Finn v. Virginia Retirement System

• Decision Date: 14 January 2000
• Docket Number: Record No. 990377.
• Citation: 524 S.E.2d 125,259 Va. 144
• Court: Virginia Supreme Court
• Parties: Mark T. FINN v. VIRGINIA RETIREMENT SYSTEM, et al.

524 S.E.2d 125

259 Va. 144

Mark T. FINN v. VIRGINIA RETIREMENT SYSTEM, et al.

Record No. 990377.

Supreme Court of Virginia.

January 14, 2000.

Daniel E. Loeb (Karl A. Groskaufmanis; James P. Baetzhold, Washington, DC; Hunter W. Sims, Jr., Norfolk; Fried, Frank, Harris, Shriver & Jacobson, Washington, DC; Kaufman & Canoles, Norfolk, on briefs), for appellant.

John Westrick, Assistant Attorney General (Mark L. Earley, Attorney General; Michael K. Jackson, Senior Assistant Attorney General; Peter R. Messitt, Senior Assistant Attorney General, on brief), for appellees.

Present: All the Justices.

HASSELL, Justice.

I.

The primary issue we consider in this appeal is whether Code § 2.1-526.8 confers upon a former trustee of the Virginia Retirement System (VRS) a right of indemnification against the Commonwealth for legal fees he incurred to defend criminal investigations that allegedly arose out of the performance of his official duties.

II.

Mark T. Finn, a former trustee of the P securities." VRS, filed an amended bill of complaint seeking indemnification from the Commonwealth of Virginia, the VRS, William E. Landsidle, Comptroller, and RF & P Corporation. Finn alleged in his amended bill that he is entitled to indemnification for costs that he incurred in defense of criminal investigations against him arising out of his service as a trustee of the VRS and as a director of RF & P. The Commonwealth, the VRS, and Landsidle (collectively referred to as the Commonwealth) filed demurrers to the amended motion. The circuit court sustained the demurrers, holding that neither Code § 51.1-124.28 nor the common law confers upon Finn a right of indemnification against the Commonwealth. The court also rejected Finn's contentions that Code § 51.1-124.28 violated certain provisions of the Virginia and United States Constitutions. Finn appeals.¹

The circuit court decided this case at the demurrer stage of the proceedings and, therefore, we will consider as true "all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from alleged facts." Cox Cable Hampton Roads, Inc. v. City of Norfolk, 242 Va. 394, 397, 410 S.E.2d 652, 653 (1991). Even though the amended bill of complaint and exhibits exceed 100 pages, we will only state those allegations that are necessary for our resolution of this appeal.

In 1990, Finn served as a trustee of the VRS. In that capacity, Finn and his fellow trustees had oversight responsibilities for the VRS' operations and investments. The VRS owned a substantial amount of stock in RF & P. According to Finn's allegations, he and certain other VRS trustees were concerned that the CSX Corporation might increase its ownership of stock in RF & P to the detriment of minority shareholders, like the VRS, thereby compelling the minority shareholders "to relinquish their securities at below-market prices. In order to protect the VRS from such a strategy, [a special committee of the VRS] reached a consensus to recommend... that the VRS purchase additional RF & P securities."

The VRS Board of Trustees approved the purchase of additional RF & P securities. "On August 3, 1990, the VRS disclosed publicly an increase in its RF & P holdings by 1,267,000 dividend obligations. This included its open market purchases and the acquisition of 1,126,400 dividend obligations from Norfolk Southern." Ultimately, "CSX and VRS [entered into] a transaction ... in which CSX would acquire RF & P's railroad assets and the VRS would [control] its real estate assets."

This transaction gave rise to federal and state criminal investigations. The Attorney General of Virginia conducted an investigation, and the United States Attorney for the Eastern District of Virginia also conducted an investigation. Finn retained counsel to defend him in the criminal investigations as well as certain civil actions.

"Finn's counsel was informed—in a letter dated December 13, 1993 [from the United States Attorney]—that Finn `should be designated a "target" in the ... investigation.' The Department of Justice Manual defines a target to be `a person as to whom the prosecutor or the grand jury has substantial evidence linking him/her to the commission of the crime and who, in the judgment of the prosecutor, is a putative defendant.'" The United States Attorney stated in the letter to Finn's counsel that "`[b]ased on information from a large number of sources,' it appeared that Finn had committed `numerous violations of the securities statutes, as well as mail and wire fraud, and conspiracy regarding these offenses.'"

Finn vehemently maintained his innocence throughout the state and federal investigations. At the conclusion of the investigations, Finn was not charged with any crimes. "In mounting a defense in connection with the federal investigations, Finn incurred expenses, including attorneys' fees, totaling $1,123,522.14. Finn incurred these expenses as a direct result of his role and his actions taken as a Director of RF & P and Trustee of the VRS."

III.

A.

Finn argues that the circuit court erred in sustaining the defendants' demurrers. Finn contends that Code § 2.1-526.8 "provides a right of indemnification to officials of the Commonwealth who successfully defend false criminal allegations arising out of the performance of [their] official duties." Responding, the Commonwealth argues that Code § 2.1-526.8 does not create a statutory right for reimbursement but, rather, directs the Department of General Services to establish an insurance plan. We agree with the Commonwealth.

Code § 2.1-526.8 states in relevant part:

"A. Subject to the approval of the Governor, the Department of General Services through its Division of Risk Management shall establish an insurance plan, which may be purchased insurance, self-insurance or a combination of self-insurance and purchased insurance:

"1. To provide protection against liability imposed by law for damages resulting from:

"a. Any claim made against any department, agency, institution, board, commission, officer, agent, or employee thereof for acts or omissions of any nature while acting in an authorized governmental or proprietary capacity and in the course and scope of employment or authorization;

....

"3. If the Division of Risk Management is informed by the Attorney General's Office that it will not provide a defense due to a conflict or other appropriate reason, to provide for payment of attorneys' fees and expenses incurred in defending such persons and entities concerning any claim which arises from their governmental employment or authorization, which arises from their participation in such student disciplinary proceedings, or which is described in any such indemnification agreement.

"B. Any insurance plan established pursuant to this section shall provide for the establishment of a trust fund or contribution to the State Insurance Reserve Trust Fund for the payment of claims covered under such plan. The funds shall be invested as provided in § 2.1-185 and interest shall be added to the fund as earned. The trust fund shall also provide for payment of administrative costs, contractual costs, and other expenses related to the administration of such plan.

"C. The insurance plan for public liability shall be submitted to the Governor for approval prior to implementation."

Code § 2.1-526.8 is not self-executing. Rather, the General Assembly, through the enactment of that statute, has directed that the Department of General Services through its Division of Risk Management establish an insurance plan which must be submitted to and approved by the Governor before implementation. Code § 2.1-526.8 specifies the types of insurance coverages that must be included within the insurance plan and identifies persons and entities who must be insured through the insurance plan.

Even though the statute describes the scope of the insurance coverage and the nature of the insurance coverage to be included within the insurance plan, the statute does not confer specific rights upon individuals. Rather, any individual who believes that he or she may be entitled to reimbursement must seek payment in accordance with the provisions of any insurance plan that has been established pursuant to Code § 2.1-526.8. Therefore, we hold that the circuit court properly sustained the Commonwealth's demurrer because Code § 2.1-526.8 does not create a statutory right of reimbursement for Finn.

B.

Finn argues that the circuit court erred by sustaining the demurrer because, he says, the Commonwealth has a common law duty to "reimburse public officials under the limited circumstances in which they successfully defend criminal proceedings arising out of the faithful execution of official duties." Continuing, Finn, relying upon Wood v. Board of Supervisors, 236 Va. 104, 372 S.E.2d 611 (1988), argues that "[a]lthough this Court has not previously considered whether the common law obligates state agencies to reimburse its officials, the Court has recognized the basis for such a duty: the legitimate public policy of protecting public servants from frivolous criminal charges."

In Wood, we considered whether Code § 22.1-82 authorized a school board to reimburse a division superintendent for expenses he incurred in criminal and civil proceedings arising out of the performance of his duties.² We held that Code § 22.1-82 conferred upon the school board the statutory authority to reimburse its division superintendent. We rejected the Board of Supervisors' request that this Court hold, as a matter of public policy, that the superintendent was barred from reimbursement for fees and expenses arising from the defense of certain dismissed charges because he pled guilty to a misdemeanor offense for which he was not reimbursed legal fees and expenses. Wood, 236 Va. at 115, 372 S.E.2d at 618. We stated:

"Although we can appreciate the legitimacy of such a public policy, we

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