AV Automotive, LLC v. Gebreyessus
| Decision Date | 15 September 2022 |
| Docket Number | Record No. 210320 |
| Citation | 877 S.E.2d 493 |
| Parties | AV AUTOMOTIVE, LLC, et al., v. Betelehem GEBREYESSUS |
| Court | Virginia Supreme Court |
Monica T. Monday (Gentry Locke, on briefs), for appellants.
George O. Peterson (Cloyd Allen Smith; Law Office of George O. Peterson, on brief), for appellee.
OPINION BY JUSTICE STEPHEN R. McCULLOUGH
Appellants AV Automotive, LLC, AV Imports, LLC (collectively, "AV Automotive"), and Geneva Enterprises, Inc. ("Geneva") appeal the circuit court's decision to impose sanctions against them under Code § 8.01-271.1, awarding all attorney's fees claimed by Betelehem Gebreyessus.
I. BACKGROUND
Gebreyessus was employed by AV Automotive as a vehicle salesperson. AV Automotive owns an Audi dealership in Arlington ("Audi Arlington"), which is a private dealership in the Rosenthal Automotive Group ("Rosenthal Group"). Geneva manages the Rosenthal Group dealerships, including Audi Arlington.
AV Automotive and Geneva (collectively, the "Appellants") maintained agreements with Audi of America, Inc. ("Audi USA") relating to the sale of Audi vehicles. Under one such agreement, Audi USA provided bonus payments to dealers who met certain benchmarks with respect to the sale of vehicles and positive customer survey ratings. From April 1, 2016, to September 30, 2017, Audi USA paid AV Automotive approximately $700,000 in bonuses.
In early 2018, the Appellants discovered a fraudulent scheme to manipulate customer reviews for the incentive program. As a result of this scheme, Gebreyessus was terminated. In a February 2019 Complaint, the Appellants alleged that the scheme was perpetrated by Donna Bavely, Brandon Preske, and Gebreyessus.1 The Appellants stated that Bavely and Gebreyessus gained unauthorized access to the Audi customer survey system, submitted falsified positive customer reviews, and arranged for customers who had a negative experience to not receive the email invitation to submit a review. The Appellants asserted that the falsified positive reviews resulted in Audi Arlington employees receiving additional compensation.
The Appellants alleged that Gebreyessus failed to meet the requirements for a bonus payment associated with customer surveys in March 2016, and that in April 2016, Gebreyessus and Bavely began fabricating customer surveys. The Appellants maintained that Gebreyessus instructed Bavely to either send real customer surveys or surveys to false email addresses, based on Gebreyessus’ experiences with individual customers. The Appellants alleged that Bavely used the false email addresses to complete false positive survey results. The Appellants maintained that Gebreyessus and Bavely continued this scheme together from April 2016 until Bavely was terminated in September 2017.
The Appellants further asserted that Gebreyessus and Bavely submitted false internal employee surveys as a part of a plan to get Sean Egnew, the General Sales Manager, fired from Audi Arlington and replace him with Gebreyessus. The Appellants further allege that Bavely created and emailed an anonymous survey for Audi Arlington sales employees. Gebreyessus convinced the other sales employees to include false and negative information about Egnew in their responses. As a result, Egnew was demoted and later left the Rosenthal Group.
In their February 2019 Complaint, the Appellants alleged fraud, breach of fiduciary duty, tortious interference with a contractual relationship or business expectancy, and business conspiracy against Gebreyessus. Each count alleged that AV Automotive had been penalized by Audi USA and would have to repay approximately $700,000 in bonuses (the "Audi Penalty"). However, in a letter dated April 5, 2019, Audi USA advised AV Automotive's counsel that Audi USA "has not financially penalized, and does not intend to financially penalize, [AV Automotive] in connection with the alleged submission to [Audi USA] of manipulated customer surveys." On April 9, 2019, the Appellants communicated by letter to Gebreyessus’ counsel that they would withdraw the allegations regarding the Audi Penalty and the claim of damages in the amount of $700,000. On August 16, 2019, four months after sending the letter to counsel, the Appellants filed a praecipe with the circuit court withdrawing the allegations relating to the Audi Penalty.
AV Automotive designated Domenico Conti, an in-house accountant serving as the Rosenthal Group's Corporate Controller, as an expert witness to testify about Gebreyessus’ compensation, bonuses, and benefits; bonuses paid and terms for bonuses to AV Automotive; and past lost profits relating to Egnew's departure. Conti testified that he was made aware of his expert designation three to four weeks prior to his deposition. In his deposition, Conti indicated he had no opinion on damages suffered by the Appellants, but he confirmed the accuracy of a document summarizing Gebreyessus’ commissions.
After the Appellants’ withdrawal of the Audi Penalty claim and the taking of Conti's deposition, on September 13, 2019, Gebreyessus filed a motion for sanctions against the Appellants and their counsel pursuant to Code § 8.01-271.1 for the "bad faith filing and prosecution" of the lawsuit against her. Gebreyessus sought sanctions "in an amount sufficient to cover the considerable amount of reasonable attorney's fees needlessly incurred" in defending the suit. She asserted that the Appellants lacked factual support for asserting the Audi Penalty claims against her, as AV Automotive had never been penalized by Audi USA. Gebreyessus additionally alleged that the Appellants attempted to conceal their bad faith by refusing to produce corporate designees and expert witnesses for depositions. Gebreyessus specifically used Conti's expert designation to support an award of sanctions, arguing that Conti had no knowledge of his designation until just a few weeks prior to his deposition and that he ultimately gave no substantive opinions on damages. The Appellants opposed the motion.
The Appellants filed motions to nonsuit as to all parties.2 The circuit court granted the motions to nonsuit, but it retained jurisdiction to address Gebreyessus’ sanctions motion.
Following a hearing, the circuit court granted Gebreyessus’ motion for sanctions by final order on December 30, 2020. Though the circuit court could not find most of the claims to be frivolous or sanctionable, the court awarded sanctions of $213,196.95—Gebreyessus’ total attorney's fees—against the Appellants, but not against counsel. The award was based on the Appellants’ "(1) repeated misrepresentations of actual penalties from Audi USA in the amount of approximately $700,000.00; (2) the designation of Mr. Conti as an expert without his knowledge; and (3) actions related to court ordered deposition dates." The circuit court found that the Appellants "failed to establish factual grounds to form a reasonable belief it had a claim for damages under its contract claim with Audi USA." The circuit court further found that Conti was designated as an expert witness without his knowledge, and that the "lack of consultation with a designated expert witness is even more egregious when said expert is an employee of the Plaintiff."
Notably, the circuit court rejected the Appellants’ argument that attorney's fees could not be awarded to Gebreyessus because Gebreyessus was not paying her own attorney's fees.3 The circuit court further rejected the contention that "[attorney's] fees must be properly separated out before [the circuit court could] make an award under Oxenham v. Johnson , 241 Va. 281, 402 S.E.2d 1 (1991)," concluding that "it would be impossible to separate time spent solely defending against the frivolous Audi Penalty claim because [AV Automotive] mixed in that frivolous claim with its request for damages within nearly every count."
This appeal followed.
II. ANALYSIS
On appeal, the Appellants contend that the circuit court abused its discretion by imposing sanctions against them under Code § 8.01-271.1. "Under settled principles, we apply an abuse of discretion standard when reviewing a sanctions award pursuant to Code § 8.01-271.1." Robert & Bertha Robinson Fam., LLC v. Allen , 295 Va. 130, 139, 810 S.E.2d 48 (2018). This Court has identified three primary ways a circuit court can abuse its discretion:
when a relevant factor that should have been given significant weight is not considered; when an irrelevant or improper factor is considered and given significant weight; and when all proper factors, and no improper ones are considered, but the court, in weighing those factors, commits a clear error of judgment.
Galiotos v. Galiotos , 300 Va. 1, 11, 858 S.E.2d 653 (2021) (quoting Landrum v. Chippenham and Johnston-Willis Hosps., Inc. , 282 Va. 346, 352, 717 S.E.2d 134 (2011) ). We have stated that a "court's imposition of a sanction will not be reversed on appeal unless the court abused its discretion in 1) its decision to sanction the litigant, or 2) in the court's choice of the particular sanction employed." Switzer v. Switzer , 273 Va. 326, 331, 641 S.E.2d 80 (2007).
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