Levine v. McLeskey , 164 F.3d 210 ( 1998 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
GALE M. LEVINE; MARINA SHORES,
LTD.,
Plaintiffs-Appellants,
v.
F. WAYNE McLESKEY,
Defendant-Appellee,
and
W. HAYES DAUGHTREY; COHN-
PHILLIPS, LTD.; MICHAEL F. BELL;
No. 95-1799
ISBRANDTSEN, FANCHER & JEFFORDS,
P.C.; CLARK & STANT, P.C.; MARION
B. GOODMAN, Employee of
Lynnhaven Dry Storage Marina,
Incorporated; CHARLES W. GUTHRIE,
Employee of Lynnhaven Dry
Storage Marina, Incorporated;
FENTON C. DAUGHTREY; CHARLES
COLLETT; DAVID I. LEVINE;
JERROLD G. WEINBERG,
Movants.
Appeal from the United States District Court
for the Eastern District of Virginia, at Norfolk.
Raymond A. Jackson, District Judge.
(CA-94-512-2)
Argued: December 4, 1995
Decided: December 31, 1998
Before WIDENER, ERVIN, and WILKINS, Circuit Judges.
_________________________________________________________________
Affirmed in part, vacated in part, and remanded by published opinion.
Judge Widener wrote the opinion, in which Judge Ervin and Judge
Wilkins concurred.
_________________________________________________________________
COUNSEL
ARGUED: Wyatt B. Durrette, Jr., DURRETTE, IRVIN, LEMONS
& BRADSHAW, P.C., Richmond, Virginia, for Appellants. Conrad
Moss Shumadine, Walter DeKalb Kelley, Jr., WILLCOX & SAV-
AGE, P.C., Norfolk, Virginia, for Appellee. ON BRIEF: Arnold C.
Moore, Jr., Barrett E. Pope, DURRETTE, IRVIN, LEMONS &
BRADSHAW, P.C., Richmond, Virginia; J. Gray Lawrence, Jr.,
HOWELL, DAUGHERTY, BROWN & LAWRENCE, Norfolk, Vir-
ginia, for Appellants. Frank A. Edgar, WILLCOX & SAVAGE, P.C.,
Norfolk, Virginia, for Appellee.
_________________________________________________________________
OPINION
WIDENER, Circuit Judge:
Plaintiffs Gale M. Levine (Levine) and Marina Shores, Ltd.
(Marina Shores or the marina) appeal the grant of summary judgment
in favor of defendant F. Wayne McLeskey (McLeskey) on all counts
of a 15-count complaint alleging federal antitrust and various state
law claims. We agree with the district court that the litigation which
plaintiffs allege was objectively baseless was not sham, but hold that
the court erred in deciding that the plaintiffs were collaterally estop-
ped from relitigating facts found by a jury in a state court trial when
those facts as found did not support a final judgment. Our decision
requires that summary judgment be vacated on plaintiff Marina
Shores' claims on Count II (Sherman Act, 15 U.S.C.§ 1), Count V
(Virginia Antitrust Act, Va. Code § 59.1-9.5), and Count XV (Vir-
ginia Conspiracy Act) since that part of its judgment was essentially
based on the same collateral estoppel. We affirm the district court's
grant of summary judgment on Counts I, III, IV, that part of Count
V based on the Virginia Antitrust Act, Va. Code§ 59.1-9.6, VII, VIII,
IX, X, XII, and XIII for the reasons stated in its opinion, Levine v.
2
McLeskey, 881 F. Supp. 1030 (E.D. VA 1995). 1 We remand for fur-
ther proceedings consistent with this opinion.
I.
There being no claim they are erroneous, we adopt the facts set
forth in the district court's opinion, Levine , 881 F. Supp. at 1036-39,
and summarize the following facts which are pertinent to this appeal.
Defendant McLeskey operates Lynnhaven Dry Storage Marina,
Inc. (Lynnhaven Marina) which for many years has been the principal
dry storage marina in its area of Virginia Beach, Va. In 1989, plaintiff
Levine and her husband formed Marina Shores to develop a complex
including dry boat storage, wet slips, stores, and a restaurant to com-
pete with Lynnhaven Marina. Levine intended to build an apartment
complex and shopping centers on nearby land following construction
of the marina.
During construction, Levine entered into an agreement with one
Norman Cohn to open and manage the marina's restaurant. Cohn
named the restaurant Hoppers II and formed Cohn-Phillips, Ltd. to
operate it. On October 5, 1990, Cohn-Phillips signed a 15-year lease
for the restaurant that required monthly rental payments. To provide
for equipment and start-up costs, Levine gave Cohn a credit line of
approximately $95,000 that required Cohn to repay advances within
two days of demand or lose the right to operate the restaurant. Levine
explained repayment would be required when construction was com-
plete.
Levine completed construction of the marina in April, 1991 and a
few weeks later demanded Cohn repay the credit line. Needing
money, Cohn approached McLeskey, who purchased 50% of Cohn
Phillips. McLeskey and the Levines have had a long-standing dislike
for each other that predates the current dispute.
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1 Plaintiff Levine does not appeal the district court's ruling on her
claims for defamation, Count VI, and intentional infliction of emotional
distress, Count XI of the complaint.
3
When Cohn-Phillips failed to pay the rent due for April and May
1991, Marina Shores exercised its contractual right to terminate the
lease on June 2, 1991. On June 3, 1991, Cohn-Phillips tendered the
delinquent rent,2 which was rejected, and refused to vacate, so on June
7, 1991, Marina Shores filed an unlawful detainer action in the circuit
court of Virginia Beach, seeking possession and damages for misman-
agement of the restaurant (the Hoppers case). Marina Shores con-
tended Cohn-Phillips breached the lease not only by failing to pay
rent but also by management acts or omissions that contravened the
lease's requirements.3 Cohn-Phillips counterclaimed, alleging that
from June 3, 1991 to the date of trial, Marina Shores breached the
lease, tortiously interfered with Cohn-Phillips' business expectancy,
and conspired to injure Cohn-Phillips' business. Marina Shores, 435
S.E.2d at 138.
The circuit court of Virginia Beach granted partial summary judg-
ment to Cohn-Phillips on the ground that the lease provision authoriz-
ing Marina Shores to terminate for non-payment of rent was invalid
because it did not require Marina Shores to serve notice to pay or quit
and then wait five days before seeking possession. 435 S.E.2d at 137-
38. The case was tried on Marina Shores' other claims of breach and
Cohn-Phillips' counterclaims. On April 1, 1992, the jury found in
Cohn-Phillips' favor on all claims and awarded damages, although the
circuit court set aside the conspiracy verdict.
On appeal, the Virginia Supreme Court reversed the judgment for
Cohn-Phillips and held that Cohn-Phillips' failure to pay rent was a
breach that, under the lease, entitled Marina Shores to terminate with-
out notice or demand. 435 S.E.2d at 138. Since Cohn-Phillips' coun-
terclaims were based on Marina Shores' conduct after terminating the
lease, and therefore premised on the notion that the termination was
improper, the Virginia Supreme Court's decision effectively vacated
Cohn-Phillips' damage award. 435 S.E.2d at 138.
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2 The date of the tender was stated by the Virginia Supreme Court in
Marina Shores v. Cohn-Phillips, Ltd., 435 S.E.2d 136, 138 (Va. 1993).
3 The district court details the factual allegations of Marina Shores'
mismanagement claims at 881 F. Supp. 1039.
4
The Virginia Supreme Court issued its opinion September 17,
1993. The parties continued to litigate in state court, however, both
before and after the opinion was issued and up to the March 19, 1994
filing date of this suit. The district court's opinion describes the
details and status of this litigation at 881 F. Supp. 1037-39.
Plaintiffs grounded the majority of their claims in the present
action on 1) the allegation that Cohn-Phillips' counterclaims in the
Hoppers case and the litigation it subsequently initiated were objec-
tively baseless and thus a sham, and 2) the allegations of mismanage-
ment asserted to demonstrate a breach of the lease in the Hoppers
case. The district court held that neither the counterclaims nor the
subsequent litigation was sham, and that plaintiffs were collaterally
estopped from relitigating the factual allegations relating to Cohn-
Phillips' operation of the restaurant that plaintiffs had advanced in the
Hoppers case.
We affirm the district court's holding that the counterclaims and
other litigation alleged to be objectively baseless were not sham, for
the reasons stated in its opinion. Levine, 881 F. Supp. at 1041-44. We
disagree, however, that the judgment in the Hoppers case, which the
Virginia Supreme Court reversed, precludes the plaintiffs from pre-
senting evidence relating to Cohn-Phillips' operation of the restaurant
and, as well, to plaintiffs' claim of a conspiracy.
II.
The district court noted correctly that the preclusive effect of a
state court judgment in federal court depends on state law, and that
for a collateral estoppel to be set up, Virginia law requires:
(1) the parties to the two proceedings must be the same, (2)
the issue of fact sought to be litigated must have been actu-
ally litigated in the prior proceeding, (3) the issue of fact
must have been essential to the prior judgment, and (4) the
prior proceeding must have resulted in a valid, final judg-
ment against the party against whom the doctrine is sought
to be applied.
5
Levine, 881 F. Supp. at 1040 (citing Glasco v. Ballard, 452 S.E.2d
854, 855 (Va. 1995)).
The court erred, however, in concluding that the Virginia Beach
circuit court fact finding based on the jury verdict in favor of Cohn-
Phillips remained valid and supportive of collateral estoppel although
it did not support a final judgment.4 The Virginia Beach circuit court
jury heard the case on plaintiffs' allegations of mismanagement and
Cohn-Phillips' counterclaims. But the Virginia Supreme Court con-
cluded:
As stated by Cohn-Phillips on brief, all damages claimed for
breach of contract, tortious interference with a business
expectancy, and conspiracy were "for the time period com-
mencing June 3[, 1991,] and continuing on up to the date of
trial." Before any alleged damages were sustained, however,
the lease had been lawfully terminated by Marina Shores
because of Cohn-Phillips' default and breach. Therefore, all
rights that may have arisen by virtue of the lease had been
terminated. Thus, Cohn-Phillips' claims have no merit.
Marina Shores, 435 S.E.2d at 138. Thus the final judgment was not
based on fact finding favorable to Cohn-Phillips. There being no final
judgment based on fact finding favorable to Cohn-Phillips, there is no
fact finding which can be given preclusive effect against plaintiffs as
to the operation of the restaurant as a part of a conspiracy. South Car-
olina Nat'l Bank v. Atlantic States Bankcard Ass'n , 896 F.2d 1421,
1430 (4th Cir. 1990) ("Reversal of a decision renders it invalid, and
application of collateral estoppel clearly should not be based upon an
invalid decision."). The fact that the Virginia Supreme Court reversed
the circuit court "on the issue of whether the lease was properly termi-
nated due to nonpayment of rent, not on the manner of Hoppers oper-
ation," 881 F. Supp. at 1041, will not necessarily preclude plaintiffs'
claims in this action since "[i]f the appellate court terminates the case
by final rulings as to some matters that leave it unnecessary to resolve
other matters, preclusion is limited to the matters actually resolved by
the appellate court." 18 Wright, Miller & Cooper, Federal Practice
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4 As noted, the jury's verdict favorable to Cohn-Phillips based on con-
spiracy was set aside by the trial court.
6
and Procedure, § 4432, at 302 (1981). Thus, the factual issue that is
precluded by the Hoppers case and the decision of the Virginia
Supreme Court is that evidence supporting Marina Shores termination
of the restaurant lease for Cohn-Phillips' failure to pay rent.
III.
The district court granted summary judgment on a basis other than
collateral estoppel on plaintiffs' claims at Counts I, III, IV, VII, VIII,
IX, X, XII, and XIII, and also that part of plaintiffs' claim on Count
V under the Virginia Antitrust Act, Va. Code § 59.1-9.6 (Monopoly).
We affirm the district court's grant of summary judgment on these
counts for the reasons sufficiently stated in its opinion.
That leaves for consideration Count II, that part of Count V under
the Virginia Antitrust Act, § 59.1-9.5 (Conspiracy); and Counts XIV
and XV.
The district court granted judgment in favor of the defendant on
Count II, which was under § 1 of the Sherman Act, 15 U.S.C. § 1,
because of its holding that Marina Shores could not satisfy the con-
spiracy element, by this referring to its holding on collateral estoppel.
Because of our holding on collateral estoppel, as explained above,
that part of the district court's judgment as to Marina Shores' claim
under Count II, § 1 of the Sherman Act, must be vacated and
remanded for further consideration by the district court. We express
no opinion on the merits of, or defenses to, that claim other than that
Marina Shores is not collaterally bound in its assertion of a claim
under Count II by the fact finding relied upon by the district court in
its decision.
That part of Count V of the complaint, which was under the Vir-
ginia Antitrust Act, § 59.1-9.5, comparable to the claim under § 1 of
the Sherman Act in Count II of the complaint, must be vacated for the
same reason and remanded for further consideration by the district
court. We express no opinion on the merits of, or defenses to, that
claim, also, other than as to the lack of collateral estoppel effect of
Marina Shores, 435 S.E.2d 136, as related above.
7
Counts XIV and XV of the complaint are Levine's and Marina
Shores' claims under the Virginia Conspiracy Act, Va. Code § 18.2-
499. Since the Virginia Conspiracy Act requires a conspiracy, "a
combination of two or more persons," Allen Realty Corp. v. Holbert,
227 Va. 441, 449 (1984), we construe the holding of the district court
to be that it granted summary judgment on Counts XIV and XV
because of its holding as to the collateral estoppel effect of the fact
finding in Marina Shores, 435 S.E.2d 136, which we have discussed
above. Its judgment as to Counts XIV and XV also must be vacated
and remanded for further consideration by the district court. As with
our holding on Count II and that part of Count V under the Virginia
Antitrust Act relating to a conspiracy, we express no opinion on the
merits of, or defenses to, Counts XIV and XV other than the fact that
there is no collateral estoppel effect with respect to the fact finding
relied upon by the district court in its decision.
IV.
Our holding in this opinion with respect to sham litigation remains
in full force, however.
On remand, there may be asserted in defense to the plaintiffs'
claims on Counts II, V (Va. Code § 59.1-9.5), XIV and XV any
defense except the collateral estoppel relied upon by the district court
in its decision appealed from.
The judgment of the district court as to Counts I, III, IV, VII, VIII,
IX, X, XII, XIII, and that part of Count V relating to Va. Code § 59.1-
9.6 is accordingly
AFFIRMED.
The judgment of the district court as to Counts II, XIV, XV, and
that part of Count V relating to Virginia Code § 59.1-9.5 is accord-
ingly
VACATED AND REMANDED
FOR FURTHER CONSIDERATION.
8