Justia.com Opinion Summary:Download as PDF
On appeal, the Supreme Court reviewed whether the circuit court erred in its interpretation of a management agreement between Condominium Services, Inc. (CSI) and First Owners' Association of Forty Six Hundred Condominium, Inc. (FOA). FOA filed a complaint alleging CSI breached the terms of the management agreement and had wrongfully converted FOA's funds. CSI filed a counterclaim and amended counterclaim for breach of contract. The circuit court sustained FOA's demurrers to the counterclaim and amended counterclaim. FOA's claims proceeded to a jury trial; the jury returned a verdict in favor of FOA on both its claims . CSI sought to strike the jury verdict and for judgment notwithstanding the verdict. The court denied the motion and CSI appealed. On review, the Supreme Court agreed with the lower court's holding and affirmed the judgment in favor of FOA.Receive FREE Daily Opinion Summaries by Email
Present: Kinser, C.J., Lemons, Goodwyn, Millette, and Mims,
JJ., and Koontz, S.J.
CONDOMINIUM SERVICES, INC.
JUSTICE S. BERNARD GOODWYN
April 21, 2011
Record No. 100303
FIRST OWNERS’ ASSOCIATION OF
FORTY SIX HUNDRED CONDOMINIUM, INC.
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA
Nolan B. Dawkins, Judge
In this appeal, we consider whether the circuit court
erred in its interpretation of a management agreement (the
Management Agreement) between First Owners’ Association of
Forty Six Hundred Condominium, Inc. (FOA) and Condominium
Services, Inc. (CSI).
We also consider whether the circuit
court erred in granting summary judgment on FOA’s conversion
claim, in permitting certain expert testimony into evidence,
and in upholding the jury’s award of punitive damages.
FOA filed a complaint against CSI in the Circuit Court of
the City of Alexandria, alleging that CSI had breached the
terms of the Management Agreement and had wrongfully converted
CSI filed a counterclaim and an amended
counterclaim for breach of contract.
The circuit court
sustained FOA’s demurrers to the counterclaim and amended
FOA’s claims proceeded to trial before a jury.
The jury returned a verdict in favor of FOA on both claims, and
the circuit court entered judgment in favor of FOA consistent
with the jury’s verdict.
FOA is a Virginia nonstock corporation that is a
condominium unit owners’ association under the Virginia
Condominium Act, Code § 55-79.39, et seq.
In August 2005,
FOA’s Board of Directors (the Board), on FOA’s behalf, entered
into a Management Agreement with CSI for a term of two years
from November 1, 2005 to October 31, 2007.
FOA was to pay CSI
a monthly fee of $6,075 in exchange for CSI acting as FOA’s
The Management Agreement provided that
either party could terminate the Management Agreement without
cause upon ninety days written notice, and FOA could terminate
the Management Agreement with cause upon thirty days written
notice to CSI.
On July 1, 2006, the Board sent CSI a letter constituting
thirty days notice of termination for cause effective August 1,
FOA believed the termination was justified because CSI
failed to provide FOA with correct financial documents, failed
to file necessary tax returns, failed to pay payroll taxes, and
prepared incorrect W-2 forms for FOA’s employees.
notifications from the IRS and the Commonwealth that penalties
and interest were being assessed as a result of these failures.
FOA retained a certified public accountant, Isaac Reitberger,
to prepare and file the various documents that CSI should have
filed, and hired a new management agent.
On August 1, 2006, CSI’s chief executive officer sent a
letter to all of FOA’s unit owners directing them to continue
sending their assessment payments to CSI.
CSI opened a new
bank account, purportedly in FOA’s name, in which to keep the
assessment money it collected from the unit owners.
the account by having its president and controler falsely
represent in documents filed with the bank that they were
officers of FOA.
FOA did not authorize the opening of the
account or have any signatory authority on it.
After August 1, 2006, CSI continued to collect assessment
payments due FOA and paid itself a monthly management fee of
$6,075 out of funds deposited into the new bank account.
paid itself fees totaling $91,125. 1
CSI asserts that it was
entitled to the management fees because FOA’s termination of
CSI was in violation of FOA’s Bylaws (the Bylaws) which,
according to CSI, were incorporated into the Management
Agreement and required a vote of the unit owners prior to
termination of the Management Agreement.
Section 2 of the Management Agreement states:
The documents governing this relationship consist of
this Agreement, the Virginia Condominium Act, the
CSI has paid the additional FOA funds it collected to
FOA; these funds are not in dispute.
Association’s Declaration, the Bylaws, Rules and
Regulations, and Board of Director Resolutions,
including all modifications, amendments, and changes
issued subsequent to the execution of this Agreement.
FOA’s Bylaws contain various provisions concerning the
rights and obligations of FOA’s members, FOA’s Board and FOA
Article I identifies FOA as the “Owners’ Association.”
Article V addresses the formation of FOA’s Board and the
Board’s duties and responsibilities.
Section 1 of Article V
states that “the affairs of the Owners’ Association shall be
governed” by the Board, and Section 3 of Article V states that
the Board “shall have all the powers and duties necessary for
the administration of [FOA’s affairs] and the Condominium
Project and may do all such acts and things as are not by law
or by these By-Laws directed to be exercised and done by the
Section 4 of Article V of the Bylaws permits the
Board to delegate any of its duties, powers or functions to a
management agent by written contract.
In support of its position, CSI relies upon Article VIII,
Section 2 of the Bylaws, which states:
The Board of Directors shall employ for the Owners’
Association a management organization (the “Management
Agent”) at a rate of compensation and such other terms
and conditions as shall be established by the Board of
Directors to perform such duties and services as the
Board of Directors shall from time to time authorize
in writing, . . . . The Owners’ Association shall not
change Management Agents or undertake self-management,
without the prior affirmative vote of members
representing three-fourths (3/4ths) of the votes of
the Residential and Commercial Unit owners present at
any meeting of the members duly called for such
purpose . . . .
On January 5, 2009, FOA initiated this action against CSI.
CSI filed its answer to the complaint, raising the affirmative
defense that its termination was invalid because, prior to
terminating CSI, FOA did not obtain the necessary votes
required under Article VIII, Section 2 of the Bylaws, which CSI
alleged was incorporated into the Management Agreement.
also filed a counterclaim and later an amended counterclaim,
alleging that FOA breached the Management Agreement by
attempting to terminate CSI without the prior affirmative vote
of the unit owners, and that the Management Agreement could
never be terminated without such a vote.
FOA filed a demurrer to CSI’s counterclaim and to the
amended counterclaim, contending that the Management Agreement
merely referenced rather than incorporated the Bylaws.
Further, it asserted that even if the Bylaws were incorporated
into the Management Agreement, the Bylaws did not require a
vote of the unit owners for FOI to terminate its Management
Agreement with CSI.
The circuit court sustained the demurrers
and dismissed the amended counterclaim with prejudice.
Prior to trial, FOA filed a motion in limine seeking to
exclude any testimony or argument by CSI relating to its
affirmative defense that the termination was invalid because
FOI did not obtain the necessary votes of the unit owners
allegedly required by Article VIII, Section 2 of the Bylaws.
The circuit court granted FOA’s motion in limine and excluded
CSI’s affirmative defense at trial.
In response to CSI’s interrogatories concerning expert
witnesses, FOA identified Reitberger as an expert witness.
FOA, in its interrogatory response, disclosed that Reitberger
would opine that the failures of CSI resulted in the
underpayment of taxes and that FOA would incur interest and
penalties as a result of those failures.
It also stated that
Reitberger’s opinions would be based upon his experience and
expertise and his review of relevant documents.
It did not
state the amount of the interest and penalties Reitberger
believed FOA would incur.
Reitberger was deposed by CSI
approximately six weeks before trial, and he testified
regarding the specific amount of the taxes and penalties at
issue and the bases for his opinions regarding those amounts.
The Thursday before the Monday trial date, CSI filed a
motion in limine to exclude the testimony of Reitberger about
the potential tax penalties and interest FOA could face due to
CSI’s failure to pay certain taxes on FOA’s behalf.
asserted that the testimony should be excluded because FOA’s
response to CSI’s expert witness interrogatory failed to
identify the amount of the penalties and interest claimed and
failed to state the basis for any such damages.
court denied CSI’s motion in limine.
The parties then proceeded to a jury trial.
conclusion of FOA’s case, CSI moved to strike FOA’s evidence on
(1) Reitberger’s testimony on the tax penalties
and interest was speculative and not offered to a reasonable
degree of accounting certainty; (2) the conversion claim was
improper because it arose from the alleged breach of contract
and was not an independent tort; and (3) FOA presented
insufficient evidence to support a claim for punitive damages.
The circuit court denied the motion as to these grounds. 2
the conclusion of all the evidence, CSI renewed its motion to
strike on the same grounds.
The circuit court again denied the
At the conclusion of all the evidence, FOA moved for
summary judgment on its conversion claim.
The circuit court
granted FOA summary judgment on the conversion claim in the
amount of $91,125.
On the remaining issues, the jury returned
a verdict in favor of FOA.
With respect to the breach of
contract claim concerning payroll administration and taxes, the
The court granted the motion to strike with regard to
damages for health insurance and for failure to file the 2004
jury awarded damages in the amount of $70,667.
conversion claim, the jury awarded prejudgment interest
beginning on October 1, 2007 and punitive damages in the amount
CSI filed a motion to strike the jury verdict and for
judgment notwithstanding the verdict with regard to punitive
damages or, alternatively, for remittitur.
The circuit court
denied the motion.
FOA’s Demurrers and Motion to Strike
CSI argues that the circuit court erred by sustaining
FOA’s demurrers and motion to strike CSI’s affirmative defense.
CSI contends that because the Bylaws are one of the documents
that governs the relationship established by the Management
Agreement, the Bylaws are incorporated into the Management
Agreement, giving CSI the right to invoke termination
protections it claims are contained in the Bylaws.
FOA’s termination of CSI was invalid because the Bylaws
required FOA to obtain the affirmative vote of three-fourths of
the unit owners prior to terminating the Management Agreement
Thus, according to CSI, the circuit court erred by
ruling to the contrary and sustaining FOA’s demurrers to its
counterclaim and amended counterclaim and by striking CSI’s
claimed affirmative defense.
FOA responds that the purpose of the reference to the
Bylaws in the Management Agreement was not to incorporate the
Bylaws into the Management Agreement so as to confer upon CSI
termination rights contrary to those expressly stated in the
Management Agreement, but rather to identify documents that CSI
must be aware of and comply with in performing its duties.
agree with FOA.
This Court reviews the circuit court’s sustaining of a
demurrer de novo.
Hubbard v. Dresser, Inc., 271 Va. 117, 122,
624 S.E.2d 1, 4 (2006).
In reviewing the granting of a motion
to strike, “this Court will consider the evidence and all
reasonable inferences arising therefrom in the light most
favorable to the appellant, resolving any doubt as to the
sufficiency of the evidence in favor of the appellant.”
McGowan v. Lewis, 233 Va. 386, 387, 355 S.E.2d 334, 334 (1987).
Because the Management Agreement references a separate
writing, the Bylaws are construed as part of the Management
Agreement for the purpose indicated.
See W.D. Nelson & Co. v.
Taylor Heights Dev. Corp., 207 Va. 386, 391, 150 S.E.2d 142,
146 (1966) (“Writings referred to in a contract are construed
as a part of the contract for the purpose and extent
Section 1 of the Management Agreement appoints
CSI as FOA’s agent, states that the term of such appointment is
two years and specifies the compensation CSI is to receive.
Section 2 of the Management Agreement states that the documents
governing the relationship between FOA and CSI consist of the
Management Agreement, “the Virginia Condominium Act, the
Association’s Declaration, the Bylaws, Rules and Regulations,
and Board of Directors Resolutions.”
Then, in the next section
of the Agreement, Section 3, titled “Responsibilities and
Duties of the Agent,” the Agent acknowledges that it “has read,
and is familiar with, the Condominium Act, Declaration, the
Bylaws, the Rules and Regulations of the Association, and
particularly with the duties and obligations of the Board of
The Bylaws are not mentioned at any other
place in the Management Agreement.
Later in the Management
Agreement, in Section 19, there is a separate section titled
“Termination,” which states that the Management Agreement may
be terminated by either party without cause upon ninety days
written notice and that FOA can terminate the Management
Agreement with cause upon thirty days written notice to CSI.
The express language of the Management Agreement allows
FOA to terminate CSI without a vote of FOI’s members.
3 is the only section of the Management Agreement other than
Section 2 that mentions the Bylaws, and Section 3 concerns
“Responsibilities and Duties of the Agent.”
the Management Agreement as a whole, it does not appear that
the purpose of the reference to the Bylaws was to incorporate
the Bylaws into the Management Agreement as they related to the
termination of the management agent; the term and method of
termination of the management agent is explicitly stated in the
Management Agreement without reference to the Bylaws.
the indicated purpose of the reference to the Bylaws and other
documents in Section 2 was to identify documents that CSI, as
the management agent, needed to be aware of and comply with in
performing its duties and responsibilities under the Management
To adopt CSI’s argument concerning the Management
Agreement would render express terms of the Management
Agreement meaningless, including the two-year term and
Indeed, CSI claimed as part of its
damages in its counterclaim that it is entitled to the monthly
management fee until the allegedly necessary vote is taken by
FOA’s members, making the two-year term stated in the
Management Agreement meaningless and of no effect.
“[C]ontract language will not be treated as meaningless
where it can be given a reasonable meaning.”
Va. 206, 214, 343 S.E.2d 312, 317 (1986).
Ross v. Craw, 231
“When two provisions
of a contract seemingly conflict . . . they [should] be
harmonized so as to effectuate the intention of the parties as
expressed in the contract considered as a whole.”
Plunkett, 271 Va. 162, 168, 624 S.E.2d 39, 42 (2006) (quoting
Ames v. American Nat’l Bank of Portsmouth, 163 Va. 1, 39, 176
S.E. 204, 217 (1934)).
FOA’s interpretation of the purpose and
intent of Section 2 of the Management Agreement, accepted by
the circuit court, harmonizes the reference to the Bylaws with
the express terms of the Management Agreement.
interpretation of the Management Agreement, on the other hand,
cannot be harmonized with the plain language of the Management
Furthermore, a specific provision of a contract governs
over one that is more general in nature.
Mutual Life Ins. Co.
v. Hill, 193 U.S. 551, 558 (1904) (“where there are two clauses
in any respect conflicting, that which is specially directed to
a particular matter controls in respect thereto over one which
is general in its terms”); see also Asphalt Roads & Materials
Co. v. Commonwealth, 257 Va. 452, 460, 512 S.E.2d 804, 809
(1999) (Lacy, J., concurring) (“specific section of the
contract overrides the more general contract provisions”).
reference to the Bylaws in the Management Agreement is general—
the Bylaws “govern” the Management Agreement.
On the other
hand, the provisions in the Management Agreement regarding the
term of the Management Agreement and means of termination are
CSI’s interpretation would allow the general
reference to the Bylaws to control over the specific
termination and term provisions, a result that is contrary to
principles of contract interpretation.
The circuit court did not err in sustaining FOA’s
demurrers and striking CSI’s affirmative defense.
Management Agreement, although it referenced the Bylaws, did
not require a three-fourths vote of the unit owners before FOA
could terminate CSI as FOA’s management agent.
CSI argues that the circuit court erred in denying CSI’s
motion to strike FOA’s conversion claim and in granting FOA
summary judgment on its conversion claim.
CSI contends that
the circuit court should have struck the conversion claim
because there was no independent tort of conversion distinct
from the contract.
Further, CSI asserts that summary judgment
on the conversion claim was inappropriate because there was a
dispute as to whether CSI had authority to continue to retain
its management fees.
FOA responds that its conversion claim was proper because
CSI committed a separate, independent tort.
According to FOA,
CSI’s conversion of FOA’s funds was distinct from the
Management Agreement because it occurred after FOA properly
terminated the Management Agreement.
FOA contends that summary
judgment on its conversion claim was appropriate because FOA
presented undisputed evidence that CSI took $91,125 of FOA
assessment money after being terminated as FOA’s management
We agree with FOA.
To recover for the tort of conversion, “the duty
tortiously or negligently breached must be a common law duty,
not one existing between the parties solely by virtue of the
Dunn Construction Co. v. Cloney, 278 Va. 260, 267,
682 S.E.2d 943, 946 (2009) (internal quotation marks omitted).
“A cause of action for conversion lies independent of an action
in contract and may provide a separate basis, distinct from the
contract upon which one [party] may sue another.”
PGI, Inc. v.
Rathe Prods., Inc., 265 Va. 334, 344, 576 S.E.2d 438, 443
A claim for conversion requires proof of a “wrongful
exercise or assumption of authority . . . over another’s goods,
depriving him of their possession.”
Universal C.I.T. Credit
Corp. v. Kaplan, 198 Va. 67, 75, 92 S.E.2d 359, 365 (1956)
(internal quotation marks omitted).
“Any distinct act of
dominion wrongfully exerted over the property of another, and
in denial of his rights, or inconsistent therewith, may be
treated as a conversion.”
Id. at 76, 92 S.E.2d at 365
(internal quotation marks omitted).
In support of its conversion claim, FOA provided evidence
at trial that the Management Agreement already had been
terminated when CSI opened a bank account by falsely
representing authorization from FOA to do so, directed FOA’s
unit owners to send money owed to FOA to it, and collected
money owed to FOA.
Cf. Abi-Najm v. Concord Condo., LLC, 280
Va. 350, 363, 699 S.E.2d 483, 490 (2010) (tort alleged by
plaintiffs was perpetrated by defendant before a contract
between the two parties came into existence, therefore it
cannot logically follow that the duty the defendant allegedly
breached was one that had its source in the contract).
the Management Agreement had terminated, CSI’s alleged acts did
constitute the “independent, willful tort” of conversion,
separate from the contract.
The circuit court did not err in
denying CSI’s motion to strike FOA’s conversion claim.
Likewise, the circuit court did not err in granting FOA’s
motion for summary judgment on its conversion claim.
judgment is only available when there are no material facts
genuinely in dispute.
Fultz v. Delhaize Am., Inc., 278 Va. 84,
88, 677 S.E.2d 272, 274 (2009).
Summary judgment is not
appropriate if reasonable persons may draw different
conclusions from the evidence.
Where there is no evidence
to submit to a jury on an affirmative defense, and the evidence
otherwise entitles a plaintiff to relief, summary judgment is
See Whitt v. Godwin, 205 Va. 797, 802, 139 S.E.2d
841, 845 (1965).
The only defense CSI asserted to FOA’s conversion claim
was that the Board’s termination of CSI was improper because
the Board did not first obtain a vote of FOA’s unit owners.
The circuit court struck that defense.
At trial, CSI did not
present any evidence that created a question of fact concerning
the proper termination of the Management Agreement by FOA.
evidence was undisputed that CSI took $91,125 of FOA’s
assessment money after being terminated and did not repay that
money to FOA.
In light of this undisputed evidence and the
proper denial of CSI’s defense of improper termination, there
was no basis upon which the jury could have found in favor of
The circuit court did not err in granting summary
judgment on FOA’s conversion claim.
Expert Witness Designation
CSI argues that the circuit court erred in permitting
FOA’s expert to testify regarding amounts of tax-related
CSI contends that FOA’s interrogatory answer
regarding the proposed expert testimony concerning tax
penalties and interest was inadequate.
FOA responds that its expert designation was sufficient
and complied with Rule 4:1(b)(4).
FOA contends that the fact
that the designation did not contain the precise amounts of
penalties and interest does not make the designation deficient
because the types of damages were clearly disclosed.
This Court reviews a trial court’s decision to admit or
exclude expert testimony under an abuse of discretion standard.
John Crane, Inc. v. Jones, 274 Va. 581, 591, 650 S.E.2d 851,
856 (2007); Blue Ridge Serv. Corp. v. Saxon Shoes, Inc., 271
Va. 206, 212, 624 S.E.2d 55, 58 (2006) (citing Tarmac MidAtlantic, Inc. v. Smiley Block Co., 250 Va. 161, 166, 458
S.E.2d 462, 465 (1995)).
This Court must give deference to a
trial court’s ruling to exclude or admit expert testimony and
that ruling will not be disturbed on appeal unless it is
plainly wrong and amounts to an abuse of discretion.
Grattan v. Commonwealth, 278 Va. 602, 620, 685 S.E.2d 634, 644
Rule 4:1(b)(4)(A)(i) requires a party, when asked in an
interrogatory, to identify its trial experts and “to state the
subject matter on which the expert is expected to testify, and
to state the substance of the facts and opinions to which the
expert is expected to testify and a summary of the grounds for
When applying Rule 4:1(b)(4)(A)(i), this Court
begins by “determining whether the opinion at issue was
disclosed in any form.”
John Crane, Inc., 274 Va. at 591, 650
S.E.2d at 856.
FOA’s expert designation for Reitberger, its accounting
Mr. Reitberger will opine that the failures of CSI
resulted in the underpayment of taxes and that the
Association will now incur interest and penalties as
a result of the failures of CSI as well as expenses
in the form of fees paid to Mr. Reitberger’s firm to
correct the errors of CSI and to resolve the claims
of the IRS and the Commonwealth of Virginia. . . .
Mr. Reitberger’s opinions are based upon his
experience and expertise, his review of
correspondence between the IRS and the Commonwealth
of Virginia and the Association, his review of W-2s,
general ledgers, and other financial documents of the
Association relating to payroll withholdings and
payment of payroll taxes.
Although FOA did not itemize the specific amounts of penalties
and interest, the interrogatory response disclosed that it was
Reitberger’s opinion that CSI’s failures resulted in
underpayment of taxes and FOA incurring interest and penalties.
It was within the discretion of the circuit court to determine
whether the interrogatory response sufficiently disclosed the
subject matter on which Reitberger was going to testify, the
substance of Reitberger’s opinions and a summary of the grounds
for Reitberger’s opinions.
Compare John Crane, Inc., 274 Va.
at 592-93, 650 S.E.2d at 856-57 (expert designations were
insufficient because opinion was not disclosed in any form).
There is evidence to support the circuit court’s determination
that FOA’s designation was sufficient to satisfy the purpose of
Rule 4:1(b)(4)(A)(i), which is to “allow the litigants to
discover the expert witnesses’ opinions in preparation for
Woodbury v. Courtney, 239 Va. 651, 654, 391 S.E.2d
293, 295 (1990).
The circuit court did not abuse its
discretion in finding the expert designation sufficient and
permitting Reitberger to testify.
Expert Witness Testimony on Damages
CSI argues that the circuit court erred in denying CSI’s
motion to strike FOA’s claim for certain tax penalties and
interest damages because Reitberger’s testimony regarding those
matters was speculative and did not meet the standard of
Specifically, CSI alleges that the
penalties related to its failure to file W-2 forms had been
assessed but had not been paid by FOA and might be reduced.
also asserts that testimony regarding the claimed tax penalties
and interest for failure to file the last quarter 2005 and the
first quarter 2006 federal Form 941 and payroll tax withholdings
was speculative because, as of the date of the trial, no
assessment had been made by the IRS for those liabilities.
FOA responds that it proved its tax-related damages with
Reitberger unequivocally testified
concerning the penalties and interest the IRS had already
He also testified that under applicable IRS
regulations, FOA is now liable for and will be assessed
additional specific interest and penalties.
FOA, as the plaintiff below, bore 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 recovery.”
Shepherd v. Davis, 265 Va. 108,
125, 574 S.E.2d 514, 524 (2003) (quoting Carr v. Citizens Bank &
Trust Co., 228 Va. 644, 652, 325 S.E.2d 86, 90 (1985)); see also
SunTrust Bank v. Farrar, 277 Va. 546, 555, 675 S.E.2d 187, 191
(2009) (“damage calculations based on unsupported projections
“[E]xpert testimony . . . cannot be speculative
or founded upon assumptions that have an insufficient factual
Blue Ridge Serv. Corp., 271 Va. at 213, 624 S.E.2d at
59 (quoting Tittsworth v. Robinson, 252 Va. 151, 154, 475 S.E.2d
261, 263 (1996)).
In the context of a breach of contract, a plaintiff need
not establish the specific amount of the loss or damage with
When it is “certain that substantial damage
has been caused by the breach of a contract, and the uncertainty
is not whether there have been damages, but only an uncertainty
as to their true amount, then there can rarely be any good
reason for refusing all damages due to the breach merely because
of that uncertainty.”
E.I. DuPont de Nemours & Co. v. Universal
Moulded Prods. Corp., 191 Va. 525, 570, 62 S.E.2d 233, 254
(1950) (internal quotation marks omitted).
“Proof of absolute
certainty as to the amount of loss or damage is not essential
when the existence of loss is established and the facts and
circumstances proven are such as to permit of intelligent and
probable estimate of the amount of damage or loss sustained.”
Id. at 572-73, 62 S.E.2d at 255.
It is undisputed that CSI, while serving as FOA’s
management agent, failed to file necessary tax returns and to
pay payroll taxes and prepared incorrect W-2 forms.
was qualified to testify as an expert on payroll administration
Reitberger calculated the amounts of the tax
deposits required and the timing for filing the returns.
then used statutory rates for tax liability to determine what
the penalties for failure to timely file the appropriate forms
Reitberger’s testimony regarding damages included the IRS’s
penalty assessment of $27,553 for CSI’s failure to file W-2s,
although FOA had not paid the assessment.
However, a party that
has incurred an obligation to pay a debt as a result of the
wrongful or unlawful conduct of another, but that has not yet
made payment on such debt, has suffered an actual loss.
v. Brown, 156 Va. 881, 887, 159 S.E. 202, 204 (1931) (“Payment
of the expense of treatment is not essential to a recovery.
plaintiff is liable for the debt incurred, that is all that is
necessary.”); see also Virginia Farm Bureau Mut. Ins. Co. v.
Hodges, 238 Va. 692, 696, 385 S.E.2d 612, 614 (1989) (“An
expense can only be ‘incurred’ . . . when one has paid it or
become legally obligated to pay it.”).
FOA was legally
obligated to pay this assessment from the IRS.
possibility of abatement by the IRS prevented FOA from
establishing the amount of the tax penalty with absolute
certainty, the assessment from the IRS provides “reasonable
certainty” as to the amount of that tax penalty and constitutes
an “intelligent and probable estimate of the amount of damage or
See E.I. DuPont de Nemours, 191 Va. at 572-73,
62 S.E.2d at 255.
The IRS has not assessed the claimed tax penalties and
interest for CSI’s failure to file the last quarter 2005 and
first quarter 2006 federal Form 941 and to pay payroll tax
“Where the wrongful act of the defendant is of
such a nature as to constitute an entire breach of the contract,
compensation therefor may be recovered at once for the whole
James v. Kibler, 94 Va. 165, 173, 26 S.E.2d 417, 418
Future damages are recoverable if they can be
ascertained with certainty.
satisfies the standard of reasonable certainty.
IRS had not yet issued an assessment for FOA’s failure to file
Form 941 and to pay payroll tax withholdings, Reitberger’s
estimates of those assessments were based on mandatory IRS
guidelines and his experience and expertise concerning such
They constitute intelligent and probable estimates of
the penalties the IRS will assess.
The circuit court did not err in denying CSI’s motion to
strike damages concerning the disputed tax penalties and
There was evidence to support those damages in that
FOA was already legally obligated to pay them or Reitberger
established the amount of damages with reasonable certainty
using calculations that were based upon statutory rates of tax
CSI argues that the circuit court erred in denying CSI’s
motions to strike punitive damages.
CSI contends that FOA
presented no evidence of actual malice or evil intent.
FOA responds that the jury’s award of punitive damages was
supported by the evidence and should not be disturbed on appeal.
FOA contends that the evidence presented at trial plainly
established CSI’s conscious disregard of FOA’s rights.
“Punitive or exemplary damages are allowable only where
there is misconduct or actual malice, or such recklessness or
negligence as to evince a conscious disregard of the rights of
Giant of Virginia, Inc. v. Pigg, 207 Va. 679, 685, 152
S.E.2d 271, 277 (1967); see also Banks v. Mario Indus. of
Virginia, Inc., 274 Va. 438, 460, 650 S.E.2d 687, 699 (2007).
trial court may only set aside a jury verdict if it is plainly
wrong or without evidence to support it.
Bussey v. E.S.C.
Rests. Inc., 270 Va. 531, 534, 620 S.E.2d 764, 766 (2005).
CSI argues that even if its interpretation of the
Management Agreement was wrong, a mistake is not a sufficient
basis to infer “evil intent” and award punitive damages.
Pigg, 207 Va. at 686, 152 S.E.2d at 277 (“Evil intent cannot be
presumed or inferred from mere mistake.”).
presented at trial, however, provided many examples of how CSI’s
actions exhibited a conscious disregard of FOA’s rights.
actions include CSI opening a bank account four days after the
effective date of its termination and failing to provide FOA
with signatory authority on that account.
Furthermore, to open
the bank account, CSI officers made knowing misrepresentations
that they were officers of FOA.
CSI held FOA assessments in the
account for more than a year and paid itself $91,125 in monthly
management fees out of those funds between August 2006 and
CSI acknowledged that it was experiencing
financial difficulties and could not meet its financial
obligations without the management fees it paid itself from FOA
Despite becoming aware in 2008 that the circuit court,
in a prior action brought by a company affiliated with CSI, 3
disagreed with CSI’s stated interpretation of the Management
In a prior proceeding, Gordon Properties, LLC, a company
affiliated with CSI, filed an action against FOA, contesting
the termination of CSI as a violation of the Bylaws, which
Gordon Properties alleged were incorporated into the Management
Agreement. The circuit court disagreed that the Management
Agreement, CSI knowingly and intentionally continued to withhold
The evidence of CSI’s “conscious disregard of FOA’s rights”
was before the jury.
The trial court must accord the jury
verdict the “utmost deference.”
S.E.2d at 766.
Bussey, 270 Va. at 534, 620
It cannot be said that the jury’s verdict was
plainly wrong or without evidence to support it.
the circuit court did not err in denying CSI’s motion to strike
Alternatively, CSI contends that the circuit court abused
its discretion in not ordering a remittitur of the verdict.
contends that the award of $275,000 in punitive damages shocked
the conscience, was in excess of what was expected as
punishment, and was oppressive.
FOA responds that the circuit court did not err in denying
CSI’s motion for remittitur.
FOA contends that the jury’s award
of punitive damages was neither excessive nor disproportionate.
This Court reviews the remittitur of punitive damage awards
de novo upon independent review of the record, giving
substantial weight to the trial court’s action.
McConnell, 273 Va. 650, 656, 643 S.E.2d 703, 706 (2007).
Agreement incorporated the Bylaws and entered summary judgment
against Gordon Properties.
“Review of the amount of punitive damages includes consideration
of reasonableness between the damages sustained and the amount
of the award and the measurement of punishment required, whether
the award will amount to a double recovery, the proportionality
between the compensatory and punitive damages, and the ability
of the defendant to pay.”
Poulston v. Rock, 251 Va. 254, 263,
467 S.E.2d 479, 484 (1996) (citations omitted).
should be awarded when “the verdict is so excessive as to shock
the conscience of the court and to create the impression that
the jury has been influenced by passion, corruption or
Smithey v. Sinclair Refining Co., 203 Va. 142, 146,
122 S.E.2d 872, 875-76 (1961).
In the instant case, the factors this Court must consider
weigh in favor of affirming the circuit court’s decision not to
First, the punitive award of $275,000 was
approximately two and a half times the compensatory award for
conversion of $91,125, plus $11,390 in prejudgment interest.
This ratio is not disproportionate.
See Poulston, 251 Va. at
263, 467 S.E.2d at 484 (upholding punitive damages that were 2.5
times greater than compensatory damages); Philip Morris, Inc. v.
Emerson, 235 Va. 380, 414, 368 S.E.2d 268, 287 (1988) (affirming
punitive damages that were 6.6 times the compensatory award).
The amount of the damages award is not so excessive as to shock
the conscience of the court, nor does it appear that the jury
was influenced by passion, corruption or prejudice.
the award of punitive damages does not provide double recovery
because the compensatory and punitive damages serve different
The punitive damages serve as a deterrent to ensure
that CSI does not wrongfully convert other associations’ money
in the future.
Finally, although CSI contends that it was
experiencing financial difficulties, CSI did not introduce
evidence of their financial situation at trial.
cannot prevail before this Court on its claim that the amount of
punitive damages would be oppressive.
Given these factors, the
circuit court did not err in refusing to order remittitur of the
punitive damages award.
Accordingly, for the reasons stated, we will affirm the
circuit court’s judgment.