § 8.01-272 and -281, the passage of Code
§ 8.01-6.1 reflected the General Assembly's shift to a transactional approach, but
again the General Assembly left intact the common law rule followed in Carter.
See Weathers v. Commonwealth, 262 Va. 803, 805, 553 S.E.2d 729, 730 (2001)
(General Assembly, when acting in an area, is presumed to know the applicable
law as stated by an appellate court). And, I believe that it did so for good
reasons. After an automobile accident causing injury to person and property,
"[q]uestions involving the rights of automobile insurance carriers, both liability
and collision, rights of assignees, receivers, trustees in bankruptcy, and subrogees,
render it essential in certain cases to allow one action for personal injury and
another for property damage." Carter, 189 Va. at 12, 52 S.E.2d at 140.
45 In Vines, we concluded that an amendment alleging breach of contract to a plaintiff's original
motion for judgment in tort for the recovery of property stated a new cause of cause, and was
thus barred by the applicable statute of limitations, because different elements needed to be
proved and a different measure of recovery would apply. 244 Va. at 189, 418 S.E.2d at 893.
Notably, both the original motion for judgment and the amendment arose out of the same
transaction, specifically the events surrounding the plaintiff's purchase of an automobile and the
defendant's placing the title of the vehicle in her name and retaining possession of it.
The majority's analysis regarding identity of the cause of action is not consistent with the General
Assembly's enactment of Code § 8.01-6.1 in response to the decision in Vines.
281
For these reasons, I conclude that the doctrine of res judicata bars litigation
of the present case alleging breach of contract. Therefore, I respectfully dissent
and would affirm the judgment of the circuit court.
Justice LEMONS, dissenting.
I join Justice Kinser's dissent in every respect and write separately only to
emphasize the potential consequences of the majority opinion.
In essence, the majority pretends that the Court never decided Bates or
Allstar Towing and ignores the special definition of "cause of action" adopted for
the express purpose of res judicata analysis. In Bates, 214 Va. at 672 n. 8, 202
S.E.2d at 921 n. 8, we clearly stated that "[a] 'cause of action', for purposes of res
judicata, may be broadly characterized as an assertion of particular legal rights
which have arisen out of a definable factual transaction."
In Allstar Towing, we quoted the passage above from Bates, and in
determining that res judicata did not bar the successive action, we stated the
following: "In sum, the legal rights asserted in the second action arose from a
factual transaction that was different from the factual transaction giving rise to the
assertion of legal rights in the first action." Allstar Towing, 231 Va. at 425, 344
S.E.2d at 906.
It is unmistakable that the Court embraced a transactional analysis for the
purpose of res judicata. In doing so Virginia joined the majority of states.
Today, without acknowledging its reversal, the majority ignores the special
definition of "cause of action" for res judicata purposes and reverts to the national
minority on this issue of great importance to individuals and businesses alike.
It is commonplace for a single transactional event to provide the foundation
for multiple lawsuits. See, e.g., Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666
(2001); Feddeman & Co. v. Langan Assocs., 260 Va. 35, 530 S.E.2d 668 (2000).
In the hypothetical case of a business dispute that spawns multiple theories of
recovery, the majority opinion would permit separate and successive lawsuits
between the same parties on theories of breach of contract, breach of fiduciary
duty, common law conspiracy, statutory conspiracy, common law fraud,
constructive fraud, and conversion. Under the majority opinion, unless all of the
elements are identical, res judicata would not prohibit successive suits between
the same parties. Of course, the reason there are separate legal theories is
precisely because there are differences in the elements of the causes of action.
While the extent of potential harassment of litigants and misuse of judicial
resources may be affected by the application of collateral estoppel to narrow the
matters subject to proof, and the expiration of the statute of limitations may
preclude a particular cause of action, the reality of successive suits, even in
different venues, remains a potential consequence of the majority opinion.
As these causes of action have proliferated in American law, a restraining
concept designed to promote judicial efficiency and avoid harassment of litigants
developed.
That concept was the transactional analysis approach to the
282
application of the doctrine of res judicata. While a litigant could pursue multiple
theories of recovery, the transactional approach would permit such multiplicity,
but only if the courts and litigants were required to meet such challenges in one
proceeding.
With a transactional analysis, the correct balance is achieved
between access to the courts for remediation of wrongs and freedom from
successive harassment, while husbanding judicial resources. Perhaps that is why
the majority of jurisdictions have taken such an approach. Perhaps that is why
Virginia did as well in Bates and Allstar Towing. Perhaps that is why the
General Assembly adopted a transactional analysis as a predicate for Code §§
8.01-272 and 281. Perhaps that is why it is so perplexing to witness this
inexplicable retreat in the face of such overwhelming justification for
transactional analysis in the application of res judicata.
I dissent.
Gary Steel v. Kitchin
197 Va. 471, 90 S.E.2d 120
Smith, J., delivered the opinion of the court.
This is an appeal by Gary Steel Products Corporation, herein referred to as
Gary, from an order of the trial court dismissing its motion for judgment against J. F.
Kitchin, trading as Norfolk Contracting Company, herein referred to as Kitchin. In
its order the trial court held that Gary was precluded from prosecuting the claim
asserted in its motion for judgment on the ground that Gary had 'attempted to split its
cause of action.' The correctness of this action of the trial court is the sole issue
presented for our determination. The facts are not disputed.
In December, 1949, Monsanto Chemical Corporation, herein referred to as
Monsanto, entered into a contract with Gary in which Gary agreed to manufacture
and install a steel smokestack on a boiler of Monsanto at its plant located on Cottage
Toll Road in the city and county of Norfolk. Gary did not possess the necessary
equipment with which to erect the smokestack and thereafter it entered into a
contract with Kitchin, under which Kitchin agreed to erect the smokestack. It was
further agreed that if in the course of erection there should be any failure on the part
of the smokestack, the liability for the resulting damages should be upon Gary, and if
there should be any failure on the part of the crane or in its operation, the liability for
the resulting damages should be upon Kitchin.
On June 22, 1950, while Kitchin was engaged in the erection of the smokestack
the boom of the crane collapsed causing a section of the smokestack then being lifted
to fall into Monsanto's boiler house, resulting in great damage to the property of Gary
as well as to the property of Monsanto.
On February 28, 1951, Gary instituted this action in the Circuit Court of
Norfolk County against Kitchin to recover damages in the sum of $3,506.49, the cost
incident to rebuilding its smokestack, which Gary claims it suffered as a result of
283
Kitchin's failure properly to perform his contract. In his answer Kitchin denied
liability and filed a counterclaim against Gary for the use of his crane in the erection
of the smokestack.
Subsequently, on April 6, 1951, Monsanto sued Gary in the Circuit Court of
the City of Norfolk for damages to its building caused by the falling of the
smokestack. Gary gave Kitchin notice of this action; informed him that he would be
expected to pay any judgment entered against it, and offered to turn over to him the
defense of the case. Upon Kitchin's refusal to defend the case, Gary's insurer,
General Accident Fire and Life Assurance Corporation, Limited, herein referred to as
General Accident, defended the action, which resulted in a verdict and judgment in
favor of Monsanto against Gary for $11,611.02. General Accident paid this
judgment on October 8, 1951.
On January 19, 1952, an action was brought in the name of Gary, by and for
the benefit of General Accident, against Kitchin for reimbursement of the amount of
the judgment paid Monsanto by General Accident. As in the action instituted by
Gary on February 18, 1951, Kitchin denied liability and again filed a counterclaim
against Gary for the rental of his crane. This action resulted in a verdict and
judgment against Kitchin for $11,611.02, and verdict and judgment against Gary for
$640 on Kitchin's counterclaim. Kitchin appealed and on September 8, 1954 we
affirmed. Kitchin v. Gary, 196 Va. 259, 83 S.E. (2d) 348. In the mandate of this
court it was ordered that Gary recover from Kitchin 'for the benefit and sole property'
of General Accident.
Thereafter, on October 6, 1954, Kitchin filed a motion to dismiss both the
action now before us and his counterclaim therein. The basis of this motion was that
Gary had recovered a judgment in Kitchin v. Gary on the same cause of action
alleged in this case and that in the previous case he had secured a judgment against
Gary on the same cause of action alleged in his counterclaim. Gary then filed a
motion to dismiss the counterclaim and to strike out the part of Kitchin's grounds of
defense that denied liability. After hearing arguments of counsel the trial court in its
order dated December 1, 1954, held that the case of Kitchin v. Gary was res judicata
both as to Kitchin's counterclaim and as to the issue of liability on the merits of the
case, to which holding of the court both parties assented.
The court further held that the claim asserted by Gary was an attempt to split its
cause of action and therefore dismissed its motion for judgment, to which action of
the court Gary excepted and we granted an appeal.
Notwithstanding the fact that the instant case was pending at the time of the
institution of Kitchin v. Gary, at no time prior to judgment in the latter case did
Kitchin claim that the two cases were based upon a single cause of action.
Gary contends that it has neither split nor attempted to split its cause of action;
that as a result of the collapse of the boom of Kitchin's crane there arose two separate
causes of action against Kitchin, one for damages suffered by it and the second for
damages suffered by Monsanto. Kitchin, on the other hand, contends that Gary had
284
attempted to split its cause of action on the grounds that the present action and the
case of Kitchin v. Gary arose out of the same contract, the existence of which he
denied in both actions, the same evidence proves liability in both cases, and
subrogation does not create two causes of action where without subrogation there
would only be one. Hence, the question presented is whether Gary's present claim
constitutes a separate and distinct cause of action from that asserted in Kitchin v.
Gary. In view of our conclusions on this question it will not be necessary to discuss
the issue raised in the briefs as to the effect of General Accident's right of
subrogation by reason of its having paid the judgment recovered by Monsanto
against Gary.
The courts generally hold that a single or entire cause of action may not be
divided or split so as to make it the subject of several actions, without the express or
implied consent of the person against whom the cause of action exists. If an action is
brought for a part of a cause of action, a judgment obtained in that proceeding
precludes the plaintiff from recovering a second judgment for the residue of that
cause of action. Carter v. Hinkle, 189 Va. 1, 52 S.E.(2d) 135; Hamilton v.
Goodridge, 164 Va. 123, 178 S.E. 874; Hancock v. White Hall etc. Co., 102 Va.
239, 46 S.E. 288; 1 Am. Jur., Actions, § 96; 1 C.J.S., Actions, § 102; 87 A.L.R. 778.
This rule prohibiting the splitting of causes of action is a rule of justice based
on principles of public policy. It exists for the benefit and protection of the
defendant, is intended to prevent vexatious litigation, and to avoid the costs and
expenses incident to numerous suits on the same cause of action. Hence, it is not
altogether a rule of legal right but rather an equitable interposition of the courts to
prevent a multiplicity of actions.
Consequently, the defendant may waive or renounce the benefits of the rule by
either expressly or impliedly consenting to separate suits on a single cause of action.
Furthermore, such a waiver will be presumed unless timely and proper objection is
made. Fentress v. Pruden, 185 Va. 461, 39 S.E.2d 240; Shepherd v. Engineering
Co., 184 Va. 802, 36 S.E.(2d) 531; Jones v. Morris Plan Bank, 168 Va. 284, 191 S.E.
608.
Since the controversy here involves only the application of the rule prohibiting
the splitting of a cause of action, our first and primary inquiry is to determine the
legal meaning of the term 'cause of action.' In Black's Law Dictionary (4th ed.) it is
said that this term 'may mean one thing for one purpose and something different for
another,' citing illustrative cases. See also, 1 C.J.S., Actions, § 8; 1 Am. Jur.,
Actions, § 2. However, without attempting to reconcile the definitions and
refinements of the term as used in the numerous authorities, we hold for the purposes
of this case that a 'cause of action' accrues to any person when that person is first
entitled to institute a proceeding for the enforcement of his legal rights. See
Seymour and Burford Corp. v. Richardson, 194 Va. 709, 75 S.E.(2d) 77, and cases
there cited.
The case of Jones v. Morris Plan Bank, supra, relied on by Gary and Kitchin, is
not decisive of the issue now before us. In this case a finance company sued for and
285
recovered a judgment for two installment payments which were due and payable on a
note containing an acceleration clause, and secured by a conditional sales contract for
an automobile. Upon a subsequent default the car was repossessed and sold. The
vendee then sued for conversion of the car, and on appeal this court held that all
installments having matured at the time the action was instituted to recover for the
two installments, those not embraced in that action were barred.
In the instant case it is not disputed that in the contract between Gary and
Kitchin, the latter agreed that he would be liable and responsible for the damages
sued for in both this case and the case of Kitchin v. Gary. It is also undisputed that
the liability for damages was in both cases predicated upon the contract between
Gary and Kitchin and that the damage arose out of a single event, the falling of the
smokestack. However, the resulting injuries were inflicted upon two separate
corporate claimants, Gary and Monsanto, which claimants were not in the same legal
relationship to Kitchin. Immediately upon the happening of the accident a cause of
action arose in favor of Gary against Kitchin for damages to its smokestack and at
the same time a cause of action arose in favor of Monsanto against either Kitchin or
Gary for damages to its property. As to the rights of a third party beneficiary, see
Code, § 55- 22; Horney v. Mason, 184 Va. 253, 35 S.E.(2d) 78; 1 Michie's Jur.,
Contracts, § 81.
Kitchin was primarily liable for Monsanto's damages and Gary was secondarily
liable therefor. If, therefore, Monsanto had proceeded against Kitchin rather than
Gary and had recovered its damages from him, Gary would not have had the right to
recover from Kitchin the amount of Monsanto's damages. But Monsanto elected to
sue Gary and recovered a judgment for its damages. Upon the payment of that
judgment -- and not until payment of that judgment -- a second cause of action arose
in favor of Gary for reimbursement against Kitchin. Thompson v. Miller, 195 Va.
513, 79 S.E.(2d) 643, and authorities there cited.
We hold, therefore, that Gary's present claim constitutes a separate and distinct
cause of action from that asserted in Kitchin v. Gary. Accordingly, the judgment is
reversed, and since liability has been admitted, the case is remanded for a new trial
on the issue of damages.
Reversed and remanded.
Graves v. Associated Transport
344 F.2d 894
Bell, C.J., delivered opinion of the court.
This action, originally filed in the Circuit Court of Botetourt County, Virginia,
and removed to the District Court for the Western District of Virginia on the ground
of the diversity of the citizenship of the parties, presents a single question: Did the
district court err in refusing to treat as res judicata the judgment in a former action (to
286
which only one of the parties in the instant case was a party) arising from the same
highway collision?
On November 19, 1962, a collision occurred near Fincastle, Virginia, between
a passenger automobile owned and operated by the plaintiff, Walter B. Graves, and a
tractor-trailer transport owned by the defendant, Associated Transport, Inc.
[hereinafter Associated], and operated by its employee, Thomas S. Flowers. In the
present action Graves seeks damages from Associated for personal injuries suffered
in the collision, which he alleges was caused by negligence on the part of the
defendant's driver, Flowers. On July 14, 1964, the jury returned a verdict for Graves
in the amount of $4,000.00 after the district judge in several distinct rulings had
refused Associated's plea of res judicata.
There can be no doubt that the defendant effectively presented its defense of
res judicata to the court below and preserved that issue for the purpose of this appeal.
It affirmatively pleaded the former judgment; it orally moved for summary
judgment at the close of the plaintiff's evidence; it moved for summary judgment at
the close of all the evidence; and it moved to set aside the verdict and for summary
judgment after verdict. The plea, the motions for summary judgment, and the motion
to set aside the verdict were all based upon the theory that the former judgment was
conclusive of the issues in this case.
The former judgment in question was rendered by the Law and Chancery Court
of the City of Roanoke, Virginia, on July 10, 1964, in an action brought by Flowers,
the driver of the tractor-trailer combination owned by Associated, the present
defendant, against Graves, the owner-operator of the passenger car and the plaintiff
in the case at bar. Flowers alleged in the state court action that personal injuries
suffered by him in the collision were the proximate result of the negligence of
Graves; Graves denied any negligence and contended that the sole proximate cause
of the collision was the negligence of Flowers. The issues of negligence and
contributory negligence as causal factors in the collision were thus clearly joined and
litigated. The jury in the case of Flowers v. Graves46 returned a verdict in favor of
Flowers, awarding him damages in the amount of $2,000.00. We must take it, then,
that the jury found Graves guilty of negligence and Flowers free from contributory
fault. If this were a case in which Graves were seeking to re-litigate the issues
decided in the state court personal injury suit against his adversary in that action,
Flowers, we would hold without discussion that, the issues, the causes of action, and
the parties being the same in both suits, the former judgment operated as res judicata
to bar the second action. Here, however, the plea is asserted not by Flowers, Graves'
adversary in the former action, but by the employer of Flowers, Associated, who was
not a party to the prior action.
It is clear beyond question that we must decide this case in accordance with the
substantive law of Virginia. The case is in the federal courts solely by reason of the
46 A writ of error and supersedeas in this case was refused by the Supreme Court of Appeals on
January 18, 1965.
287
diversity of the citizenship of the parties, and their rights and obligations are
concededly governed by Virginia law. Hence the doctrine of Erie R.R. Co. v.
Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), applies.
The parties seem agreed that no Virginia authority squarely in point is to be
found. In that situation it is our duty, as we see it, to decide the case as we believe it
would be decided by the highest court of Virginia, taking into account not merely the
generalizations and the dicta in cases from years past but also trends in modern legal
thought which we think would be accepted by the Supreme Court of Appeals of
Virginia today.
Had this case been presented to a Virginia court a generation or more ago, we
have little doubt that the plea of res judicata would have been summarily denied. At
that time the ruling notion, viable despite the cogent criticism of Jeremy Bentham47
and others since the early part of the nineteenth century, was that before it could be
invoked, the estoppel of a judgment must be mutual, i.e., no one could plead as
conclusive a judgment in a former action unless, had the judgment gone the other
way, it would have been binding on him. It seems clear that had the judgment in
Flowers v. Graves gone against Flowers instead of for him, elementary principles of
due process would prevent its being held binding upon Associated because it was not
a party to that action and had no right to control its conduct. Makariw v. Rinard, 336
F.2d 333, 336 (3 Cir. 1964); Rice v. Ringsby Truck Lines, 302 F.2d 550, 552 (7 Cir.
1962); Restatement, Judgments § 96, comment (j) (1942). The thrust of the
mutuality rule was that since one not a party to the former action could not be bound
by the judgment therein, it necessarily followed that neither could he take advantage
of it. The Virginia courts, like many others, subscribed to this view. See, e.g.,
Ferebee v. Hungate, 192 Va. 32, 63 S.E.2d 761, 764 (1951); Pittston Co. v. O'Hara,
191 Va. 886, 63 S.E.2d 34, 42, appeal dismissed sub nom. Winn v. Pittston Co., 342
U.S. 803, 72 S.Ct. 38, 96 L.Ed. 608 (1951).48
47 See Bentham, Rationale of Judicial Evidence, in 7 Works of Jeremy Bentham 171 (Bowring ed.
1843), a relevant extract from which is quoted in Currie, Mutuality of Collateral Estoppel: Limits
of the Bernhard Doctrine, 9 Stan.L.Rev. 281, 284 n.6 (1957).
48 Nonetheless, the position represented by these decisions was not free from criticism and
challenge. Witness the following statements from a Note, The Mutuality Requirement of Res
Judicata in Virginia, 41 Va.L.Rev. 404, 418 (1955):
"It is obvious that one should not and cannot be bound by a judgment to which he is a
complete stranger. But why is the converse of this necessarily true? Is there any substantial
injustice in allowing one to assert a claim or defend himself on the basis of what a 'stranger' has
previously established? Likewise, is there any real unfairness in limiting a party to one day in
court on an issue? It should be remembered that the fundamental policy of the general doctrine
of res judicata is to put an end to litigation. Thus, it seems that the Court should seize upon this
opportunity to discourage the re-litigation of cases."
See also Developments in the Law - Res Judicata, 65 Harv.L.Rev. 818, 861-865 (1952).
288
Virginia decisions involving a plea of res judicata subsequent to the Ferebee
and O'Hara opinions have turned upon their individual factual circumstances, with
little or no discussion of the mutuality rule. Compare Petrus v. Robbins, 196 Va.
322, 83 S.E.2d 408 (1954) (plea allowed, citing the Eagle decision as authority) and
Patterson v. Saunders, 194 Va. 607, 74 S.E.2d 204, cert. denied, 345 U.S. 998, 73
S.Ct. 1132, 97 L.Ed. 1405 (1953) (plea by some persons not parties to prior action
allowed on identity of interest rationale; emphasis upon fact that party against whom
plea asserted had already been heard on same subject matter) with Eller v.
Blackwelder, 204 Va. 292, 130 S.E.2d 426 (1963) (plea refused; party against whom
plea asserted had not had an opportunity to litigate her claim, since there was no
evidence that she knew of or ratified actions by her insurance carrier) and Cooper v.
Pickett, 202 Va. 65, 116 S.E.2d 52 (1960) (plea not allowed, and error assigned for
this action abandoned on appeal; party against whom plea asserted had not had his
day in court on negligence issue). Likewise in Heaton v. Southern Ry. Co., 119
F.Supp. 658, 661 (W.D.S.C. 1954), the court observed that "[the] plaintiff has had no
previous opportunity to prove his case" and rejected a plea of res judicata. In Carter
v. Hinkle, 189 Va. 1, 52 S.E.2d 135 (1949), a case relied upon heavily by the
appellee, the court did refer on several occasions to the doctrine of res judicata, but
the principal inquiry was whether an automobile collision resulting in both personal
injury and property damage to one of those involved gave rise to one cause of action
or two. The assertion that the satisfaction of the property damage claim merged the
injured party's cause of action for negligently inflicted personal injuries into the
property damage judgment was rejected by a holding that the injured party had two
causes of action in these circumstances.
The mutuality rule was probably never a solid wall; exceptions were created
under the pressure of the public interest in an end to litigation. The thought was that
under certain circumstances once the party against whom the former judgment was
asserted had been afforded a full and fair day in court and a reasonable opportunity to
be heard on all the relevant issues, even though against a different adversary, a plea
of estoppel by judgment ought to be recognized.49 Thus where a judgment has been
rendered in favor of an indemnitor, it may be pleaded against the adversary party in
the former action by the indemnitee, even though the indemnitee was not a party to
the prior action. Pickeral v. Federal Land Bank, 177 Va. 743, 15 S.E.2d 82 (1941);
City of Richmond v. Davis, 135 Va. 319, 116 S.E. 492 (1923); Restatement,
Judgments § 96 (1942). So here, Virginia might well hold that Associated would be
entitled to plead the former judgment in favor of its employee because, if required to
respond in damages in the present case for the fault of its employee, it would have, at
49 Exceptions to the mutuality rule have been justified with language like this:
"The rule of mutuality is itself based upon policy and practical necessity and justice, as is
the whole doctrine of res judicata, and on the same grounds of policy and justice there would
seem to be no objection to departing from it where the party affected has been given one
adequate opportunity to be heard either personally or by representation." 1 Freeman, Judgments §
429 (5th ed. 1925).
289
least in theory, a cause of action for indemnity against the employee; and it would be
anomalous if that cause of action should be allowed to prevail against an employee
who had already recovered a judgment himself against the third party. In addition,
an exception to the rule of mutuality has been recognized where the liability of the
person invoking the former judgment is only derivative, i.e., based solely upon the
fault of another who has been exonerated. Ward v. Charlton,50 177 Va. 101, 12
S.E.2d 791 (1941); Restatement, Judgments § 99 (1942); cf. Kinsley v. Markovic,
333 F.2d 684 (4 Cir. 1964). Here Virginia might well allow this plea by Associated
on the ground that any liability on its part must be predicated solely upon the fault of
its driver, Flowers, who was exonerated of fault by the state court decision.51 In
reaching our decision in this case, however, we do not rest upon these exceptions
because there is some question as to their applicability as the strategic positions of
the parties in the respective actions vary and because we believe the Virginia courts
would base their allowance of the plea on a broader ground.
As one judicial writer has asserted, perhaps the "widest breach in the citadel of
mutuality was rammed"52 by the decision of the Supreme Court of California in
50 This case appears to us to be the Virginia decision which involves a factual situation most similar
to that of the case at bar. In the Ward case, however, the defendant in the first suit filed a crossclaim seeking recovery for his personal injuries and property damage. In our case the issue of the
fault of the plaintiff in the first action was also raised, but it was done by a plea of contributory
negligence rather than by a counterclaim. Also in Ward the jury in the first action returned a
verdict that neither party was entitled to recover of the other, whereas in our case the jury in the
state court action determined by its verdict that the conduct of Graves was solely responsible for
the injuries suffered by Flowers. In sustaining the action of the trial judge in Ward in setting
aside a jury verdict for the plaintiff in the second action and entering judgment for the defendant
(who was not a party to the first action), Justice, now Chief Justice, Eggleston declared:
"Here it has been brought to our attention by undisputed evidence that since the trial below
another court of competent jurisdiction has finally adjudicated that the plaintiff in error, Ward, is
not entitled to a judgment against Charlton, the defendant in error. Hence, the plaintiff in error is
estopped to ask this court to review the record before it and to enter in his favor a judgment
which admittedly will be in conflict with one which has already been entered on the same cause
of action." 12 S.E.2d at 796.
51 Allowance of the plea of the former judgment on this basis would likely find the court
characterizing Associated as being in privity with Flowers, since under the doctrine of res
judicata, a final judgment by a court of competent jurisdiction is conclusive upon both the parties
involved and those in privity with them. Restatement, Judgments 83 (1942). For a case
involving Virginia law in which the doctrine of res judicata was held applicable because of the
operation of the privity concept, see Taylor v. Anderson, 303 F.2d 546 (4 Cir. 1962).
52 Judge Friendly, writing for the Second Circuit, in Zdanok v. Glidden Co., 327 F.2d 944, 954
(1964).
290
Bernhard v. Bank of America Nat'l Trust & Sav. Ass'n, 19 Cal.2d 807, 122 P.2d 892
(1942). In this historic decision Justice, now Chief Justice, Traynor, writing for a
unanimous court, stated:
"The criteria for determining who may assert a plea of res judicata
differ fundamentally from the criteria for determining against whom a
plea of res judicata may be asserted. The requirements of due process of
law forbid the assertion of a plea of res judicata against a party unless he
was bound by the earlier litigation in which the matter was decided. * *
* He is bound by that litigation only if he has been a party thereto or in
privity with a party thereto. * * * There is no compelling reason,
however, for requiring that the party asserting the plea of res judicata
must have been a party, or in privity with a party, to the earlier litigation.
For the California courts, at least, this decision abolished the requirement of
mutuality of estoppel and limited the requirement of privity to cases in which an
attempt is made to plead the former judgment against one not a party to the action in
which it was rendered. Other states and several United States courts of appeals have
followed suit.
Among the cases relied upon in Bernhard was Eagle, Star & British Dominions
Ins. Co. v. Heller, 149 Va. 82, 140 S.E. 314, 57 A.L.R. 490 (1927). In that case, the
opinion of the Virginia Supreme Court of Appeals opens with the following
statement:
"This is a case in which a rigid adherence to a general rule and to
some judicial expressions would be a reproach to the administration of
justice. Max Heller has recovered under a fire insurance policy upon a
stock of goods, after he had been convicted under the Virginia statute
(Code, § 4436) of willfully burning the same stock of goods with intent
to injure the insurer." 140 S.E. at 315.
President Prentis, writing for a unanimous court, went on to rule that the trial
court had erred in excluding evidence of the prior judgment of conviction (although
the defendant insurance company in the civil action, which was asserting the former
judgment in defense, was obviously not a party to the criminal proceeding resulting
"No satisfactory rationalization has been advanced for the requirement of mutuality. Just
why a party who was not bound by a previous action should be precluded from asserting it as res
judicata against a party who was bound by it is difficult to comprehend. * * *
"In determining the validity of a plea of res judicata three questions are pertinent: Was the
issue decided in the prior adjudication identical with the one presented in the action in question?
Was there a final judgment on the merits? Was the party against whom the plea is asserted a
party or in privity with a party to the prior adjudication? * * *
"In the present case, therefore, the defendant is not precluded by lack of privity or of
mutuality of estoppel from asserting the plea of res judicata against the plaintiff." 122 P.2d at
894-895.
291
in that judgment). In so ruling, the Virginia court, responding to considerations of
public policy, rejected the mutuality rule and departed from a long line of cases
holding such criminal convictions inadmissible in civil cases at the instance of
persons not parties to the criminal proceeding. In the course of his opinion, President
Prentis stated:
"It is certainly clear in such cases that the plaintiff who is seeking
redress in the civil case for the injury, not having been a party to the
criminal prosecution, is not bound by its result [when the criminal
judgment is one of not guilty]. We confess our inability to perceive,
however, why the accused person himself should not be held either as
bound or affected by the result of the prosecution, if adverse to him. He
has had his day in court, with the opportunity to produce his witnesses, to
examine and cross-examine the witnesses for the prosecution, and to
appeal from the judgment." 140 S.E. at 316.
The criminal judgment was held conclusive:
"Therefore he [the convicted plaintiff] should not be permitted again
to raise that question by this collateral attack upon that judgment, and
thus to avoid its legal and logical consequences." 140 S.E. at 321.
The lower court judgment in favor of the plaintiff was reversed, and judgment
was entered in favor of the defendant insurance company.53
While the reasoning of the Eagle case was based in part upon the fact that in a
criminal case guilt must be proved beyond a reasonable doubt, thus giving added
credit to the criminal judgment as decisive of the issue in the civil case, the Virginia
court in its opinion did not limit the rationale to that circumstance. Indeed, it cited
with approval a number of cases in which former judgments in civil actions had been
held res judicata at the instance of one not a party to the former action. It was thus
appropriate that Justice Traynor should rely upon the Eagle case as one of the
foundations for the Bernhard decision.54
One commentator, welcoming the Bernhard decision, suggested that it be
accepted subject to two reservations, only one of which is relevant here. Because the
first action might be one in which the party having the initiative might use his
advantage unfairly, subjecting his adversary to trial under conditions which, while
53 For a discussion of the Heller case and decisions from other jurisdictions in which it has been
followed, see Note, Admissibility and Weight of a Criminal Conviction in a Subsequent Civil
Action, 39 Va.L.Rev. 995 (1953). See also, on this general point, Farm Bureau Mut. Auto Ins.
Co. v. Hammer, 177 F.2d 793 (4 Cir. 1949), cert. denied sub nom. Beverage v. Farm Bureau
Mut. Auto. Ins. Co., 339 U.S. 914, 70 S.Ct. 575, 94 L.Ed. 1339 (1950).
54 Even prior to the Eagle decision, several Virginia courts had viewed rigid adherence to the
mutuality doctrine with disfavor. See Cox, Res Adjudicata: Who Entitled to Plead,
Va.L.Reg.(n.s.) 241 (1923), and Virginia cases cited therein. But see Note, supra note 8, at 1001
n.36.
292
meeting the minimum requirements of due process, in fact deprived the adversary of
a full and fair opportunity to litigate the issues involved, he suggested that ideally the
court in each case should inquire whether the former judgment was in fact rendered
under such conditions that the party against whom it is pleaded realistically had a full
and fair opportunity to present his case. However, doubting the willingness and
ability of courts to make such an inquiry into the circumstances on a case-by-case
basis, he suggested as an alternative that a plea of the former judgment by one not a
party to the prior action should be allowed only if the party against whom the
judgment was invoked had the initiative in the prior action. Currie, Mutuality of
Collateral Estoppel: Limits of the Bernhard Doctrine, 9 Stan.L.Rev. 281, 303 (1957).
The courts have not justified this pessimistic view of their duty and function; instead
they have willingly inquired into the circumstances of the actual case, and time and
again they have allowed the plea against a party not having the initiative in the
former action whenever they have been satisfied that the party against whom the
former judgment was invoked in fact had a realistically full and fair opportunity to
litigate the issues in the former action. See, e.g., Zdanok v. Glidden Co., 327 F.2d
944, 955-956 (2 Cir. 1964); United States v. United Air Lines, 216 F.Supp. 709,
728-729 (E.D.Wash., D.Nev.1962), 1964 Duke L.J. 402, aff'd as to this point, 335
F.2d 379, 404 (2 Cir.), cert. dismissed, 379 U.S. 951, 85 S.Ct. 452, 13 L.Ed.2d 549
(1964); Teitelbaum Furs, Inc. v. Dominion Ins. Co., 58 Cal.2d 601, 25 Cal. Rptr.
559, 561, 375 P.2d 439, 441 (1962). The commentator has now withdrawn his
reservation and welcomes the decisions treating the fairness of the party's
opportunity to litigate the issues in the former action on an ad hoc basis. See Currie,
The Contributions of Roger J. Traynor - Civil Procedure: The Tempest Brews, 53
Calif.L.Rev. 25 (1965).
No suggestion has been made and no basis appears for any suggestion to the
effect that Graves had less than an ample opportunity to fully litigate the issue of
fault in the former action, although it was his adversary, Flowers, who had the
initiative. Similarly, in the Eagle case, the defendant in the criminal case did not
have the initiative; but, faced with a felony charge, he had a strong motive to put
forward his best defense, and he thus was not allowed another day in court in the
civil action. So here, the plaintiff, having had one full and fair day in court, ought
not to be permitted to re-litigate the issues decided in the personal injury action in the
state court.
Graves earnestly insists that it is arbitrary to allow the fate of this action to turn
not upon its merits but upon the happenstance of calendar conditions, that our
disposition of this appeal will preclude any recovery by him simply because the case
in the state court went to judgment while the present lawsuit was pending in the
district court. It must be conceded that there is here an element of the arbitrary and
fortuitous; but the concept of priority in time is necessarily inherent in the basic idea
of res judicata, which, after all, simply means that, the issue having already been
decided once by a court of competent jurisdiction, it should not be litigated a second
time. Perhaps the law might have chosen the alternative of giving conclusive effect
to the judgment in the action first filed instead of to the first judgment rendered; but a
293
choice had to be made, and it was made long ago. Reflection should convince the
plaintiff that, whatever the faults of the rule giving effect to the judgment first
rendered, such a rule is preferable to the only alternative which readily suggests
itself, a situation which would almost certainly tend to precipitate a "race of
diligence" to the courthouse and encourage the hasty and ill considered filing of
actions.
Finally, the plaintiff states that Associated was represented at the trial below by
the same counsel who represented the driver, Flowers, in the former action but that
he has not had the benefit of this continuity of legal representation. He advises us
that in the initial suit he was represented by counsel for his insurance carrier, whereas
in this action he presumably has been represented by counsel entirely of his own
choosing. Even taking note of this circumstance, however, we are at a loss to
understand in what manner it strengthens the plaintiff's case. To our knowledge,
Graves has never claimed, and we do not understand him to claim now, that his
counsel in the state court proceeding was anything other than a competent and
conscientious advocate of his interests. As we observed earlier, there is no basis for
even speculating that the plaintiff had anything other than a full and fair chance to
introduce all the relevant evidence and be heard on all points of law before the Law
and Chancery Court of the City of Roanoke. All this being so, clearly the mere fact
that Graves has changed lawyers ought not to increase his substantive rights and
provide him with a chance to dispute anew factual matters already once resolved
against him. If the matter of different counsel has any bearing upon the disposition
of this appeal, it would seem to operate to the plaintiff's disadvantage , since his
essential contention is that because Associated was not a party to the prior action, it
may not claim the benefit of the judgment which was rendered therein. The natural
inference to be drawn from the common counsel situation (which at least suggests a
common underwriter), however, is that there is some identity of the interests of
Associated and Flowers, the very thing which Graves strenuously maintains does not
exist. This is all the more reason why the plea of the former judgment by Associated
should be allowed. If Associated or its insurer actually controlled the litigation in
Flowers v. Graves, a situation which Graves contends and we have assumed did not
exist, it is at least arguable that the judgment in that action, even had it gone against
Flowers, would have been binding upon Associated; and then there would be no
mutuality problem. Restatement, Judgments § 84 (1942).
As we understand the law of the Commonwealth of Virginia, it is designed to
insure that every litigant has an opportunity to be heard on any appropriate issue in a
court of law. However, the decisions of the highest court of Virginia convince us
that the state also is anxious to insure that once a party has been afforded a chance to
assert his claim, further litigation involving that claim is not to be permitted. The
state has a legitimate interest in the final adjudication of legal disputes, and it is
incumbent upon us in this case to give effect to that state policy. We think that if this
case were presented to the Virginia courts, they would hold that Graves has already
had his day in court on the question of who is responsible for the personal injuries
which resulted from the collision on November 19, 1962. Accordingly, the district
294
judge was in error in rejecting the plea of res judicata tendered below by Associated.
The judgment of the district court must, therefore, be reversed and the case
remanded for the entry of final judgment in favor of the defendant.
Reversed and remanded.
Willard v. Moneta Supply
262 VA 473, 551 S.E.2d 596 (2001)
Lemons, J., delivered opinion in this case.
In this appeal, we consider whether Ronald L. Willard's ("Willard") cause of
action against Moneta Building Supply, Inc. ("Moneta") is governed by the fiveyear statute of limitations set forth in Code § 8.01-243(B) or by the two-year
statute of limitations set forth in Code § 8.01-248. Specifically, we must decide
whether a loss of dissenters' rights to demand payment for shares of stock
constitutes an injury to property.
I.
Facts and Proceedings Below
Willard previously filed a derivative action pursuant to Code § 13.1-672.1
on behalf of Moneta and all its stockholders against Moneta, A.S. Cappellari
("A.S."), Rose Mary Cappellari ("Rose Mary"), and David Cappellari ("David"),
the son of A.S. and Rose Mary. Willard sought to void the sale of Moneta's assets
to Capps Home and Building Center, Inc. ("Capps") on the grounds that the
transaction involved a conflict of interest in violation of Code § 13.1-691.
Following a bench trial, the trial court held that Willard failed to present sufficient
evidence to support his claims and dismissed his bill of complaint. In Willard v.
Moneta Building Supply, Inc., 258 Va. 140, 515 S.E.2d 277 (1999), we affirmed
the judgment of the trial court.
Willard subsequently filed the current motion for judgment against Moneta
seeking monetary damages for Moneta's alleged injury to Willard's property.
Since the factual background of this case is virtually identical to that of our prior
decision, we provide only a brief recitation of the relevant facts.
In his motion for judgment, Willard alleges that the shareholders of Moneta
and their respective percentages of share ownership of common stock were, A.S.
(49.8%), Rose Mary (25.4%), Willard (19.7%), and David (5.1%).
On
November 15, 1996, A.S. and Rose Mary, who were officers, directors, and
shareholders, caused Moneta to enter into a contract to sell substantially all of
Moneta's assets to Capps.
Capps is a Virginia corporation engaged in the
building supply business and David is its controlling shareholder. By letter dated
November 22, 1996, all shareholders were notified of the proposed sale. Included
with the letter was a "Notice of Special Meeting of the Stockholders of Moneta
Building Supply, Inc. on Proposed Sale of Substantially All of Its Assets to Capps
Home and Building Center, Inc.," which contained a description of the proposed
transaction. Significantly, the notice did not contain any notice of dissenters'
rights.
295
The special meeting took place on December 20, 1996. A.S. and Rose
Mary voted in favor of the proposed sale to Capps, while Willard voted against
the sale and made a competing offer at a price greater than Capps' offer.
Nevertheless, the votes of A.S. and Rose Mary were sufficient to approve the sale
to Capps. The transaction closed in early January 1997 and Moneta ceased doing
business.
Willard filed his current motion for judgment against Moneta in the Circuit
Court of Bedford County on January 12, 2000. In response, on February 25,
2000, Moneta filed a demurrer, a plea of the statute of limitations, an amended
plea of res judicata, and an amended plea of collateral estoppel.
After a hearing and upon consideration of argument and memoranda, the
trial court issued a letter opinion on April 18, 2000 sustaining Moneta's plea of
the statute of limitations and dismissing Willard's motion for judgment.
Specifically, the trial court ruled that Willard's motion for judgment was not an
action for injury to property that entitled him to the benefit of the five- year
limitation period set forth in Code § 8.01-243(B). Instead, the trial court held
that deprivation of his rights as a dissenting shareholder was personal to Willard
and, accordingly, his motion for judgment was barred by the two-year limitation
contained in the catch-all provisions of Code § 8.01- 248. Willard appeals the
adverse ruling of the trial court.
II.
Standard of Review
Upon Moneta's plea of the statute of limitations there are no material facts in
dispute.
The sole issue on appeal, determination of the correct statute of
limitations applicable to Willard's claim, presents a question of law. Carwile v.
Richmond Newspapers, Inc., 196 Va. 1, 6, 82 S.E.2d 588, 591 (1954) (discussing
Richmond Redev. and Housing Auth. v. Laburnum Constr. Corp., 195 Va. 827, 80
S.E.2d 574 (1954)). Accordingly, the trial court's ruling that Willard's claim was
time-barred by the two-year limitation period contained in Code § 8.01-248 is
subject to de novo review. See Donnelly v. Donatelli & Klein, Inc., 258 Va. 171,
180, 519 S.E.2d 133, 138 (1999).
III. Analysis
On appeal, Willard contends that the trial court erred in ruling that the twoyear limitation period set forth in Code § 8.01-248 governed his claim against
Moneta. Willard asserts that the lack of notice of his dissenters' rights caused an
injury to property and his claim is governed by the five-year limitation period of
Code § 8.01-243(B). Therefore, Willard argues, his motion for judgment was
timely filed.
Moneta assigns no cross-error and urges affirmation of the trial court's
holding regarding the applicability of Code § 8.01-248 to Willard's claim. Further,
Moneta asserts an additional ground upon which to affirm the trial court's
judgment.
Moneta claims that its transaction with Capps did not trigger
dissenters' rights because, according to Code § 13.1-730(A)(3)(ii), there are no
296
dissenters' rights in the case of a cash sale pursuant to a plan to disburse all or
substantially all of the proceeds to stockholders within one year. However, we do
not consider Moneta's alternative justification for affirming the trial court's
judgment. Moneta raised this argument before the trial court on demurrer, but
the trial court made no ruling on the demurrer, nor did the trial court rule on the
plea of res judicata or plea of collateral estoppel. The trial court only ruled on
Moneta's plea of the statute of limitations.
The sole issue in this appeal is whether Willard's motion for judgment
alleges an "action for injury to property," under Code § 8.01-243(B). If so, the
five-year limitation governs and his suit is timely filed. If not, the catch- all
provisions of Code § 8.01-248 apply and Willard's action is time-barred by the
two-year limitation. See Pigott v. Moran, 231 Va. 76, 79, 341 S.E.2d 179, 181
(1986).
The trial court based its decision that Willard did not allege an injury to
property upon application of three factors set forth in the United States Court of
Appeals' opinion in Brown v. American Broad. Co., 704 F.2d 1296 (4th Cir.
1983).55 On appeal, Willard claims that the trial court's application of these
factors was erroneous, while Moneta asserts that these factors compel the
conclusion that Moneta's failure to give notice did not constitute an injury to
Willard's property.
In Keepe v. Shell Oil Co., 220 Va. 587, 260 S.E.2d 722 (1979), decided four
years prior to Brown, we reviewed prior Virginia case law in order to address
whether certain claims were barred by the catch-all period of limitations then
embodied in Code § 8-24. The trial court in Keepe ruled that certain damages
were direct damages to property subject to the five-year limitation period, but the
remainder of the damages were consequential to the wrong and not direct
55 In Brown, the court stated:
[T]he Virginia Supreme Court has been extremely technical in its determination of whether the
damage for which a plaintiff seeks to recover is a direct injury to property and thereby qualifies
for the benefit of the five year statute of limitations. In order for the five year statute to apply,
the following facts, among other things, must be found: (1) the injury must be against and affect
directly the plaintiff's property; (2) the plaintiff must sue only for the direct injury; and (3) the
injury, to qualify as a direct injury, must be the very first injury which results from the wrongful
act.
Id. 704 F.2d at 1303-04 (internal citations and quotation marks omitted). The court identified
these factors based on the United States District Court for the Western District of Virginia's
opinion in Holdford v. Leonard, 355 F.Supp. 261 (W.D.Va.1973). Although the court noted that
Holdford was decided under Virginia's former scheme for statutes of limitation, the court stated
that the analysis in that case was nevertheless applicable to the current statutes of limitations.
Brown, 704 F.2d at 1303.
297
damages to property and were barred by the prevailing catch-all limitation period.
Id. at 590, 260 S.E.2d at 723-24. We reversed, holding that the five-year
limitation period applied to the entire motion for judgment because "all the
damages claimed flowed from injury to property interests, and no cause of action
is based on injury to the person." Id. at 594, 260 S.E.2d at 727. See also First
Virginia Bank-Colonial v. Baker, 225 Va. 72, 84, 301 S.E.2d 8, 15 (1983) (stating
that Keepe implicitly overruled prior inconsistent decisions in which undue
emphasis was placed on direct versus consequential damage).
Significantly, pursuant to the statutory changes adopted in 1977,
"survivability no longer is germane in determining which statute of limitations
applies. Code § 8.01-25 provides that all causes of action survive the death of
the plaintiff or defendant.
Moreover, the problem of determining direct or
indirect injury has been eliminated." Pigott, 231 Va. at 80, 341 S.E.2d at 181.
Accordingly, we hold that the trial court erred in basing its ruling in the present
case upon the test in Brown.
The interest represented by a stock certificate is an intangible personal
property right. Ward v. Ernst & Young, 246 Va. 317, 327, 435 S.E.2d 628, 633
(1993). See also Virginia Pub. Serv. Co. v. Steindler, 166 Va. 686, 695, 187 S.E.
353, 356 (1936) (stating that stock is "property ... subject to depreciation as well
as appreciation in value"); Iron City Sav. Bank v. Isaacsen, 158 Va. 609, 628,
164 S.E. 520, 526 (1932) (noting that "[a] share of stock of a corporation is
intangible personal property partaking of the nature of a chose in action").
However, we have not, until today, had occasion to consider whether
stockholders' dissenters' rights are property rights for the purpose of the statute of
limitations.
It is well-established by our cases that actions for trespass or conversion
constitute claims of injury to property because they involve allegations of
wrongful exercise or control over the property of another. See Bader v. Central
Fidelity Bank, 245 Va. 286, 427 S.E.2d 184 (1993); Vines v. Branch, 244 Va.
185, 418 S.E.2d 890 (1992). We based our decisions in these cases on the
rationale that "conduct ... directed at [another's] property, ... constitutes an injury
to property." Id. at 190, 418 S.E.2d at 894. Additionally, we held in Lavery v.
Automation Mgmt. Consultants, Inc., 234 Va. 145, 360 S.E.2d 336 (1987), that a
suit for the unauthorized use of a person's name, portrait, or picture was an injury
to property. In reaching this conclusion we noted:
Property is not necessarily a taxable thing any more than it is always a
tangible thing. It may consist of things incorporeal, and things
incorporeal may consist of rights common in every man. One is not
compelled to show that he used, or intended to use any right which he
has, in order to determine whether it is a valuable right of which he
cannot be deprived, and in which the law will protect him. The
privilege and capacity to exercise a right, though unexercised, is a
thing of value--is property--of which one cannot be despoiled.
298
Id. at 152-53, 360 S.E.2d at 341 (quoting Munden v. Harris, 153 Mo.App. 652,
134 S.W. 1076, 1078 (1911)).
We have previously held that an allegation of nothing more than
disappointed economic expectations does not amount to an injury to property.
Rather, the law of contracts provides the sole remedy for such a loss.
Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 425, 374
S.E.2d 55, 58 (1988). Moreover, we stated in Pigott, that if the property is in the
same condition and available for the same use after the defendant's actions as
before, the alleged wrongs were directed at the plaintiffs personally rather than at
their property. 231 Va. at 81, 341 S.E.2d at 182. With these principles in mind,
we consider whether Willard's motion for judgment alleged an "injury to
property" within the meaning of Code § 8.01-243(B).
Article 15 of the Virginia Stock Corporation Act ("Act") governs the rights
of a shareholder to dissent from corporate action and the circumstances under
which a shareholder is entitled to assert those rights. Code § 13.1- 729 et seq.
Code § 13.1-730 addresses the circumstances giving rise to a shareholder's right
to dissent and receive fair value for his stock, and Code § 13.1-732 requires the
corporation to give notice of these dissenters' rights. A service of notice and
demand by the dissenter must be given to the corporation in order to exercise
dissenters' rights. (§ 13.1-733--Notice of intent to demand payment; § 13.1-734-Notice of corporate action; § 13.1- 735--Shareholder duty to demand payment.)
The remainder of Article 15 of the Act addresses the situation where the
shareholder is dissatisfied with the payment received from the corporation.
We hold that dissenters' rights are property interests and that allegations of
loss of dissenters' rights constitute an allegation of "injury to property" within the
meaning of Code § 8.01-243(B). Ownership of stock provides the shareholder
with a bundle of rights, some of which are provided by contract while others are
provided by the Code. Some rights may be unique to certain classes of stock,
while other rights exist in all stock, independent of class. We have previously
stated, for example, that the right to vote shares of stock at a corporate meeting is
an incident of ownership; it is a part of the stockholder's property interest.
Carnegie Trust Co. v. Security Life Ins. Co., 111 Va. 1, 27, 68 S.E. 412, 421
(1910). In Fein v. Lanston Monotype Mach. Co., 196 Va. 753, 767, 85 S.E.2d
353, 361 (1955), we held that "[t]he right to vote for directors is a right to protect
property from loss, and to make its possession beneficial.
To deprive a
stockholder of his right to vote is to deprive him of an essential attribute of his
property."
Similarly, Code § 13.1-730(A)(3) gives a shareholder a right incident to
ownership of stock, the right to dissent from certain corporate actions. A share
of stock with such rights may be more valuable than one without such rights. The
presence of dissenters' rights triggers a series of rights and obligations under the
Code that ultimately provides the shareholder the opportunity to demand the fair
299
value of his shares. Consequently, the loss of such rights, regardless of how
effectuated, injures the stock.
In the present case, Willard alleges that he was denied dissenters' rights
because Moneta failed to give him proper notice pursuant to Code § 13.1-732(A).
Accordingly, Moneta's alleged failure to provide such notice is properly
characterized as conduct directed at Willard's property. Just as the loss of the right
to vote for directors constitutes an injury to property, so is the loss of the right to
demand fair value as a dissenting shareholder. Commentators and other courts
agree. As one commentator has noted:
Essentially, an appraisal is the method of paying shareholders for
taking their property; it is the statutory means whereby shareholders
can avoid the conversion of their property into other property not of
their choosing and is given to shareholders as compensation for the
abrogation of the common-law rule that a single shareholder could
block a merger.
The purpose of these statutes is to protect the
property rights of dissenting shareholders from actions by majority
shareholders which alter the character of their investment.
12B William M. Fletcher, Cyclopedia of the Law of Private Corporations §
5906.10, at 340-41 (perm. ed.2000 rev. vol.) (emphasis added) (internal footnotes
omitted). See also Breniman v. Agricultural Consultants, Inc., 829 P.2d 493, 496
(Colo.Ct.App.1992); Settles v. Leslie, 701 N.E.2d 849, 856 (Ind.Ct.App.1998);
In re Watt & Shand, 444 Pa. 206, 283 A.2d 279, 281 (1971) (noting that the
statutory protection of dissenting shareholders through the appraisal provision is
designed to safeguard property rights).
Finally, Moneta argues that Willard's motion for judgment does not allege
an injury to property because Willard did not lose his dissenters' rights as a result
of alleged lack of notice. According to Moneta, Willard's stock was not injured
on November 22, 1996, the date Willard claims he was due notice of dissenters'
rights, because Willard still had dissenters' rights after that date. Moneta claims
that Willard retained dissenters' rights up until the sale of Moneta's assets to
Capps, regardless of whether Willard was aware of those rights.
Without
commenting on the merits of Moneta's position, we conclude that it has no impact
on our decision today.
Moneta blurs the concepts of causation and injury. The failure to give
notice is not the injury alleged; the loss of dissenters' rights, an incident of stock
ownership, is the injury alleged.
The applicable statute of limitations is
determined by the type of injury alleged. Whether the alleged failure to give
Willard notice of dissenter's rights in accordance with Code § 13.1-732 caused
injury or loss is a different question.
IV. Conclusion
For the foregoing reasons, we hold that the trial court erred in determining
that Willard's motion for judgment was subject to the two-year catch-all limitation
300
provided by Code § 8.01-248 and in dismissing his claim. We further hold that
Willard alleged an "injury to property" and his claim was thus subject to the fiveyear limitation in Code § 8.01-243(B).
Reversed and remanded.
Eagles Court v. Heatilator
239 Va. 325, 389 S.E.2d 304
Russell, J., delivered opinion in this case.
This appeal presents the question whether a claim for damages, resulting
from an allegedly defective product incorporated into the construction of a
condominium, is barred by the statute of limitations and the statute of repose.
Because the case was decided upon pleas in bar and demurrers without an
evidentiary hearing, we will summarize the facts as stated in the pleadings and as
stipulated for the purpose of the pleas in bar.
The Eagles Court Condominium is a 42-unit complex in Nelson County.
Wintergreen, a Virginia limited partnership, was the developer and original
declarant of the condominium. The first unit was sold in 1975, the last unit was
sold in 1976, and all construction on the project was completed by January 1977.
Heatilator, Inc., manufactured steel fireplace systems which were designed by,
and components of which were supplied by, Acorn Structures, Inc. Nielson
Construction Company, Inc., assembled and installed the systems and
incorporated them into the construction of the units.
On October 12, 1986, a fire occurred in apartment 101, Eagles Court, which
spread to apartments 102 and 103 and also damaged the common elements of the
condominium complex. The alleged cause was a defect in the design and
assembly of the Heatilator systems. The defect permitted embers to escape from
the firebox into combustible materials. A county fire official determined that the
fireplace systems were hazardous because of the lack of metal fire-stop spacers in
the chases of the flues. The official imposed a ban on further use of the systems.
The Eagles Court Condominium Unit Owners Association and its Board of
Directors (collectively, the plaintiffs) brought this action by a motion for
judgment filed in the Circuit Court of Fairfax County on October 9, 1987. The
plaintiffs alleged that the fire resulted from the negligence of Heatilator, Acorn,
and Nielson in the design, manufacture, sale, and installation of the fireplace
systems.56 On motion of the defendants, the court transferred the case to the
Circuit Court of Nelson County.
56 The plaintiffs also joined the developer, its successors in interest, and other parties, as
defendants. The plaintiffs nonsuited some defendants and the court dismissed others. The court
sustained demurrers filed by the developers and sellers, ruling that those parties were protected
by the doctrine of caveat emptor. Those rulings are not before us in this appeal.
301
The defendants pleaded the statute of limitations and the statute of repose,
Code Sec. 8.01-250. After reviewing briefs, the arguments of counsel, and certain
stipulations of fact, the court sustained the pleas in bar by a written opinion
followed by a final order, entered October 12, 1988. We granted the plaintiffs an
appeal limited to the question whether the court erred in ruling that the claims
against Heatilator, Acorn, and Nielson were time-barred.
The trial court observed, at the conclusion of the hearing on the pleas, that
the record was insufficient to permit a finding of fact on the issue whether the
Heatilator systems constituted "equipment or machinery" within the meaning of
the last sentence of the statute of repose, Code Sec. 8.01-250. That statute
provides as follows:
No action to recover for any injury to property, real or personal, or for
bodily injury or wrongful death, arising out of the defective and unsafe condition
of an improvement to real property, nor any action for contribution or indemnity
for damages sustained as a result of such injury, shall be brought against any
person performing or furnishing the design, planning, surveying, supervision of
construction, or construction of such improvement to real property more than five
years after the performance of furnishing of such services and construction.
The limitation prescribed in this section shall not apply to the manufacturer
or supplier of any equipment or machinery or other articles installed in a structure
upon real property, nor to any person in actual possession and in control of the
improvement as owner, tenant or otherwise at the time the defective or unsafe
condition of such improvement constitutes the proximate cause of the injury or
damage for which the action is brought; rather each such action shall be brought
within the time next after such injury occurs as provided in Secs. 8.01-243 and
8.01-246.
The last sentence, in substance, was added to the statutory predecessor of
Sec. 8.01-250 in 1973.57 Acts 1973, c. 247. That provision was, therefore, in
effect at all times pertinent to this case. In Cape Henry v. Natl. Gypsum, 229 Va.
596, 602, 331 S.E.2d 476, 480 (1985), we construed the last sentence of the
statute to apply to manufacturers and suppliers of machinery and equipment, but
not to those who furnish ordinary building materials. Therefore, if the Heatilator
systems are deemed to be ordinary building materials, all rights of action against
those who furnished their design or construction were extinguished in 1982, five
years after the performance of the construction. This action, brought in 1987,
would, in that event, be time-barred.
On the other hand, if the Heatilator systems are deemed to be machinery or
equipment, the last sentence of Sec. 8.01-250 applies. In that event, the statute of
57 Minor revisions were made in the language when former Title 8 was recodified as Title 8.01 in
1977. Acts 1977, c. 617.
302
repose is inapplicable, rights of action accrued to the plaintiffs on October 12,
1986, the date of the fire, and the five-year statute of limitations prescribed by
Code Sec. 8.01-243(B), for actions for injury to property, governs the case. Upon
that theory, the action would be timely. The factual determination whether the
Heatilator systems are machinery or equipment, is therefore crucial.
The last sentence of Sec. 8.01-250 exempts from the operation of the statute
of repose only the "manufacturer" and "supplier" of machinery or equipment.
The designer and the installer of such machinery or equipment are entitled to the
protection of the first sentence of the statute. The trial court correctly perceived
this distinction by ruling that regardless of how the Heatilator systems were to be
categorized, those allegations of the motion for judgment charging the defendants
with negligent design are barred by Code Sec. 8.01-250. We add that Nielson, the
installer, is entitled to the protection of the statute of repose for the same reason.
The question remains whether the plaintiffs' claims against Heatilator, as
manufacturer, and Acorn, as supplier, are time-barred. The trial court took the
view that it was immaterial whether the last sentence of Sec. 8.01-250 applies,
because all the plaintiffs' rights of action were barred by the five-year limitation
of former Code Sec. 8-24, however the Heatilator systems may be categorized.
The court reasoned that the plaintiffs suffered some injury or damage when the
defective installations were made, and, applying Virginia Military Institute v.
King, 217 Va. 751, 232 S.E.2d 895 (1977), and Housing Authority v. Laburnum
Corp., 195 Va. 827, 80 S.E.2d 574 (1954), ruled that the plaintiffs' rights of action
accrued and the statute of limitations began to run in 1977, at the latest.
We do not agree with that analysis. Former Code Sec. 8-24 was a general
statute of limitations which did not specify when the limitation period began to
run. It provided merely that actions shall be brought within the prescribed
number of years "next after the right to bring the same shall have accrued." Id. It
remained for the case law to determine when, in varying circumstances, such
rights of action accrued. See, e.g., First Va. Bank-Colonial v. Baker, 225 Va. 72,
301 S.E.2d 8 (1983); Locke v. Johns-Manville Corp., 221 Va. 951, 275 S.E.2d
900 (1981); King, supra; Caudill v. Wise Rambler, 210 Va. 11, 168 S.E.2d 257
(1969); Hawks v. DeHart, 206 Va. 810, 146 S.E.2d 187 (1966); Laburnum
Corp., supra.
Where a general statute and a special statute concern the same subject
matter and are in apparent conflict, the special statute supersedes the general
statute. Fonticello Co. v. Richmond, 147 Va. 355, 359-60, 137 S.E. 458, 459
(1927). It is sometimes said that in those circumstances, the special act should be
construed as an exception to the general law, to the extent of the conflict. Id.; see
also, Kirkpatrick v. Bd. of Supervisors, 146 Va. 113, 125, 136 S.E. 186, 190
(1926).
The last sentence of present Code Sec. 8.01-250 was enacted while former
Code Sec. 8-24 was still in effect. The new enactment contained a specific
provision for the commencement of the running of the statute of limitations:
303
"such action shall be brought within the time next after such injury occurs."
Code Sec. 8.01-250. The term "such injury" refers to the preceding words: "at
the time the defective or unsafe condition of such improvement constitutes the
proximate cause of the injury or damage." Id. We conclude that this specific
language constituted an exception to the general language of former Code Sec.
8-24, and superseded Sec. 8-24 in the limited circumstances to which the new
language applied: actions against "the manufacturer or supplier of any equipment
or machinery ... installed in a structure upon real property." Id. Accordingly, if
the Heatilator systems are machinery or equipment, the last sentence of Code Sec.
8.01-250 applies, and former Code Sec. 8-24 does not.
For that reason, the trial court erred in holding the plaintiffs' claims against
Heatilator, as manufacturer, and Acorn, as supplier, time-barred without first
making the dispositive factual determination whether the Heatilator systems were
"machinery" or "equipment" within the meaning of Code Sec. 8.01-250.
Because the court correctly sustained Nielson's plea in bar, we will affirm
the judgment to the extent that defendant was dismissed. We will reverse the
judgment in other respects and remand the case for further proceedings with
regard to the plaintiffs' claims against the defendants Heatilator, as manufacturer,
and Acorn, as supplier, consistent with this opinion.
Affirmed in part, reversed in part, and remanded.
Newman v. Walker
270 Va. 291; 618 S.E.2d 336 (2005)
Kinser, C., delivered the opinion of the court.
Pursuant to Code § 8.01-229(D), a statute of limitations is tolled when a
defendant uses any direct or indirect means to obstruct the filing of an action. In
this case, we conclude that a defendant's affirmative misrepresentation about his
identity at the scene of an automobile accident invokes this statute and tolls the
running of the statute of limitations for the ensuing personal injury action if the
defendant designed or intended his misrepresentation to obstruct the filing of the
action. Thus, we will reverse the judgment of the circuit court sustaining a plea of
the statute of limitations.
Relevant Facts and Proceedings
Sharon M. Newman allegedly sustained personal injuries on June 17, 2000
when a truck owned by Hastings Village, Inc. struck the motor vehicle she was
operating. At the scene of the accident, the driver of the Hastings Village truck
identified himself to a police officer as Kareem A. Brooks. Relying on that
information, Newman filed a motion for judgment on June 11, 2002 against
Brooks and Hastings Village. Both defendants filed grounds of defense, admitting
that there was an incident involving the specified vehicles but denying that
Brooks was the driver of the Hastings Village truck.
304
About a month after the accident, the liability insurance carrier for Hastings
Village contacted Hastings Village about the accident and reported that Brooks
was driving the company's vehicle. Hastings Village advised the insurance carrier
that it did not employ anyone by the name of Kareem A. Brooks. Hastings Village
then confronted one of its employees named William Walker, Jr., and Walker
admitted that he had been driving the Hastings Village truck at the time of the
accident.
In September 2003, soon after Newman had answered interrogatories and
asked to depose Brooks, she learned for the first time that Brooks was not the
driver of the Hastings Village truck. On October 1, 2003, the attorney for the
defendants advised Newman's attorney that an investigator had found out that
Walker had stolen Brooks' identification, had taken the Hastings Village truck
without permission, and was driving it at the time of the accident.
With this new information, Newman moved to file an amended motion for
judgment naming William Walker, Jr., as a defendant and as the driver of the
Hastings Village truck. Brooks and Hastings Village admitted in their grounds of
defense to the amended motion for judgment that Walker had identified himself as
Brooks at the scene of the accident. After attempting unsuccessfully to serve
process on Walker, Newman discovered that Walker's name was actually Leonard
Walker, Jr. On February 26, 2004, the circuit court permitted Newman to change
the name of the defendant-driver from William Walker, Jr., to Leonard Walker,
Jr.58
Nationwide Mutual Insurance Company, Newman's uninsured motorist
carrier, then moved to dismiss the action pursuant to the applicable two-year
statute of limitations. See Code § 8.01-243(A). Nationwide asserted that Walker
was not named as a defendant in the action until January 12, 2004, more than two
years after the date of the accident. Newman responded that, pursuant to the
provisions of Code § 8.01-229(D), the statute of limitations was tolled during the
period when Walker "falsely and fraudulently identified himself to both the
plaintiff and the . . . police officer as Kareem Brooks." Walker's use of false
identification in violation of Code § 18.2-204.1(B), according to Newman,
obstructed her ability to file this action against the proper defendant.
Relying on Grimes v. Suzukawa, 262 Va. 330, 551 S.E.2d 644 (2001), the
circuit court, in a letter opinion, concluded that Newman "failed [to] present any
evidence to establish that Mr. Walker's conduct constituted a direct or indirect
means to obstruct the filing of [Newman's] tort action[] within the meaning of
Code § 8.01-229(D)." Thus, the circuit court granted Nationwide's motion to
dismiss. Newman appealed to this Court.
Analysis
58 On June 4, 2004, the circuit court granted Newman's request to nonsuit Brooks and Hastings
Village, leaving Leonard Walker, Jr. as the sole defendant.
305
The sole issue on appeal is whether Walker's misrepresentation by using
stolen identification at the scene of the accident was a "direct or indirect means
[used] to obstruct the filing of [this] action," thereby tolling the statute of
limitations.59 Code § 8.01-229(D). The provisions of Code § 8.01-229(D)
state that "when the filing of an action is obstructed by a defendant's . . . using any
other direct or indirect means to obstruct the filing of an action, then the time that
such obstruction has continued shall not be counted as any part of the period
within which the action must be brought."
Newman argues that she should receive the benefit of the tolling provision
in Code § 8.01-229(D) because she was the victim of Walker's fraudulent
misrepresentations about his identity upon which she relied in filing this action.
Citing Hawks v. Dehart, 206 Va. 810, 146 S.E.2d 187 (1966), Newman contends
that Walker's concealment of relevant facts was the sort of fraud involving moral
turpitude sufficient to toll the running of the statute of limitations. Finally,
Newman distinguishes this Court's decision in Grimes by arguing, among other
things, that Walker's giving false information to the police officer at the scene of
the accident, unlike the defendant's wearing a mask in Grimes, was an affirmative
misrepresentation about his identity.
In response, Walker contends that our decision in Grimes is controlling.
Citing Hawks and Culpeper National Bank v. Tidewater Improvement Co., Inc.,
119 Va. 73, 89 S.E. 118 (1916), Walker argues that, under provisions of Code §
8.01-229(D), a statute of limitations is tolled when a defendant conceals the
existence of a cause of action. According to Walker, Newman knew at the time of
the accident that she had a cause of action just as the plaintiff in Grimes did when
the defendant sexually assaulted her. Like the defendant in Grimes, Walker
contends that, although he concealed his identity, he did not do so in order to
obstruct Newman's filing of this action. Thus, in Walker's view, the statute of
limitations was not tolled.
We do not agree with Walker's argument implying that a statute of
limitations is tolled under Code § 8.01-229(D) only when a defendant acts to
conceal the existence of a cause of action. See Baker v. Zirkle, 226 Va. 7, 12, 307
S.E.2d 234, 236 (1983) (suggesting that the provisions of Code § 8.01-229(D)
apply when a defendant prevents service of process). In Culpeper National Bank,
one of the cases cited by Walker, the plaintiff brought an action of assumpsit
59 Amicus curiae in support of Newman urges this Court to reverse the judgment of the circuit court
on the theory that there was an equitable tolling of the statute of limitations due to Walker's
actions and that Walker is therefore estopped from asserting the bar of the statute of limitations.
Newman relied only on the provisions of Code § 8.01-229(D) before the circuit court. Thus, we
will not address the issue of estoppel. In her opposition to the plea of the statute of limitations
filed in the circuit court, Newman did, however, characterize Walker's conduct at the scene of the
accident as fraudulent.
306
against a bank and its president to recover the proceeds of a note that had been
delivered to the bank to be discounted by it. 119 Va. at 74, 89 S.E. at 118. The
bank pled two statutes of limitations. Id. at 75, 89 S.E. at 119. The issue with
regard to the plea was whether the bank, "by any indirect way or means,
obstructed the prosecution of [the] suit" by participating in some fraudulent act
"which kept the plaintiff in ignorance of its rights."60 Id. at 82-83, 89 S.E. at
121. Quoting Foster v. Rison, 58 Va. (17 Gratt.) 321, 345 (1867), we stated that
ignorance of the existence of a debt was not sufficient to toll a statute of
limitations unless that ignorance came about from the fraud of the defendant.
Culpeper Nat'l Bank, 119 Va. at 83, 89 S.E. at 121; accord Jones v. United States
Fidelity & Guaranty Co., 165 Va. 349, 360-61, 182 S.E. 560, 564-65 (1935). In
that context, we then explained the kind of concealment that would toll the statute
of limitations:
"Mere silence by the person liable is not concealment, but there must
be some affirmative act or representation designed to prevent, and
which does prevent, the discovery of the cause of action. Concealment
of a cause of action preventing the running of limitations must consist
of some trick or artifice preventing inquiry, or calculated to hinder a
discovery of the cause of action by the use of ordinary diligence, and
mere silence is insufficient. There must be something actually said or
done which is directly intended to prevent discovery. Mere silence or
concealment by a debtor may not, without affirmative
misrepresentation, toll the running of the statute. Where, however, a
debtor by actual fraud keeps his creditor in ignorance of the cause of
action, the statute does not begin to run until the creditor had
knowledge, or was put upon inquiry with means of knowledge that
such cause of action had accrued. Fraudulent concealment must
consist of affirmative acts of misrepresentation, mere silence being
insufficient. The fraud which will relieve the bar of the statute must be
of that character which involves moral turpitude, and must have the
effect of debarring or deterring the plaintiff from his action."
Culpeper Nat'l Bank, 119 Va. at 83-84, 89 S.E. at 121 (quoting 2 H.G.
Wood, Wood on Limitations 1422 (4th ed. 1916)).
Subsequent to Culpeper National Bank, we decided several more cases
involving the question whether a statute of limitations had been tolled because a
defendant had concealed a cause of action. For example, in Hawks, the other case
60 The relevant portion of the tolling provision in effect at that time, Code § 2933 (1904), which is
a predecessor to Code § 8.01-229(D), stated that "where any such right . . . shall accrue against a
person who . . . by any other indirect way or means shall obstruct the prosecution of such right
the time that such obstruction may have continued shall not be computed as any part of the time
in which the said right might or ought to have been prosecuted."
307
cited by Walker, the plaintiff filed an action against a doctor for damages
allegedly caused by the doctor's negligence in leaving a surgical needle in the
plaintiff's neck during an operation. 206 Va. at 811, 146 S.E.2d at 187. The
plaintiff alleged that the doctor had "knowingly, actively and negligently
concealed from the plaintiff the fact of the presence of such needle in her neck."
Id. at 814, 146 S.E.2d at 190. Again explaining the character of fraud necessary to
toll the statute of limitations, we stated that it must involve moral turpitude and
the "defendant must intend to conceal the discovery of the cause of action by trick
or artifice."61 Id. (quoting Richmond Redevelopment & Hous. Auth. v.
Laburnum Constr. Corp., 195 Va. 827, 840, 80 S.E.2d 574, 582 (1954)). We
concluded that the plaintiff had not established "such trick or artifice or purpose"
by the doctor. Id.; accord Horn v. Abernathy, 231 Va. 228, 234, 343 S.E.2d 318,
321 (1986); Morriss v. White, 146 Va. 553, 570-71, 131 S.E. 835, 840 (1926); see
also Mid-Atlantic Bus. Communications, Inc. v. Virginia Dep't of Motor
Vehicles, 269 Va. 51, 58, 606 S.E.2d 835, 839 (2005) (defendant's continuing to
consider plaintiff's claim and failing to respond to certain letters was not "an
affirmative act . . . designed to thwart" the plaintiff's ability to file a lawsuit
within the six-month limitations period).
In all these cases, the focus was whether the defendant had used any direct
or indirect means to conceal the cause of action, thereby tolling the statute of
limitations. We had no occasion to address Code § 8.01-229(D) or its ancestor
statutes in regard to what other direct or indirect means would obstruct the filing
of an action and thus toll a statute of limitations.
However, we did so in Grimes. There, the issue was not whether the
defendant had concealed the cause of action but whether, by wearing a mask
when he committed the crimes, he had obstructed the plaintiff's filing an action
against him. 262 Va. at 332, 551 S.E.2d at 646. We concluded that the defendant
had not done so because the "use of the mask was intended to conceal his identity
and not to obstruct [the plaintiff's] filing of an action." Id. Thus, the applicable
statute of limitations was not tolled under the provisions of Code § 8.01-229(D).
Id. In reaching this decision, we stated that "[a] plaintiff who seeks to rely upon
the tolling provision in Code § 8.01-229(D) must establish that the defendant
undertook an affirmative act designed or intended, directly or indirectly, to
obstruct the plaintiff's right to file her action." Id.
While it is true that Walker's use of stolen identification at the scene of the
accident concealed his identity as the wearing of a mask did in Grimes, there is
nevertheless an important distinction between the two cases. When Walker gave
the police officer stolen identification, he affirmatively misrepresented his
61 When we decided Hawks, the relevant tolling provision was set forth in Code § 8-33 (1957), a
predecessor to Code § 8.01-229(D). In pertinent part, that former section tolled a statute of
limitations when a defendant used "any other indirect way or means [to] obstruct the
prosecution" of an action.
308
identity. The defendant in Grimes never misrepresented anything about his
identity; he merely concealed it with the mask. In other words, Walker "
undertook an affirmative act." Id.
Although our earlier cases dealt with concealment of the existence of a
cause of action, the principles enunciated there are applicable in this case.
Fraudulent concealment, whether of a cause of action or of a defendant's true
identity, " 'must consist of affirmative acts of misrepresentation. . . . The fraud
which will relieve the bar of the statute must be of that character which involves
moral turpitude, and must have the effect of debarring or deterring the plaintiff
from his action.' " Culpeper Nat'l Bank, 119 Va. at 83, 89 S.E. at 121 (quoting
Wood, supra, 101 U.S. 135, 25 L. Ed. 807 at 1422).
Walker's actions at the scene of the accident involved this type of fraud. Thus, we
conclude that the circuit court erred in holding that Walker's conduct did not
constitute a direct or indirect means to obstruct Newman's filing of this action.
However, before a final resolution can be made as to whether the applicable
statute of limitations barred Newman's action against Walker, the circuit court
must make two factual determinations that were not previously necessary to its
judgment sustaining the plea of the statute of limitations: (1) whether Walker's
use of stolen identification was "designed or intended, directly or indirectly, to
obstruct" Newman's filing of this action, Grimes, 262 Va. at 332, 551 S.E.2d at
646; and (2) if so, the period of time such obstruction continued, see Code §
8.01-229(D).
Conclusion
For these reasons, we will reverse the judgment of the circuit court and
remand this case for further proceedings.
Reversed and remanded.