Bd. of Supervisors of Fluvanna Cnty. v. Davenport

• Citation: 742 S.E.2d 59,285 Va. 580
• Decision Date: 18 April 2013
• Docket Number: Record No. 121191.
• Court: Supreme Court of Virginia
• Parties: BOARD OF SUPERVISORS OF FLUVANNA COUNTY v. DAVENPORT & COMPANY LLC.

285 Va. 580

742 S.E.2d 59

BOARD OF SUPERVISORS OF FLUVANNA COUNTY

v.DAVENPORT & COMPANY LLC.

Record No. 121191.

Supreme Court of Virginia.

April 18, 2013.

Douglas M. Palais, Richmond (Andrew R. Park; Frederick W. Payne, Charlottesville; Kristina M. Hofmann; Park Palais; Payne & Hodous, on briefs), for appellant.

William G. Broaddus (Anne Marie Whittemore; Tennille J. Checkovich; Matthew A. Fitzgerald; McGuireWoods, on brief), Richmond, for appellee.

Present: All the Justices.

Opinion by Justice LEROY F. MILLETTE, JR.

In this appeal, we consider whether the circuit court erred when it sustained a demurrer to a complaint filed by the Board of Supervisors of Fluvanna County (the Board) against a private financial advisor on the basis that the separation of powers doctrine prevented the court from resolving the controversy because the court would have to inquire into the motives of the Board's legislative decision making. An inquiry into the relationship between the separation of powers doctrine and the motivation of legislators necessarily implicates legislative immunity. For the reasons set forth below, we hold that the Board effectively waived its common law legislative immunity from civil liability and the burden of litigation, and therefore reverse the circuit court judgment sustaining the demurrer filed by Davenport & Company LLC (Davenport).

I. Background

The Board filed a complaint against Davenport in the Circuit Court of Fluvanna County. The complaint included allegations of breach of fiduciary duty (Count I), actual fraud (Count II), gross negligence (Count III), constructive fraud (Count IV), unjust enrichment or disgorgement (Count V), breach of contract (Count VI), and breach of the Virginia Securities Act (Count VII).

In its complaint, the Board claimed that Davenport has continuously served as the financial advisor to the Board for more than fifteen years, during which David P. Rose (Rose), Davenport's Senior Vice President and Manager of Davenport Public Finance, served as the Board's principal contact person. The Board asserted that Davenport, as financial advisor, made knowingly false representations and used its fiduciary position to persuade the Board to hire Davenport as an advisor regarding the financing of the construction of a new high school (the Project).

The Board claimed that Davenport made a presentation to the Board in August 2008 in which it represented the estimated borrowing cost for stand alone bonds to be 4.87 percent, with the estimated borrowing cost for the pool of bonds offered by the Virginia Public School Authority (pool bonds) at 4.81 percent. The Board also alleged that Rose specifically represented that Fluvanna County could not refinance the bonds if it participated in the pool bonds, which representation was made knowingly and was materially false. The Board asserted that it reasonably relied upon these representations when it voted in favor of issuing stand alone bonds.

When the school bonds were issued in December 2008, the stand alone bonds had reached an interest rate of 5.95 percent. The pool bonds, issued three weeks earlier, however, carried an interest rate of 4.75 percent. The Board alleged that Davenport also breached its fiduciary duty when it failed to disclose the significant difference between the interest rates of the stand alone and pool bonds in August 2008 and the bonds' interest rates in December 2008, when the bonds were ultimately issued. The Board claimed that the County incurred nearly $18 million in excess interest payments on the stand alone bonds as a result of Davenport's malfeasance. It requested consequential damagesin the amount of $18.5 million, $350,000 in punitive damages, attorneys' fees and costs, and disgorgement of all fees paid to Davenport.

Davenport filed its amended demurrer, plea in bar, answer, and affirmative defenses with the circuit court. In its amended demurrer, Davenport argued that the court should dismiss the complaint, with the exception of the claim for unjust enrichment (Count V), as it violated the separation of powers doctrine because the elements of the claims and Davenport's defenses required the court to adjudicate issues not properly before the judiciary. The circuit court, following a hearing on the amended demurrer, agreed with Davenport and held that the separation of powers doctrine prohibited the court from resolving the dispute because to do so would require inquiry into the motives of the Board. The court sustained the demurrer with prejudice and refused to allow the Board the opportunity to amend the pleadings. The Board subsequently filed its timely appeal.

II. Discussion

A. Standard of Review

The standard of review applicable to the circuit court's sustaining of a demurrer is well established:

A demurrer tests the legal sufficiency of a [complaint] and admits the truth of all material facts that are properly pleaded. The facts admitted are those expressly alleged, those that are impliedly alleged, and those that may be fairly and justly inferred from the facts alleged. The trial court is not permitted on demurrer to evaluate and decide the merits of the allegations set forth in a [complaint], but only may determine whether the factual allegations of the [complaint] are sufficient to state a cause of action.

A trial court's decision sustaining a demurrer presents a question of law which we review de novo. Furthermore, like the trial court, we are confined to those facts that are expressly alleged, impliedly alleged, and which can be inferred from the facts alleged.

Harris v. Kreutzer, 271 Va. 188, 195–96, 624 S.E.2d 24, 28 (2006) (internal citations and quotation marks omitted).

B. Issue of First Impression

In reviewing these arguments, we acknowledge that the particular issue presented regarding Constitutional and common law legislative immunity is one of first impression. In 1979, the United States District Court for the Eastern District of Virginia recognized the lack of precedent on the issue, stating that “the Virginia Supreme Court has not had occasion to construe the scope of the Virginia speech or debate clause.” Greenburg v. Collier, 482 F.Supp. 200, 202 (E.D.Va.1979). In the absence of any Virginia precedent on the issue, the court turned to the “considerable authority applying and interpreting the speech or debate clause of the United States Constitution” in other jurisdictions. Id. It did so because “state and federal immunities are very similar in their wording[, and] they appear to be based upon the same historical and public policy considerations.” Id. Today, the Court has occasion to evaluate the scope of the Constitutional legislative immunity and its counterpart in common law. We, as the court in Greenburg, will do so in reliance on state and federal case law.

C. Separation of Powers

The Board first assigns error to the circuit court's dismissal of the complaint based on the separation of powers doctrine. It argues that the controversy at bar is not one that would require the circuit court to interfere with other branches of government. The Board claims that the court would not be evaluating legislative motivation for the purpose of overturning or invalidating legislation, but would instead be receiving evidence of the motivations solely to assist in establishing the elements of professional duty, reliance, and damages caused by Davenport's breach. The Board asks the Court to reverse the ruling of the circuit court and allow the case to proceed.

Davenport disagrees, pointing out that elements of the Board's claims, such as reliance and damages, would require an evaluation of the motivation behind legislative action. Davenport argues that the circuit court correctly dismissed the case in its entirety because to prove or defend elements of the claims involved requires an evaluation of the Board members' motivations in voting for the issuance of stand alone bonds. Davenport contends that such inquiry would violate the separation of powers doctrine.

1. Constitutional Legislative Immunity

Article III, Section 1 of the Constitution of Virginia mandates that “legislative, executive, and judicial departments shall be separate and distinct, so that none exercise the powers properly belonging to the others.” The principles of separation of powers generally “preclude[ ] judicial inquiry into the motives of legislative bodies elected by the people.” Ames v. Painter, 239 Va. 343, 349, 389 S.E.2d 702, 705 (1990); see also Bogan v. Scott–Harris, 523 U.S. 44, 55, 118 S.Ct. 966, 140 L.Ed.2d 79 (1998). Chief Justice Marshall recognized the danger of such an inquiry more than a hundred years ago when he wrote:

It may well be doubted how far the validity of a law depends upon the motives of its framers, and how far the particular inducements, operating on members of the supreme sovereign power of a state, to the formation of a contract by that power, are examinable in a court of justice. If the principle be conceded, that an act of the supreme sovereign power might be declared null by a court, in consequence of the means which procured it, still would there be much difficulty in saying to what extent those means must be applied to produce this effect.

Fletcher v. Peck, 10 U.S. 87, 130, 6 Cranch 87, 3 L.Ed. 162 (1810).

Chief Justice Marshall's concerns are recognized in Article IV, Section 9 of the Constitution of Virginia, which grants “[m]embers of the General Assembly ..., in all cases except treason, felony, or breach of the peace ... privilege[ ] from arrest during the sessions of their respective houses; and for any speech or debate in either house [such members] shall not be questioned in any other place.” This provision, which is derived from the Speech or Debate Clause of the United States Constitution, affords General Assembly members with immunity that protects them from being called into an outside forum to defend their legislative actions. See U.S. Const., art. I, § 6.

By its...