JTH Tax, Inc. v. Gregory Aime ( 2018 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-1859
JTH TAX, INC., d/b/a Liberty Tax Service; SIEMPRETAX+ LLC,
Plaintiffs - Appellants,
v.
GREGORY AIME; WOLF VENTURES, INC., d/b/a Wolf Enterprises; AIME
CONSULTING, LLC; AIME CONSULTING, INC.,
Defendants - Appellees.
No. 17-1905
JTH TAX, INC., d/b/a Liberty Tax Service; SIEMPRETAX+ LLC,
Plaintiffs - Appellees,
v.
GREGORY AIME; WOLF VENTURES, INC., d/b/a Wolf Enterprises,
Defendants - Appellants,
and
AIME CONSULTING, LLC; AIME CONSULTING, INC.,
Defendants.
Appeal from the United States District Court for the Eastern District of Virginia, at
Norfolk. Henry Coke Morgan, Jr., Senior District Judge. (2:16-cv-00279-HCM-DEM)
Argued: May 10, 2018 Decided: August 8, 2018
Before TRAXLER and DIAZ, Circuit Judges, and Richard M. GERGEL, United States
District Judge for the District of South Carolina, sitting by designation.
Affirmed in part, vacated in part, and remanded with instructions by unpublished opinion.
Judge Diaz wrote the majority opinion, in which Judge Traxler joined in full and Judge
Gergel joined in part. Judge Gergel wrote a separate opinion dissenting in part.
ARGUED: Allison Jones Rushing, WILLIAMS & CONNOLLY LLP, Washington,
D.C., for Appellants/Cross-Appellees. William Ryan Snow, CRENSHAW, WARE &
MARTIN, P.L.C., Norfolk, Virginia, for Appellees/Cross-Appellants. ON BRIEF:
Bradley D. Masters, WILLIAMS & CONNOLLY LLP, Washington, D.C., for
Appellants/Cross-Appellees. David C. Hartnett, CRENSHAW, WARE & MARTIN,
P.L.C., Norfolk, Virginia, for Appellees/Cross-Appellants.
Unpublished opinions are not binding precedent in this circuit.
2
DIAZ, Circuit Judge:
Gregory Aime operated nine tax preparation businesses in the New York area
under franchise agreements with JTH Tax, Inc. and SiempreTax+ LLC (collectively,
“Liberty Tax”). But when the IRS suspended Aime’s electronic filing number, he could
no longer prepare tax returns for his customers. So Aime and Liberty Tax entered into a
contract by which Liberty Tax would purchase and assume control over Aime’s
businesses. The contract also provided Aime the option to buy back his businesses if he
could get a new filing number from the IRS by a certain date. As the buyback deadline
approached, Aime’s chances of securing a new number on time looked bleak, and so
Liberty Tax offered to extend the deadline of the buyback option until the end of the year.
Soon after, the relationship between Aime and Liberty Tax went south. The parties sued
one another in federal court, each claiming the other had breached their agreement.
After a bench trial, the district court awarded over two million dollars to Aime.
The damages included reimbursement for certain expenses Liberty Tax owed under the
contract and profits Aime lost because he was unable to repurchase his franchises.
Critical to the judgment was the district court’s holding that Aime could enforce Liberty
Tax’s promise to extend the buyback deadline. Both parties appealed: Liberty Tax asks
for vacatur of the judgment and Aime seeks judgment on his fraud claim and attorney’s
fees.
We discern no error in the district court’s decision to reject Aime’s fraud claim
and request for attorney’s fees. Nor do we do disturb the district court’s determination
that Liberty Tax is liable for breach of contract. But we conclude the court erred when it
3
determined that Aime was entitled to lost profits based on the purported extension of the
buyback deadline. Under relevant contract principles, the modification of the deadline
needed to be supported by independent consideration in order to be enforceable. No such
consideration was present here. Without that foundational block, the agreement to
modify cannot stand. We therefore affirm in part, vacate in part, and remand to the
district court with instructions to enter a new judgment consistent with this opinion.
I.
Liberty Tax offers tax preparation and filing services to customers through
franchise locations around the country. Gregory Aime (individually and through several
business entities) operated nine franchise businesses in the New York City area pursuant
to agreements with Liberty Tax. Among other things, the franchise agreements required
Aime to maintain an Electronic Filing Identification Number (an “EFIN”) from the IRS.
An EFIN authorizes a commercial tax preparer to file his customers’ tax returns
electronically, and is required by law.
In January 2016, the IRS revoked Aime’s EFIN based on suspected fraudulent
activity. The franchise agreements allowed Liberty Tax to terminate its relationship with
Aime because of the revocation, but Liberty Tax chose not to do so. Instead, Aime and
Liberty Tax entered into a new, superseding contract: a Purchase and Sale Agreement
(the “PSA”). Under the PSA, Liberty Tax agreed to purchase Aime’s franchise locations
for a total of $1,107,580.36. Aime also promised to work with his landlords to assign
leases for his franchise properties to Liberty Tax. In the meantime, Liberty Tax assumed
4
responsibility for all expenses and liabilities relating to Aime’s franchises, including rent
and utilities.
The PSA also included a buyback provision, which gave Aime the option to
repurchase the franchises from Liberty Tax before May 8, 2016, if he received a new,
valid EFIN by that time. A buyback of the franchises would occur “pursuant to a
separate purchase and sale agreement between the parties” and subject to Liberty Tax’s
“standard sales and approval process.” J.A. 704. If a buyback took place, Liberty Tax
was to pay Aime “the Adjusted Net Profits . . . from the operation of the Business from
the date of Closing through resale of the Business.” Id.
In April 2016, John Hewitt, President and CEO of Liberty Tax, met with Marie
Fletcher, a former employee of Aime’s whom Liberty Tax had hired and assigned to
oversee the Aime franchises. During the meeting, Fletcher and Hewitt discussed Aime’s
efforts to obtain a new EFIN. Fletcher told Hewitt that Aime would likely not be able to
meet the May 8 deadline, but that she anticipated Aime would secure an EFIN later in the
year. Hewitt told Fletcher that he would extend the buyback deadline in the PSA until
December 31. At Hewitt’s request, Fletcher later communicated the extension to Aime
by phone.
Several weeks later, Aime sent an email to Hewitt, in which he expressed his
understanding that Aime was “graciously allowing” him to extend the PSA until
December. J.A. 816. Aime asked what steps he should take to “move forward” with the
extension and asked to set up an in-person meeting with Hewitt. Id. About a week after
that, Aime sent a second email to Hewitt asking to speak with him about the buyback.
5
Aime asked whether Liberty Tax would “like to switch leases over and handle a buyout”
or if it would “extend [the PSA] and work things out with the buyback.” J.A. 736.
Hewitt did not respond to either email.
Meanwhile, Liberty Tax asked Aime to assign it the leases for his business
properties, as the PSA required. The parties were unable to agree on the terms of the
assignment and Aime eventually changed the entry code used to access some of his
properties, effectively locking out Liberty Tax. The relationship between Aime and
Liberty Tax continued to sour until Liberty Tax sued Aime in federal district court in
Virginia. 1 Liberty Tax claimed that Aime breached the franchise agreements when the
IRS suspended his EFIN, and that he breached the PSA by continuing to use Liberty Tax
assets and failing to assign his leases. Aime countersued, contending that it was Liberty
Tax that first breached the PSA by failing to pay or reimburse Aime for utilities and other
obligations relating to the franchise properties. Aime also claimed that Liberty Tax
committed fraud by offering a bogus extension on the buyback option while never really
intending to let Aime repurchase the franchises. In September 2016, amid the litigation,
Aime finally received a new EFIN.
The case proceeded to a bench trial, after which the district court issued its
findings and conclusions. The court concluded that Liberty Tax breached the PSA first
by failing to pay rent and expenses related to the Aime franchises. It also held that
1
The parties consented through the PSA to personal jurisdiction in Virginia and
also selected Virginia as the source of applicable substantive law.
6
Liberty Tax had extended the deadline for Aime to repurchase his franchises to
December 31. Thus, Aime was entitled to reimbursement for the franchise-related
expenses Liberty Tax had agreed to cover (less repayment for certain loans Liberty Tax
had made to Aime). Liberty Tax also owed Aime lost profits for his franchises, based on
the assumption that Aime, armed with a new EFIN, would have exercised his buyback
option and repurchased the businesses by December 31. All told, the court awarded
Aime $2,736,896.17 in damages. The court denied Aime’s fraud counterclaim, finding
that it was not sufficiently distinct from his breach of contract allegation, and denied his
request for punitive damages and attorney’s fees.
Both parties appealed. Liberty Tax claimed the district court erred in granting
judgment in favor of Aime. Liberty Tax also contends the court erroneously excluded
certain evidence at trial relating to its franchise sale and approval process. Aime asserts
the district court erred by denying his fraud claim and denying him attorney’s fees.
II.
Much of this appeal turns on the answer to a single question: did Liberty Tax
validly extend the buyback provision of the PSA from May 8 to December 31? If there
was a valid extension, then Liberty Tax wrongfully deprived Aime of the opportunity to
repurchase his franchises, and he’s entitled to the profits he would have otherwise
enjoyed. But if there was no extension, then Aime could not have bought back his
businesses because he didn’t obtain a new EFIN by the May 8 deadline.
7
Liberty Tax argues that the offer to extend the deadline didn’t result in an
enforceable contract because there was no consideration, Aime didn’t accept the offer,
and the agreement needed to be in writing to satisfy Virginia’s statute of frauds. The
district court found the extension valid and enforceable. We review the district court’s
conclusions of law de novo. See Helton v. AT&T Inc., 709 F.3d 343, 350 (4th Cir. 2013).
Because we find the issue of consideration dispositive, our discussion begins and ends
there. 2
Under Virginia law, the existence of a contract must be proven by showing there
was “a complete agreement which requires acceptance of an offer, as well as valuable
consideration.” Dean v. Morris, 756 S.E.2d 430, 432–33 (Va. 2014) (internal quotation
marks omitted). Just as any option requires valuable consideration to be binding in the
first instance, see Johnson v. Virginia-Carolina Lumber Co., 163 F. 249, 251 (4th Cir.
1908), an extension of an option also requires “some new and sufficient consideration” to
support it. Cummins v. Beavers, 48 S.E. 891, 893 (Va. 1904).
“Virginia has long followed the ‘peppercorn’ theory of consideration,” under
which even the most picayune promise may be enough to make an agreement binding.
Sfreddo v. Sfreddo, 720 S.E.2d 145, 153 (Va. Ct. App. 2012). Consideration can take the
form of a benefit bestowed or a detriment endured. Brewer v. First Nat’l Bank of
Danville, 120 S.E.2d 273, 279 (Va. 1961). Even a “slight advantage” or a “trifling
2
Liberty Tax argued to the district court that the extension lacked consideration,
but the district court didn’t directly address the issue in its findings and conclusions.
Because the argument was raised below, it’s ripe for our de novo review.
8
inconvenience” can suffice. R.K. Chevrolet, Inc. v. Hayden, 480 S.E.2d 477, 480 (Va.
1997). Whatever the form, consideration is “the price bargained for and paid for a
promise.” Brewer, 120 S.E.2d at 279.
That bargained-for price is wholly absent here. The consideration on the part of
Liberty Tax is simple enough: Hewitt promised to extend the buyback deadline until
December 31. But a corresponding promise on Aime’s behalf is nowhere to be found.
The PSA imposed upon Aime a series of obligations, including selling his franchises to
Liberty Tax; indemnifying Liberty Tax from franchise-related liabilities arising prior to
the sale; and transferring office leases to Liberty Tax at its request. Those obligations
had nothing to do with the later extension of the buyback deadline: the PSA obligated
Aime to perform those promises, and so his duty to perform existed with or without the
revised deadline. See Seward v. New York Life Ins. Co., 152 S.E. 346, 350 (Va. 1930)
(“The general rule is that a new promise, without other consideration than the
performance of an existing contract in accordance with its terms, is a naked promise
without legal consideration therefor and unenforceable.”). And the fact that the
repurchase offer was simply an option means that Aime could have declined to buy back
his franchises and Liberty Tax would have no recourse at all. 3
3
Had Liberty Tax offered to sell Aime back his franchises on December 31, and
Aime agreed to purchase them on that date, there likely would have been reciprocal
promises sufficient to bind one another. See Major v. Price, 84 S.E.2d 445, 448 (Va.
1954). But “an option given without a consideration . . . is simply an offer to sell, and
can be withdrawn at any time before acceptance.” Cummins, 48 S.E. at 893.
9
Aime points to three possible forms of consideration. First, Aime argues that he
paid for certain expenses and utilities relating to the franchises and a call center when the
obligation to pay was Liberty Tax’s and not his. Second, Aime says, he continued to pay
rent for the franchises beyond the May 8 deadline contained in the PSA. Finally, Aime
contends that he made additional efforts to secure a new EFIN, and that had there not
been an extension offered by Liberty Tax, Aime would have had no reason to invest his
time and money pursuing his application.
Liberty Tax cavils a bit with these assertions. But even assuming they’re all true,
and that Aime had no independent obligation to perform them, none of these acts can
serve as consideration for the simple reason that there’s no evidence in the record that
they were bargained for. Hewitt didn’t ask Aime—directly, or even through Fletcher—to
perform any of those tasks in exchange for the deadline extension, nor did Aime offer to
do so.
Aime claims that it was obvious and foreseeable that he would undertake those
actions in light of the deadline extension—and he’s right. Certainly an extension of the
deadline would induce Aime to continue his work to obtain a new EFIN so that he could
reacquire his franchises. Certainly Liberty Tax knew that. But even so, foreseeable
inducement does not constitute consideration. Instead, that argument sounds in another
contract-related theory: the doctrine of promissory estoppel.
Promissory estoppel consists of “(1) a promise, (2) which the promisor should
reasonably expect to cause action by the promisee, (3) which does cause such action, and
(4) which should be enforced to prevent injustice to the promisee.” Mongold v. Woods,
10
677 S.E.2d 288, 292 (Va. 2009) (internal quotation marks omitted); see also Restatement
(Second) of Contracts § 90(1) (1981). Aime didn’t argue promissory estoppel here, and
for good reason: Virginia doesn’t recognize the claim. See Mongold, 677 S.E.2d at 292
(“[P]romissory estoppel is not a cognizable cause of action in Virginia.”); see also W.J.
Schafer Assocs. v. Cordant, Inc., 493 S.E.2d 512, 515–16 (Va. 1997) (recognizing same
and explicitly “declin[ing] to create such a cause of action”). Thus, we can’t enforce
Liberty Tax’s promise based solely on Aime’s reliance upon it, no matter how reasonable
or foreseeable that reliance may have been.
Our dissenting colleague suggests that we “presume[] that the Virginia Supreme
Court’s rejection of the doctrine of promissory estoppel implicitly overrules” a series of
cases that purportedly recognize “that where the formalities of a contract are present
(offer and acceptance), consideration will be found to be present where a promise
foreseeably induces the promisee to act to his detriment and to the benefit of the
promisor.” Dissent at 20. But we don’t conclude that the cited cases are no longer good
law; we simply read them differently. Though Virginia law may not be pellucid on this
point, we view the parties’ conduct in those cases as amounting to a reciprocal exchange
of promises (even if attenuated)—which is what is lacking here.
For example, in Looney v. Belcher, 192 S.E. 891 (Va. 1937), the bank officers
expressly promised Vandyke to “secur[e] and guarantee[] any loss which might accrue to
him on account of” his deposits with the bank in exchange for his promise not to move
his money elsewhere. Id. at 163; see also id. at 166 (guaranty made “in consideration of
the said Fred Vandyke making these deposits with said bank”). And Dulany Foods, Inc.
11
v. Ayers, 260 S.E.2d 196 (Va. 1979) and Twohy v. Harris, 72 S.E.2d 329 (Va. 1952) are
based on the well-recognized rule that in the context of at-will employment, an
employee’s continued work can serve as adequate consideration to make a change in the
terms of her employment (or some other promise) enforceable. See Dulany Foods, 260
S.E.2d at 200–01 (noting it wasn’t material “whether [the employees] continued to work
because they relied upon the promise of severance pay” because “such a promise
amounts to an offer, which, if accepted by performance of the service, fulfills the legal
requirements”); Twohy, 72 S.E.2d at 336 (describing the case as one where one party
“makes a promise conditioned upon the doing of an act by another”). All told, we see the
cases cited by our dissenting colleague not as overruled, but simply incongruous to the
facts before us.
The offer to extend the deadline lacks consideration, the cornerstone of contract.
Without it, Hewitt’s offer to extend the deadline was in effect a gratuitous promise, and
one a court can’t enforce. The district court erred in doing so, and therefore we must
vacate the judgment below to the extent it relied on the validity of the deadline extension.
Because the agreement to modify lacked the essential ingredient of consideration, we
need not decide whether Aime validly accepted the offer, or whether the statute of frauds
required that the agreement be reduced to a writing. 4
4
Liberty Tax also says that the district court abused its discretion in excluding
certain evidence relating to its sales and approval process. In short, Liberty Tax argues
that because the PSA appears to condition the buyback option on Liberty Tax’s “standard
sales and approval process,” J.A. 704, Liberty Tax’s promise to participate in the
buyback was in effect illusory because it was completely subject to the whims and
(Continued)
12
III.
Aime contends the district court erred in refusing to grant judgment on his fraud
claim. According to Aime, Liberty Tax fraudulently induced him to enter into the PSA
while never intending to abide by its terms. Aime says Liberty Tax never planned to pay
the franchise expenses, nor was it ever going to sell him back his franchises (EFIN or
not). The district court, however, concluded that the allegations of that claim were not
sufficiently distinct from Aime’s claims for breach of contract and breach of the implied
covenant of good faith and fair dealing. Thus, the court explained, the claim was barred
by the independent tort doctrine.
Under Virginia law, fraud in the inducement occurs when a party to a contract
makes “a false representation of a material fact, constituting an inducement to the
contract, on which” the other party “had a right to rely.” George Robberecht Seafood,
Inc. v. Maitland Bros. Co., 255 S.E.2d 682, 683 (Va. 1979) (internal quotation marks
omitted). But the independent tort doctrine provides that “an action based upon fraud
must aver the misrepresentation of present pre-existing facts, and cannot ordinarily be
predicated on unfulfilled promises or statements as to future events,” lest “every breach
of contract . . . be made the basis of an action in tort for fraud.” Abi-Najm v. Concord
Condominium, LLC, 699 S.E.2d 483, 490 (Va. 2010) (quoting Lloyd v. Smith, 142 S.E.
363, 365 (Va. 1928)).
discretion of Liberty Tax. We need not resolve the issue given our conclusion that the
deadline extension is unenforceable for want of consideration.
13
It’s true that an “action in tort for deceit and fraud may sometimes be predicated
on promises which are made with a present intention not to perform them,” when the
fraud is based not on “the breach of the agreement to perform, but the fraudulent intent.”
Id. (quoting Boykin v. Hermitage Realty, 360 S.E.2d 177, 178 (Va. 1987)). In such a
case, fraud arises because the “state of the promisor’s mind at the time he makes the
promise is a fact” and if the promisor represents his state of mind “as being one thing
when in fact his purpose is just the contrary, he misrepresents a then existing fact.” Id.
This isn’t such a case.
The record here doesn’t show a material misrepresentation made by Liberty Tax
before entering into the PSA with Aime. Liberty Tax’s mischief came later. As Aime
points out, the district court did state that Liberty Tax “never had any intention of
recognizing Mr. Aime’s right to repurchase the business.” J.A. 693. But taken as a
whole, the court’s findings and conclusions—supported by the record and consistent with
its judgment—explain the court’s belief that Liberty Tax, upon entering into the PSA,
didn’t take its obligations under the contract seriously. See, e.g., J.A. 694 (“[T]hey
simply looked upon the purchase and sale agreement as a piece of paper that they could
do with as they please, which, in fact, is what they did.”). Avoiding contractual
responsibilities may be lamentable, but it does not a fraud claim make. We therefore
affirm the district court’s decision to reject Aime’s claim of fraud. 5
5
And as the district court correctly noted, absent a viable fraud claim, Aime isn’t
entitled to attorney’s fees.
14
IV.
Finally, we briefly address the issue of remedy. Our decision doesn’t affect the
district court’s conclusion that it was Liberty Tax that breached the PSA first by failing to
pay or reimburse certain expenses related to the Aime franchises. Any damages flowing
from that breach should remain, whether incurred before or after the May 8, 2016
buyback deadline. But as we’ve explained, the court erred in finding that Liberty Tax
and Aime validly extended the PSA’s buyback option, and so Aime wasn’t entitled to
damages resulting from Liberty Tax’s refusal to sell back his former franchises. On
remand, the district court should enter appropriate damages consistent with those
principles.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED WITH INSTRUCTIONS
15
GERGEL, District Judge, concurring in part and dissenting in part:
I respectfully dissent. I find my disagreement with my able colleagues in the
majority turns on a narrow, but defining issue: where parties have entered into an
agreement in which there is an offer and acceptance, can the promisor’s foreseeable
inducement of the promisee to act to his detriment and to the promisor’s benefit in
reliance upon a promise constitute valuable consideration under Virginia law? After a
careful review of Virginia case law, I conclude that such foreseeable induced reliance
constitutes valuable consideration, making the agreement between the parties an
enforceable contract.
I.
The defendants below (hereafter referred to collectively as “Aime”) operated nine
separate franchise locations in the New York City area under a franchise agreement with
plaintiffs (hereafter referred to collectively as “Liberty Tax”). In January 2016, the
Internal Revenue Service revoked Aime’s Electronic Filing Identification Number
(“EFIN”), which was required for Aime to file tax returns on behalf of its clients. This
created an imminent crisis for both franchisor and franchisee which threatened to bring
about the collapse of a viable and valuable business enterprise. To maintain the ongoing
operations of the franchises, Liberty Tax purchased the businesses under an Agreement
of Purchase and Sale (the “Agreement”), with the proviso that Aime would have the
option to buy back the businesses if Aime had the EFIN restored by May 8, 2016. The
Agreement provided that Liberty Tax would be responsible for all expenses of the
businesses after the Agreement was executed on January 21, 2016.
16
The Agreement created powerful incentives for Aime to do what it could to
maintain the viability of the businesses while it pursued the reinstatement of the EFIN.
Any net profit made during the period from the sale of the businesses to Liberty Tax until
the buyback would be paid to Aime in the event it was able to repurchase the businesses.
In the event Aime was unable to buy back the businesses, the purchase price to be paid by
Liberty Tax to Aime would be reduced by any net losses suffered before the payoff date
of May 15, 2016.
Aime, although not required under the Agreement to pay ongoing business
expenses after January 21, 2016, continued to pay for rent, utilities, a call center, and a
central processing center in the hope of maintaining the viability of the business
operations while efforts were made to restore the EFIN. On April 8, 2016, a district
manager for Liberty Tax, Marie Fletcher, met with the CEO of Liberty Tax, John Hewitt,
concerning the status of Aime’s efforts to have the EFIN restored. Fletcher testified at
trial that she informed Hewitt that Aime would not be able to meet the May 8, 2018
deadline in the Agreement, but that the EFIN would likely be reinstated by October 2016.
Hewitt then told Fletcher that he would extend the buyback provision of the Agreement
until December 31, 2016, and authorized her to inform Aime of that decision. That same
day she informed Gregory Aime, the principal in the businesses, of Hewitt’s agreement to
extend the deadline.
Aime then responded in a foreseeable way by continuing to support the ongoing
expenses of the businesses after the May 8, 2016 deadline. Gregory Aime testified that
had he not been promised the extension of the deadline by Liberty Tax until December
17
31, 2016, he would have immediately ceased financially supporting the businesses after
May 8th.
The trial court, which tried the case without a jury, found the testimony of Fletcher
“credible” and “unrebutted.” The lower court noted that in pretrial motions, Liberty Tax
denied the meeting between Fletcher and Hewitt had occurred and contended that Hewitt
never promised to extend the buyback deadline. Hewitt did not appear at the trial, and
the trial court found that Hewitt’s course of conduct entitled Aime to a missing witness
adverse inference. The trial court further found that Hewitt’s conduct reflected the fact
that he never intended to allow Aime to repurchase its businesses and was essentially
stringing it on to keep the franchises operating. Additionally, Fletcher testified that
Liberty Tax offered to cover her expenses in a different case if she would not show up to
testify for Aime in this action. The trial court ultimately found that the offer by Liberty
Tax to extend the deadline until December 31, 2016 was accepted by Aime and that the
parties had an enforceable contract. The lower court awarded actual damages to Aime of
$2,736,896.17, for damages arising from Liberty Tax’s breach of contract.
II.
The critical issue in this appeal turns on whether there was consideration to
support the offer made by Liberty Tax on April 8, 2016 to extend the buyback deadline
that was subsequently accepted by Aime. There is no question there must be new
consideration to support the extension. The majority, while recognizing that Liberty
Tax’s promise to extend the buyback deadline would induce “obvious and foreseeable”
actions by Aime, concludes that Aime’s claim “sounds in . . . promissory estoppel,”
18
which the Virginia Supreme Court has clearly rejected as a freestanding equitable cause
of action. W.J. Schafer Associates, Inc. v. Cordant, Inc., 493 S.E.2d 512, 515–16 (Va.
1997).
While the majority is undoubtedly correct in recognizing the Virginia Supreme
Court’s firm rejection of the doctrine of promissory estoppel, there is a long line of
Virginia cases extending over decades that recognizes that where an offer has been made
and accepted, consideration may be found where the promisee was induced to act by the
promise to his detriment and to the benefit of the promisor. United Masonry Inc. of Va.
v. Riggs Nat’l Bank, 357 S.E.2d 509, 513–14 (Va. 1987) (“Sufficient consideration exists
if the promisee is induced to . . . to do something that he is not legally bound to do or
refrains from doing anything he has a legal right to do, or if the promisee acts in reliance
upon the waiver to his detriment”); Dulany Foods, Inc. v. Ayers, 260 S.E.2d 196, 200–
201 (Va. 1979) (“Ample authority sustains the view that such a promise [of an employer
to pay severance pay to employees] amounts to an offer, which, if accepted by
performance of the service, fulfills the legal requirements of a contract”); Brewer v. First
Nat’l Bank of Danville, 120 S.E.2d 273, 279–80 (Va. 1961) (Where a party, “relying in
part on the promise of the corporation to pay her the weekly salary for life, gave up her
positions as president and director of the corporation” and sold her stock at a fraction of
the value, the party had an enforceable contract for the payment of her weekly salary);
Twohy v. Harris, 72 S.E.2d 329, 335–36 (Va. 1952) (Where an employer promised an
employee stock if the employee stayed with the company, and the employee remained
with the company and performed his services for seven years, “[i]t is well settled that a
19
contract made under such circumstances is supported by valuable consideration”);
Looney v. Belcher, 192 S.E. 891, 893 (Va. 1937) (Where a bank customer refrained from
withdrawing his funds upon a guaranty of the bank officers to protect him against any
loss, “[t]here can be no question about the presence of a consideration sufficient to
support the guaranty bond . . . .”); Richmond Eng’g and Mfg. Corp. v. Loth, 115 S.E.
774, 787 (Va. 1923) (A promise by the owner of a building to pay the subcontractors if
they continued on the job after the contractor became insolvent “was adequate
consideration to support the promise, ‘though it has been but a peppercorn’”).
The majority presumes that the Virginia Supreme Court’s rejection of the doctrine
of promissory estoppel implicitly overrules this line of cases addressing when induced
reliance may constitute consideration under Virginia law. This, I believe, overreads the
Virginia Supreme Court’s ruling in W.J. Schafer and misapprehends the origins and
principles that underlay the United Masonry line of cases. Virginia adheres to the
“peppercorn” theory of consideration, in which even the most minimal thing of value
constitutes sufficient consideration. Sfreddo v. Sfreddo, 720 S.E.2d 273, 279 (Va. Ct.
App. 2012). Consistent with this broad interpretation of consideration, Virginia courts
have long recognized that where the formalities of a contract are present (offer and
acceptance), consideration will be found to be present where a promise foreseeably
induces the promisee to act his detriment and to the benefit of the promisor. This legal
principle, adopted in United Masonry and other Virginia cases going back nearly a
century, sounds in the common law, not in equity.
20
Promissory estoppel, which Virginia clearly rejects, is an equitable cause of action
that seeks to enforce a promise where not to do so would create an injustice. Under
promissory estoppel, there is no requirement of offer and acceptance, simply a promise
which foreseeably induces a person to act to his detriment. Mongold v. Woods, 677 S.E.
2d 288, 292 (Va. 2009). The recognition of this cause of action has been promoted in the
First and Second Restatement of Contracts, Section 90(1). Some, including the Virginia
Supreme Court, have viewed such a cause of action as conceptually unmoored and
potentially creating an avalanche of litigation on the slimmest of evidence.
In rejecting the equitable cause of action of promissory estoppel in W.J. Schafer,
the Virginia Supreme Court did not suggest in any way that it was intending to overrule
the United Masonry line of cases. This Court has previously and wisely held that “[a]
subsequent decision cannot, by mere implication, be held to overrule a prior case unless
the principle is directly involved and the inference clear and impelling.” Kestler v. Board
of Trustees of North Carolina Local Gov’t Employees’ Retirement System, 48 F.3d 800,
804 (4th Cir. 1995), quoting Cole v. Cole, 51 S.E.2d 491, 494 (N.C. 1949).
The majority further asserts that the United Masonry line of cases is “simply
incongruous to the facts before us.” While each of these cases arises out of a set of
circumstances not factually identical to the matters presented here, this body of case law
consistently stands for the proposition that where parties have had a meeting of the minds
on offer and acceptance, sufficient consideration will be found to be present where it is
foreseeable that the promise will induce the promisee to act to his detriment and to the
benefit of the promisor. The bargained for exchange is inferred to be present from the
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foreseeable consequences of the promise since it is to be anticipated that the promise will
induce the promisee to act, producing the required consideration to make the agreement
an enforceable contract.
The trial court found that Liberty Tax offered to extend the buyback deadline in
the Agreement from May 8, 2016 until December 31, 2016 and that Aime accepted that
offer. The trial court further found that after May 8, Aime continued to pay for utilities
and other services for the businesses, which Gregory Aime and Ms. Fletcher testified
would not have been done but for the promise made by Liberty Tax. There is ample
record evidence to support these findings. The majority recognizes that Liberty Tax’s
promise to extend the deadline for the buy back until December 31, 2016 induced
“obvious and foreseeable” actions by Aime, including the continued payment of business
expenses after May 8, 2016 that would have never occurred but for Liberty Tax’s
promise. I believe the United Masonry line of cases remains good law in Virginia and
provides ample support to find the presence of valuable consideration under these facts,
making the agreement an enforceable contract. * I would, consequently, affirm the lower
court’s finding that Aime had an enforceable contract to extend the buyback deadline.
*
Although state trial court decisions are not controlling precedent, I find it
instructive that the Loudoun County Circuit Court in Cardinal Bank v. Britt Construction,
Inc., held that while promissory estoppel is not recognized in Virginia, “detrimental
reliance may serve as the basis for consideration in the case of a lien waiver.” 68 Va. Cir.
520, 2004 WL 2877385, at *2 (Va. Cir Ct. 2004) (citing United Masonry, 357 S.E.2d at
513–14).
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III.
Liberty Tax further argues that even if the offer to extend the deadline for the
buyback included acceptance and consideration, the agreement is unenforceable due to
the Statute of Frauds. It is well settled under Virginia law that the Statute of Frauds
applies “only if both parties to an oral contract are incapable of performing their
contractual obligations within one year of the contract’s formation.” Blue Sky Travel &
Tours, LLC v. Al Tayyar, 606 Fed. App’x 689, 694 (4th Cir. 2015) (emphasis in the
original) (citing Silverman v. Bernot, 239 S.E.2d 118, 121 (Va. 1977)). Since the oral
agreement, reached in April 2016 and modifying an agreement made in January 2016,
simply extended the deadline to exercise the buyback option until December 31, 2016,
the contract was fully performable within one year. I agree with the trial court that the
Statute of Frauds does not bar enforcement of this agreement.
Further, Liberty Tax would be equitably estopped from asserting the Statute of
Frauds under these circumstances. Virginia law recognizes that a party may be equitably
estopped from asserting the Statute of Frauds where (1) a material fact was falsely
represented or concealed; (2) the representation was made with the knowledge it was
false; (3) the party receiving the representation was unaware it was false; (4) the
representation was intended to be relied upon; (5) the other party was induced to act; and
(6) the other party was misled to his injury. Boykins Narrow Fabrics Corp. v. Weldon
Roofing and Sheet Metal, 266 S.E.2d 887, 890 (Va. 1980). The lower court’s findings
and the record before this Court fully support each of the elements of equitable estoppel,
barring Liberty Tax from asserting this defense.
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IV.
I concur in the majority’s affirmance of the lower court’s decision denying
judgment on the fraud claim and in awarding damages to Aime for Liberty Tax failing to
reimburse Aime for expenses incurred after January 21, 2016, as mandated in the
Agreement. I would affirm the decision of the lower court in all respects. Since that
conclusion is not shared by my colleagues, I respectfully dissent.
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