Present: Hassell, C.J., Keenan, Koontz, Kinser, Lemons,
and Agee, JJ., and Russell, S.J.
GEORGE B. LITTLE, INDIVIDUALLY AND
AS TRUSTEE FOR THE GENERAL PARTNER OF
FOX REST ASSOCIATES, L.P., ET AL.
Record No. 062504
MARK P. COOKE, ET AL.
OPINION BY JUSTICE CYNTHIA D. KINSER
November 2, 2007
FROM THE CIRCUIT COURT OF HENRICO COUNTY
Gary A. Hicks, Judge
This dispute arose out of the sale of an apartment
complex located in Henrico County known as Fox Rest
Apartments (Fox Rest), which was the sole asset of a
partnership named Fox Rest Associates, L.P. (Partnership).
Some of the Partnership’s limited partners filed a
derivative suit on behalf of the Partnership pursuant to
Code § 50-73.62 and sought monetary damages against George
B. Little, individually and as trustee for the general
partner of Fox Rest, and George B. Little & Associates,
P.C., a Virginia professional corporation (collectively,
In their motion for judgment, the Limited
The limited partners who filed the derivative suit
were Mark P. Cooke, Alicia Hartley, Lisa Ruffin Harrison,
Ned Ruffin, Sarah Ruffin, and Harrison Ruffin (Limited
Partners). They represented two-thirds of the ownership
interests in the Partnership.
The Frances M. Cargill Irrevocable Trust (Cargill
Trust) was the general partner of Fox Rest when the Limited
Partners filed the derivative suit. The Cargill Trust was
Partners asserted, among other things, counts for breach of
fiduciary duty and legal malpractice.
After a bench trial, the circuit court held that
Little breached not only the standard of care applicable to
attorneys in his role as the attorney for the Partnership
but also his fiduciary duties while performing the tasks
and responsibilities of the Partnership’s general partner.
The circuit court awarded damages to the Partnership
against the Defendants, jointly and severally, in the total
amount of $3,161,258.32, plus prejudgment interest.
majority of the damages comprised what the circuit court
referred to as “tax damages.”
The circuit court also
awarded attorneys’ fees and costs to the Limited Partners
individually, in addition to the other damages.
We awarded the Defendants this appeal on five
assignments of error.2
In the first assignment of error,
the Defendants challenge the award of “tax damages” on four
separate grounds: (a) the Partnership’s general partner did
not have the authority or duty to make a tax-free exchange
subsequently added as a party defendant pursuant to an
order of the circuit court.
The Defendants do not challenge several of the
circuit court’s holdings. Notably, they do not assign error
to the circuit court’s conclusion that Little committed
legal malpractice and breached his fiduciary duties. They
also do not contest some of the categories of damages
awarded by the circuit court.
when selling Fox Rest; (b) “tax damages” are not damages to
the Partnership and thus are not recoverable in a
derivative action; (c) the Limited Partners did not
establish that Little’s conduct proximately caused their
damages; and (d) the Limited Partners failed to mitigate
In the four remaining assignments of error,
the Defendants contest: (1) the circuit court’s award of
$400,000 for “wrongfully retained funds” from the sale of
Fox Rest; (2) the award of $17,951.32 for over-charges in
Little’s legal bills to the Partnership; (3) the award of
punitive damages in the amount of $175,000; and (4) the
award of attorneys’ fees to the Limited Partners in
addition to the other damages awarded rather than an award
of attorneys’ fees from the “common fund” recovered for the
We also awarded an appeal on the Limited Partners’ two
assignments of cross-error.
The Limited Partners assert
that the circuit court erred either by refusing to award an
additional $2,050,000 in damages against the Defendants or
by failing to award at least a sum representing “the
difference between the appraised market value [of Fox Rest]
and sale price on the date of sale.”
For the reasons explained hereinafter, we will affirm
in part and reverse in part the judgment of the circuit
I. RELEVANT PROCEEDINGS AND FACTS3
In accordance with established principles of appellate
review, we state the facts in the light most favorable to
the Limited Partners, the prevailing party in the trial
Nusbaum v. Berlin, 273 Va. 385, 407, 641 S.E.2d
494, 506 (2007).
We also accord the Limited Partners “the
benefit of all reasonable inferences fairly deducible from
Id. (citing Viney v. Commonwealth, 269 Va.
296, 299, 609 S.E.2d 26, 28 (2005)); see also Xspedius
Mgmt. Co. of Va., L.L.C. v. Stephan, 269 Va. 421, 425, 611
S.E.2d 385, 387 (2005).
Since the circuit court heard the
evidence ore tenus, its factual findings are entitled to
the same weight as a jury verdict.
W.S. Carnes, Inc. v.
Board of Supervisors, 252 Va. 377, 385, 478 S.E.2d 295, 301
(1996) (citing RF&P Corp. v. Little, 247 Va. 309, 319, 440
S.E.2d 908, 915 (1994)).
We are bound by those factual
findings unless they are plainly wrong or without evidence
We will recite only those facts that are relevant to
the issues before us in this appeal. We also will
summarize additional facts as we address particular
assignments of error and the assignments of cross-error.
to support them.
Code § 8.01-680; Ravenwood Towers, Inc.
v. Woodyard, 244 Va. 51, 57, 419 S.E.2d 627, 630 (1992).
As set forth in the “AGREEMENT OF LIMITED PARTNERSHIP
OF FOX REST ASSOCIATES” (Partnership Agreement), the
Partnership was formed in 1981 “solely for the purpose of
acquiring” Fox Rest and “investing in, holding,
maintaining, operating, improving, leasing, selling and
otherwise using such property.”
At all times relevant to
this litigation, the Cargill Trust served as the
Partnership’s sole general partner, and Little was the
trustee of the Cargill Trust.4
Little and his professional
corporation provided legal services to the Partnership.
According to the Partnership Agreement, the general
partner had “full authority and responsibility to manage,
direct and control all of the affairs and business of the
Among the powers granted to the general
At the time the Partnership was formed, the general
partner was the E. Eugene Cooke Trust (Cooke Trust), with
Little serving as its trustee. Because of a dispute
concerning the Cooke Trust, Little eventually resigned as
its trustee. In 1991, Little substituted the Cargill Trust
in the place of the Cooke Trust as the Partnership’s
general partner. Thus, Little continued in his role as
trustee for the trust serving as the Partnership’s general
partner. Although Little was not technically the
Partnership’s general partner, he explained that, from the
time the Partnership was formed, it was understood by the
Cooke Trust and later by the Cargill Trust that Little
would control and operate the Partnership.
partner was the authority to “dispose of any properties or
assets of the Partnership including . . . Fox Rest.”
Partnership Agreement directed that the Partnership be
dissolved when, among other things, the general partner was
removed or substantially all the Partnership’s property was
Little admitted that the Partnership Agreement, which
he drafted, allowed him to hire himself “for whatever [he]
wanted to do.”
The circuit court concluded that Little,
“[a]cting for the [g]eneral [p]artner, . . . hired himself
to perform virtually every duty of the [g]eneral [p]artner,
and billed the Partnership accordingly at his hourly
The court further concluded that Little, “[a]cting
under duties he thus delegated to himself from the
[g]eneral [p]artner, . . . hired himself and his law firm
to provide legal services and advice to himself as the
acting [g]eneral [p]artner.”6
In the first half of 2002, Little received two
separate offers to purchase Fox Rest, but he declined both
Later in the year, however, Little changed his
Pursuant to the terms of the Partnership Agreement,
the general partner itself did not receive compensation for
services rendered to the Partnership.
The Defendants do not challenge these findings on
In September 2002, Little received a letter from
Edmund S. Ruffin, Jr. (Ruffin), on behalf of “the Ruffin
and Cooke family members that [were] limited partners” in
Ruffin requested that Little consent to
the substitution of a new general partner for the
Partnership in the place of the Cargill Trust.
Little testified at trial that this letter “scared
[him] to death” because he believed that, if he did not
agree to the proposed course of action, the general partner
would be removed, thereby effecting dissolution of the
Partnership according to the terms of the Partnership
Dissolution would trigger a sale of the
property “under the hammer” which, according to Little,
“puts the seller in a very weak position.”
the proposed changes would not be beneficial to the
Partnership but that a sale of the property would be in the
best interests of the Partnership’s investors, Little
decided to sell Fox Rest.7
After making that decision,
Little reviewed the Partnership Agreement and concluded
that he, acting alone, had the authority to sell Fox Rest.
Little, however, believed that he did not have the
The Partnership’s investors were the Limited
Partners, other limited partners who did not join in
bringing this derivative suit, and the general partner.
authority under the terms of the Partnership Agreement to
engage in a “tax-free exchange” because, in his view, the
Partnership “was a sole project partnership.”8
In a letter dated October 14, 2002, Ruffin again
requested Little to cooperate in the substitution of a new
general partner for the Partnership, as Little had not
responded to the first correspondence.
that he did not answer the first letter because he was
trying to sell Fox Rest before the general partner, i.e.,
Little, was removed.
Two days later, in correspondence
dated October 16, 2002, Little advised the Partnership’s
investors that, “[p]ursuant to the powers conferred in the
original Partnership Agreement, [he,] as [g]eneral
[p]artner[, had] committed to the sale of the entire
complex for a gross sales price of $10,250,000.00.”
also told the investors that settlement would occur in
January 2003 and that they would incur capital gains taxes
on the transaction.
In response, Ruffin voiced his concern
about Little’s unilateral decision to sell Fox Rest within
weeks after being asked to “step down as general partner.”
Pursuant to the I.R.C. § 1031, a “tax-free exchange”
is designed “to defer recognition of gain or loss when a
direct exchange of property between the taxpayer and
another party takes place.” Bell Lines, Inc. v. United
States, 480 F.2d 710, 713 (4th Cir. 1973) (citation
The closing on the sale of Fox Rest took place on January
30, 2003 and the Limited Partners subsequently filed this
derivative suit on behalf of the Partnership.
multi-day bench trial, the circuit court concluded, based
on expert testimony, that Little committed numerous acts of
legal malpractice and breaches of fiduciary duties.
letter opinion, the court stated:
At a minimum, Little breached his duties as a
lawyer to reasonably communicate with the Limited
Partners, to refrain from self-dealing, and to
make adequate disclosure of material facts to the
Limited Partners. He also erred in failing to
consider or inform the Limited Partners of the
possibility of a tax-free exchange of Fox Rest as
an alternative to an outright sale, and wrongly
sold Fox Rest without properly informing himself
of the Property’s geographic marketability or
time frame for marketing the Property.
The circuit court further concluded that many of the
acts of legal malpractice also constituted breaches of
Little’s fiduciary duties.
Continuing, the court found
that Little breached his duty of loyalty and acted to
further his own interests, instead of the Partnership’s, by
taking a substantial commission for the sale of Fox Rest,
by retaining sale proceeds for the purpose of defending
potential litigation, and by contracting to sell Fox Rest
“in a hurried fashion without disclosing the business of
the Partnership to the Limited Partners.”
stated, the Defendants do not contest any of these findings
With regard to the five categories of damages
challenged on appeal, the circuit court made the following
A. Based on several provisions of the Partnership
Agreement, the circuit court concluded that Little had the
authority to conduct a tax-free exchange of Fox Rest and
that Little’s “failure to consider its availability and
advise the Limited Partners accordingly deviated from the
standard of care” as an attorney and breached his fiduciary
The circuit court awarded the sum of $2,294,557 as
“tax damages” caused by Little’s failure to advise about a
The court based its award on testimony
of the Limited Partners’ witness who qualified as an expert
in accounting matters related to partnerships, tax-free
exchanges, and taxation.
The expert explained that he
arrived at the figure by estimating the total tax
consequences incurred by the Partnership’s investors as a
result of the sale of Fox Rest even though he did not have
Early in the proceedings, the Defendants filed a
demurrer stating that the Partnership Agreement did not
permit Little to conduct a tax-free exchange.
Additionally, the Defendants asserted that the Partnership
did not have tax liability under I.R.C. § 701 and therefore
accurate tax information from all the Partnership’s
He stated that if a tax-free exchange had been
completed, the taxes would not have been owed by the
However, since that did not occur,
the expert opined that the Partnership was damaged “by
taking an asset and reducing its value by the taxes that
were paid from the sale.”
B. The circuit court awarded the sum of $400,000 to
compensate for funds Little “wrongfully withheld for
When Little forwarded the proceeds of
the sale to the investors, he advised them in a letter
dated February 4, 2003 that he was withholding
approximately $300,000 to $400,000 “to cover litigation
expenses” if any of the Partnership’s investors pursued
legal action regarding the sale of Fox Rest.
court concluded that withholding $400,000 “for a potential
lawsuit . . . fell below the standard of care.”
C. The circuit court awarded the sum of $17,951.32 to
compensate for the amount Little over-charged on legal
bills to the Partnership on various occasions.
charging occurred when Little billed the Partnership for an
amount greater than the product obtained by multiplying
the Partnership was not harmed by the sale of Fox Rest.
The circuit court denied the demurrer.
Little’s hourly rate by the number of hours of work
itemized on a bill.
Little stated that he increased his
legal fees in some instances because, in his opinion, the
legal services rendered to his client were more valuable
than the amount reflected by merely multiplying the number
of hours expended by his hourly rate.
The circuit court
concluded that Little’s over-charging fell below the
standard of care for an attorney because the Limited
Partners never saw the bills and thus were not in a
position to question any erroneous charges.
D. The circuit court awarded the sum of $175,000 in
The court concluded that punitive
damages were warranted because of Little’s “wrongful
billing,” which, according to the court, constituted
“ ‘misconduct or actual malice, or such recklessness or
negligence as to evince a conscious disregard of the rights
of another.’ ”
(Quoting Cardinal Holding Co. v. Deal, 258
Va. 623, 633, 522 S.E.2d 614, 620 (1999)).
the circuit court, the wrongful billing consisted of
Little’s overcharging his client, withholding monies for
himself that belonged to the Partnership, unilaterally
altering his billing procedures without first informing his
client, and taking “ ‘commissions’ ” and “ ‘premiums’ ” for
work already charged at an hourly rate, thereby “ ‘double
billing’ ” his client.
E. Pursuant to Code § 50-73.65, the circuit court
awarded the Limited Partners their reasonable attorneys’
fees in the amount of $577,691 and costs in the amount of
The court reasoned that an award of
attorneys’ fees was “justified under the ‘common fund’
exception to the American Rule” due to the Limited
Partners’ success in the derivative action.
the circuit court, the award of attorneys’ fees and costs
was to be “added on” to the total amount of damages
The court further explained that it
awarded the attorneys’ fees and costs to the Limited
Partners individually, but that it awarded all the other
damages to the Partnership, not to the Limited Partners,
since they brought this case as a derivative suit on behalf
of the Partnership.10
The circuit court awarded two additional categories
of damages that the Defendants do not challenge on appeal.
The first award was in the amount of $90,000 and
represented two premiums of $45,000 each that Little
charged the Partnership for services performed as a
“mortgage broker” when he obtained two separate refinancing
loans for the Partnership. According to the circuit court,
each charge of $45,000 was a premium because Little also
billed for the same work at his hourly rate. The court
concluded that billing twice for the same work fell below
the standard of care for an attorney.
We will address the Defendants’ assignments of error
challenging several of the circuit court’s damage awards in
the order previously set forth.
We will then decide the
Limited Partners’ assignments of cross-error.
A. Tax Damages
In the first assignment of error, the Defendants
challenge the circuit court’s award of “tax damages” on
four separate grounds.
To resolve this assignment of
error, however, we need only address the question whether
the tax consequences incurred by the Partnership’s
investors as a result of the sale of Fox Rest were damages
to the Partnership that can be recovered in this derivative
With regard to this issue, the Defendants first point
out that the “tax damages” awarded by the circuit court
represented the estimated collective income tax liability
The other award of damages was in the amount of
$358,750 and represented the commission Little paid himself
in connection with the sale of Fox Rest. The circuit court
concluded that taking this commission also fell below the
standard of care for an attorney because Little billed the
Partnership at his hourly rate for the same sale.
Although the Cargill Trust was a named defendant, the
circuit court did not award any damages against the trust.
The court stated that “none of the damages awarded, and
none of the attorneys’ fees and costs to be awarded, are
imposed against the Frances M. Cargill Irrevocable Trust,
and no judgment is rendered against it.”
incurred by the Partnership’s investors as a result of the
sale of Fox Rest.
Thus, the “tax damages,” according to
the Defendants, were not damages sustained by the
Partnership since it, like any partnership, does not pay
Instead, the tax consequences of selling Fox Rest
represented damages to all the Partnership’s investors,
which include the Limited Partners.
For that reason, the
Defendants argue that the “tax damages” cannot be recovered
in this derivative suit since the purpose of such a suit is
to recover those damages actually suffered by the
The provisions of Code § 50-73.62 permit “[a] limited
partner [to] bring an action in the right of a limited
partnership to recover a judgment in its favor to the same
extent that a stockholder may bring an action for a
derivative suit under the Stock Corporation Act.”
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
Simmons v. Miller, 261 Va. 561, 573, 544
S.E.2d 666, 674 (2001); see also Bernstein v. Levenson, 437
F.2d 756, 757 (4th Cir. 1971) (“In a stockholders’
derivative action the corporation, not the complaining
shareholder, is the real party in interest.”).
The circuit court correctly explained that, in the
context of a corporate derivative suit, “the corporation
must have suffered an actual injury for there to be grounds
for a shareholder’s derivative suit, and . . . the only
damages recoverable in a derivative suit are those related
to the loss or damage proximately caused by the wrong
committed.” (citing Michaud v. Morris, 603 So. 2d 886, 887
See also Mount v. Radford Trust Co., 93 Va.
427, 431, 25 S.E. 244, 245 (1896) (“[A stockholder] may
commence the suit, and may prosecute it to judgment; but in
every other respect the action is the ordinary one brought
by the corporation.
It is maintained directly for the
benefit of the corporation, and the final relief, when
obtained, belongs to the corporation, and not to the
stockholder plaintiff.” (citation omitted)); Brown v.
Bedford City Land & Improvement Co., 91 Va. 31, 37, 20 S.E.
968, 970 (1895) (stating that a stockholder may institute a
suit for the benefit of the corporation to remedy corporate
directors’ wrongdoing); 13 William Mead Fletcher et al.,
Fletcher Cyclopedia of the Law of Private Corporations
§ 6028, at 281 (perm ed., rev. vol. 2004) (“Any recovery in
a derivative proceeding generally belongs to the
corporation and not to the plaintiff or other shareholders.
Relief cannot be granted to the corporation unless the
action is derivative.”); id. § 6038, at 296 (“A shareholder
in a derivative proceeding may obtain monetary damages,
although any recovery belongs to the corporation and not
The same principles apply in the context of a
derivative suit filed on behalf of a limited partnership.
See Strain v. Seven Hills Assocs., 429 N.Y.S.2d 424, 432
(N.Y. App. Div. 1980) (“[A] limited partner’s power to
vindicate a wrong done to the limited partnership and to
enforce redress for the loss or diminution in value of his
interest is no greater than that of a stockholder of a
The claim asserted in the suit belongs to
the limited partnership, not to the limited partners, and
the limited partnership itself must have sustained injury.
Any recovery belongs to the limited partnership.
The Limited Partners do not challenge these
They, however, argue that the value of the
Partnership decreased by virtue of the sale of Fox Rest.
In their words, “the ‘tax damages’ were computed as a
surrogate for the loss of the value of the [P]artnership as
an investment vehicle.”
To support their argument, the
Limited Partners point to the testimony of their own
accounting expert as well as that of the Defendants’
witness who qualified as an expert in the field of
certified public accounting and partnership taxation.
Limited Partners’ expert opined that the Partnership was
damaged because the value of its asset was reduced “by the
taxes that were paid from the sale.”
Defendants’ expert witness answered affirmatively when
asked if the value of an investment vehicle declines when
its only asset is converted to cash and then part of the
cash has to be distributed to pay taxes.
According to the
Limited Partners, the diminution in value would not have
occurred if Little either had not sold Fox Rest or had
effected a tax-free exchange.
We do not agree with the
Limited Partners’ position for several reasons.
Their argument overlooks the legal posture of a
limited partnership with regard to income tax liability.
The Partnership’s investors – not the Partnership –
incurred whatever income tax liability resulted from the
sale of Fox Rest.
See I.R.C. § 701 (“A partnership as such
shall not be subject to the income tax imposed by this
Persons carrying on business as partners shall be
liable for income tax only in their separate or individual
capacities.”); see also Littriello v. United States, 484
F.3d 372, 375 (6th Cir. 2007) (explaining that partnership
income is taxed “not at the business level but only after
it passes through to the individual partners and is taxed
as income to them, pursuant to I.R.C. [§ 701]”); cf.
Bufferd v. Commissioner, 506 U.S. 523, 525 (1993)
(describing an S-corporation as having “a pass-through
system under which corporate income, losses, deductions,
and credits are attributed to the individual shareholders
in a manner akin to the tax treatment of partnerships”).
The circuit court therefore erred in its assessment of
“damages to the Partnership . . . relating to any tax
consequences attributed to the Partnership.”
There were no
tax consequences attributable to the Partnership.
The Limited Partners nevertheless argue that the sale
of Fox Rest converted the Partnership’s sole asset to cash
and that the value of the Partnership decreased when that
cash had to be distributed to pay the Limited Partners’ and
other investors’ income tax liabilities.
The sale of Fox
Rest did convert the Partnership’s asset to cash, but, at
that moment in time, the value of the Partnership’s asset
was the same as before the sale; it did not diminish in
The sale just changed the nature of the
Furthermore, the Limited Partners’ assertion that cash
had to be distributed to pay the investors’ income tax
liabilities resulting from the sale of Fox Rest is not
supported by the terms of the Partnership Agreement.
revenues of the Partnership not required to meet its
obligations and to conduct future operations were to be
distributed to the investors on a quarterly basis.
dissolution of the Partnership, its assets were to be
distributed in cash or in kind in proportion to each
partner’s capital account as adjusted according to a
formula set forth in the Partnership Agreement.
provision in the Partnership Agreement required a
distribution of cash to pay income taxes owed by the
Partnership’s investors as a result of the Partnership’s
There is also no merit in the Limited Partners’
argument that the “tax damages” were a proper measure of
damages in this case because legal “malpractice damages are
calculated on the basis of the value of what is lost by the
client which in many cases will be measured by tax
Contrary to the Limited Partners’ argument,
our decision in Rutter v. Jones, Blechman, Woltz & Kelly,
P.C., 264 Va. 310, 568 S.E.2d 693 (2002), does not support
In Rutter, the dispositive issue involved
“the ability of an executor to bring an action for legal
malpractice in connection with the preparation of
Id. at 313, 568 S.E.2d at 694.
The Court determined that the alleged damages, additional
tax assessed against the estate and additional legal and
accounting fees, did not arise until after the death of the
Id. at 314, 568 S.E.2d at 695.
Thus, the cause
of action asserted by the executor was not one that could
have been raised by the testatrix during her lifetime and
therefore did not survive her death.
Our decision did
not address the type of damages recoverable in a derivative
suit involving a claim for legal malpractice.
In sum, we conclude that the circuit court erred by
awarding “tax damages” against the Defendants.
damages were not sustained by the Partnership and thus were
not recoverable in this derivative suit.
Cf. Golden Tee,
Inc. v. Venture Golf Schools, Inc., 969 S.W.2d 625, 628-29
(Ark. 1998) (requiring a limited partner who is alleging
indirect damage to himself based on a decrease in the value
of the limited partnership to bring a derivative claim)
(relying on Kenworthy v. Hargrove, 855 F. Supp. 101, 106
(E.D. Pa. 1994) (“When a limited partner alleges wrongs to
the limited partnership that indirectly damaged a limited
partner by rendering his contribution or interest in the
limited partnership valueless, the limited partner is
required to bring his claim derivatively on behalf of the
B. Wrongfully Withheld Funds
The Defendants challenge the circuit court’s award of
$400,000 for funds Little did not distribute from the
Partnership but wrongfully withheld for indemnity purposes
on the basis that the award was contrary to the evidence
presented at trial.
The Defendants point to Little’s
testimony that he withheld only the sum of $350,000, that
he paid legitimate Partnership expenses and debts out of
the withheld funds leaving a balance of $284,000, and that
he should pay back approximately $20,000 that he expended
for his legal fees.
Thus, according to the Defendants, the
circuit court’s award should be reduced to the amount of
The relevant evidence regarding this issue is found in
The following exchange occurred during
his direct examination:
Q [Counsel for Little] And in this letter did
you tell them that you were withholding between
$300,000 and $400,000 from that distribution?
. . . .
Q Now, in terms of how much was actually
withheld, do you have an approximate amount as to
how much was actually withheld?
A I first told them I thought just picking a
figure out of the air, we hadn’t gotten all the
bills in, I thought it was going to be between
$300,000 and $400,000. I think it came out at
Q With respect to that $350,000, Mr. Little, how
much is still held today in the partnership
$284,000 and some change.
. . . .
Q And did the partnership also have additional
bills to pay –
– after the closing?
. . . .
Q Tell me about the payments. Tell me about the
payments that came out of the account.
A I think we paid accounting fees. And the legal
fees, I know I took some out for my legal fees
thinking I had a right to do it. I paid you some
. . . .
What were those fees for?
A I thought they were for the services you
rendered when the same plaintiffs filed the
second suit that’s pending.
Not in connection with this lawsuit?
A No, no, no. Not this one. But then on my
payments I charged, I don’t know, $20,000 worth
of fees to the account.
Do you think that was wrong?
That’s wrong now.
And that you should have to reimburse that?
Q Otherwise are you saying you believe the
disbursements were legitimate disbursements?
During cross-examination, Little provided the
following additional testimony on this issue:
Q [Counsel for Limited Partners] Now, at the
time of the sale of this property, in addition
you also held back some $350,000 to $400,000 for
payment of fees.
A [Little] Yes, I did, thinking I had the right
to do it.
Do you now think you have a right to do it?
Q So you should not have withheld any penny of
I don’t believe I should have[.]
. . . .
Q Well, you have paid some of your legal fees
out of that, didn’t you?
I did, about $21,000.
“To recover damages in any case, a plaintiff must
prove with reasonable certainty the amount of his damages
and the cause from which they resulted.”
Hale v. Fawcett,
214 Va. 583, 585, 202 S.E.2d 923, 925 (1974) (citing Barnes
v. Quarries, Inc., 204 Va. 414, 418, 132 S.E.2d 395, 397-98
(1963)); see also Carr v. Citizens Bank & Trust Co., 228
Va. 644, 652, 325 S.E.2d 86, 90 (1985) (“The plaintiff has
the burden of proving with reasonable certainty the amount
of damages and the cause from which they resulted;
speculation and conjecture cannot form the basis of the
Because the circuit court’s decision to award
the sum of $400,000 as damages for wrongfully withheld
funds was a factual issue, we will uphold its decision
unless it is clearly erroneous or without evidence to
See Perel v. Brannan, 267 Va. 691, 698, 594
S.E.2d 899, 903 (2004) (stating that we do not disturb a
trial court’s factual findings “unless they are plainly
wrong or without evidence to support them”).
Based on Little’s testimony as well as his
correspondence to the Partnership’s investors advising them
that he was withholding approximately $300,000 to $400,000,
we conclude that the circuit court’s finding that Little
wrongfully withheld the sum of $400,000 was clearly
At trial, Little’s testimony established that
he withheld only $350,000 and that the balance of $284,000
remains after paying legitimate Partnership expenses.
Little also candidly admitted that he improperly used
either $20,000 or $21,000 of the $350,000 to pay his own
legal expenses and that he should pay back that amount.
The Limited Partners presented no evidence to refute
Little’s calculations as to the amount of money remaining
or the legitimacy of the Partnership bills paid out of the
Thus, we conclude that the Limited
Partners did not carry their burden to prove that they were
entitled to an award of $400,000 for funds wrongfully
Contrary to their argument, it was not Little’s
burden to produce records to confirm his calculations.
Also, Little’s admission that he should not have withheld
the funds does not change our conclusion.
Therefore, we will reverse the circuit court’s
judgment awarding $400,000 for wrongfully withheld funds.
Based on the evidence at trial and Little’s acknowledgement
that he should pay back the amount expended for his legal
fees, we will enter judgment against the Defendants,
jointly and severally, in favor of the Partnership in the
amount of $305,000.11
Little claims the circuit court erred by awarding
$17,951.32 for over-charges in legal bills to the
Partnership “when such damages were neither pled nor
At trial, Little testified to the figures of $20,000
and $21,000 as the amount he expended out of the $350,000
for his legal fees. We will use the figure of $21,000
disclosed in any of Plaintiffs’ pleadings or discovery
responses (including those specifically directed to
The Limited Partners counter first by claiming
that the Defendants waived this issue because they did not
object to the admission of their legal bills, which
evidenced the $17,951.32 in over-charges.
They also argue
that the over-charges were prima facie evidence of Little’s
attorney malpractice and breach of fiduciary duties and
that the circuit court could therefore award “general
damages” for the over-charges.
Finally, the Limited
Partners claim that, since the Defendants were obviously
aware of the over-charges reflected on their legal bills to
the Partnership, “it is reasonable to conclude . . . that
[the Defendants] were on notice that the derivative action
subsumed these general damages.”
We agree with the
Defendants and will reverse the circuit court’s award of
damages for the over-charges.
While the Limited Partners did allege certain overcharges by Little in their motion for judgment, such as the
commission Little paid himself for the sale of Fox Rest and
the premiums Little charged for the two refinancing loans,
they did not allege the specific over-charges at issue.
since it represents the evidence in the light most
favorable to the Limited Partners.
The first mention of these alleged over-charges appears to
be in the Limited Partners’ proposed findings of fact and
conclusions of law submitted to the circuit court several
days before trial.
In that pleading, the Limited Partners
identified specific dates in Little’s legal bills where the
product derived by multiplying the hourly billing rate by
the number of hours worked did not correspond to the total
amount charged to the Partnership.
Yet, the Limited
Partners did not ask for damages to be awarded for these
particular over-charges in their proposed award of damages.
The Limited Partners did, however, specifically
mention the over-charges in opening statement: “[W]e will
be asking for the fee miscalculations, the $17,951 that are
simple bad arithmetic errors on legal bills that nobody
ever saw, but [Little] pulled the money out of the trust.”
In the Defendants’ opening statement, they responded:
Now, Mr. Vick [counsel for the Limited Partners]
seemed to raise some issue about collecting on
those bills. Well, that’s not in this case, and
I don’t know whether he’s now making it a part of
this case, but that’s not part of this case.
Never has been. It’s not in their proposed
findings of fact [or] conclusions of law, not in
anything, so I don’t know where he’s coming from
During the Limited Partners’ case-in-chief, a number
of Little’s legal bills to the Partnership were admitted
into evidence without objection.
mathematical calculations, it is evident that these bills
reflect the over-charges at issue.
However, once it became
apparent to the Defendants that the Limited Partners were
using these bills to claim damages for Little’s overcharges, the Defendants objected, stating that the “fees
that he’s talked about . . . to Mr. Little . . . are not
damages sought in this case.”
Moreover, at the close of
the Limited Partners’ case-in-chief, the Defendants moved
to strike, among other things, the evidence of the overcharges stating: “[T]hat’s not pled, and there really is no
evidence on it; not a word about it in their damage
interrogatory, nothing in their proposed findings of fact.
And we don’t think that should remain as part of the case.”
The circuit court overruled the motion to strike.
Subsequently, when the Limited Partners asked Little
during cross-examination about the over-charges, the
Defendants objected stating: “[T]here is no claim made for
There is nothing in the motion for judgment.
is nothing [in] the complaint.
There is nothing in their
This is a claim that we are essentially
hearing about for the first time now without really any
opportunity to prepare for the defense.”
further stated: “[W]e asked a discovery interrogatory –
Tell us what your damages are.
a word about this.”
The circuit court overruled the
Based on the Defendants’ arguments to the circuit
court at various stages of the proceedings, we reject the
Limited Partners’ suggestion that the Defendants waived any
objection to the damage claim for the over-charges.
circuit court clearly had several occasions to rule on the
See Nusbaum, 273 Va. at 406, 641
S.E.2d at 505.
With regard to the merits of the Defendants’ challenge
to this award of damages, the Limited Partners, on brief,
do not dispute the Defendants’ assertion that the Limited
Partners never identified over-charges in the amount of
$17,951.32 in response to discovery requests for each
component of the Limited Partners’ claimed damages.
Instead, they attempt to justify their failure to disclose
this category of damages until shortly before trial by
arguing that the Defendants were on notice that the
derivative action “subsumed these general damages” since
the over-charges appeared on the Defendants’ legal bills.
The Limited Partners’ position defeats one of the
purposes of discovery, “to disclose all relevant and
material evidence before trial in order that the trial may
be an effective method for arriving at the truth and not ‘a
battle of wits between counsel.’”
Guilford Nat’l Bank of
Greensboro v. Southern R. Co., 297 F.2d 921, 924 (4th Cir.
1962) (quoting Hickman v. Taylor, 329 U.S. 495, 516
(1947)); see also Sheek v. Asia Badger, Inc., 235 F.3d 687,
693 (1st Cir. 2000) (the purpose of discovery is to narrow
the issues and eliminate surprise at trial); Emerson Elec.
Co. v. Superior Court, 946 P.2d 841, 844 (Ca. 1997) (“One
of the principal purposes of discovery was to do away ‘with
the sporting theory of litigation--namely, surprise at
trial.’ ”) (quoting Greyhound Corp. v. Superior Court, 364
P.2d 266, 275 (Ca. 1961)).
Moreover, in the face of the
Defendants’ repeated objections at trial to this particular
claim because it was new and had not been disclosed in
discovery, we conclude that the circuit court abused its
discretion by awarding damages for Little’s over-charges.
We will therefore reverse that portion of the circuit
D. Punitive Damages
The Defendants claim that the circuit court erred in
awarding punitive damages on the basis that the evidence
was insufficient as a matter of law to sustain such an
The Defendants, however, did not move to strike the
evidence on punitive damages or to set aside that portion
of the circuit court’s judgment.
There is also no mention
of punitive damages in the Defendants’ post-trial brief
although the Limited Partners requested punitive damages in
the amount of $350,000 in their post-trial brief.12
only objection by the Defendants to the award of punitive
damages is found in their exceptions noted on the circuit
court’s final order:
“The award of punitive damages is
based solely on wrongful billing practice and, as such, is
without any factual or legal basis as the evidence does not
support a finding of malicious, willful, or wanton
Generally, the appropriate way to test the sufficiency
of evidence is by a motion to strike or by a motion to set
aside a verdict.
See Gabbard v. Knight, 202 Va. 40, 43,
116 S.E.2d 73, 75 (1960) (“While a motion to strike is an
appropriate way of testing the sufficiency of relevant
evidence to sustain an adverse verdict, it is not the only
It has long been the practice in this jurisdiction to
test the sufficiency of such evidence by a motion to set
aside the verdict.”); see also Fortune v. Commonwealth, 14
Va. App. 225, 227, 416 S.E.2d 25, 27 (1992) (“In a trial
without a jury, . . . where sufficiency of the evidence is
challenged in defense counsel’s closing argument it may
Both parties submitted post-trial briefs in lieu of
properly be preserved for appeal.”).
Defendants’ did neither.
In this case, the
They also did not oppose an award
of punitive damages in their post-trial brief, nor did they
ask the circuit court to reconsider its award of punitive
Moreover, the Defendants’ bare exception noted on
the final order failed to present to the circuit court
their argument opposing the award of punitive damages that
they now raise on appeal.
Accordingly, we conclude that
the Defendants did not properly preserve this issue for
See Rule 5:25.
The circuit court never had the
opportunity to rule on the Defendants’ challenge to the
sufficiency of the evidence to sustain an award of punitive
See Nusbaum, 273 Va. at 402-03, 641 S.E.2d at
Notwithstanding our holding, we will remand the award
of punitive damages to the circuit court for
reconsideration of the amount of the award in light of our
reversal of some of the compensatory damage awards.
circuit court awarded punitive damages for Little’s
“wrongful billing” practices, and we are setting aside two
of the components of that wrongful billing, the wrongfully
withheld funds and the over-charges.
See Gazette, Inc. v.
Harris, 229 Va. 1, 51, 325 S.E.2d 713, 747 (1985) (“The
amount of punitive damages awarded should bear some
reasonable relationship to the actual damages sustained and
to the measure of punishment required.”); Stubbs v. Cowden,
179 Va. 190, 201, 18 S.E.2d 275, 280 (1942) (“[Punitive]
damages awarded should bear some reasonable proportion to
the real damages sustained and to the measure of punishment
required.”); see also Baldwin v. McConnell, 273 Va. 650,
657-59, 643 S.E.2d 703, 706-07 (2007).
E. Attorney’s Fees
The Defendants claim that “the trial court erred by
awarding Attorneys’ Fees in addition to the other damages
awarded, rather than award fees to the derivative suit
[Limited Partners] from the ‘common fund’ recovered for the
The relevant code section allowing an award of
attorneys’ fees and costs in a successful derivative suit
filed on behalf of a limited partnership states:
If a derivative action is successful, in whole or
in part, or if anything is received by the
plaintiff as a result of a judgment, compromise
or settlement of an action or claim, except as
hereinafter provided, the court may award the
plaintiff reasonable expenses, including
reasonable attorney’s fees, and shall direct him
to remit to the limited partnership the remainder
of those proceeds received by him. On
termination of the derivative action, the court
may require the plaintiff to pay any defendant’s
reasonable expenses, including reasonable
attorney’s fees, incurred in defending the action
if it finds that the action was commenced without
reasonable cause or the plaintiff did not fairly
and adequately represent the interests of the
limited partners and the partnership in enforcing
the right of the partnership.
Code § 50-73.65.
The Defendants’ challenge to the award of attorneys’
fees raises an issue of statutory interpretation.
“Interpretation of a statute is a pure question of law
subject to de novo review by this Court.”
Polytechnic Inst. & State Univ. v. Interactive Return
Serv., Inc., 271 Va. 304, 309, 626 S.E.2d 436, 438 (2006)
(citing Ainslie v. Inman, 265 Va. 347, 352, 577 S.E.2d 246,
We find this statute to be clear and
We must, therefore, give the statute its
See HCA Health Servs. of Va., Inc. v.
Levin, 260 Va. 215, 220, 530 S.E.2d 417, 419-20 (2000).
The operative language of Code § 50-73.65 is found in
the first sentence directing a successful plaintiff who has
received an award of reasonable attorneys’ fees and
expenses “to remit to the limited partnership the remainder
of those proceeds received by him.”
Code § 50-73.65.
General Assembly’s use of the word “remainder” indicates
its intent for the award of reasonable attorneys’ fees and
expenses to be subtracted from the total amount “received
by the plaintiff as a result of a judgment, compromise or
settlement of an action or claim,” with the “remainder”
being remitted to the limited partnership.
Our view of the statute is consistent with what is
known as the “common fund” exception to the “American Rule”
prohibiting the shifting of attorneys’ fees to the losing
See Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991)
(discussing the “common fund exception” as based on a
court’s “historic equity jurisdiction . . . [that] allows a
court to award attorney’s fees to a party whose litigation
efforts directly benefit others”).
“[Whoever] recovers a
common fund for the benefit of persons other than himself
. . . is entitled to a reasonable attorney’s fee from the
fund as a whole.”
Boeing Co. v. Van Gemert, 444 U.S. 472,
478 (1980); see also Mardel Sec., Inc. v. Alexandria
Gazette Corp., 278 F. Supp. 1010, 1017-18 (E.D. Va. 1967)
(“[A]ttorneys’ fees constitute an incident to the claim [in
a stockholder’s derivative action] and are payable out of
the fund recovered.”).
Thus, we conclude that the circuit court erred by
awarding reasonable attorneys’ fees and expenses in
addition to the other damages awarded to the Partnership.
Instead, in accordance with the requirements of Code § 5073.65, the award of attorneys’ fees and expenses must be
paid from the “common fund” received by the Limited
Partners on behalf of the Partnership and the remainder
remitted to the Partnership.
We are not persuaded
otherwise by the Limited Partners’ reliance on the second
sentence of the statute allowing an award of attorneys’
fees to a defendant if the “action was commenced without
reasonable cause or the plaintiff did not fairly and
adequately represent the interests of the limited partners
and the partnership in enforcing the right of the
Obviously, in the latter situation,
there would not be a “common fund” from which to deduct the
award of attorneys’ fees to a defendant.
That fact does
not negate the clear intent of the General Assembly as
expressed in the first sentence of the statute.
At trial, the Limited Partners presented expert
testimony establishing the fair market value of Fox Rest
on the closing date of the sale, January 30, 2003, and on
a date shortly before trial, June 30, 2005, to be
$11,400,000 and $12,300,000, respectively.
court, however, refused to award additional damages to
the Limited Partners based on either of these valuations.
Although the circuit court concluded that Little
committed legal malpractice and breached his fiduciary
duties by entering into a contract to sell Fox Rest only
34 days after deciding to sell the property “in the face
of a challenge to his authority” and by marketing the
property to only two potential buyers, it nevertheless
found that “the damages relating to the hurried aspect of
the sale of Fox Rest are too speculative.”
In its letter
opinion, the court stated:
The [c]ourt cannot award damages relating to the
value of Fox Rest at the time of the hurried sale
because the [c]ourt cannot determine the amount
of damages. . . . The [c]ourt finds that the
[Limited Partners] had the burden of proving what
the property was worth as of the date the
contract of sale was entered into. The [Limited
Partners] did not meet their burden; therefore,
damages pertaining to the value of Fox Rest at
the date of sale are too speculative to award.
The Limited Partners assign cross-error “to the
circuit court’s refusal to award an additional $2,050,000
in damages . . . resulting from the sale of Fox Rest
. . . given that these damages were non-speculative and
were actually incurred by the . . . Partnership.”
Alternatively, if this Court does not grant relief on the
first assignment of cross-error, the Limited Partners, in
their second assignment of cross-error, assert that “the
circuit court should have at least awarded the difference
between the appraised market value and sale price on the
date of sale, which defendants argued below is a proper
measure of sale-related damages.”
Although the Limited Partners challenge the circuit
court’s conclusion that their proof of damages was too
speculative, their assignments of cross-error do not
contest the circuit court’s holding that “the [Limited
Partners] had the burden of proving what the property was
worth as of the date the contract of sale was entered
Thus, that holding is the law of the case, see
Landmark Communications, Inc. v. Macione, 230 Va. 137,
140, 334 S.E.2d 587, 589 (1985), and means that Little’s
breach of the standard of care as an attorney and of
fiduciary duties occurred when he executed the contract
to sell Fox Rest.
“[G]enerally the measure of [plaintiff’s] damages is
the difference between the contract price and the
[saleable] or market value of the property at the time of
Definite Contract Bldg. & Loan Ass’n v.
Tumin, 158 Va. 771, 784, 164 S.E. 562, 566 (1932); see
also Barr v. MacGlothlin, 176 Va. 474, 482, 11 S.E.2d
617, 620 (1940) (“The general rule is that where there is
a breach by the vendee of an executory agreement to
purchase land and a subsequent resale, either public or
private, by the vendor, the measure of damages ordinarily
is the difference between the contract price and the
saleable or market value at the time of the breach.”)
(emphasis added); Webster v. Di Trapano, 494 N.Y.S.2d
550, 551 (N.Y. App. Div. 1985) (“[T]he proper measure of
damages is the difference between the contract price and
the market value of the real property at the time of
First Methodist Episcopal Church of Strong
City v. North, 140 P. 888, 889 (Kan. 1914) (finding the
measure of damages for the sale of property to be “the
difference between the contract price and the [saleable]
or market value at the time of the breach”).
Partners offered no proof to establish that the fair
market value of Fox Rest on the date of breach, October
16, 2002, when Little entered into a contract to sell Fox
Rest for $10,250,000, exceeded the contract price.
fair market value of Fox Rest on either January 30, 2003
or June 30, 2005 was irrelevant and did not establish any
damages on the date of breach.
Therefore, we conclude
that the circuit court’s judgment refusing to award
damages for the hurried sale of Fox Rest based on either
of the Limited Partners’ valuations was not plainly wrong
or without evidence to support it.13
The Limited Partners also argue that the value of
Fox Rest would have continued to appreciate if the sale had
not occurred and that they were therefore entitled to
damages based on the June 30, 2005 fair market value. That
argument presumes that the circuit court found that the
fact of the sale constituted legal malpractice and a breach
For the reasons stated, we will reverse the portions
of the circuit court’s judgment awarding “tax damages” in
the amount of $2,294,557 and awarding damages for overcharges in the amount of $17,951.32.
We will also
reverse the part of the circuit court’s judgment awarding
the sum of $400,000 for wrongfully withheld funds but
enter judgment against the Defendants, jointly and
severally, in the amount of $305,000.
will affirm the portion of the circuit court’s judgment
awarding punitive damages but remand for recalculation of
the amount of those damages in accordance with this
We will reverse the portion of the circuit
court’s judgment awarding attorneys’ fees and expenses in
addition to the other damages awarded to the Partnership
and direct that the award of attorneys’ fees and expenses
be paid from the “common fund” awarded to the
Finally, we will affirm that part of the
circuit court’s judgment refusing to award additional
damages for the hurried sale of Fox Rest.
Affirmed in part,
reversed in part,
of fiduciary duties. According to the circuit court, the
legal malpractice and breach of fiduciary duties, however,
arose from the hurried aspect of the sale.