Patel v. Anand, L.L.C. ( 2002 )

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.
9722, 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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