Simmons v. Miller
| Decision Date | 20 April 2001 |
| Docket Number | Record No. 000785. |
| Citation | 261 Va. 561,544 S.E.2d 666 |
| Parties | Calvert W. SIMMONS v. Margaret C. MILLER, et al. |
| Court | Virginia Supreme Court |
J. Andrew Keyes, Washington, DC (Paul Martin Wolff; Williams & Connolly, on briefs), for appellant.
Nicholas H. Hantzes, Washington, DC (William Garber; Hantzes & Associates, on brief), for appellees Margaret C. Miller and Karim Bayzid.
Steven R. Becker, Washington, DC (Pamela A. Bresnahan; Vorys, Sater, Seymour & Pease, on brief), for appellee Maria M. Mear.
Present: CARRICO, C.J., and LACY, KEENAN, KOONTZ, KINSER, and LEMONS, JJ.
In this appeal, we consider whether Virginia law permits a minority shareholder in a closely held corporation to assert individual claims, distinct from derivative claims, on behalf of a corporation against a corporate officer or director for breach of fiduciary duty. We also consider the trial court's ruling that there was insufficient evidence to sustain a claim of statutory conspiracy pursuant to Code §§ 18.2-499 and -500 and its ruling that there was insufficient evidence of proximate causation between the harm to the corporation and certain alleged legal malpractice of corporate counsel. Additionally, we consider cross-error assigned to the trial court's refusal to set aside the jury's verdict on a derivative claim for breach of fiduciary duty and conversion. Finally, we examine the trial court's refusal to strike the jury's verdict concerning a breach of an employment agreement on the ground that the restrictive covenant in the agreement was unnecessary to protect the employer, unduly restrictive of the employee's rights, and contrary to public policy.
Recitation of detailed facts is necessary to analysis of this unique case. Margaret C. Miller ("Miller") was the sole officer, director, and shareholder of Las Palmas Tobacco, Ltd. ("Las Palmas"), a Virginia corporation that had exclusive rights to import and distribute Profesor Sila brand cigars on the "east coast of the United States of America." On June 26, 1996, Miller and Calvert W. Simmons ("Simmons") entered into a Stock Subscription Agreement giving Simmons a 30% ownership interest in Las Palmas in exchange for $100 and Simmons' guarantee of a $100,000 letter of credit issued for the benefit of Las Palmas. According to the agreement, Simmons was required to Additionally, in a Shareholders' Agreement, Miller and Simmons agreed that "at a future date, they would] fix a value for their shares and enter into a Cross-Purchase Agreement."
Miller testified that in early December, 1996, she presented Simmons with a cross-purchase agreement and later, in January, 1997, Miller and Maria M. Kear ("Kear"), an attorney licensed to practice in Virginia, went to Simmons' office to "negotiate the terms of the cross-purchase agreement." Kear testified that she represented Miller at this meeting and that she told Simmons that she was not representing Las Palmas. Simmons testified that he felt that Kear was being "very adversarial in the discussions" and asked her to leave the meeting. Upon Kear's departure, Simmons and Miller were unable to agree on the valuation of Las Palmas.
On January 15, 1997, Miller sent a letter to Simmons that included an offer of $13,290.59 to buy his 30% share of Las Palmas. Simmons responded with a letter dated January 23, 1997 in which he stated that he did not wish to sell his shares for $13,290.59 because he felt they were "worth considerably more than that."
On September 29, 1997, Simmons sent Miller a letter in which, pursuant to Code § 13.1-771, he demanded inspection of the accounting records of Las Palmas. The Las Palmas financial records were prepared and maintained by Jeanne M. Webb ("Webb"), an independent contractor. Simmons stated in his letter:
In spite of my numerous phone calls, you have failed and refused to communicate with me since April 1, 1997. Currently, I do not have any idea how Las Palmas is faring. In addition, it has come to my attention that Las Palmas may have transferred assets to another entity without any consideration whatsoever.
In a letter dated October 3, 1997, Miller denied that Simmons had the right to inspect the financial records and denied that Las Palmas had transferred assets to another entity.
After being denied access to the Las Palmas financial records, Simmons requested that his lawyer, Gary W. Lonergan ("Lonergan"), obtain an explanation from Kear. In October of 1997, Lonergan called Kear to request the financial records. Kear denied that Las Palmas' assets had been transferred to another entity. Kear testified that:
Lonergan ... told me that ... Mr. Simmons had been told that Las Palmas Tobacco Limited has been shut down and the assets had been moved to another company. He asked me what I knew about that. And I told him I didn't know anything about it. And he said well, that's what we've been told and I'm trying to get financial records, and I told him I would call Miss Miller and ask if the company had been closed down. And I did that and I called him back and I told him Miss Miller said the company had not been closed down.
Miller told Kear that the financial documents Lonergan requested were with Anatole G. Richman ("Richman"), who was performing an evaluation of the company. When Kear called Richman, he told her that he was not finished with the evaluation because Webb had not completed her work with the financial records.
Lonergan wrote Kear on October 23, 1997 indicating that Simmons had been told by the bookkeeper that "[s]he has no financial records [and] Las Palmas has been `wrapped up.'" The letter also stated:
I believe that an explanation is in order. Furthermore, there is no doubt that Mr. Simmons is entitled to see the financial records of Las Palmas: either Maggie Miller has them or Anatole C. Richmond [sic] has them. Mr. Simmons and I would like to see them by the close of business on Friday, October 31, 1997.
Five days later Kear responded in a letter:
On January 27, 1998, Lonergan again sent Kear a letter requesting access to the financial records. Lonergan testified that within a day or two of sending the letter, he received a financial report prepared by Richman and dated January 28, 1998. The report concerned the "value of Las Palmas ... as of February 10, 1997[and] ... is based on the assumption that the Company has ceased operations and is not a going concern."
Miller testified that on February 9, 1997, Las Palmas ceased doing business. According to Miller, Las Palmas terminated its business because its supplier, Profesor Sila, refused to ship any more cigars. Miller testified that Dr. Nader Bayzid ("Dr.Bayzid"), the owner of Profesor Sila, complained that an acceptable letter of credit had not been received. Thereafter, Dr. Bayzid wrote her indicating that he was not going to ship further products and that he intended to start a new company in the United States.
Kear and Miller were friends who first met in 1985. Each is godmother to one of the other's children and Miller previously had been employed as a clerical assistant in Kear's law office. Furthermore, Kear's office was in the same building as the office of Las Palmas and Kear visited Miller there.
Kear admitted that she prepared and signed the articles of incorporation for Las Palmas and was reimbursed for the incorporation fee by Las Palmas. However, Kear stated that other than the articles of incorporation and a collection matter in February of 1998, she never did any work for Las Palmas. Kear further testified that, in the summer of 1996, Miller told her that there was an additional person (Simmons) involved in ownership of Las Palmas and that her new partner said that the attorney for the company had to be someone he selected.
Kear also testified that sometime after January 10, 1997, Miller asked her to file articles of organization for Las Palmas Tobacco International, L.L.C. ("International"). On February 6, 1997, Kear mailed the articles of organization to the State Corporation Commission ("SCC") and, on February 10, 1997, the SCC issued a certificate of organization for "Las Palmas Tobacco International, L.L.C." An unsigned "Limited Liability Company Operating Agreement" listing Miller and Profesor Sila as equal owners was maintained in Kear's files. Kear was the initial registered agent and organizer of the corporation.
According to Kear, Miller told her:
[S]he was going to use the international company to import a lower brand cigar that was being made in the Dominican [Republic and] ... they would sell the cheap ones and it was going to be international business ... they were going to have their high end domestic sales with Limited [meaning Las Palmas Tobacco, Ltd.] and their low end international with International [meaning Las Palmas Tobacco International, L.L.C.].
Kear admitted that she never asked why Las Palmas could not serve this purpose, nor did she ever inquire why Simmons did not have an ownership interest in International.
Kear also admitted that she edited a letter Miller drafted to Simmons in late...
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