J. Beatley v. Charles Ayers, Jr. ( 2021 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 19-1777
J. IRVIN BEATLEY,
Plaintiff – Appellee,
v.
CHARLES E. AYERS, JR.; RALPH L. COSTEN, JR.; JESSE L. BARBER,
Defendants - Appellants.
No. 19-1809
J. IRVIN BEATLEY,
Plaintiff – Appellant,
v.
CHARLES E. AYERS, JR.; RALPH L. COSTEN, JR.; JESSE L. BARBER,
Defendants - Appellees.
Appeals from the United States District Court for the Eastern District of Virginia, at
Richmond. John A. Gibney, Jr., District Judge. (3:18-cv-00037-JAG)
Argued: October 29, 2020 Decided: March 10, 2021
Before GREGORY, Chief Judge, TRAXLER, Senior Circuit Judge, and Stephanie A.
Gallagher, United States District Judge for the District of Maryland, sitting by designation.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: Stephen M. Faraci, Sr., WHITEFORD TAYLOR PRESTON, L.L.P.,
Richmond, Virginia, for Appellants/Cross-Appellees. Norman A. Thomas, NORMAN A.
THOMAS, PLLC, Richmond, Virginia, for Appellee/Cross-Appellant. ON BRIEF:
Patrick D. Houston, WHITEFORD TAYLOR PRESTON, L.L.P., Richmond, Virginia, for
Appellants/Cross-Appellees. John K. Burke, Jr., J. K. BURKE LAW FIRM PLC,
Richmond, Virginia, for Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
Plaintiff Irvin Beatley brought this action against Defendants Charles Ayers, Ralph
Costen, and Jesse Barber after they failed to adhere to the terms of their Settlement
Agreement, which was the result of a previous state court action concerning a real estate
project. Defendants appeal from the district court’s order after a bench trial awarding
Beatley $157,195 in damages and $25,000 in punitive damages against Ayers. Beatley
cross appeals. For the following reasons, we vacate the district court judgment and remand
for further proceedings. 1
I. Background
Irvin Beatley was in business with Charles Ayers, Ralph Costen, and Jesse Barber
to develop a project called Anchor Point. Another business partner, John Woodfin, Sr.,
invested in Anchor Point as well. Beatley took out various loans to finance the project and
Defendants agreed to reimburse him for his contributions to the project. However, they
did not. As a result, Beatley pursued a case against the Defendants in state court, which
resulted in a settlement agreement (“Agreement”) in June 2017.
The Agreement required Defendants to pay Beatley $134,000 on or before July 17,
2017. The Agreement also required the Defendants
to assume all of plaintiff’s obligations on the loan from Fulton Bank to
plaintiff in the original principal amount of approximately $157,000.
Defendants agree to use all best efforts to obtain Fulton Bank’s consent to
1
Although Barber was a defendant below, Beatley in this appeal does not
challenge the district court’s rejection of his claims against Barber. Beatley has therefore
abandoned any claims against Barber. The use of the term “Defendants” in the opinion
therefore will generally refer only to Ayers and Costen.
3
their assumption of the loan and the release of plaintiff from all obligations
relating to the loan. Defendants further agree that their responsibility under
this paragraph includes the payment of the monthly interest charge due on or
about July 1, 2017.
(J.A. 25).
The Defendants did not perform their obligations under the Agreement. They did
not pay Beatley the $134,000 sum by July 17, 2017, nor did they assume Beatley’s
obligations on the $157,000 loan. Beatley commenced this action in federal district court
in January 2018, asserting against the Defendants four causes of action: breach of contract,
conspiracy to breach contract, fraudulent inducement, and conspiracy to commit fraud.
In April 2018, the Defendants paid Beatley $134,000 (plus interest). In May 2018,
Beatley’s $157,000 loan went into default when the Defendants failed to make the required
payments. Defendants and Woodfin Sr. had each also taken out identical $157,000 loans
from the Bank in 2006 to finance Anchor Point. Woodfin Sr. had guaranteed everyone’s
loans with his collateral. When Beatley’s $157,000 loan defaulted, the Bank satisfied his
loan using the collateral Woodfin Sr. posted before his death. Although the estate of
Woodfin Sr. was subrogated to the Bank’s interest after the loan was satisfied, the estate
took no collection action against Beatley.
The district court conducted a bench trial in November 2018. At trial, Woodfin Jr.
explained that he had already closed his father’s estate and did not have plans to pursue a
claim against Beatley for reimbursement. The court did not hear any testimony from the
other administrator of Woodfin Sr.’s estate or its beneficiaries regarding their plans to
pursue a claim against Beatley.
4
The district court subsequently issued an order in favor of Beatley on two causes of
action. Although the court rejected Beatley’s conspiracy claims, the court concluded that
the Defendants breached the Agreement and that Ayers committed fraud when inducing
Beatley to enter into the Agreement. As to damages, the court held that the Defendants’
mid-litigation payment of the $134,000 mooted any claim based on that portion of the
Agreement. The district court instead awarded Beatley damages of $157,195, based on the
Defendants’ failure to assume the Bank loan as required by the Agreement. The district
court rejected the Defendants’ argument that Beatley suffered no damages because the loan
was satisfied through the collateral of the Woodfin estate. The district court believed that
the estate, which was subrogated to the Bank’s rights under the $157,000 loan, had an
obligation to pursue its claim against Beatley; therefore, Beatley had a sufficiently concrete
claim for damages. The district court also concluded that Ayers engaged in dishonest and
malicious conduct when inducing Beatley to enter into the Agreement. The court therefore
ordered Ayers to pay Beatley $25,000 in punitive damages and almost $65,000 in
attorney’s fees. The Defendants appealed, and Beatley cross-appealed.
II. Defendants’ Appeal
The Defendants argue on appeal that the district court erred by awarding damages
in any amount to Beatley. They contend that Beatley cannot prevail on his breach of
contract or fraudulent inducement claims because he did not prove that he suffered
compensable damages. See Navar, Inc. v. Fed. Bus. Council, 784 S.E.2d 296, 299 (Va.
2016) (explaining that a contract claim requires proof of damages); Cmty Bank v. Wright,
5
267 S.E.2d 158, 160 (Va. 1980) (“An allegation of fraud in the abstract does not give rise
to a cause of action; it must be accompanied by allegation and proof of damage.”).
According to the Defendants, Beatley cannot show any actual, non-speculative
damage because the $134,000 due under the Agreement has now been paid and the
administrator of the Woodfin estate does not intend to pursue Beatley in connection with
the $157,000 loan. And given Beatley’s failure to prove actual, compensable damages, the
Defendants contend that the awards of punitive damages and attorney’s fees must also be
stricken. See Gasque v. Mooers Motor Car Co., 313 S.E.2d 384, 388 (Va. 1984) (“[A]n
award of compensatory damages . . . is an indispensable predicate for an award of punitive
damages”).
The Defendants challenge only the district court’s determination that Beatley
suffered compensable damages. 2 Whether the damages sought by Beatley are compensable
in this action is a legal question that we review de novo.
A. Breach of Contract
We first consider whether Beatley established compensable damages for his breach
of contract claim. The breach of contract claim was premised on the Defendants’ failure
to perform their obligations under the Agreement to pay Beatley $134,000 and to assume
the obligations and pay the amounts due under the $157,000 loan.
2
There is no challenge to the court’s determination that Ayers’ conduct
otherwise satisfied the elements of the fraud and contract claims, nor is there a challenge
to the court’s conclusion that Ayers’ conduct was sufficiently egregious to support an
award of punitive damages.
6
1. $134,000 payment
The district court concluded that Ayers’ mid-litigation payment of the $134,000
(plus interest) mooted that portion of the breach of contract claim. We agree.
Because the Agreement did not provide for attorney’s fees in the event of a breach,
the payment gave Beatley everything he was entitled to receive on that claim—$134,000
plus interest. The payment therefore mooted that portion of Beatley’s breach of contract
claim. See Zimmerman v. Bell, 800 F.2d 386, 390 (4th Cir. 1986) (concluding that offer of
judgment mooted plaintiff’s individual claims because the offer gave her “the full amount
of damages [] to which she claimed individually to be entitled”).
2. $157,000 Loan
The district court held that Beatley was damaged by the Defendants’ breach of their
duties regarding the $157,000 loan. The district court observed that after the Bank’s
seizure of the Woodfin estate’s collateral, the estate was subrogated to the Bank’s rights
under the promissory note, and the court believed that the estate was obligated to seek
payment from Beatley. The district court held that Beatley was injured because he
remained exposed to liability connected to the loan after the Defendants’ breach.
The Defendants argue that because the Woodfin estate has not sought payment from
Beatley and the administrator has disavowed any intention of ever seeking recovery from
Beatley, it is conjectural to conclude that he will ever be required to make payment to the
estate. The Defendants therefore contend that Beatley failed to prove the elements of his
claim because he failed to show he suffered any non-speculative damage. See Shepherd v.
Davis, 574 S.E.2d 514, 524 (Va. 2003) (explaining that the plaintiff bears the “burden of
7
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[]”) (internal
quotation marks omitted).
We agree that Beatley has not yet suffered any damage from the Defendants’ breach
of their obligations regarding the $157,000 loan. Although the Defendants contend that
the absence of injury means the breach of contract claim fails on the merits, we believe the
issue is better understood as one of ripeness. Because Beatley has not yet suffered any
damages, his breach of contract claim is not ripe.
Ripeness is a “justiciability doctrine [that] determines when a case or controversy is
fit for federal judicial review.” Trustgard Ins. Co. v. Collins, 942 F.3d 195, 199 (4th Cir.
2019). “The doctrine of ripeness prevents judicial consideration of issues until a
controversy is presented in ‘clean-cut and concrete form.’” Miller v. Brown, 462 F.3d 312,
318–19 (4th Cir. 2006) (quoting Rescue Army v. Mun. Court of L.A., 331 U.S. 549, 584
(1947)). “A case is fit for adjudication when the action in controversy is final and not
dependent on future uncertainties; conversely, a claim is not ripe when it rests upon
contingent future events that may not occur as anticipated.” In re Naranjo, 768 F.3d 332,
347 (4th Cir. 2014) (internal quotation marks omitted); accord A/S J. Ludwig Mowinckles
Rederi v. Tidewater Const. Co., 559 F.2d 928, 932 (4th Cir. 1977) (“An important factor
in considering ripeness is whether resolution of the tendered issue is based upon events or
determinations which may not occur as anticipated.”). Whether a claim is ripe is a legal
question governed by federal law. See Sansotta v. Town of Nags Head, 724 F.3d 533, 544
(4th Cir. 2013) (ripeness is a legal question); Mowinckles, 559 F.2d at 931 n.4 (“[T]he
8
district court was correct in looking to federal law to determine whether a decision on the
indemnity claims would be premature, because the question of the ripeness of a claim for
adjudication in a federal court is essentially a question of the judicial power of the court
over the claim and whether the court should exercise that power.”). 3
In this case, Beatley has not yet suffered any damages caused by the Defendants’
failure to perform their obligations regarding the $157,000 loan. The Agreement did not
require the Defendants to pay Beatley $157,000 so that he could satisfy the loan. Instead,
the Agreement obligated the Defendants to assume Beatley’s obligations and make all
payments due under the loan and to make good-faith efforts to get the Bank to release
Beatley from the loan. The Defendants failed to perform their obligations, and their failure
led to the Bank’s seizure of the Woodfin collateral to satisfy the loan. Thus, despite the
Defendants’ breach, Beatley’s obligations to the Bank under the loan were terminated
without any payment from Beatley. Although the Woodfin estate has subrogation rights
against Beatley, the estate was nonetheless closed with no attempt to collect from Beatley.
And even if the administrator was legally obligated to proceed against Beatley, as the
district court believed, the administrator nonetheless did not seek recovery from Beatley
before closing the estate, and he testified under oath that he did not intend to seek recovery
3
Because the ripeness of a claim brought in federal court is governed by
federal law, we need not consider Beatley’s contention that his indemnity claim is ripe
under Virginia law.
9
from Beatley. 4 Given this apparent knowing abandonment by the estate of any claim
against Beatley, the possibility that Beatley will ever be required to pay the $157,000 is
remote at best.
This aspect of Beatley’s breach of contract claim is, at bottom, a claim for
indemnification from Defendants for the amount that Beatley might be required to pay to
the Woodfin estate. “Whether an indemnification issue is ripe for adjudication depends on
the facts and circumstances of the case under consideration.” Mowinckles, 559 F.2d at 932.
“An important factor in considering ripeness is whether resolution of the tendered issue is
based upon events or determinations which may not occur as anticipated.” Id.Because Beatley will suffer damages only if the Woodfin estate exercises its
subrogation rights against Beatley and the administrator has disavowed any intent to do so,
Beatley’s breach of contract claim is dependent on “contingent future events that may not
occur as anticipated.” Naranjo, 768 F.3d at 347. Under these circumstances, we conclude
that Beatley’s breach of contract claim premised on the $157,000 loan is not ripe. See
Mowinckles, 559 F.2d at 932 (finding indemnification claim not ripe where “there has been
neither a determination of liability nor a settlement in any of the personal injury or wrongful
4
The district court’s ruling relied in part on First Nat’l Exch. Bank v. Seaboard
Citizens Nat’l Bank, 107 S.E.2d 408 (Va. 1959), where the court held that even after the
closure of an estate, the administrator “still has the right and duty to collect and administer
any assets which may be afterwards discovered.” Id. at 412. In this case, however, the
Woodfin estate was aware before the estate was closed that the Bank had seized its
collateral to satisfy the Beatley loan.
10
death actions pending against Mowinckles and Tidewater in the district court and state
courts”). 5
Beatley thus has no justiciable breach of contract claim. The claim based on the
$134,000 payment is moot, and the claim involving the $157,000 loan is not ripe. The
district court therefore erred by awarding Beatley judgment on his breach of contract claim.
B. Fraudulent Inducement
Although we conclude the district court erred by entering judgment in favor of
Beatley on his breach of contract claim, the district court also ruled in favor of Beatley on
his fraudulent inducement claim against Ayers. On appeal, the Defendants challenge any
award on the fraud claim on the same grounds as the breach of contract claim. They
contend that Beatley has suffered no damages because the $134,000 payment due under
the Agreement was made during the pendency of this litigation and Beatley does not face
a claim from the Woodfin estate on the $157,000 loan.
In our view, there are substantive differences between the breach of contract claim
and the fraudulent inducement claim that require a different analysis of the issue. The
5
Beatley contends his claim is ripe because it involves not simply indemnity
against loss, but indemnity against liability. See State-Planters' Bank & Tr. Co. v. First
Nat. Bank, 76 F.2d 527, 532 (4th Cir. 1935) (“Where the indemnity is against liability, the
cause of action is complete and the indemnitee may recover upon the contract as soon as
his liability has become fixed and established, even though he has sustained no actual loss
or damage at the time he seeks to recover.”) (internal quotation marks omitted). We
disagree. Because the Bank was not obligated to release Beatley from the loan regardless
of the Defendants’ efforts, the Agreement (if performed) would have ensured that Beatley
bore no loss connected with the $157,000 loan, but it would not have automatically freed
Beatley from liability to the Bank. This case thus involves indemnification against loss,
not indemnification against liability.
11
contract and fraud claims arose from the same broad factual context, but the focus of each
claim is very different. The breach of contract claim is centered on conduct occurring after
the execution of the Agreement—the Defendants’ failure to perform their obligations under
the Agreement. The fraud claim, by contrast, is centered on conduct leading up to the
execution of the Agreement—the Defendants’ misrepresentations that induced Beatley to
enter into the Agreement.
Moreover, the fraud claim permits Beatley to seek a broader range of damages than
available on his contract claim. On his claim of fraudulent inducement, Beatley seeks to
recover his out-of-pocket costs (including mediation costs) incurred in the course of
entering into the Agreement, as well as the benefits he would have received had the
Agreement been performed as promised. See CGI Federal v. FCi Federal, 814 S.E.2d 183,
189–90 (Va. 2018) (explaining that fraudulent inducement plaintiffs may seek
“compensatory damages in the form of lost profits” that would have been received if the
representations had been true, if those damages can be established “with reasonable
certainty”); Restatement (Second) of Torts § 549 (“The recipient of a fraudulent
misrepresentation is entitled to recover as damages . . . the pecuniary loss to him of which
the misrepresentation is a legal cause. . . . The recipient of a fraudulent misrepresentation
in a business transaction is also entitled to recover additional damages sufficient to give
12
him the benefit of his contract with the maker, if these damages are proved with reasonable
certainty.”). 6 He also seeks punitive damages and attorney’s fees.
Given the factual basis for the fraudulent inducement claim and the expanded scope
of damages available for it, the fraudulent inducement claim is ripe even without regard to
the $134,000 payment or the $157,000 loan. Beatley suffered an injury with quantifiable,
non-conjectural damages as soon as he signed the Agreement, by compromising his state-
court claims and paying mediation costs in order to enter into a contract that the Defendants
never intended to perform. Whether Beatley may recover damages for the payment or the
loan is relevant to the amount of lost profits Beatley can prove, but those damages are not
necessary to make the claim ripe. The fraud claim presents a “clean-cut and concrete”
controversy and is therefore ripe for review. Miller, 462 F.3d at 319 (internal quotation
marks omitted). The question, then, is the propriety of the district court’s damage award.
The district court awarded Beatley $157,000 against Ayers because it believed
Beatley was liable to the Woodfin estate for that amount after the Defendants failed to pay
the $157,000 loan and the Bank seized the estate’s property to satisfy the loan. As we have
explained, there is no reasonable certainty that Beatley will be required to pay the Woodfin
estate because the estate has been closed and the administrator testified that he had no
6
Virginia courts frequently look to principles set out in the Restatement
(Second) of Torts. See e.g., Dunn, McCormack & MacPherson v. Connolly, 708 S.E.2d
867, 870 (Va. 2011) (citing § 766); Prospect Dev. Co. v. Bershader, 515 S.E.2d 291, 300
(Va. 1999) (citing § 549); Zysk v. Zysk, 404 S.E.2d 721, 722 (Va. 1990) (citing § 892C(1)).
13
intention of seeking recovery from Beatley. We therefore agree with the Defendants that
the possibility Beatley will suffer a loss associated with the $157,000 loan is too speculative
to be included in an award for lost profits. See CGI Federal, 814 S.E.2d at 189–90
(damages in a fraudulent inducement case may include lost profits if they can be proven
with “reasonable certainty”); Shepherd, 574 S.E.2d at 524 (“[S]peculation and conjecture
cannot form the basis of the recovery.”).
That Beatley failed to prove compensable damages as to the $157,000 loan,
however, does not mean that he failed to prove any compensable damages for the fraud
claim. If the Defendants had performed their obligations under the Agreement, Beatley
would have been paid $134,000 by July 17, 2017. The $134,000 lost-profit damages,
which were established with more than reasonable certainty by the terms of the Agreement
itself, were thus a proper component of the fraudulent inducement damage award.
Contrary to the conclusion of the district court, Ayers’ mid-litigation payment of the
amount due did not moot that portion of the fraudulent inducement claim as it did with the
breach of contract claim. The $134,000 payment mooted the breach of contract claim
because it gave Beatley everything he sought on that claim. As to the fraudulent
inducement claim, the $134,000 payment did not moot the claim because it did not give
Beatley everything he sought, which included compensation for out-of-pocket expenses,
lost profits, punitive damages, and attorney’s fees. Any defendant liable on the fraudulent
inducement claim, of course, would be entitled to offset the ultimate verdict by the amount
of their payment. But the fact of the payment did not prevent the district court from
14
considering the Defendants’ $134,000 contractual obligation and their related conduct
when assessing liability and damages on the fraudulent inducement claim.
Because the district court awarded damages that are premised on an injury that is
too speculative to be included in a damage award and improperly declined to consider
evidence related to the concrete injury already suffered by Beatley, we vacate the district
court’s judgment on Beatley’s fraudulent inducement claim against Ayers.
III. Beatley’s Cross-Appeal
In his cross-appeal, Beatley contends that the district court erred by rejecting his
conspiracy claims against Ayers and Costen and by rejecting his fraudulent inducement
claim against Defendant Costen.
When rejecting the fraudulent inducement claim against Costen, the district court
found the evidence failed to establish that Costen never intended to comply with his
obligations regarding the $157,000 loan. The court did acknowledge that Costen had no
intent to pay the required $134,000 sum in a timely fashion, but believed that fact was
irrelevant given that the $134,000 debt had been paid. The district court’s analysis of the
conspiracy claims was similar. The court noted evidence possibly showing a conspiracy
as to the $134,000 payment, but held that “Beatley cannot point to any evidence that the
defendants conspired with anyone to breach the duty to pay the $157,[000] note.” J.A 988.
As we have already explained, however, the Defendants’ conduct in connection with
the $134,000 payment did not disappear from the case or otherwise become irrelevant to
Beatley’s tort claims simply because the Defendants paid the amount due under the
Agreement while this litigation was pending. The district court was entitled to consider
15
that conduct when determining liability and fixing damages. The payment works as a credit
or offset against the ultimate amount of the verdict, but it does not insulate the underlying
facts from judicial consideration.
Because the district court’s analysis was premised on a legal error about the scope
of evidence it could consider in connection with Beatley’s tort claims, we agree with
Beatley that the district court’s rulings must be vacated. On remand, the district court
should reconsider the fraudulent inducement claim against Costen (and Ayers) and the
conspiracy claims against both Ayers and Costen in light of all of the evidence, including
the evidence associated with the $134,000 payment obligation under the Agreement. 7
IV. Conclusion
To summarize, we hold that Beatley’s breach of contract claims are not justiciable
and that the district court therefore erred by awarding judgment on Beatley’s breach of
contract claim. We therefore vacate the district court’s judgment as to the breach of
contract claims and direct the court on remand to dismiss those claims for lack of
jurisdiction. 8
7
Beatley also seeks an award of appellate attorney’s fees. We leave it for the
district court on remand to consider that claim in the first instance. See Odeon Capital
Group LLC v. Ackerman, 864 F.3d 191, 199 (2d Cir. 2017) (concluding that district courts
are better suited to determine an award of appellate attorney’s fees in the first instance).
8
Because a dismissal on jurisdictional grounds such as ripeness is not a final
judgment on the merits, Beatley is free to bring a new breach of contract action if the
Woodfin estate proceeds against him in connection with the $157,000 loan. See Duckett
v. Fuller, 819 F.3d 740, 744 (4th Cir. 2016) (explaining that res judicata requires the
existence of a final judgment on the merits); U.S. ex rel. May v. Purdue Pharma L.P., 737
(Continued)
16
The district court also erred by premising the damages for the fraudulent inducement
claim on the Defendants’ actions regarding the $157,000 loan and by concluding that the
mid-litigation payment prevented consideration of the $134,000 contractual obligation in
connection with the fraudulent inducement claim. That error also affected the district
court’s analysis of Beatley’s conspiracy claims and the fraudulent-inducement claim
asserted against Ayers and Costen. We therefore vacate the district court’s judgment
against Ayers on Beatley’s tort claims and remand for reconsideration of these issues as
they pertain to Ayers and Costen in light of the guidance set out in this opinion. Given the
connection between actual damages and the quantum of punitive damages and attorney’s
fees awarded, we likewise vacate the awards of punitive damages and attorney’s fees and
remand for reconsideration of those awards as well.
VACATED AND REMANDED
F.3d 908, 912 (4th Cir. 2013) (“[J]urisdictional dismissals are not ‘judgment[s] on the
merits for purposes of res judicata.’”).
17