Opinion
Docket No.: CL16-9593 Docket No.: CL16-9594
04-27-2017
Re: Fortress Holdings II, LLC v. Charles R. Patty, Jr., Paul Van and Fortcap Partners, LLC FWLMGR, LLC v. Charles R. Patty, Jr., Paul Van, Fortress Capital Investors, LLC and Fortcap Partners, LLC
John D. McIntyre, Esquire
Wilson & McIntyre, PLLC
101 West Main Street, Suite 260
Norfolk, Virginia 23510 Benjamin L. Hatch, Esquire
Ryan Van Patten Dougherty, Esquire
McGuire Woods, LLP
World Trade Center
101 West Main Street, Suite 9000
Norfolk, Virginia 23510 John C. Lynch, Esquire
Troutman Sanders, LLP
222 Central Park Avenue, Suite 2000
Virginia Beach, Virginia 23462 Mr. Charles Patty
1206 Laskin Road, Suite 210
Virginia Beach, Virginia 23451 Dear Counsel and Mr. Patty:
This matter was last before the Court on March 28, 2017 for a hearing on Defendants' Demurrers to the complaints (together, "the Complaints") filed by Fortress Holdings II, LLC ("FH2") and FWLMGR, LLC ("FWLMGR"). Defendant Paul Van ("Van") demurs to the following counts of both Complaints: Count II, Aiding and Abetting a Breach of Fiduciary Duty; Count III, Statutory Conspiracy; and Count IV, Common Law Conspiracy. Defendant Fortcap Partners, LLC, ("Fortcap") demurs to Count V, Unjust Enrichment, of FH2's Complaint.
The Court finds that Plaintiffs have sufficiently pleaded each count in their Complaints, the Court OVERRULES Van's demurrers and OVERRULES Fortcap's demurrer.
BACKGROUND
FH2 and FWLMGR (collectively, "Plaintiffs") each filed suit on September 7, 2016, alleging a scheme "thought up and carried out" by Charles Patty ("Patty") and Van in relation to the sale of two real estate projects: the Preserve at Woods Lake, located in Greenville, South Carolina, ("the Preserve") and Raefield Village, located in Charlotte, North Carolina ("Raefield").
FWLMGR and FH2 are represented by the same counsel and both Complaints describe the alleged scheme carried out by Van and Patty in similar terms. Van demurrers to Counts II, III, and IV, which state the same causes of action in each of the Complaints. For the purpose of the Court's analysis, the Complaints present a consistent narrative—presented in this Background section—regarding the Plaintiffs' allegations against Defendants.
In early 2004, Patty and Jeffrey Stein ("Stein") formed Fortress Capital Investors, LLC ("FCI") for the purposes of acquiring real estate projects. At one point, FCI was owned 40% by Patty, 40% by Stein, and 20% by Van. By the end of 2010, Stein had withdrawn from FCI, and his membership interests were re-allocated to leave Patty and Van as 50/50 owners. Also in 2010, Patty and Van formed Fortcap Partners, LLC ("Fortcap"), likewise sharing 50/50 ownership of this entity.
In 2005, FCI agreed to acquire the Preserve for about $15,000,000. The purchase was financed by third party investors, who—in accordance with the terms of a private placement memorandum—held the property as tenants in common. FWLMGR, as manager of the Preserve, acquired a 15% imputed equity interest therein. In 2014, the tenants in common sold the property for $23,500,000. Prior to the closing of the sale, Van demanded that FCI or Fortcap be paid a "customary" disposition fee of 0.75% of the sale price. As FCI previously had assigned its rights to the tenants in common, neither it nor Fortcap would otherwise receive funds from the sale.
The pleadings are at times unclear about which Van-Patty entity—FCI or Fortcap—received which funds. For the purpose of ruling on Defendants' demurrers, the Court assumes as true the statements in FH2's Complaint—that "Fortcap received the sum of $580,000 from FH2." (FH2 Compl. ¶ 54.) FWLMGR's Complaint states, "FCI and/or Fortcap received the sum of $678,565.40 which belonged to FWLMGR as set forth above." (FWLMGR Compl. ¶ 56.) Whether FCI also received some of the funds at issue does not affect the Court's analysis of Defendants' demurrers.
According to Plaintiffs, after the tenants refused Van's request, Patty and Van "concocted a scheme" to ensure Fortcap would nevertheless receive money from the sale. After the sale of the Preserve, FWLMGR received its share of the proceeds and in turn made distributions to its members, which included FH2. Plaintiffs claim that Patty, FH2's manager—in keeping with the alleged scheme—improperly transferred funds to Fortcap in the amount of $235,000, or 1.0% of the sale price.
Plaintiffs allege Van and Patty carried out a similar scheme regarding Reafield. FCI purchased Reafield in 2006 and sold it in 2014, having in the meantime assigned its rights to various tenants in common. In this instance, however, Van did not ask the tenants in common to pay Fortcap or FCI a disposition fee—likely anticipating that any such request would again be refused. Plaintiffs claim that after FH2 received its share of the proceeds, Patty and Van caused it to pay to Fortcap 1.0% of the gross sale price, or $345,000.FH2 claims that there was no legal basis whatsoever for either of the so-called disposition fees, which together totaled $580,000.
Throughout this period, Patty was also the manager of FWLMGR, which managed both the Preserve and Reafield. FWLMGR alleges that it never received its full share of the Preserve proceeds because Patty, without justification, transferred $678,565—of a total of $1,673,85 due to FWLMGR—directly to either FCI or Forcap. Plaintiffs further allege that, in order to "cover their tracks," Patty and Van made monetary transfers to other FWLMGR owners (besides FH2) to "mimic" the distribution these entities would have received had Patty and Van not "looted" FWLMGR. Plaintiffs claim that Van and Patty thereby hoped to avoid arousing the suspicions of the non-Patty-managed FWLMGR members.
ANALYSIS
Legal Standard
A demurrer tests the legal sufficiency of the claims stated in the challenged pleading. Dray v. New Mkt. Poultry Prods., Inc., 258 Va. 187, 189, 518 S.E.2d 312, 312 (1999). The sole question to be decided by the court is whether the facts pleaded, implied, and fairly and justly inferred are legally sufficient to state a cause of action against the defendant. Thompson v. Skate Am., Inc., 261 Va. 121, 128, 580 S.E.2d 123, 126-127 (2001). "When a motion for judgment or a bill of complaint contains sufficient allegations of material facts to inform a defendant of the nature and character of the claim, it is unnecessary for the pleader to descend into statements giving details of proof in order to withstand demurrer." CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993).
On demurrer, the court must admit the truth of all material facts that are properly pleaded, facts which are impliedly alleged, and facts which may be fairly and justly inferred from the alleged facts. Cox Cable Hampton Rds., v. City of Norfolk, 242 Va. 394, 397, 410 S.E.2d 652, 653 (1991). A demurer does not admit the correctness of any conclusions of law. Ward's Equip., Inc. v. New Holland N. Am., Inc., 254 Va. 379, 382, 493 S.E.2d 516, 518 (1997).
I. Van's Demurrer as to Count II. Aiding and Abetting Breach of Fiduciary Duty (Both Complaints)
a. Positions of the Parties
Van states that there is no such cause of action as aiding and abetting a breach of fiduciary duty, citing ample case law to demonstrate its "questionable lineage in Virginia law" as an independent cause of action. Van does acknowledge that courts have been in conflict on this question.
Recognizing also that some courts have allowed an aiding and abetting claim to support recovery on the theory of joint liability—even if it is not a standalone claim—Van states that Plaintiffs have nonetheless failed to allege two of the three elements required by such a theory. The first missing element is Van's knowledge of Patty's breach of duty. Van claims that, as manager, Patty had authority to distribute FH2 funds and that Van had no reason to believe that these transfers were outside of the scope of Patty's authority. Hence, Van lacked the necessary mens rea to be held liable.
Van's Demurrer to Count II of the FWLMGR Complaint makes a conclusory statement that the elements of aiding and abetting are insufficiently alleged, but does not explain why.
Van also argues that any allegation of his participation in Patty's putative breach is insufficiently pleaded. Van points out that "it was Patty alone who made the payments" in question. Van also quotes the Complaint's allegation that "Mr. Patty caused FH2 to pay 1.0% of the gross sale price" of Reafield as further support for its argument that no participation of Van's is alleged. (FH2 Compl. ¶ 24; FWLMGR Compl. ¶ 28 (emphasis added).)
Plaintiffs assert that—whatever the status of a standalone aiding and abetting claim may be—Virginia case law does clearly establish aiding and abetting as a theory for joint tortfeasor liability.
As for the sufficiency of the allegations, Plaintiffs aver that the Complaints state that Van urged Mr. Patty to breach his fiduciary duty—a duty that Van was aware Mr. Patty owed as manager of FWLMGR and FH2.
b. Discussion
As the United States District Court for the Eastern District of Virginia stated in Jordan v. Osmun, "The Supreme Court of Virginia has refrained from either recognizing or rejecting a separate 'aiding and abetting' tort." 2016 U.S. Dist. LEXIS 170239, at *10 (E.D. Va. Dec. 8, 2016)(emphasis added). Nevertheless, Virginia case law does clearly establish that a third party can be jointly liable for another's breach of duty where the third party knowingly participated in the breach. Id. at *10-11; St. Paul Fire & Marine Ins. Co. v. Hoskins, 2012 U.S. Dist. LEXIS 30770, at * 15 (W.D. Va. Mar. 2012.) To establish such joint tortfeasor liability, a plaintiff must prove defendant (1) knew of the other tortfeasor's duty and breach, (2) participated in or directed the commission of the breach of duty, and (3) benefitted from it. Alliance Tech. Group, LLC v. Achieve I, LLC, 2013 LEXIS 4708, at *5 (E.D. Va. Jan. 11, 2013)(citing Patteson v. Horsely, 70 Va. 263, 270-71 (1877)).
Admittedly, Plaintiffs do not describe in great detail the scheme Van and Patty allegedly undertook. The Complaints do, however, allege that (1) Van "knew that Mr. Patty was the manager of [both entitities] and held a fiduciary duty to [those entities" (FH2 Compl. ¶ 36; FWLMGR Compl. ¶ 39.); and (2) that Van had knowledge both "that FH2 was not required or even permitted to pay either" of the two disposition fees, (FH2 Compl. ¶37), and that "there was no basis for FWLMGR to be stripped of the Diverted Funds," (FWLMGR Compl. ¶ 40). It is not stated how Van came to possess this knowledge, but the Court nonetheless must admit the truth of all facts properly pleaded in the Complaints.
The exact nature of Van's participation in the scheme is also vague. The lynchpin of this scheme was Patty's transfers of FH2 and FWLMGR funds to Fortcap. As Patty was FH2's manager, he would have presumably been able to perform these acts on his own. And while Plaintiffs assert in each's Reply Brief in Opposition to Demurrer that Patty undertook actions "at Mr. Van's urging," the Complaints do not use this language.
Nevertheless, the Complaints do allege that Patty and Van acted "in concert," (FH2 Compl. ¶ 39; FWLMGR Compl. ¶ 41), and that the two together "concocted a scheme," (FH2 Compl. ¶ 39; FWLMGR Compl. ¶ 41). Moreover, the Complaints allege that, in an attempt to cover their tracks, "Mr. Patty and Mr. Van then transferred to MGAW, LLC and Beach Capital Investors, LLC . . . an amount designed to mimic some or all of the distribution which each of those entities would have received had FWLMGR not been looted." (FH2 Compl. ¶ 39; FWLMGR Compl. ¶ 41.) Finally, the Complaints allege that "at all relevant times hereto, Mr. Van aided, abetted, and otherwise assisted Mr. Patty in breaching his fiduciary duty to [the entities]." (FH2 Compl. ¶ 41; FWLMGR Compl. ¶ 43.) While details of Van's participation are not alleged in exacting detail, the Complaints repeatedly assert that the plan was executed by Van and Patty.
As the Supreme Court has held, where sufficient material facts are pleaded "to inform a defendant of the nature and character of the claim, it is unnecessary for the pleader to descend into statements giving details of proof in order to withstand demurrer." CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279 (1993). The Court finds that the facts pleaded in Plaintiffs' Complaints were sufficient to put Van on notice with respect to the "nature and character" of Plaintiffs' claims against him. Id.
Therefore, the allegations are sufficient to support the claim that Van aided and abetted Patty's alleged breach of his fiduciary duties to FH2 and FWLMGR. If these allegations are proven true, Van will be jointly liable along with Patty. Therefore, Defendant's Demurrers as to Count II of each of the Complaints is OVERRULED.
II. Van's Demurrer as to Counts III and IV, Statutory and Common Law Conspiracy (Both Complaints)
a. Positions of the Parties
Van demurrers to the conspiracy counts in each of the Complaints on four bases. The first is that the intracorporate immunity doctrine acts as a bar to the conspiracy counts. This doctrine states that agents of a corporation, acting within the scope of their agency, qualify as one legal person—and as such, there cannot be "concerted action" amongst multiple actors. Van insists that, under Virginia law, "A corporation, like an individual, cannot conspire with itself. Bowman v. State Bank of Keysville, 229 Va. 534, 541, 331 S.E.2d 797, 801 (1985).
Second, Van claims that Plaintiffs have failed to allege an underlying tortious act—a prerequisite for a cause of action based on conspiracy, as one cannot 'conspire' to do what is perfectly licit. Dunlap v. Cottman Transmission Systems, LLC, 287 Va. 207, 215, 754 S.E.2d 313, 317 (2014). In support of this assertion, Van states that Patty unquestionably had authority to transfer of funds at issue.
Third, Van claims that Plaintiffs did not allege that he acted with the legal malice required for statutory conspiracy claims. Van points out that Section 18.2-499 of the Code of Virginia prohibits action by a combination of two or more persons undertaken "for the purpose of willfully and maliciously injuring a plaintiff's business . . ." (Emphasis added.) Van claims no such willfulness was alleged in the Complaints, which describe Patty's voluntary actions—the consequences of which merely happen to have benefitted Van.
Fourth, Van asserts that—like fraud claims—civil conspiracy must be pleaded with particularity, which includes "some details of time and place." Johnson v. Kaugars, 14 Va. Cir. 172, 176 (Va. Cir. 1988). Van argues that the lack of details regarding the alleged scheme is "particularly striking here where Patty's actions in distributing [assets]" were within his authority.
Plaintiffs claim, with regard to the intracorporate immunity doctrine, that Van has mischaracterized the Complaints as asserting that Van and Patty are both agents of Fortcap. While the Complaints note that they both are owners of Fortcap, Plaintiffs aver that being a member of an LLC does not automatically render one its agent. Plaintiffs further state that the intracorporate immunity doctrine only applies where the agents are acting within the scope of their agency, and they cite Fox v. Deese for the proposition that such a question of fact "requires an investigatory hearing." 234 Va. 412, 428, 362 S.E.2d 699, 708 (1987).
Plaintiffs also assert that they have unmistakably alleged an underlying tort to support a conspiracy claim: breach of fiduciary duty by way of Patty's transferring, without any licit basis, funds belonging to both entities. Plaintiffs characterize Van's argument as saying, essentially, that because Patty was authorized generally to transfer both entities' funds, that any transfer of FH2 or FMLMGR funds is permissible—no matter how illicit the purpose.
Plaintiffs argue that Section 18.2-499 of the Code of Virginia requires a showing of "legal malice" only, defined as acting "intentionally, purposefully, and without lawful justification." Commercial Business Systems v. BellSouth Services, 249 Va. 39, 47, 453 S.E.2d 261, 267 (1995). They further cite Feddeman & Co.. v. Langan Assocs., C.P., for the proposition that "without legal justification may include a breach of their fiduciary duty or assisting someone to breach their fiduciary duty." 260 Va. 35, 46, 530 S.E.2d 668, 675 (2000). Thus, Patty's alleged unlawful transfer of both entities' funds to Fortcap—"in concert with" Van—satisfies the legal malice requirement.
Plaintiffs argue that the following allegations, taken together, constitute sufficient specificity of conduct: (1) That after Van failed to get owners to agree to pay a disposition fee, he arranged for Patty to transfer such funds to Fortcap, and (2) that Van and Patty attempted to cover their misdeeds by transferring funds to other project investors.
b. Discussion
i. The applicability of the intracorporate immunity doctrine has not been established (statutory and common law conspiracy)
As the Virginia Supreme Court stated in Bowman v. State Bank of Keysville, "there must be two persons to comprise a conspiracy." 229 Va. 534, 541, 331 S.E.2d 797, 801 (1985). If both Patty and Van were acting as agents of Fortcap, however, the acts of only one legal entity are at issue, Fox v. Deese, 234 Va. 412, 428, 362 S.E.2d 699, 708 (1987), and "a corporation, like an individual, cannot conspire with itself," Bowman, 229 Va. at 541, 331 S.E.2d at 801.
If the acts allegedly performed as part of the scheme by Patty and Van were undertaken in the scope of their agency for Fortcap, the intracorporate immunity doctrine would preclude any conspiracy claim. However, the Complaints do not allege, directly or impliedly, that Patty was an agent of Fortcap—only that Patty was a member. Even assuming arguendo that Patty was an agent of Fortcap, it is not at all clear that any of his alleged actions—which implicate his agency under FH2 and FWLMGR—were performed within the scope of that putative Fortcap agency. At a minimum, the inquiry as to whether Van and Patty were acting within the scope of their agency—a question not addressed in the Complaints—is a question of fact that "requires an investigatory hearing" in this context. Fox, 234 Va. at 428, 362 S.E.2d at 708 (1987).
For these reasons, Van's Demurrer to the conspiracy counts cannot be sustained on the ground that the intracorporate immunity doctrine applies.
ii. Plaintiffs have alleged an underlying tort (statutory and common law conspiracy)
The tort of breach of fiduciary duty is well established in Virginia law. See, e.g., Allen Realty Corp. v. Holbert, 227 Va. 441, 446-47, 318 S.E.2d 592, 595 (1984). Van's claim that there is no underlying tort because Patty was authorized to make transfers of FH2 funds gives short shrift to factual inquiries that obviously should be determined at trial. An agent's authorization to transfer funds is seldom without restriction. See Buckle v. Marshall, 176 Va. 139, 10 S.E.2d 506 (1940)(discussing a trustee's authority to transfer funds against the trust's principal). In the case of a corporation, a transfer constituting malfeasance is not authorized. The question of whether Patty made transfers of funds belonging to each entity outside of his authorization goes to the very heart of the action at bar. If such transfers are found to constitute a breach of fiduciary duty, an underlying tort is present to support a conspiracy charge.
Therefore, the Court will not sustain Van's Demurrer to the conspiracy counts on the ground that an underlying tort is not alleged.
iii. FH2 has pleaded the requisite legal malice to state a claim for statutory business conspiracy
Section 18.2-499 of the Code of Virginia criminalizes conspiracies undertaken to "willfully and maliciously injur[e] another in his reputation, trade, business or profession . . ." (emphasis added). The "malice" required does not reflect its colloquial sense, which might suggest "hatred, personal spite, ill will or a desire to injure the plaintiff." Feddeman & Co. v. Langan Assocs., P.C., 260 Va. 35, 44, 530 S.E.2d 668, 674 (2000). Instead, the statutory requirement of 'malice' is met by a showing that a defendant "acted intentionally, purposefully and without legal justification." Id.
The Complaints unambiguously allege that Van acted intentionally and without legal justification. However, the statute further requires that malice be directed toward a particular end: "injuring another in his reputation, trade, business or profession." Va. Code. Ann. § 18.2-499. The Virginia Supreme Court has held that "[e]stablishing a conspiracy in violation of §§18.2-499 and -500 does not require proof that the conspirators' 'primary and overriding purpose is to injure another'"—only that such injury was part of the defendant's intent. Feddeman & Co., 260 Va. at 45, 530 S.E.2d at 674 (emphasis added).
The facts of Feddeman & Co. illustrate this principal. At issue was a "resignation plan"—eventually involving 25 of a company's 31 employees—which defendants used as "leverage" in a buyout negotiation. Id. at 43, 530 S.E.2d at 673. Essentially, the employee-defendants knew that an en masse resignation would cripple the business—such potential injury giving them a better negotiating posture. Id. at 45, 530 S.E.2d at 674. So while the injury to the accounting firm may not have been the defendants' primary or ultimate motive, the Virginia Supreme Court found that "[i]njury to the plaintiff was a known and intended result of the plan." Id.
Applying those principles to the case at bar, the proper inquiry is not whether Van and Patty knew their putative wrongdoing would injure FH2 and FWLMGR. Rather, the issue is whether part of their motive was to harm these entities. A typical "cash grab" does not per se suggest a motive to harm the injured party—perhaps reflecting merely a desire to benefit oneself in a manner that incidentally harms another. However, one element of the alleged scheme in particular may suggest such a motive vis-a-vis FH2: the fact that after the project members refused Van's request for a disposition fee for the Preserve in the amount of .75% of the property's sale price, Patty paid to Fortcap disposition fees of 1.0% for both projects.
Any punitive motive on Van's part may apply equally to Van's actions vis-a-vis FWLMGR. The alleged diversion of sale proceeds owed to FWLMGR took place after FWLMGR's owners rejected Van's demand that Fortcap be paid a disposition fee. The alleged "multi-tiered" scheme, the purpose of which the Complaints characterize as being "to strip" the two entities of funds, would clearly injure these same owners.
Whether Van intended to harm the business interests of FH2 and FWLMGR remains to be proven, and is an issue properly reserved for determination at trial. Given the context of actions at issue, however—a "stripping" of the funds of two entities in amounts in excess of Van's original demands—the Court finds that the statutory requirement of "malice" is sufficiently "pleaded, implied, and fairly and justly inferred" to survive demurrer.
The Court therefore will not sustain Van's Demurrer to the Statutory Conspiracy counts on the ground that the requisite malice has not been sufficiently pleaded.
iv. Plaintiffs have alleged the elements of conspiracy with requisite particularity (both conspiracy counts)
"[B]oth statutory and common law conspiracy claims must be pleaded with particularity and not mere conclusory language." TradeStaff & Co. v. Nogiec, 77 Va. Cir. 77, 84 (Va. Cir. 2008)(citing Bowman v. State Bank of Keysville, 229 Va. 534, 541, 331 S.E.2d 797, 802 (1985).) In Johnson v. Kaugers, the Richmond Circuit Court stated, in dicta, "Due to the nature of conspiracy, all details may not be known at the time of pleading. Still, it is not enough merely to state that a conspiracy took place." 14 Va. Cir. 172 at 176 (Va. Cir. 1988). Although Plaintiffs do not provide a wealth of detail, the Complaints do more than provide a mere conclusory statement that a conspiracy took place.
Bowman v. State Bank of Keysville provides a useful contrast with the case at bar. In Bowman, officers of one corporation allegedly conspired with Davis, an outsider, to terminate the Plaintiffs' employment. Id. at 536-38, 331 S.E.2d at 798-99. However, the Court noted that "there is no allegation that Davis met or talked with any of the five directors who voted to terminate the plaintiffs." Id. at 541, 331 S.E.2d at 802. The distinction with the case at bar is a subtle, but important one. In this case, there are no specific allegations of a particular meeting or communication between Van and Patty. However, as the sole members of two LLCs, they obviously had a significant and ongoing business relationship. Moreover, it is specifically alleged that Van had made a request to project owners for a disposition fee from the sale of the Preserve, and that—after the request was denied—Patty eventually paid two similar fees to Fortcap, an entity in which Van had a 50% interest.
These details recall other important language from Bowman. In finding the allegations to be merely conclusory, the Court—noting that some of the facts alleged were not consistent with Plaintiffs' overall theory—held that the conspiracy allegation was "based on inferences that are not fairly and justly drawn from the facts alleged." Id. There is no doubt that Plaintiffs' allegations, to be considered sufficiently pleaded, require the Court to make inferences about the nature and manner of the communications that took place between Van and Patty. The distinction with Bowman is that—considering the general context of the alleged actions and the Defendants pecuniary motives—the inferences required to conclude that Van and Patty conspired against Plaintiffs can indeed be "fairly and justly drawn."
Therefore, the Court will not sustain a demurrer on the ground that the conspiracy counts are not pleaded with the requisite particularity.
Finding no grounds upon which to sustain them, the Court OVERRULES Defendant's Demurrers to the statutory conspiracy and common law conspiracy counts.
Defendant (Fortcap) Demurrer to Count V, Unjust Enrichment, of FH2's Complaint
a. Positions of the Parties
Fortcap contends that the "voluntary payment doctrine" precludes FH2's recovery on a theory of unjust enrichment. Fortcap argues that because FH2 voluntarily made a payment, with full knowledge of the surrounding facts, FH2 is not entitled to recover such funds. Van cites cases from other jurisdictions in support of its contention that there need not have been an obligation to make the payment for the doctrine to apply.
FH2 claims that the voluntary payment doctrine does not apply because the funds at issue were not a "payment." In support of this proposition, FH2 cites Black's Law Dictionary's definition of payment: "the fulfillment of a promise, or the performance of an agreement . . . in a more restricted legal sense payment is the performance of a duty, promise, or obligation, or discharge of a debt or liability." Black's Law Dictionary (5th ed. 1979). FH2 asserts that the improper siphoning of its funds—in the absence of any obligation towards Fortcap—does not meet this definition.
A more current version of Black's Law Dictionary defines payment as "[p]erformance of an obligation by the delivery of money or some other valuable thing accepted in partial or full discharge of the obligation." Black's Law Dictionary (10th ed. 2014). --------
b. Discussion
Under Virginia law, the elements of unjust enrichment are as follows: (1) the plaintiff conferred a benefit upon the defendant, (2) the defendant was aware of that benefit, and (3) it would be unjust under the circumstances to allow defendant to retain the benefit. Microstrategy, Inc. v. Netsolve, Inc., 368 F. Supp. 2d 533, 537 (E.D. Va. 2005). Assuming as true the facts of the Complaint, (1) FH2 conferred to Fortcap the benefit of two large transfers of funds, (2) Fortcap received the funds and—as Van was actually an instigator of the transfer—could not have been unaware of this benefit, and (3) if the transfers of funds were without any basis and constituted a breach of fiduciary duty by Patty—aided by Van— it would be unjust to allow Fortcap to retain such an unwarranted benefit. FH2 has thus properly pleaded the elements of an unjust enrichment claim.
The voluntary payment doctrine is well-established in Virginia law. The Virginia Supreme Court has described the doctrine thusly:
Where a party pays an illegal demand with a full knowledge of all the facts which render such demand illegal, without an immediate and urgent necessity therefor, or unless to release his person or property from detention, or to prevent an immediate seizure of his person or property, such payment must be deemed voluntary, and cannot be recovered back. And the fact that the party at the time of making the payment, files a written protest, does not make the payment involuntary. Barrow v. Prince Edward County, 121 Va. 1, 2-3, 92 S.E. 910, 910 (1917)(quoting Lamborn v. Dickenson County, 97 U.S. 181, 187 (1877)).
FH2 argues that this doctrine, as the name suggests, only applies where there is a payment—and that the funds transferred here do not meet Black's Law Dictionary's definition of the term: "the fulfillment of a promise, or the performance of an agreement . . . in a more restricted legal sense payment is the performance of a duty, promise, or obligation, or discharge of a debt or liability, by the delivery of money or other value by the debtor to a creditor, where the money or other valuable thing is tendered and accepted as extinguishing debt or obligation in whole or in part." Indeed, FH2's Complaint states that there was no basis for the transfers, which they describe as being "convert[ed]" or "misappropriate[d]." (FH2 Compl. ¶ 46.)
There is no Virginia case that directly addresses what constitutes a "payment" for purpose of the voluntary payment doctrine, but the subject matter of Virginia cases invoking the doctrine—property and licensing tax payments, purchase money notes, sewer "hook up fees," and extra-contractual service fees paid to an employee—suggests that the doctrine does not apply to a case like the one at bar, where the payments allegedly were completely illicit on their face. See, e.g., Harper v. Virginia Dep't of Taxation, 250 Va. 184, 462 S.E.2d 892 (1995)(applying the voluntary payment doctrine to taxes assessed on pension income); D.R. Horton, Inc. v. Bd. of Supervisors for Warren, 285 Va. 467, 737 S.E.2d 886, (2013)(addressing sewer hookup fees).
In addition, the Court notes that application of the voluntary payment doctrine to the facts present at bar would also not serve the policy rationale of the voluntary payment doctrine, as stated by the Virginia Supreme Court: "advancing certainty and finality between parties in the resolution of their legal affairs." D.R. Horton, Inc. v. Bd. of Supervisors for Warren, 285 Va. 467, 473, 737 S.E.2d 886, 888 (2013). The policy is primarily aimed at protecting parties who engage in ostensibly legitimate transactions—only to have the payer discover later that payment was made under a mistake of law. Harper v. Virginia Dep't of Taxation, 250 Va. 184, 193, 462 S.E.2d 892, 897 (1995). The voluntary payment doctrine is not designed to protect a party who has received funds on account of the entirely illicit actions of another entity's employee—who is alleged to have breached his fiduciary duty by making unauthorized transfers of those funds—which that party had aided and abetted.
Therefore, Defendant's demurrer as to Count V of FH2's Complaint is OVERRULED.
Conclusion
For the reasons stated herein, the Court OVERRULES Van's demurrers as to Counts II, III, IV, of both Complaints and OVERRULES Fortcap's demurrer as to Count V of FH2's Complaint. The Court directs counsel for Plaintiff to prepare and circulate an Order consistent with the ruling in this opinion and submit it to the Court for entry within fourteen (14) days.
Sincerely,
/s/
Michelle J. Atkins
Judge MJA/jmk/dyl