Petr Bocek v. JGA Associates, LLC ( 2015 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-1208
PETR BOCEK, M.D., PHD,
Plaintiff - Appellant,
v.
JGA ASSOCIATES, LLC; JOSEPH P. AMATO,
Defendants – Appellees,
and
ALLERGY CARE CENTERS, VIRGINIA, INC.; A2 MEDICAL GROUP,
INC.,
Defendant,
LENA BOCEK,
Movant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:11-cv-00546-CMH-JFA)
Argued: March 24, 2015 Decided: June 18, 2015
Before TRAXLER, Chief Judge, and WILKINSON and NIEMEYER, Circuit
Judges.
Reversed and remanded by unpublished opinion. Chief Judge
Traxler wrote the opinion in which Judge Niemeyer joined. Judge
Wilkinson wrote a separate concurring opinion.
ARGUED: S. Micah Salb, LIPPMAN, SEMSKER & SALB, LLC, Bethesda,
Maryland, for Appellant. Kristen Michelle Kanaskie, SHER,
CUMMINGS AND ELLIS, PLLC, Arlington, Virginia, for Appellees.
ON BRIEF: Mary E. Kuntz, Ph.D., LIPPMAN, SEMSKER & SALB, LLC,
Bethesda, Maryland, for Appellant. David E. Sher, Mark D.
Cummings, SHER, CUMMINGS AND ELLIS, PLLC, Arlington, Virginia,
for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
TRAXLER, Chief Judge:
Petr Bocek brought this action against business consultant
Joseph Amato and two companies associated with Amato after the
defendants purchased a medical practice for themselves rather
than for Bocek. Following a bench trial, the district court
granted judgment in favor of the defendants, and Bocek appeals.
We reverse and remand for a new trial.
I.
Plaintiff Petr Bocek is a medical doctor specializing in
the treatment of allergies. Defendant Joseph Amato is the
manager and sole member of defendant JGA Associates, LLC, a
business consulting firm.
Bocek contacted Amato seeking assistance with the formation
and financing of a new allergy care medical practice. On
November 10, 2010, the parties entered into a contract (the
“Consulting Agreement”) through which JGA agreed “to review and
report on the feasibility of the proposed allergy medicine
practice and prepare a business proposal for funding a start-up
medical practice” and “render such other services as may be
agreed upon by [Bocek] and [JGA].” J.A. 221. The agreement
provided that JGA would have “the right to act [as] an agent
representing [Bocek] to Interested Parties during the term of
this Agreement.” J.A. 221. (Amato clarified that “Interested
Parties” in that context referred to prospective lenders.) The
3
agreement also provided that JGA would be compensated through
“development fees” (hourly billing for consulting services) and
a “completion fee” of two percent of the face amount of any
business loan that JGA arranged.
On November 15, five days after signing the Consulting
Agreement, Bocek asked Amato about the feasibility of buying an
existing medical practice rather than starting a new practice.
Bocek told Amato that Allergy Care Centers (“ACC”), where Bocek
had previously worked, was being offered for sale by the
administrator of the estate of ACC’s owner, who had died two
years earlier. Bocek noted that the Estate was burdened with
taxes and that the practice was profitable, and he suggested
that reductions in offices and staff could make it even more so.
Amato responded positively, explaining that “[t]he acquisition
of an existing operating practice is always more attractive if
the price and the historic financial performance make sense.”
J.A. 225.
Bocek informed Amato in an email on December 1 that ACC was
currently owned by the estate of Charles M. Valentine (the
“Estate”) and that Peter Klenk was the lawyer handling the
Estate. The email stated that Bocek was unsure how to confirm
that ACC was for sale and, if it was, what price the estate was
asking, but that Bocek would want an independent appraisal
regardless. Bocek also told Amato that his acquisition of ACC
4
might be complicated because he had been fired from ACC and was
in the process of negotiating a severance package, and Bocek
asked Amato to pursue the purchase of ACC without revealing
Bocek’s identity as the buyer.
By that afternoon, Amato had communicated with Klenk and
informed Bocek that ACC was in fact on the market. Amato told
Bocek that he would assemble a checklist of information that he
would need to review and he would include any special requests
from Bocek when he communicated again with Klenk. Amato also
told Bocek that the purchase would “be considered an asset-only
transaction.” J.A. 237. On December 15, JGA sent Bocek an
email containing a historical financial analysis, a preliminary
business valuation report, as well as an excel document he had
created regarding ACC’s accounting summaries. Bocek spoke to
Amato the next day regarding these documents.
The evidence regarding the conversations between Bocek and
Amato is somewhat in dispute. Nevertheless, it appears that
Bocek was concerned that he might not have the cash available to
make a sufficient down payment. Amato testified that for that
reason, and because Bocek wanted to keep his name out of the
transaction with the Estate, he was exploring a number of
different ways to structure the deal, including a mezzanine
lending structure. Under that structure, a lender would have
some rights to convert its loan to an ownership or equity
5
interest in the practice if the loan were not timely repaid in
full.
On December 23, Amato sent Bocek an email informing him
that JGA had “put in a closed bid to purchase ACC on Monday . .
. to attempt to secure a position in the possible acquisition of
ACC,” that the law firm Klenk had hired was considering the
offer, and that they “could begin a formal due diligence process
with ACC.” J.A. 265. Amato added that “there are still many
questions both our firm and you may have regarding the
transaction.” J.A. 265. For that reason, Amato stated that he
“intend[ed] to move forward based on a few specific parameters.”
J.A. 265. As is relevant here, Amato stated that “[JGA] (or an
alternate holding company) intends to initially purchase the
practice with the direct intention of selling the practice (or
the holding company) to” Bocek. J.A. 265.
In response, on December 27 Bocek sent Amato an email
confirming that he understood that he would “be the owner of ACC
from the day of purchase.” J.A. 267. However, he expressed
uncertainty regarding how the purchase would be structured and
who would provide the down payment. The next day Amato emailed
Bocek, once again confirming that JGA’s goal was to make Bocek
the owner of ACC from the day of purchase. In the end, however,
although Amato and Bocek discussed several options regarding how
the deal would be structured, they never resolved that issue.
6
On January 22, 2011, Amato sent Bocek an invoice for his
services. The invoice reflected Bocek’s prior payment of
$3,800.00 and sought an additional $4,574.40 “for expanded hours
and third-party costs associated with the project development
and acquisition negotiations for the purchase of the Allergy
Care Center business operation on behalf of JGA Associates and
Dr. Petr Bocek.” J.A. 291. On January 31, Bocek sent an email
to JGA indicating that his lawyers would be in contact with JGA
to put in place a new written contract since the Consulting
Agreement was created under the assumption that Bocek would be
developing and obtaining financing for a new practice rather
than acquiring an existing one.
On February 3, Amato sent the Estate a Letter of Intent
(“LOI”) through which “JGA Associates, LLC, or its assigns”
offered to purchase ACC’s assets for $1,000,000. J.A. 301. The
LOI obligated the parties to negotiate in good faith, but it was
otherwise not binding; until the execution of a mutually
agreeable asset purchase agreement, either side could walk away
from the transaction without penalty. The Estate accepted the
offer and returned an executed copy of the LOI to Amato late in
the afternoon on February 8.
Earlier that same day (February 8), Amato had visited one
of the ACC offices to meet with Terri Crook, ACC’s practice
manager. During the meeting, Crook told Amato that Bocek had
7
been fired after he sexually harassed employees and used another
doctor’s prescription pad to forge prescriptions for himself.
This was the first Amato had heard of these issues; although
Bocek had told Amato that he had been fired, he had never
provided any details about what happened, and Amato had never
asked. After meeting with Crook, Amato stalled and put off
Bocek’s various inquiries until he could verify what he had
learned.
On February 15, the Estate filed a petition in a
Pennsylvania “Orphan’s Court” seeking approval for the sale of
ACC. Bocek was then unaware that the sale was moving forward −
Amato had not informed Bocek that he submitted the LOI to the
Estate on February 3 or that the LOI had been accepted.
On February 17, after reviewing documents that confirmed
Crook’s information, Amato sent a letter notifying Bocek of his
intent to terminate their contractual relationship in 10 days,
in accordance with the terms of the Consulting Agreement. Amato
explained the termination in general terms, stating that during
the due-diligence process, “it became apparent . . . that your
involvement in any potential transaction would . . . sour the
deal. It also became evident that we could not move forward
with your participation in any potential transaction without the
possibility of serious repercussions thereafter.” J.A. 317.
8
Counsel for Bocek responded on February 22. Among other
things, counsel noted that Amato, as Bocek’s agent, had a
continuing duty of loyalty to Bocek and that Amato would be
breaching his contractual and fiduciary duties “if [he] were to
turn the acquisition of ACC into a deal which is of benefit to
[him].” J.A. 629. Nevertheless, on March 2, Amato incorporated
a new company, A2 Medical Group, Inc. (“A2”), to serve as the
purchaser of ACC’s assets. Brian August, Jeffrey Renzulli, and
Amato were named as directors of A2, with Amato and Brian August
each owning 49 percent of A2’s shares and Carolyn August owning
two percent. JGA at some point assigned its interests in the
transaction to A2, and the Estate and A2 executed an asset
purchase agreement on May 13. Ten days later, the Orphan’s
Court approved the sale, and the sale closed on June 22.
Bocek testified that after Amato terminated the agreement,
Bocek simply wanted Amato to give Bocek the due diligence
documents and analysis that Amato had developed for him, and
that Bocek was prepared to purchase ACC himself. Bocek never
made an offer, however.
After unsuccessfully seeking an injunction to prohibit
Amato and JGA from buying ACC, Bocek filed an Amended Complaint
asserting four causes of action against Amato, JGA, and A2: (1)
fraudulent conveyance and constructive trust; (2) breach of
fiduciary duties; (3) breach of contract; and (4) breach of
9
fiduciary duties as joint venturers. The district court granted
summary judgment in favor of the defendants and dismissed the
case.
It is the breach-of-fiduciary-duties claim that is at issue
in this appeal. In his Amended Complaint, Bocek alleged that
Amato and JGA, as his agents, owed him various fiduciary duties,
including a duty of loyalty. Bocek alleged that he brought the
ACC business opportunity to JGA during the existence of the
agency relation, and that JGA was acting on behalf of Bocek when
it began negotiating with the Estate and conducting due
diligence. Bocek alleged that the defendants breached their
fiduciary duties by, inter alia, using information obtained on
Bocek’s behalf to pursue the acquisition of ACC for themselves,
refusing to return the due diligence materials to him, and, of
course, buying ACC for their own benefit rather than for Bocek's
benefit.
Regarding this claim, the district court held that because
the fiduciary duties at issue arose from the Consulting
Agreement, not independently of it, Bocek was precluded as a
matter of law from recovering in tort for the
breach. See Augusta Mut. Ins. Co. v. Mason, 645 S.E.2d 290, 293
(Va. 2007) (where single act can support a claim for breach of
contract and a claim for breach of a duty arising in tort, “in
order to recover in tort, the duty tortiously or negligently
10
breached must be a common law duty, not one existing between the
parties solely by virtue of the contract” (internal quotation
marks omitted)); see also Station #2, LLC v. Lynch, 695 S.E.2d
537, 540 (Va. 2010) (“[A]n omission or non-performance of a duty
may sound both in contract and in tort, but only where the
omission or non-performance of the contractual duty also
violates a common law duty.”).
On appeal, we affirmed regarding the breach-of-contract,
fraudulent-conveyance, and joint-venture claims. See Bocek v.
JGA Assocs., LLC, 537 F. App’x 169, 179 (4th Cir. 2013).
However, we reversed concerning the claim for breach of
fiduciary duties, with Chief Judge Traxler and Judge Niemeyer
articulating slightly differing rationales for their decisions,
and with Judge Wilkinson dissenting. See id. at 176-77
(Traxler, C.J.); id. at 179-80 (Niemeyer, J., concurring in part
and concurring in the judgment); id. at 180-82 (Wilkinson, J.,
concurring and dissenting).
Chief Judge Traxler observed that
Bocek alleged that he brought the ACC business
opportunity to JGA during the existence of the agency
relation, and that JGA was acting on behalf of Bocek
when it began negotiating with the Estate and
conducting due diligence. Bocek alleged that the
defendants breached their fiduciary duties by, inter
alia, using information obtained on Bocek’s behalf to
pursue the acquisition of ACC for themselves, refusing
to return the due diligence materials to him, and, of
course, buying ACC for their own benefit rather than
for Bocek’s benefit.
11
Id. at 176 (Traxler, C.J.). Chief Judge Traxler reasoned that
if these factual allegations were proven at trial, the
defendants’ conduct would constitute a clear breach of fiduciary
duty. See id. (Traxler, C.J.). Chief Judge Traxler concluded
that Augusta Mutual, on which the district court had relied, did
not bar recovery on a breach-of-fiduciary-duty theory. He
further concluded that even if the fiduciary duty arose from
contract, “recovery in tort is permitted in cases [such as this
one] where the tort was committed after the termination of the
parties’ contract.” Id. at 177 (Traxler, C.J.).
In a separate opinion, Judge Niemeyer explained that the
actions Bocek alleged, if proven at trial, would “give rise to a
classic claim for breach of the duty of loyalty inherent in the
agency agreement that existed between Bocek and JGA.” Id. at
179 (Niemeyer, J., concurring in part and concurring in the
judgment). Judge Niemeyer also concluded that “[t]he fact that
JGA terminated the agency agreement before taking advantage of
the opportunity that came to it while it was an agent provides
no defense.” Id. at 179-80 (Niemeyer, J., concurring in part
and concurring in the judgment). 1
1
In dissent, Judge Wilkinson reasoned that the
defendants’ duty to refrain from using Bocek’s information arose
contractually, and thus that the defendants’ use of the
information they acquired from Bocek and on his behalf did not
give rise to a viable tort claim. See Bocek v. JGA Assocs.,
(Continued)
12
On remand, following a bench trial, the district court
granted judgment to the defendants. For reasons that we will
discuss, the district court ruled that Bocek did not prove that
the defendants had an agency relationship with him such that
fiduciary obligations would arise and that, even if they had
breached fiduciary duties owed to Bocek, Bocek failed to prove
damages from any breach.
II.
On appeal, Bocek challenges both the ruling that Amato was
not acting as Bocek’s agent with regard to the possible purchase
of ACC and the ruling that Bocek failed to prove any damages
even if he did prove that the defendants breached fiduciary
duties they owed to him. We consider these rulings seriatim.
A.
We begin by addressing the district court’s analysis of the
agency issue. The district court stated that “[i]n seeking to
demonstrate an agency relationship, Bocek seemingly attempts to
implicate two different ‘agreements’: (1) the written
Consulting Agreement; and (2) an oral straw-purchase agreement
for the purchase of Allergy Care Centers.” J.A. 654. The court
determined that the written agreement did not demonstrate that
LLC, 537 F. App’x 169, 180-82 (4th Cir. 2013) (Wilkinson, J.,
concurring and dissenting).
13
the defendants agreed to act as Bocek’s agent to purchase the
ACC because that agreement provided for JGA’s services in
conjunction with a new, not an existing, medical practice. And,
regarding a possible oral agency agreement, the district court
noted that there was no meeting of the minds between the parties
such as would be necessary to create a binding contract for the
defendants to make a straw purchase of ACC. The district court
observed that while the parties had discussed a number of
options of how such a purchase might be accomplished, they had
not agreed upon any particular method, and thus they had formed
only a nonbinding agreement to agree regarding a straw purchase.
For both of these reasons, the district court concluded that
“Bocek did not carry his burden to establish an agency
relationship between himself and JGA or Amato, and therefore he
fail[ed] to establish that JGA or Amato owed him a fiduciary
obligation.” J.A. 660.
On appeal, Bocek does not specifically challenge either
premise of the district court’s conclusion that he failed to
establish the agency relationship. Rather, Bocek’s position is
that the district court erred in concluding that, in attempting
to demonstrate the agency relationship, he relied only on the
existence of the written agreement and on a binding oral
contract for Amato to purchase ACC on Bocek’s behalf. Bocek
maintains that the parties’ conduct after they entered into the
14
written agreement clearly demonstrated the existence of the
agency relationship. 2 And Bocek claims that he was not required
to show the formation of an oral agency contract in order to
show that Amato actually became Bocek’s agent regarding the
possible purchase. Rather, Bocek maintains he needed only to
show that the parties each consented to Amato’s acting on
Bocek’s behalf and under his control with regard to the efforts
to purchase ACC. Bocek contends that he clearly made that
showing based on the undisputed facts proven at trial. We agree
with Bocek on all of these points.
On consideration of an appeal following a bench trial, we
review the district court’s factual findings for clear error and
its legal conclusions de novo. See Universal Furniture Int’l,
Inc. v. Collezione Europa USA, Inc., 618 F.3d 417, 427 (4th Cir.
2010) (per curiam). A factual finding is clearly erroneous
“when although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm
2
Indeed, the proposed conclusions of law Bocek
submitted to the district court following the trial included the
legal conclusion that “The Defendants were Bocek’s agents for
purposes of acquiring ACC. Extensive email exchanges between
Dr. Bocek and Mr. Amato establish that Amato undertook steps
toward the purchase of ACC on behalf of, and at the direction
of, Bocek. JGA’s billing for these services to Dr. Bocek
confirm the relationship.” Plaintiff’s Proposed Findings of
Fact and Conclusions of Law 13-14, Docket No. 206, Civil Action
No. 1:11-cv-00546 (E.D. Va. Dec. 16, 2013).
15
conviction that a mistake has been committed.” United States v.
United States Gypsum Co., 333 U.S. 364, 395 (1948).
In Virginia, “[a]gency is a fiduciary relationship
resulting from one person’s manifestation of consent to another
person that the other shall act on his behalf and subject to his
control, and the other person’s manifestation of consent so to
act.” Reistroffer v. Person, 439 S.E.2d 376, 378 (Va. 1994).
Such a fiduciary relationship is found when “special confidence
has been reposed in one who in equity and good conscience is
bound to act in good faith and with due regard for the interests
of the one reposing the confidence.” H-B Ltd. P’ship v. Wimmer,
257 S.E.2d 770, 773 (Va. 1979). Regarding the right to control,
“direct evidence is not indispensable – indeed frequently is not
available – but instead circumstances may be relied on, such as
the relation of the parties to each other and their conduct with
reference to the subject matter of the contract.” Acordia of
Va. Ins. Agency v. Genito Glenn, L.P., 560 S.E.2d 246, 250 (Va.
2002) (alteration and internal quotation marks
omitted); see Royal Indem. Co. v. Hook, 157 S.E. 414, 419 (Va.
1931) (“Frequently [agency] is established and has, of
necessity, to be established by circumstantial evidence.”).
“Agency may be inferred from the conduct of the parties and from
the surrounding facts and circumstances.” Drake v. Livesay, 341
S.E.2d 186, 189 (Va. 1986). “Whether an agency relationship
16
exists is a question to be resolved by the fact finder unless
the existence of the relationship is shown by undisputed facts
or by unambiguous written documents.” Acordia of Va. Ins.
Agency, 560 S.E.2d at 250 (alteration and internal quotation
marks omitted); see also Schwartz v. Brownlee, 482 S.E.2d 827,
829 (Va. 1997) (explaining that “[w]hen there is no substantial
conflict in the facts and circumstances disclosed by the
evidence, it becomes a question of law to be decided by the
court whether one party was the agent of another” (alterations
and internal quotation marks omitted)).
There can be no doubt as to the existence of an agency
relationship after the point that the parties entered into the
Consulting Agreement. At that point, Bocek was paying JGA for
Amato’s services. Amato himself conceded that he understood
that, at least initially, “what [he was] to be doing, [he would
be] doing it for Dr. Bocek” and “acting subject to his
instructions and his directions.” J.A. 88. And, the agreement
plainly established JGA’s authority to act as his agent with
regard to the lenders from whom Bocek sought financing.
It is certainly true, as the district court observed, that
the parties entered into the Consulting Agreement with the
intention that JGA would provide services relating to the
formation of a new medical practice. However, five days after
entering into that agreement, Bocek raised the possibility that
17
he might purchase ACC or that Amato might advise him or assist
him in so doing. Amato immediately undertook to help Bocek
determine the feasibility of the idea, including communicating
with the trustee responsible for the sale and obtaining
information about ACC’s assets on Bocek’s behalf. The only
conclusion to be drawn from the record is that the parties both
assented to JGA’s acting as Bocek’s agent in their dealings with
the Estate selling ACC just as they had contemplated JGA
representing Bocek to possible lenders.
Indeed, Amato himself testified that, at least initially,
he was “doing the due diligence work regarding ACC at Dr.
Bocek’s request” pursuant to their agreement “to help [Bocek]
with the medical practice.” J.A. 104-05. See also J.A. 221
(language in Consulting Agreement stating that JGA, in addition
to the services specified in the agreement, would “render such
other services as may be agreed upon by” Bocek and JGA). And it
is undisputed that Amato reported to Bocek regularly regarding
his progress and billed Bocek for work regarding the possible
purchase of ACC. It is also undisputed – and unsurprising –
that Bocek continued to provide instruction to Amato regarding
the work that Amato was performing on his behalf. That
instruction included Bocek’s directive that Amato not disclose
his identity in the course of Amato’s communications with ACC.
18
When the defendants shifted toward actually negotiating for
the purchase of ACC, the parties’ communications and conduct
continued to point unmistakably toward the conclusion that
Amato’s actions with regard to that purchase were made in the
context of the parties’ established plan for Amato to act on
Bocek’s behalf to obtain the practice for Bocek. Although
possible issues regarding Bocek’s ability to come up with
sufficient capital complicated the question of how the deal
would be structured, the parties’ communications and conduct
unmistakably demonstrated that their work, including Amato’s
placing of a closed bid to purchase ACC, continued to be part of
the defendants’ efforts on Bocek’s behalf to obtain the practice
for Bocek, as the parties’ emails of December 23, 27, and 28,
2010, plainly reflect.
The only reasonable inference that can be drawn from all of
these facts, none of which are in dispute, is that Amato and
Bocek, by their conduct and communications with each other, both
assented to Amato’s acting on Bocek’s behalf and subject to his
control in helping Bocek evaluate the feasibility of purchasing
ACC and in working toward actually obtaining the practice for
Bocek. And this fact, in turn, establishes the legal conclusion
that Amato was acting as Bocek’s agent.
The district court’s analysis notwithstanding, there was no
reason that Bocek was required to show that an agency
19
relationship was established by a separate contract in order to
show that the parties both assented by their conduct to Amato’s
acting as Bocek’s agent regarding Bocek’s possible
purchase. Cf. Bloxom v. Rose, 144 S.E. 642, 644 (Va. 1928)
(concluding that evidence was sufficient to support finding of
agency even though facts did not suggest that the parties had
agreed to any specific contractual terms). That the parties
never reached a meeting of the minds as to the manner in which
ACC would ultimately be transferred to Bocek simply does not
bear on the question of whether the parties had both assented to
the agency relationship.
Moreover, the undisputed facts proven at trial clearly
demonstrate that this situation is one in which “special
confidence has been reposed in one who in equity and good
conscience is bound to act in good faith and with due regard for
the interests of the one reposing the confidence.” H-B Ltd.
P’ship, 257 S.E.2d at 773. Bocek paid JGA – and JGA accepted
payment – for Amato’s expertise and assistance in determining
the worth of a business opportunity that Bocek had identified
for Amato for that purpose. Under such facts, the law precludes
Amato in equity and good conscience from appropriating the
opportunity for himself once he determined that it in fact
carried with it the very potential for substantial profit that
Bocek had hoped it would. See Bocek, 537 F. App’x at 176-
20
77; id. at 180 (Niemeyer, J., concurring in part and concurring
in the judgment) (“The law would be a buffoon if it allowed JGA
to take Bocek’s opportunity simply by ending the agency
relationship and proceeding thereafter in furtherance of its own
interest.”).
The defendants take the position that at some point after
their initial work regarding the ACC purchase, they ceased
acting on Bocek’s behalf. However, as we explained in our prior
opinion, once the defendants’ duty of loyalty toward Bocek
arose, they could not extinguish it simply by terminating the
agency relationship. See Bocek, 537 F. App’x at 177 (Traxler,
C.J.); id. at 179-80 (Niemeyer, J., concurring in part and
concurring in the judgment).
For all of these reasons, we hold as a matter of law that
Bocek proved that the defendants breached their fiduciary
obligations to Bocek by appropriating the ACC opportunity for
themselves. 3 In so doing, we certainly acknowledge the district
3
In the prior appeal, Bocek appealed the grant of
summary judgment against him, and we determined that the facts
alleged, if proven at trial, would establish that the defendants
breached their fiduciary obligations to Bocek. We were not
called upon to decide whether the evidence was sufficiently one-
sided that Bocek would have been entitled to summary judgment on
that issue had he sought it. See Appellees’ brief at 27 (noting
“the dissimilar postures between the First Appeal and the
instant appeal” in that the facts that Bocek claims he proved at
trial were “mere allegations” in the prior appeal).
21
court’s role as the trier of fact as well as the deference we
must afford the district court’s factual findings. But the
material facts regarding the parties’ conduct are undisputed
(and the facts regarding the parties’ secret, subjective
intentions are immaterial to the agency issue). Whether those
undisputed facts establish the agency relationship is a legal
question for us to decide, see Acordia of Va. Ins. Agency, 560
S.E.2d at 250, and for the reasons we have explained, we
conclude that they did establish the agency relationship.
B.
Bocek also argues that the district court erred in
concluding that even assuming that the defendants’ appropriation
for themselves of the ACC opportunity constituted a breach of
their fiduciary obligations to Bocek, Bocek failed to prove any
damages from the breach. We agree.
In Bocek’s Amended Complaint regarding this cause of action
he requested, among other remedies, money damages in the amounts
of “the difference between the purchase amount set forth in the
Asset Purchase Agreement and the true value of ACC’s assets on
[the] date of the Asset Purchase Agreement or, in the
alternative, at the time that JGA transferred or assigned its
rights in the Asset Purchase Agreement to A2.” Verified Amended
Complaint 33, Docket No. 66, Civil Action No. 1:11-cv-00546
(E.D. Va. July 22, 2011). He also requested the “profits that
22
Bocek would have derived as the owner of ACC’s assets . . . for
such period of time in the future as can be calculated to a
reasonable degree of probability.” Id.
To recover damages for lost profits, a plaintiff “ha[s] the
burden of proving with reasonable certainty the amount of
damages and the cause from which they resulted; speculation and
conjecture cannot form the basis of the recovery.” Banks v.
Mario Indus. of Va., Inc., 650 S.E.2d 687, 696 (Va. 2007)
(internal quotation marks omitted).
Bocek testified that when he left ACC, he was earning a
salary of $450,000 per year and that the practice would have
paid him at least that amount in annual salary had he returned
as an owner. He also testified that that salary was within the
range that a doctor with Bocek’s research experience and years
of practice would be expected to earn. He testified that having
started a new medical practice in 2011 when he was not able to
purchase ACC’s assets, he had not yet been able to turn a
profit, but that he hoped to break even with the new business by
2015 and proceed from there.
Bocek also presented the report of Certified Public
Accountant Joseph S. Estabrook, who serves as a consultant in
the areas of business valuation, litigation, and dispute
resolution. Examining ACC’s financial documents through May
2011, Estabrook conducted a detailed analysis and projected the
23
practice’s net income would steadily increase from $478,271 in
2012 to $559,509 in 2016. Based on this and other factors,
Estabrook determined that ACC’s fair market value as of June 22,
2011, was $2,232,000. 4
On the other hand, Amato testified that although ACC had
been profitable in the past, under A2’s ownership, the practice
was not profitable in the tax years 2011 and 2012. He testified
that on A2’s 2011 tax return, “after taking into consideration .
. . interest, taxes, depreciation, and amortization,” A2
reported a loss of about $2,000. J.A. 67. Amato also testified
that near the end of 2011 an insurance audit revealed that the
billing practices of the prior management were inconsistent with
what the insurance companies required. He testified that “there
was going to be a drop of as much as 40 percent of top-line
revenue because [A2] sought to bring in proper billing as
opposed to what was done previously.” J.A. 68. And, he
testified that A2 reported a loss of about $152,000 on its 2012
tax return.
4
Although A2 actually purchased ACC’s assets for
$1,000,000, Estabrook opined that “due to the financial
difficulties experienced by the Valentine Estate, coupled with
the fact that the Estate apparently did not employ traditional
marketing and sales efforts to maximize the sales price of the
practice, the offers and ultimate sales price for the practice
was substantially and artificially depressed.” J.A. 365.
24
Addressing the damages issue, the district court concluded
(1) that the direct and proximate cause of Bocek’s failure to
collect an income or prospective profits was Bocek’s termination
from ACC and the conduct that precipitated it, and (2) that A2
had not earned any profits since purchasing ACC that Bocek would
have earned had he purchased the business. Regarding the second
point, the district court referenced the tax losses A2 reported
for 2011 and 2012.
We conclude that neither of these reasons supported the
conclusion that Bocek had failed to prove damages. First of
all, whether Bocek was to blame for being terminated from his
position at ACC simply has no bearing whatsoever on his
entitlement to damages. Regardless of whether he harmed himself
financially by taking actions that brought about his termination
at ACC, any such conduct occurred prior to his dealings with
JGA. Bocek sought to prove that purchasing ACC’s assets was an
opportunity for him to turn his financial fortunes around and
that the defendants harmed him by appropriating that opportunity
for themselves.
Additionally, the fact that A2 reported losses on its 2011
and 2012 tax returns also does not show that Bocek would not
have profited in those years from his purchase of ACC’s assets.
First, even assuming arguendo that the practice’s revenues did
not exceed its expenses in those years, there was no evidence
25
that the practice was not able to pay its expenses, including
doctor salaries. And one would certainly expect that the
reintroduction of Bocek to the practice would have reduced the
practice’s salary expenses for other physicians, increased its
ability to generate revenue, or both. In this regard, Bocek
testified that when he was working with ACC, he “carried 40
percent of the load of the practice because [he] was the only
board-certified allergist and the only full-time doctor.” J.A.
175. Accordingly, the fact that A2 reported tax losses without
Bocek does not undercut Bocek’s claim that had he been back at
ACC practicing medicine, the practice would have generated the
revenue necessary to at least provide him with the income to
which he was accustomed. 5
In light of these problems with the district court’s
analysis, we conclude that its finding that Bocek failed to
prove damages from the defendants’ alleged breach of their
fiduciary obligations was clearly erroneous and cannot serve as
a basis for affirming the judgment in the defendants’
5
Moreover, Amato himself conceded that the calculation
of A2’s tax losses included “paper losses” such as amortization
and depreciation that offset revenue that the business
generated. And, Amato conceded that he drew $75,000 from A2 as
salary in 2011.
26
favor. 6 See Wileman v. Frank, 979 F.2d 30, 38 (4th Cir. 1992)
(“In the unusual case where the district court[’s] . . .
reasoning from the evidence adduced is so flawed as to
constitute clear error, we, as a court of appeals, have a
responsibility to correct that error.). We therefore reverse
the judgment in favor of the defendants and remand for entry of
judgment in favor of Bocek on the issue of liability and for a
new trial on the issue of what, if any, remedies Bocek is
entitled to as a result of the defendants’ breach. 7
6
The defendants maintain that Bocek’s damages theories
that involve him returning to practice at ACC do not account for
the facts that (1) “he was prohibited from trespassing on the
four ACC locations in Maryland – pursuant to non-trespassing
orders issued by the Montgomery County, Maryland Department of
Police,” and (2) the entity that owned ACC could face liability
if it hired him with knowledge of his prior history. Appellees’
Brief at 32. However, there was no basis for concluding that if
Bocek owned or partly owned the practice, he still would have
been prohibited from entering ACC’s premises. There is likewise
no evidence suggesting that fear of negligent hiring liability
would have affected Bocek’s decisions regarding what role he
would assume.
7
We offer no view regarding Bocek’s entitlement to any
remedy he has requested, including the imposition of a
constructive trust.
We note that Bocek requests that this case be assigned to a
different district court judge on remand. We have previously
reviewed such requests by employing a three-factor test:
(1) whether the original judge would reasonably be
expected upon remand to have substantial difficulty in
putting out of his or her mind previously expressed
views or findings determined to be erroneous or based
on evidence that must be rejected,
(Continued)
27
III.
For the foregoing reasons, we reverse the judgment in favor
of the defendants and remand for entry of judgment in favor of
Bocek on the issue of liability and for a new trial on the issue
of what, if any, remedies Bocek is entitled to in light of the
defendants’ breach of their fiduciary obligations to him.
REVERSED AND REMANDED
(2) whether reassignment is advisable to preserve the
appearance of justice, and
(3) whether reassignment would entail waste and
duplication out of proportion to any gain in
preserving the appearance of fairness.
United States v. Guglielmi, 929 F.2d 1001, 1007 (4th Cir. 1991)
(quoting United States v. Robin, 553 F.2d 8, 10 (2d Cir. 1977)).
Having considered these factors, we conclude that reassignment
would not be appropriate here.
28
WILKINSON, Circuit Judge, concurring:
The reasoning in my earlier dissent, Bocek v. JGA Assocs.,
LLC, 537 F. App’x 169, 180-82 (4th Cir. 2013) (Wilkinson, J.,
concurring and dissenting), now being precluded by the law of
the case, I concur in the majority’s opinion.
29