Patel v. Anand, L.L.C. , 264 Va. 81 ( 2002 )


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  • Present:   All the Justices
    DILIP R. PATEL
    OPINION BY JUSTICE LEROY R. HASSELL, SR.
    v.   Record No. 011913              June 7, 2002
    ANAND, L.L.C.
    FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
    Clifford R. Weckstein, Judge Designate
    I.
    In this appeal of a judgment entered in favor of a
    plaintiff against a defendant in an action for fraud, breach
    of fiduciary duty, and breach of contract, we consider whether
    the plaintiff introduced evidence to establish that it
    incurred damage to the value of its ground lease as a result
    of the defendant's conduct.
    II.
    Plaintiff, Anand, L.L.C. (Anand), a Virginia limited
    liability corporation, filed its amended motion for judgment
    against Clifford Kent Allison, Deep Enterprises, Inc. (Deep
    Enterprises), and Dilip R. Patel.    Nayan K. Bhatt and Dinesh
    K. Bhatt, members of Anand, filed a separate motion for
    judgment against Allison, alleging that he committed acts
    and/or omissions that constituted legal malpractice.   The
    circuit court consolidated these actions and during the first
    day of a jury trial, Anand and the Bhatts settled their claims
    against Deep Enterprises.
    At the conclusion of the trial, the jury returned a
    verdict in favor of Anand against Dilip Patel in the amount of
    $1,250,000 in damages for actual fraud, breach of fiduciary
    duty, and breach of contract.    The jury awarded Anand $500,000
    in punitive damages against Dilip Patel, and the court reduced
    that award to $350,000 as required by Code § 8.01-38.1.        The
    jury returned a verdict in favor of the Bhatts against Allison
    for $52,500 in compensatory damages and $100,000 in punitive
    damages, and that verdict is not challenged in this appeal.
    Dilip Patel filed a petition for appeal and assigned
    error to six different rulings of the circuit court.      We
    awarded Dilip Patel an appeal limited to one assignment of
    error.   In spite of this Court's order that limited the issues
    in this appeal, Dilip Patel has included in his brief, under
    the guise of questions presented, assignments of error that we
    specifically rejected.   We will not consider these so-called
    questions presented, and we remind counsel for Dilip Patel of
    their duty to comply with this Court's order.
    III.
    Even though the record in this case is voluminous, we
    will only discuss those facts that are relevant to the narrow
    issue presented in this appeal.       Deep Enterprises is a
    Virginia corporation.    When Deep Enterprises was formed, Dilip
    Patel, president and director of Deep Enterprises, owned 50%
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    of its stock.   Rajesh Patel, who also owned 50% of the
    corporation's stock, was the vice president, secretary, and a
    director of the corporation.
    Deep Enterprises owned, as its only asset, the right to
    purchase a long-term ground lease from the Federal Deposit
    Insurance Corporation (FDIC).   The ground lease, recorded
    among the land records in the City of Hampton, permitted the
    owner of the leasehold estate to use the land and improvements
    that are the subjects of the lease for a term of 99 years.    An
    old hotel, which had been closed, was situated on the property
    that was the subject of the leasehold estate.
    In late 1994 or sometime in 1995, Rajesh Patel approached
    Allison, who at that time was an attorney licensed to practice
    law in this Commonwealth.   Rajesh Patel informed Allison that
    Rajesh Patel had been the successful bidder at an auction to
    purchase a ground lease from the FDIC. *   The ground lease was
    for a period of 99 years, with 82 or 83 years remaining on the
    lease.
    The FDIC required that Deep Enterprises pay $918,961 to
    purchase the ground lease, which included an $80,000 deposit
    that had been paid and an additional contingency fund for the
    removal of asbestos from the hotel situated on the property.
    *
    Even though initially the Resolution Trust Corporation
    acquired ownership of the ground lease, the FDIC acquired the
    Resolution Trust Corporation's interests.
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    Dilip Patel and Rajesh Patel, purportedly acting on behalf of
    Deep Enterprises, were unable to raise this money and,
    therefore, Deep Enterprises undertook numerous dilatory
    efforts, including the filing of litigation in a federal
    district court, to delay the closing on the ground lease.
    Ultimately, Deep Enterprises and the FDIC reached a settlement
    that required Deep Enterprises to close on the ground lease
    contract on or before June 14, 1996, or it would forfeit the
    $80,000 deposit.
    In the fall of 1995, Deep Enterprises caused two
    appraisals to be performed on the property.   One appraisal,
    referred to as the Copeland appraisal, placed a fair market
    value on the property subject to the ground lease at
    $2,670,000.   Another appraisal established the value of the
    same property at $500,000.
    Colonial Downs, L.L.C., an entity that had constructed a
    horse race track in New Kent County, Virginia, had an interest
    in the acquisition of the ground lease.   Gilbert D. Short,
    Colonial Downs' employee, made an offer to Deep Enterprises to
    purchase the ground lease in November 1995 for $1,000,000.
    Subsequently, Colonial Downs increased its offer to purchase
    the ground lease to $1,496,000.
    In an effort to secure financing to close on the ground
    lease, in November 1995, Deep Enterprises sold 30% of its
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    shares to several English investors for $300,000.    However, in
    late May 1996, Dilip Patel and Rajesh Patel were anxious
    because they were still unable to raise the capital necessary
    to purchase the ground lease, and they were worried that Deep
    Enterprises would forfeit the $80,000 deposit.   They began to
    search frantically for additional investors.    At the same
    time, Allison, Rajesh Patel, and Dilip Patel participated in a
    scheme to deceive the English investors and convinced them to
    forward an additional $300,000 to Deep Enterprises under the
    guise that the money was necessary to obtain an extension of
    the June 14, 1996 closing date from the FDIC.    As a part of
    this scheme, Allison created a fictitious letter to lead the
    English investors to believe that Colonial Downs desired to
    purchase the ground lease promptly.
    During his search for additional investors, Dilip Patel
    met Dinesh K. Bhatt and Nayan K. Bhatt, brothers who were
    physicians in Martinsville, Virginia.   Upon Dilip Patel's
    directions, Allison forwarded a copy of the Copeland appraisal
    that valued the ground lease at $2,670,000 to Dinesh Bhatt and
    Nayan Bhatt.
    During several conversations, Dilip Patel made the
    following representations to Dinesh Bhatt.   The value of the
    ground lease was between $1,500,000 to $2,000,000.   Colonial
    Downs was willing to purchase the ground lease for a price in
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    excess of $1,000,000.   Dilip Patel had paid most of a sum of
    $200,000 to the FDIC as a deposit for a contract to purchase
    the ground lease.   Dilip Patel would contribute $200,000, the
    Bhatts would contribute $700,000, and the sum of $900,000
    would be used by Deep Enterprises to acquire the ground lease.
    Deep Enterprises, in turn, would immediately transfer the
    property to Dinesh Bhatt, Nayan Bhatt, and Dilip Patel.
    Even though the Bhatts had only known Dilip Patel for
    about three months, Dilip Patel convinced them to invest
    $700,000 in the plan to obtain ownership of the ground lease.
    Dilip Patel and Allison falsely assured Dinesh Bhatt that the
    shareholders of Deep Enterprises had unanimously agreed with
    the decision to transfer the corporation's interest in the
    ground lease to Dinesh Bhatt, Nayan Bhatt, and Dilip Patel.
    The Bhatts made their $700,000 investment, and the closing
    occurred on June 14, 1996.   Later, Dilip Patel, acting on
    behalf of Deep Enterprises, but without the consent or
    knowledge of the English minority shareholders, conveyed Deep
    Enterprises' interest in the ground lease to Dinesh Bhatt,
    Nayan Bhatt, and Dilip Patel.   Anand, a limited liability
    corporation formed by Dilip Patel and the Bhatts, acquired the
    ground lease.   Subsequently, the English investors learned
    that they had been defrauded and contacted Dinesh Bhatt, who
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    was unaware of their involvement or the fraudulent acts of
    Allison, Rajesh Patel, and Dilip Patel.
    IV.
    Dilip Patel argues that Anand failed to present evidence
    that would permit the jury to conclude that Anand suffered
    damage to its interest in the ground lease as a result of
    Patel's fraudulent acts.   Patel contends that Anand failed to
    prove any loss between the difference in the value of the
    ground lease that it bargained for and the value of the ground
    lease that it actually received.      Responding, Anand asserts
    that it presented evidence of the amount it paid for the
    ground lease, $900,000, and the amount of offers that
    prospective purchasers made for the ground lease.     Anand also
    argues that it presented evidence regarding the renovation
    costs for the hotel on the property and the amount it paid in
    lease payments and in franchise and application fees.     Anand
    also says that it presented evidence of the amount of
    mechanic's liens that encumbered the property, as well as
    evidence of litigation expenses from a separate lawsuit that
    challenged its legal interest in the ground lease.
    We stated in Carstensen v. Chrisland Corp., 
    247 Va. 433
    ,
    444, 
    442 S.E.2d 660
    , 666-67 (1994), the following principle
    that is equally pertinent here:
    "In Long & Foster Real Estate, Inc. v. Clay,
    
    231 Va. 170
    , 
    343 S.E.2d 297
     (1986), we considered
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    the measure of damages in a case where a fiduciary
    withheld information from its principal which, if
    disclosed, would have caused the principal to reject
    the transaction. In that case, we held that the
    measure of damages is the difference between the
    value of the item bargained for and the value of the
    item actually received. Id. at 175-76, 
    343 S.E.2d at 300-01
    , cited with approval in, Duvall,
    Blackburn, Hale & Downey v. Siddiqui, 
    243 Va. 494
    ,
    498, 
    416 S.E.2d 448
    , 450 (1992)."
    We applied this principle in Prospect Development Co. v.
    Bershader, 
    258 Va. 75
    , 91, 
    515 S.E.2d 291
    , 300 (1999):
    "Generally, a person who acquired property by
    virtue of a commercial transaction and who has been
    defrauded by false representations is entitled to
    recover as damages the difference between the actual
    value of the property at the time the contract was
    made and the value that the property would have
    possessed had the representation been true."
    Applying this established principle, we hold that Anand
    failed to present evidence that would permit the jury to
    conclude that Anand suffered damage because it failed to
    obtain clear title to the ground lease in the fall of 1996.
    Anand failed to present evidence of the actual value of the
    ground lease that it bargained for – a ground lease which
    would have had a clear title – and the value of the ground
    lease that it actually received – a ground lease with a cloud
    on the title.   The record simply does not contain this
    evidence.
    Upon our review of the record, we hold that the only
    legally cognizable item of compensatory damage that Anand
    presented at trial was the sum of $23,148.77 that it incurred
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    in litigation expenses related to a lawsuit that Deep
    Enterprises filed against Anand in the Circuit Court of the
    City of Hampton.   In that lawsuit, Deep Enterprises challenged
    Anand's legal interest in the ground lease.      We observe that a
    party, required to act in the protection of his interests by
    bringing or defending an action against a third person, may
    recover attorney's fees incurred in that action against the
    original entity or person who breached a duty owed, in this
    instance, Dilip Patel.   Prospect Development Co., 
    258 Va. at 92
    , 515 Va. at 301; Fidelity Nat'l Ins. Co. v. Southern
    Heritage Ins., 
    257 Va. 246
    , 253-54, 
    512 S.E.2d 553
    , 557-58
    (1999); Owen v. Shelton, 
    221 Va. 1051
    , 1055-56, 
    277 S.E.2d 189
    , 192 (1981); Hiss v. Friedberg, 
    201 Va. 572
    , 577-78, 
    112 S.E.2d 871
    , 875-76 (1960); see Restatement (Second) of Torts
    § 914 (1977).   And, we note that Dilip Patel did not challenge
    this element of damage in the circuit court.
    Anand contends, however, that it incurred the following
    compensable damages as a result of Dilip Patel's acts:      costs
    incurred in the renovation of the hotel, the costs of the
    ground lease payments, the costs associated with franchise and
    application fees for the hotel, and the costs of mechanic's
    liens that encumbered the property.      We disagree.   Anand
    failed to establish that Dilip Patel's actions were a
    proximate cause of these costs.       See Murray v. Hadid, 
    238 Va. 9
    722, 730-31, 
    385 S.E.2d 898
    , 903-04 (1989).   For example,
    Anand incurred costs and expenses associated with the ground
    lease payments and fees, as well as renovation expenses, in
    its attempt to develop the hotel.   Additionally, the
    mechanic's liens were not proximately caused by any act
    committed by Dilip Patel.
    V.
    We will reverse that portion of the judgment that
    included damages that are not recoverable and we will reduce
    the jury's verdict of compensatory damages to $23,148.77, and
    we will enter final judgment in favor of Anand.   We will also
    enter final judgment in favor of Anand on the punitive damage
    award because that award is not the subject of any assignment
    of error in this appeal.
    Affirmed in part,
    reversed in part,
    modified in part,
    and final judgment.
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