Little v. Cooke

• Citation: 652 S.E.2d 129
• Decision Date: 02 November 2007
• Docket Number: Record No. 062504.
• Court: Supreme Court of Virginia
• Parties: George B. LITTLE, Individually and as Trustee for the General Partner of Fox Rest Associates, L.P., et al. v. Mark P. COOKE, et al.

652 S.E.2d 129

George B. LITTLE, Individually and as Trustee for the General Partner of Fox Rest Associates, L.P., et al. v. Mark P. COOKE, et al.

Record No. 062504.

Supreme Court of Virginia.

November 2, 2007.

Everette G. Allen, Jr. (Stephen M. Faraci; Andrew K. Clark; LeClair Ryan, on briefs), Richmond, for appellants.

E. Duncan Getchall (Robert L. Hodges; H. Carter Redd; William H. Baxter, II; McGuireWoods, on brief), for appellees.

Present: HASSELL, C.J., KEENAN, KOONTZ, KINSER, LEMONS, and AGEE, JJ., and RUSSELL, S.J.

OPINION BY Justice CYNTHIA D. KINSER.

This dispute arose out of the sale of an apartment complex located in Henrico County known as Fox Rest Apartments (Fox Rest), which was the sole asset of a partnership named Fox Rest Associates, L.P. (Partnership). Some of the Partnership's limited partners filed a derivative suit on behalf of the Partnership pursuant to Code § 50-73.62 and sought monetary damages against George B. Little, individually and as trustee for the general partner of Fox Rest, and George B. Little & Associates, P.C., a Virginia professional corporation (collectively, Defendants).¹ In their motion for judgment, the Limited Partners asserted, among other things, counts for breach of fiduciary duty and legal malpractice.

After a bench trial, the circuit court held that Little breached not only the standard of care applicable to attorneys in his role as the attorney for the Partnership but also his fiduciary duties while performing the tasks and responsibilities of the Partnership's general partner. The circuit court awarded damages to the Partnership against the Defendants, jointly and severally, in the total amount of $3,161,258.32, plus prejudgment interest. The majority of the damages comprised what the circuit court referred to as "tax damages." The circuit court also awarded attorneys' fees and costs to the Limited Partners individually, in addition to the other damages.

We awarded the Defendants this appeal on five assignments of error.² In the first assignment of error, the Defendants challenge the award of "tax damages" on four separate grounds: (a) the Partnership's general partner did not have the authority or duty to make a tax-free exchange when selling Fox Rest; (b) "tax damages" are not damages to the Partnership and thus are not recoverable in a derivative action; (c) the Limited Partners did not establish that Little's conduct proximately caused their damages; and (d) the Limited Partners failed to mitigate their damages. In the four remaining assignments of error, the Defendants contest: (1) the circuit court's award of $400,000 for "wrongfully retained funds" from the sale of Fox Rest; (2) the award of $17,951.32 for over-charges in Little's legal bills to the Partnership; (3) the award of punitive damages in the amount of $175,000; and (4) the award of attorneys' fees to the Limited Partners in addition to the other damages awarded rather than an award of attorneys' fees from the "common fund" recovered for the Partnership.

We also awarded an appeal on the Limited Partners' two assignments of cross-error. The Limited Partners assert that the circuit court erred either by refusing to award an additional $2,050,000 in damages against the Defendants or by failing to award at least a sum representing "the difference between the appraised market value [of Fox Rest] and sale price on the date of sale."

For the reasons explained hereinafter, we will affirm in part and reverse in part the judgment of the circuit court.

I. RELEVANT PROCEEDINGS AND FACTS³

In accordance with established principles of appellate review, we state the facts in the light most favorable to the Limited Partners, the prevailing party in the trial court. Nusbaum v. Berlin, 273 Va. 385, 407, 641 S.E.2d 494, 506 (2007). We also accord the Limited Partners "the benefit of all reasonable inferences fairly deducible from the evidence." Id. (citing Viney v. Commonwealth, 269 Va. 296, 299, 609 S.E.2d 26, 28 (2005)); see also Xspedius Mgmt. Co. of Va., L.L.C. v. Stephan, 269 Va. 421, 425, 611 S.E.2d 385, 387 (2005). Since the circuit court heard the evidence ore tenus, its factual findings are entitled to the same weight as a jury verdict. W.S. Carnes, Inc. v. Board of Supervisors, 252 Va. 377, 385, 478 S.E.2d 295, 301 (1996) (citing RF & P Corp. v. Little, 247 Va. 309, 319, 440 S.E.2d 908, 915 (1994)). We are bound by those factual findings unless they are plainly wrong or without evidence to support them. Code § 8.01-680; Ravenwood Towers, Inc. v. Woodyard, 244 Va. 51, 57, 419 S.E.2d 627, 630 (1992).

As set forth in the "AGREEMENT OF LIMITED PARTNERSHIP OF FOX REST ASSOCIATES" (Partnership Agreement), the Partnership was formed in 1981 "solely for the purpose of acquiring" Fox Rest and "investing in, holding, maintaining, operating, improving, leasing, selling and otherwise using such property." At all times relevant to this litigation, the Cargill Trust served as the Partnership's sole general partner, and Little was the trustee of the Cargill Trust.⁴ Little and his professional corporation provided legal services to the Partnership.

According to the Partnership Agreement, the general partner had "full authority and responsibility to manage, direct and control all of the affairs and business of the Partnership." Among the powers granted to the general partner was the authority to "dispose of any properties or assets of the Partnership including . . . Fox Rest." The Partnership Agreement directed that the Partnership be dissolved when, among other things, the general partner was removed or substantially all the Partnership's property was sold.

Little admitted that the Partnership Agreement, which he drafted, allowed him to hire himself "for whatever [he] wanted to do." The circuit court concluded that Little, "[a]cting for the [g]eneral [p]artner, . . . hired himself to perform virtually every duty of the [g]eneral [p]artner, and billed the Partnership accordingly at his hourly rates."⁵ The court further concluded that Little, "[a]cting under duties he thus delegated to himself from the [g]eneral [p]artner, . . . hired himself and his law firm to provide legal services and advice to himself as the acting [g]eneral [p]artner."⁶

In the first half of 2002, Little received two separate offers to purchase Fox Rest, but he declined both offers. Later in the year, however, Little changed his mind. In September 2002, Little received a letter from Edmund S. Ruffin, Jr. (Ruffin), on behalf of "the Ruffin and Cooke family members that [were] limited partners" in the Partnership. Ruffin requested that Little consent to the substitution of a new general partner for the Partnership in the place of the Cargill Trust.

Little testified at trial that this letter "scared [him] to death" because he believed that, if he did not agree to the proposed course of action, the general partner would be removed, thereby effecting dissolution of the Partnership according to the terms of the Partnership Agreement. Dissolution would trigger a sale of the property "under the hammer" which, according to Little, "puts the seller in a very weak position." Believing that the proposed changes would not be beneficial to the Partnership but that a sale of the property would be in the best interests of the Partnership's investors, Little decided to sell Fox Rest.⁷ After making that decision, Little reviewed the Partnership Agreement and concluded that he, acting alone, had the authority to sell Fox Rest. Little, however, believed that he did not have the authority under the terms of the Partnership Agreement to engage in a "tax-free exchange" because, in his view, the Partnership "was a sole project partnership."⁸

In a letter dated October 14, 2002, Ruffin again requested Little to cooperate in the substitution of a new general partner for the Partnership, as Little had not responded to the first correspondence. Little admitted that he did not answer the first letter because he was trying to sell Fox Rest before the general partner, i.e., Little, was removed. Two days later, in correspondence dated October 16, 2002, Little advised the Partnership's investors that, "[p]ursuant to the powers conferred in the original Partnership Agreement, [he,] as [g]eneral [p]artner[, had] committed to the sale of the entire complex for a gross sales price of $10,250,000.00." Little also told the investors that settlement would occur in January 2003 and that they would incur capital gains taxes on the transaction. In response, Ruffin voiced his concern about Little's unilateral decision to sell Fox Rest within weeks after being asked to "step down as general partner." The closing on the sale of Fox Rest took place on January 30, 2003 and the Limited Partners subsequently filed this derivative suit on behalf of the Partnership. After a multi-day bench trial, the circuit court concluded, based on expert testimony, that Little committed numerous acts of legal malpractice and breaches of fiduciary duties. In a letter opinion, the court stated:

At a minimum, Little breached his duties as a lawyer to reasonably communicate with the Limited Partners, to refrain from self-dealing, and to make adequate disclosure of material facts to the Limited Partners. He also erred in failing to consider or inform the Limited Partners of the possibility of a tax-free exchange of Fox Rest as an alternative to an outright sale, and wrongly sold Fox Rest without properly informing himself of the Property's geographic marketability or time frame for marketing the Property.

The circuit court further concluded that many of the acts of legal malpractice also constituted breaches of Little's fiduciary duties. Continuing, the court found that Little breached his duty of loyalty and acted to further his own interests, instead of the Partnership's, by taking a substantial commission for the sale of Fox Rest, by retaining sale proceeds for the purpose of defending...