Allen Realty Corp. v. Holbert

• Decision Date: 15 June 1984
• Docket Number: No. 812041,812041
• Citation: 227 Va. 441,318 S.E.2d 592
• Parties: ALLEN REALTY CORPORATION v. Billy R. HOLBERT, et al. Record
• Court: Virginia Supreme Court

Page 592

318 S.E.2d 592

227 Va. 441

ALLEN REALTY CORPORATION v. Billy R. HOLBERT, et al.

Record No. 812041.

Supreme Court of Virginia.

June 15, 1984.

Charles R. Waters, II, Norfolk (Joseph R. Mayes; Kaufman & Canoles, Norfolk, on brief), for appellant.

Alan B. Rashkind; John Franklin, III, Norfolk (Furniss, Davis & Rashkind; Taylor, Walker & Adams, Norfolk, on briefs), for appellees.

Present: All the Justices.

COCHRAN, Justice.

Allen Realty Corporation (Allen) filed an amended motion for judgment in the trial court against Billy R. Holbert and A. Lee Rawlings & Co. (Rawlings). Allen alleged in Counts ONE, THREE, FOUR, and FIVE, respectively, breach of fiduciary duty, tortious interference with Allen's contractual relations, deceit, and negligence on the part of Holbert and Rawlings. In addition, Allen alleged in Count TWO conspiracy on the part of Holbert to harm Allen's business. Based on the allegations, Allen sought damages from Holbert and Rawlings jointly and severally in the amount of $36,694 on all counts except the conspiracy count, for which Allen sought $110,082 in compensatory damages from Holbert alone. Allen also sought $100,000 in punitive damages from Holbert.

Holbert and Rawlings filed demurrers to the amended motion for judgment. After a hearing, the trial court sustained the demurrers and dismissed the action as to Rawlings by order entered September 1, 1981. The trial court dismissed the action as to Holbert by order entered September 24, 1981, with leave to Allen to file a second amended motion for judgment against Holbert on Counts TWO and THREE, conspiracy and interference with Allen's contractual relations, respectively. Allen elected not to file a second amended motion for judgment. On appeal, Allen contends that the amended motion for judgment stated a cause of action and that the trial court erred in sustaining the demurrers. In light of the facts alleged in the amended motion for judgment, which we will summarize herein, we agree with Allen's contention.

Holbert was an accountant employed by Rawlings, a firm of certified public accountants. Allen, a corporation engaged in buying and selling real estate, hired Rawlings to provide accounting services, "tax and general business advice ... and to assist in the liquidation of Allen, which liquidation involved the sale of the real properties" of Allen. On January 23, 1980, Allen authorized its officers to sell approximately 40 parcels of real estate, comprising substantially all its assets. Acting for Rawlings, Holbert advised Allen to sell the property before July 1, 1980, and sought purchasers, including one Carl Kunzman.

The Norfolk Redevelopment and Housing Authority (the Authority) was interested in the property and sent Allen written offers dated June 9, 1980, for certain parcels. Shirley Roberts, an Allen employee who received the offers, showed them to Holbert. Under Holbert's instructions, Roberts did not disclose the offers to Allen's president, who was then in a hospital, or to any officer, director, or stockholder of Allen, nor did Holbert do so. Roberts received offers dated June 18, 1980, from the Authority for other parcels but neither she nor Holbert disclosed these offers to the president (who was still hospitalized) or any officer, director, or stockholder of Allen.

On June 17, 1980, when Roberts and Holbert knew that the Authority's offers had not been disclosed, Roberts, with "indirect instruction" from Holbert, presented to Allen's president a contract to sell for $75,000 all the parcels to Arlert, Ltd., a company of which Kunzman was president. The contract was rejected by Allen's stockholders because, among other things, Kunzman would not guarantee it or reveal the names of his principals. On June 20, 1980, Allen sold all the parcels to W. Jon Wilkins and Barclay Winn.

After the sale, Allen learned that Kunzman and Holbert were "old friends," that Holbert had instructed Roberts to cooperate with Kunzman, and that Kunzman had directed Roberts to take the Arlert contract to Allen's president in the hospital. Allen also learned that Holbert had given Kunzman advice on incorporating, that one of the incorporators was believed to be Holbert's former wife, whose address was the same as that of a business service in which Holbert had an interest, and that Kunzman, in trying to obtain financing, represented that Holbert was his partner.

Allen alleged that it relied on Holbert to inform it of any outstanding offers prior to liquidation. Allen further alleged that it would not have sold its property to Wilkins and Winn had it known of the Authority's offers, which, if accepted, would have increased the proceeds of the sale by at least $36,694. In Counts ONE, THREE, and FOUR, Allen alleged that Holbert's acts and omissions violated his fiduciary duty to Allen, tortiously interfered with Allen's contractual relations, and perpetrated deceit upon Allen, respectively, and that each violation was "a natural incident to the scope of his employment as an employee of Rawlings and while within the apparent authority of Holbert." Allen alleged in the alternative, in Count FIVE, that Holbert, while within the scope of his employment, negligently breached his duty to disclose the Authority's offers to Allen.

1. Imputation of Shirley Roberts's knowledge to Allen.

Holbert and Rawlings argue that Allen cannot complain of Holbert's failure to disclose the Authority's offers when the amended motion for judgment alleged that Allen's employee, Shirley Roberts, received the offers. They say that her knowledge was imputable to Allen, her employer.

As a general rule, the knowledge of an agent is imputed to his principal. Fulwiler v. Peters, 179 Va. 769, 776, 20 S.E.2d 500, 502 (1942). There are, however, two exceptions to the rule. The agent's knowledge will not be imputed to the principal if (1) the agent's behavior raises a presumption that he would not report the information to the principal, or (2) the agent is acting out of a personal motive or interest that is adverse to the principal's interests. Id.

Allen's allegations, if taken as true, are sufficient to raise a presumption that Roberts would not report the Authority's offers to her principal. Allen alleged that Roberts refrained from disclosing the offers upon Holbert's "advice and instruction." Allen further alleged that Holbert instructed Roberts not to disclose the offers at a time when he knew Kunzman was negotiating for the properties.

There is no merit to the contention that the amended motion for judgment failed to allege that the later offers received by Roberts were shown to Holbert. Allen alleged that the offers were received by Roberts and that she and Holbert failed to disclose them to any officer, director, or stockholder of Allen. The plain inference to be drawn is that Holbert was aware of these offers, and that he knew that Roberts continued to act under his earlier instructions not to reveal the offers to Allen's management. This brings the allegations within the purview of the first Fulwiler exception. At the demurrer stage, Roberts's knowledge was not imputable to Allen and the demurrers were not sustainable on this ground.

2. Count ONE: Breach of fiduciary duty.

We have said that there is a fiduciary relationship "when special confidence has been reposed in one who in equity and good conscience is bound to act in good faith and with due regard for the interests of the one reposing the confidence." H-B Partnership v. Wimmer, 220 Va. 176, 179, 257 S.E.2d 770, 773 (1979). Incident to the relationship, the fiduciary must tell his principal about anything "which might affect the principal's decision whether or how to act." Owen v. Shelton, 221 Va. 1051, 1054, 277 S.E.2d 189, 191 (1981). In Owen, the sellers' real estate agent violated his fiduciary duty by closing a sale without disclosing to the sellers that the buyers reserved the right to litigate the sellers' entitlement to interest.

Although we have not passed on the question, there is no reason that, depending on the facts, an accountant may not be held to be a fiduciary, and courts in other jurisdictions have so held. In Cafritz v. Corporation Audit Co., 60 F.Supp. 627 (D.D.C.1945), plaintiff hired an accounting firm, of which one Robins was general manager and executive officer. The firm failed to deposit certain of plaintiff's checks in the bank, Robins being actively involved in this failure. Plaintiff brought an action for discovery and accounting against the firm and against Robins's wife individually and as administratrix of his estate. The court held, inter alia, that the accounting firm and Robins were fiduciaries as to plaintiff. Id. at 634. In so holding, the court stated that the existence of a fiduciary relationship is a question of fact, and that "an accounting party" may be a fiduciary "because of money or property intrusted to him." Id. at 631. See also Squyres v. Christian, 242 S.W.2d 786 (Tex.Civ.App.1951); cf. Franklin Supply Co. v. Tolman, 454 F.2d 1059 (9th Cir.1971).

Allen's amended motion for judgment was sufficient to raise a question of fact as to whether Holbert occupied a fiduciary relationship to Allen and breached his fiduciary duty. Allen alleged that Rawlings was employed to act through Holbert to assist in Allen's liquidation, which involved the sale of Allen's real estate, and that Allen relied on Holbert to inform it of any outstanding offers before the liquidation. It was not necessary, as the trial court apparently believed, for Allen to allege that Rawlings was specifically employed to receive and transmit offers to purchase the corporate real estate. It was sufficient for Allen to allege that Rawlings, acting through Holbert, was employed to assist in liquidating the real estate, from which a reasonable inference could be drawn that acquisition of knowledge of offers and discussion of the offers would be a routine part of the employment. The...