Jonas B Crooke v. CTL Engineering ( 1999 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JONAS B. CROOKE INTERESTS,
INCORPORATED,
Plaintiff-Appellee,
v.
CTL ENGINEERING, INCORPORATED,
No. 97-1227
Defendant-Appellant,
and
DON DEWEY, P.E.; MIGUEL R.
FRISCO,
Defendants.
JONAS B. CROOKE INTERESTS,
INCORPORATED,
Plaintiff-Appellant,
v.
CTL ENGINEERING, INCORPORATED,
No. 97-1357
Defendant-Appellee,
and
DON DEWEY, P.E.; MIGUEL R.
FRISCO,
Defendants.
Appeals from the United States District Court
for the Eastern District of Virginia, at Richmond.
James R. Spencer, District Judge.
(CA-96-494-3)
Argued: October 28, 1998
Decided: March 29, 1999
Before WIDENER and WILKINS, Circuit Judges, and
G. ROSS ANDERSON, JR., United States District Judge for the
District of South Carolina, sitting by designation.
_________________________________________________________________
Affirmed in part, reversed in part, and remanded by unpublished opin-
ion. Judge Wilkins wrote the majority opinion, in which Judge Ander-
son joined. Judge Widener wrote a concurring and dissenting opinion.
_________________________________________________________________
COUNSEL
ARGUED: David Ernest Boelzner, WRIGHT, ROBINSON,
OSTHIMER & TATUM, Richmond, Virginia, for Appellant. Cheryl
G. Ragsdale, HUNTON & WILLIAMS, Richmond, Virginia, for
Appellee. ON BRIEF: Murray H. Wright, WRIGHT, ROBINSON,
OSTHIMER & TATUM, Richmond, Virginia, for Appellant. Albert
Diaz, HUNTON & WILLIAMS, Raleigh, North Carolina, for Appel-
lee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
WILKINS, Circuit Judge:
Jonas B. Crooke Interests, Incorporated (JCI) brought this action
against CTL Engineering, Incorporated (CTL), alleging various
causes of action arising out of CTL's negligent performance of an
environmental assessment. JCI obtained a jury verdict of $300,027,
and CTL now appeals the denial of its motion for judgment as a mat-
ter of law on JCI's claims for breach of contract and professional neg-
ligence, see Fed. R. Civ. P. 50, and for a new trial on damages, see
Fed. R. Civ. P. 59. JCI cross appeals an order of the district court
2
granting CTL summary judgment on JCI's claim for constructive
fraud and granting CTL partial summary judgment on JCI's breach of
contract and negligence claims for loss of an expected fee it would
have earned from building an apartment complex on the assessed
property. For the reasons set forth below, we affirm in part, reverse
in part, and remand for proceedings consistent with this opinion.
I.
In July 1995, JCI purchased an option to buy a tract of land that
it intended to develop. The option agreement provided for a feasibility
period during which JCI could conduct studies and investigations of
the property before exercising its option. JCI promptly retained CTL
to conduct an environmental assessment of the property. CTL com-
pleted the assessment and reported that its investigation revealed no
evidence of a recognized environmental condition on site.
Unable to obtain financing to purchase the property by the expira-
tion of the option, JCI negotiated a three-month extension of its pur-
chase option. With approximately two weeks remaining on the
extension, JCI had negotiated a proposed agreement for development
of the property with Northwestern Mutual Life Insurance Company
(Northwestern). Under the proposed terms, JCI was to assign its pur-
chase rights and the fruits of its predevelopment activities to North-
western for a fee of $189,443 (the assignment fee) 1--which was
intended to reimburse JCI for enumerated expenses it had incurred--
and Northwestern was to retain JCI to develop the property for a fee
of $530,000 (the development fee), to be paid in installments as the
project progressed. Before closing, however, Northwestern conducted
an environmental assessment of its own. That assessment revealed
several recognized adverse environmental conditions on the property
that CTL had failed to identify. As a result, Northwestern decided to
_________________________________________________________________
1 A March 15, 1996 letter from Jonas Crooke, who owns JCI, to a
Northwestern representative enumerated reimbursable expenses of
$174,162. The letter listed $87,719 for "Architect Fee and expenses," but
stated in a footnote that that amount did not represent the total cost. J.A.
524. Crooke testified that Northwestern had agreed to reimburse JCI for
the full amount of the architectural fee and related costs, which was
$103,000.
3
spend additional time conducting further studies on the property.
When JCI was unable to negotiate another extension of its purchase
option, the option expired and the land was sold to another buyer.
JCI brought this action for breach of contract, professional negli-
gence, and constructive fraud, seeking to recover damages for the
money and resources it had expended in vain on the property as well
as for the loss of benefits it would have gained from the sales and
development agreement it had negotiated with Northwestern. Follow-
ing discovery, CTL moved for summary judgment on all of the
claims. The district court granted partial summary judgment to CTL
on JCI's breach of contract and negligence claims for the $530,000
development fee on the ground that the damages sought were specula-
tive. However, the court denied summary judgment as to JCI's breach
of contract and negligence claims for the incurrence of its predevelop-
ment expenses and for loss of opportunity for reimbursement of those
expenses. The district court also granted summary judgment to CTL
on JCI's constructive fraud claim.
At trial, JCI offered evidence that it had expended $300,027 in
money and other resources on the project, including evidence of two
major expenditures not reimbursable under the proposed agreement
with Northwestern: $100,800 in internal labor expenditures and
$11,000 in interest paid by JCI to finance the predevelopment
expenses. Subsequently, a jury returned a verdict for $300,027 in
JCI's favor.2 CTL then unsuccessfully moved for judgment as a mat-
ter of law, or in the alternative, a new trial on damages.
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2 The remainder of the discrepancy between the amount sought by JCI
and the amount reimbursable under the proposed agreement is due to the
fact that under the terms of the proposed agreement, JCI was to be reim-
bursed for $7,916 for "Legal-Purchase Agreement, Title exam," J.A. 524,
but JCI offered evidence that it actually incurred $1,500 in miscellaneous
expenses and $5,200 in legal fees.
4
II.
A.
CTL first contends that the district court erred in denying its
motion for judgment as a matter of law on JCI's professional negli-
gence claim because JCI's claimed injury was for a solely economic
loss. We disagree.
Under Virginia law, "economic losses may be recovered under a
negligence theory" as long as there is privity of contract between the
parties. Ward v. Ernst & Young, 435 S.E.2d 628, 632 n.3 (Va. 1993);
cf. Gerald M. Moore & Son, Inc. v. Drewry, 467 S.E.2d 811, 813 (Va.
1996) (holding that under the economic-loss doctrine, damages for a
solely economic injury are not recoverable in an action for profes-
sional negligence absent a contractual relationship between the plain-
tiff and defendant). Here, because CTL and JCI had a contractual
relationship, JCI was entitled to recover damages for its economic
loss under a negligence theory.
CTL argues that the above-cited language in Ward is dictum and
is based on a misunderstanding of Virginia's commonly stated rule
that "in the absence of privity, a person cannot be held liable for eco-
nomic loss damages caused by his negligent performance of a con-
tract." Gerald M. Moore & Son, Inc., 467 S.E.2d at 813. CTL argues
that the effect of the rule is not that solely economic losses can be
recoverable under a negligence theory when the parties are in privity,
but rather "that losses arising from breach of a contract are recover-
able in contract only, and if there is no contract, there can be no
recovery." Brief of Appellant at 21. CTL's suggested reading of
Ward, however, is belied by the opinion in Gerald M. Moore & Son,
Inc., which makes clear that privity of contract is a "requirement for
recovery of purely economic loss damages in negligence actions."
Gerald M. Moore & Son, Inc., 467 S.E.2d at 813 (emphasis added).
CTL also maintains that it was entitled to judgment as a matter of
law on its professional negligence claim because a professional's duty
of reasonable care arises solely from contract. That argument is with-
out merit, however. See Lyle, Siegel, Croshaw & Beale, P.C. v. Tide-
water Capital Corp., 457 S.E.2d 28, 32 (Va. 1995) (explaining that
5
professional negligence actions generally "are governed by the same
principles applicable to other negligence actions" and the duty of rea-
sonable care on the part of professionals "arises out of the relationship
of the parties, irrespective of a contract").
B.
CTL argues alternatively that, assuming that damages for solely
economic loss are recoverable in a negligence action, it was entitled
to judgment as a matter of law on that claim because the evidence was
insufficient to prove that CTL's failure to notify JCI of the environ-
mental conditions on the property caused it to suffer any injury.
Again, we disagree.
We review the denial of judgment as a matter of law de novo to
determine whether the evidence presented at trial, viewed in the light
most favorable to the nonmovant, supports the jury finding on the
issue in question. See Price v. City of Charlotte, N.C., 93 F.3d 1241,
1249-50 (4th Cir. 1996). To prove a claim for professional negli-
gence, a plaintiff must show that a professional relationship giving
rise to a duty of reasonable care existed between the plaintiff and the
defendant, that the defendant breached that duty, and that the breach
was a proximate cause of the plaintiff's claimed damages. See
Gregory v. Hawkins, 468 S.E.2d 891, 893 (Va. 1996). CTL does not
argue the sufficiency of the evidence regarding existence of the pro-
fessional duty or breach of that duty, but rather contends that the evi-
dence was insufficient to prove that its breach proximately caused
JCI's claimed damages.
"A proximate cause ... is a cause which in natural and continuous
sequence produces the ... damage. It is a cause without which the ...
damage would not have occurred." Clohessy v. Weiler, 462 S.E.2d 94,
98 (Va. 1995) (internal quotation marks omitted). It is not necessary
that the defendant anticipate "[t]he precise injury"; rather, "[i]t is
enough if the act is such that the party ought to have anticipated that
it was liable to result in injury to others." Atlantic Coast Line R.R. Co.
v. Wheeler, 132 S.E. 517, 518 (Va. 1926), aff'd on reh'g, 136 S.E.
570 (Va. 1927). CTL does not dispute that it ought to have anticipated
that its failure to perform the assessment properly was likely to cause
some injury to JCI. Instead, CTL contends that the evidence was
6
insufficient to prove that its negligence proximately caused the injury
actually suffered by JCI.
JCI argued that it was damaged in two ways as a result of CTL's
breach: First, it incurred expenses on the project in reliance on the
environmental assessment that it would not have incurred had the
assessment been performed correctly; and second, the delay caused by
the subsequent discovery of the adverse environmental conditions
caused it to lose reimbursement of those expenses under the agree-
ment negotiated with Northwestern.
Regarding the first damages theory, JCI simply presented no evi-
dence that it would have abandoned the project prior to incurring the
predevelopment expenses had CTL performed the environmental
assessment appropriately. In fact, JCI conceded in its brief that it
probably would have continued with the project even if CTL had noti-
fied it of the environmental conditions. Accordingly, the evidence
was insufficient to support a verdict for JCI under that theory.
We conclude, however, that JCI did offer evidence from which a
jury reasonably could have inferred that, but for CTL's failure to con-
duct the assessment properly, JCI would have cleaned up the property
earlier, consummated its agreement with Northwestern, and been
reimbursed for certain enumerated expenses by virtue of the $189,443
assignment fee. Peter Jahn, who negotiated the proposed agreement
with JCI on behalf of Northwestern, testified that the agreement
would have been consummated and the property purchased had it not
been for the discovery of the environmental problem. Once the agree-
ment had been finalized, JCI would have been entitled to the entire
$189,443 assignment fee when Northwestern closed on the property.
Therefore, the district court correctly denied CTL's motion for judg-
ment as a matter of law on the negligence claim.
C.
CTL contends, alternatively, that because JCI's loss of the assign-
ment fee was the only injury that the jury reasonably could have
found to have been proximately caused by CTL's negligence and the
amount of the jury verdict far exceeded the amount that JCI would
have been reimbursed under the proposed agreement, the district court
7
abused its discretion in denying CTL's motion for a new trial on dam-
ages.
The decision of a district court to deny a motion for a new trial for
excessiveness of the verdict is reviewable only for abuse of discre-
tion. See Wadsworth v. Clindon, 846 F.2d 265, 266 (4th Cir. 1988)
(per curiam). An award of damages must "stand unless no substantial
evidence is presented to support it, it is against the clear weight of the
evidence, it is based upon evidence that is false, or it will result in a
miscarriage of justice." Barber v. Whirlpool Corp., 34 F.3d 1268,
1279 (4th Cir. 1994). The scope of a new trial may be limited to trial
of the damages issue when "there is no substantial indication that the
liability and damage issues are inextricably interwoven, or that the
first jury verdict was the result of a compromise of the liability and
damage questions." Atlas Food Sys. & Servs., Inc. v. Crane Nat'l Ven-
dors, Inc., 99 F.3d 587, 599 (4th Cir. 1996) (internal quotation marks
omitted).
Here, because the terms negotiated between JCI and Northwestern
called for reimbursement of less than $200,000 in predevelopment
expenses, the evidence did not support an award of $300,027. And,
there can be no doubt that the verdict was not the result of a compro-
mise of liability and damages because the jury returned a verdict in
the full amount JCI requested. Accordingly, we reverse the order of
the district court denying CTL's motion for a new trial to determine
the damages proximately caused by CTL's professional negligence.
III.
JCI argues on cross appeal that the district court erred in granting
partial summary judgment against it regarding the professional negli-
gence claim for damages in the amount of the development fee. JCI
contends that the evidence presented created a genuine issue of fact
regarding whether it would have collected the $530,000 fee but for
CTL's breach. We disagree.
Summary judgment is proper if, viewed in the light most favorable
to the nonmoving party, "the pleadings, depositions, answers to inter-
rogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that
8
the moving party is entitled to a judgment as a matter of law." Fed.
R. Civ. P. 56(c); see Ross v. Communications Satellite Corp., 759
F.2d 355, 364 (4th Cir. 1985).
Although the evidence presented was sufficient to create an issue
of fact regarding whether CTL's breach prevented JCI from consum-
mating its agreement with Northwestern, consummation of the agree-
ment entitled JCI only to the assignment fee. The development fee,
on the other hand, was to be paid in installments as the project pro-
gressed. Absent evidence tending to prove that JCI and Northwestern
actually would have completed the development or at least some frac-
tion thereof, JCI failed to create a genuine issue of fact regarding
whether it ever would have earned any portion of the development
fee. We therefore conclude that the district court correctly granted
partial summary judgment on JCI's claim for damages in the amount
of the development fee. See Beale v. Hardy, 769 F.2d 213, 214 (4th
Cir. 1985) (explaining that a genuine issue of material fact cannot be
created "through mere speculation").
IV.
In sum, we affirm the denial of CTL's motion for judgment as a
matter of law on JCI's negligence claim and the grant of partial sum-
mary judgment on JCI's negligence claim for the $530,000 develop-
ment fee. However, we reverse the denial of CTL's motion for a new
trial on the issue of the damages proximately caused by CTL's negli-
gent performance of the environmental assessment. Accordingly, we
remand for a new trial on damages as to the professional negligence
claim.3
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3 We conclude that JCI has established liability for and is entitled to
recover all damages proximately caused by CTL's negligent performance
of the assessment and that this measure of damages is at least as great
as JCI would have under a breach of contract or constructive fraud the-
ory. See Wooldridge v. Echelon Serv. Co., 416 S.E.2d 441, 443 (Va.
1992) (explaining that in a breach of contract action, a plaintiff must
prove that his damages were proximately caused by the alleged breach);
Murray v. Hadid, 385 S.E.2d 898, 903-04 (Va. 1989) (holding that in a
fraud action, a plaintiff must prove that his damages were proximately
caused by the alleged fraud). We therefore do not address the parties'
allegations of error concerning those two claims.
9
AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED
WIDENER, Circuit Judge, Concurring and Dissenting:
I concur in all of the opinion of the majority except a part of Part
IV.
I would affirm, except that I would require a modification of the
judgment to the sum of $189,443. See Wright & A. Miller, Federal
Practice and Procedure, § 2815 (1995).
10