Opinion
Chancery No. 21696
09-27-2002
Re: Sherry Wilson and Company, Inc. v. Generals Court, L.C., et. al.
Stephen C. Price, Esq.
Lawrence J. McClafferty, Esq.
305 Harrison Street, S.E., 3rd Floor
Leesburg, Virginia 20175 Daniel L. Grubb, Esq.
Thomas M. Dunlap, Esq.
15484 Loyalty Road
Waterford, Virginia 20197-1216 Gentlemen:
This case is before the Court on the demurrer filed by the defendant, JLK Real Estate Investment Corporation to the Amended Bill of Complaint. In the amended bill, the complainant, Sherry Wilson and Company, asserts that it has obtained a judgment against Generals Court, L.C. in this Court for an unpaid real estate commission. It is claimed that prior to the complainant having obtained judgment and while that collection action was pending, Generals Court, in default of its obligation to pay the complainant its commission, used the proceeds of sale of the Virginia property to acquire property in Arizona. Within a matter of weeks after complainant having obtained judgment against Generals Court for commissions due pursuant to its contract, Generals Court conveyed the Arizona property to JLK Real Estate Investment Corporation, an Arizona Corporation. Sherry Wilson and Company complains that this transfer was without consideration and with the intent to defraud; and that as a result of the transfer, Generals Court no longer has assets with which to satisfy the judgment.
The claims asserted by Sherry Wilson and Company are stated in three counts. Those are: aiding and abetting a fraud (Count 1), a violation of the Arizona statutes prohibiting fraudulent transfers (Count 2), and a violation of Arizona statutes limiting voluntary transfers. Plaintiff, inter alia, seeks damages against JKJ Real Estate Investment Corporation predicated upon its having aided and abetted the fraudulent transfer as well as the reconveyance of the Arizona property.
Long arm jurisdiction is predicated upon the defendant having transacted business and caused tortious injury in the Commonwealth. Va. Code Ann. §8.01-328.1. Complainant questions whether Virginia recognizes a separate tort action for aiding and abetting a fraud. On two occasions the Supreme Court of Virginia has recognized the right of an injured plaintiff to recover damages against person who aids and abets the principal actor. Thus, one who encouraged another to commit an assault could be held liable for the injury resulting from the other's actions. Daingerfield v. Thompson, 74 Va. ( 33 Gratt.) 136 (1880). Similarly, one who assists another to breach his fiduciary duty to the beneficiaries of a trust may be held jointly and severally liable for the losses sustained as a result of such breach. Patteson v. Horsley, 70 Va. (29 Gratt.) 263 (1877). More recently, Judge Kathleen H. Mackay has found claim founded upon the aiding and abetting of a fraud was sufficient to withstand demurrer. Kieft v. Becker, 2002 Va. Cir. LEXIS 33 (Fairfax County. 2002), See also Tysons Toyota, Inc. v. Globe Life Insurance Co., 1194 U.S. App. LEXIS 36692 (4th Cir. 1994).
Thus, unlike some jurisdictions, it may be said that the common law of the Commonwealth has looked with favor upon recovery in tort against those who aid and abet others in the commission of the civil wrong for which damages may be maintained. In order to recover damages against one who aids and abets in the commission of a fraud, it must be shown that not only the underlying fraud was committed but, "…that there was knowledge of this fraud on the part of the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud, and that damages to the plaintiff were proximately caused thereby."
37 Am. Jur. 2d Fraud and Deceit §302 (2002). Recognition of a cause of action for aiding and abetting does not end the inquiry regarding the legal sufficiency of complainant's claims.
The Arizona corporation is charged with having participated in a scheme to delay, hinder, and defraud a judgment creditor. Transfers of property in fraud of creditors are circumscribed by statute in Virginia. Va. Code Ann.§55-80. Recovery in damages may be had against a third party who knowingly assists in concealing a debtor's cash. Price v. Hawkins, 247 Va. 32 (1994). Where the property transferred is no longer available to satisfy the creditor's claims, the creditor may be able to recover the value of the property from the transferee. Id. at 38, 39 (dissent). No such allegations are present in this case. The extent to which an in personam judgment may be recovered has not been extended to those cases in which real property is the object of the suit is available to satisfy the creditor's claim. Id. The fact that the property is located outside the Commonwealth does not permit recovery in tort for damages that otherwise may not be recovered were the property to be located in Virginia. In its present form Count 1 does not state a cause of action.
Complainant contends that the Arizona corporations aided and abetted a fraud that has resulted in injury being caused in the Commonwealth. Under such circumstances, the law of Virginia would control. The "…established Virginia rule [is] that the law of the situs of the tort governs the substantive rights of the parties." McMillan v. McMillan, 219 Va. 1127, 1129 (1979). While the Court may direct a party properly before it to take certain action, in default of the party to comply, it cannot convey such property. Complete relief may not be possible The demurrer will be sustained as to counts 2 and 3.
The Court will grant the complainant ten days from the date of this letter opinion to further amend their pleadings should they be so advised.
Mr. Grubb may prepare an Order consistent with this opinion, to which counsel may note their exception. The Order shall be presented by October 5, 2002.
Very truly yours,
Thomas D. Horne