Birchwood-Manassas Assocs., L.L.C. v. Birchwood at Oak Knoll Farm, L.L.C. , 290 Va. 5 ( 2015 )

VIRGINIA:
In the Supreme Court of Virginia held at the Supreme Court
Building in the City of Richmond, on Thursday, the 4th day of June,
2015.
Birchwood-Manassas Associates, L.L.C., Appellant,
against Record No. 141195
Circuit Court No. CL13-5521
Birchwood at Oak Knoll Farm, L.L.C., et al., Appellees.
Upon an appeal from a
judgment rendered by the Circuit
Court of Prince William County.
Upon consideration of the record, briefs, and argument of
counsel, the Court is of opinion that there is no error in the
judgment of the circuit court.
Birchwood-Manassas Associates, L.L.C. (Birchwood-Manassas) was
formed in 1997 to own, develop and sell real estate in Prince
William County, Virginia. Ronald J. Horowitz (Horowitz) and Burton
Haims (Haims) were the managers of Birchwood-Manassas during its
entire existence, and Horowitz exercised day-to-day control over
the entity. Birchwood at Oak Knoll Farm (Oak Knoll) and Birchwood
at Wading River (Wading River) (collectively, Defendants) were two
entities also formed to develop and sell real estate under the
management and control of Horowitz and Haims, with Horowitz
exercising day-to-day control over both of them.
Between August 16, 2004 and June 30, 2009, Horowitz and Haims
transferred funds from Birchwood-Manassas to Oak Knoll and Wading
River. Oak Knoll and Wading River used the funds to develop and
sell their respective properties. The transfers and repayment of
funds between the entities were reported and documented in the
ledgers and financial statements of the entities. However, there
were no loan documents or any formal terms of repayment, thus
creating demand obligations owed by Oak Knoll and Wading River in
favor of Birchwood-Manassas.
In 2011, a member of Birchwood-Manassas filed suit in the
Circuit Court of Prince William County seeking an order dissolving
Birchwood-Manassas and the appointment of a liquidating trustee to
wind up its affairs. The operating agreement of Birchwood-Manassas
contained a clause requiring the entity to be dissolved and its
affairs wound up no later than January 1, 2008. The circuit court
ordered that Birchwood-Manassas be dissolved and determined that,
as Code § 13.1-1048 requires, there was "'cause shown'" to appoint
a liquidating trustee to wind up its affairs, noting that, in
regard to the liquidation of assets, an irreconcilable conflict
existed between the current managers of Birchwood, Horowitz and
Haims, and the companies to which Birchwood lent money, Oak Knoll
and Wading River. ∗
The liquidating trustee accepted his appointment on January
29, 2013 and demanded the immediate repayment of the money owed by
the Defendants to Birchwood-Manassas. After a prior complaint was
dismissed without prejudice, Birchwood-Manassas filed an amended
complaint against Oak Knoll Farm and Wading River on January 31,
2014, seeking damages for breach of contract and unjust enrichment
and the imposition of constructive trusts on Defendants’ respective
∗
In its letter opinion, the circuit court stated, "The Court
does not address the allegations of managerial misconduct; rather,
the conflicts of interests which arise from the managers’ fiduciary
duties to both the debtor and the creditor of the loan form the
basis for the Court’s ruling."
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properties and proceeds from the sale of their properties.
Moreover, the amended complaint alleged numerous breaches of the
fiduciary duties of loyalty and care by the managers of Birchwood-
Manassas.
The Defendants filed a plea in bar asserting that Birchwood-
Manassas’s claims were time-barred. Birchwood-Manassas argued that
the limitations period had been equitably tolled because the
irrevocable conflict of interest of its managers, Horowitz and
Haims, and their breaches of their fiduciary duties to Birchwood-
Manassas made it impossible for Birchwood-Manassas to bring a claim
against the Defendants within the applicable statute of
limitations.
The circuit court granted the plea in bar and dismissed the
amended complaint with prejudice. Birchwood-Manassas appeals.
Birchwood-Manassas asserts that the circuit court erred in
ruling that the conflicts of interest and breaches of fiduciary
duties of its former managers did not equitably toll the statute of
limitations on its claims against the Defendants. The parties do
not dispute that a three-year statute of limitations applies to the
causes of action asserted against the Defendants and that the
statute has run, if it was not tolled. Birchwood-Manassas had the
burden to prove its entitlement to the tolling of the statute of
limitations. See Schmidt v. Household Fin. Corp., II, 276 Va. 108,
117, 120, 661 S.E.2d 834, 839, 840 (2008).
This Court has held that:
It is well-established that statutes of limitations are
strictly enforced and must be applied unless the General
Assembly has clearly created an exception to their
application. A statute of limitations may not be tolled,
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or an exception applied, in the absence of a clear
statutory enactment to that effect. Any doubt must be
resolved in favor of the enforcement of the statute.
Casey v. Merck & Co., 283 Va. 411, 416, 722 S.E.2d 842, 845 (2012)
(citations, alteration and internal quotation marks omitted).
Neither an irrevocable conflict of interest nor a breach of
fiduciary duty is listed within the Code of Virginia as a trigger
for the tolling of the statute of limitations. See Code §§ 8.01-
229; 8.01-249. Accordingly, Birchwood-Manassas does not claim that
any statute-based tolling provision renders its claims timely.
Birchwood-Manassas nonetheless claims it is entitled to
relief. It asserts that this Court has long recognized that equity
will toll a statute of limitations under certain "extraordinary
circumstances." Brunswick Land Corp. v. Perkinson, 153 Va. 603,
608, 151 S.E. 138, 140 (1930).
Two such extraordinary circumstances that have arisen in the
past are (1) where fraud prevents a plaintiff from asserting its
claims, or (2) where the defendant "has by affirmative act deprived
the plaintiff of his power to assert his cause of action in due
season." Schmidt, 276 Va. at 117, 661 S.E.2d at 838-39; Brunswick
Land Corp., 153 Va. at 608, 151 S.E. at 140. Birchwood-Manassas
does not allege any fraud or failure to disclose the transactions
on the part of its managers or the Defendants. Likewise, it does
not allege any affirmative acts by its managers or the Defendants
to hinder the assertion of its claims.
Birchwood-Manassas argues that this Court’s application of
equitable tolling principles to "extraordinary circumstances"
should be extended to include this instance in which it asserts
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that the conflicts of interest and breaches of fiduciary duties of
its managers made it impossible for Birchwood-Manassas to assert
its rights within the statute of limitations. We hold that such an
extension of the law is not warranted.
Affiliated entities having overlapping management and the
occurrence of transactions between such entities are not
extraordinary occurrences. It is not alleged that the complained-
of conflicts of interest and breaches of fiduciary duties were
concealed from or unknown to Birchwood-Manassas when they occurred.
Even if its managers did not bring an action against the Defendants
before the statute of limitations ran, other members of the entity
could have done so. Code §§ 13.1-1042(A) and 13.1-1043 (stating
that a member can commence or maintain a derivative proceeding if
the plaintiff "fairly and adequately represents the interests of
the limited liability company" and was "a member at the time of the
transaction of which he or it complains"); see also Simmons v.
Miller, 261 Va. 561, 574, 544 S.E.2d 666, 674 (2001) ("A derivative
action is an equitable proceeding in which a shareholder asserts,
on behalf of the corporation, a claim that belongs to the
corporation rather than the shareholder."). This is borne out by
the fact, mentioned by the circuit court in its letter opinion,
that although no action was brought concerning the loans within the
statute of limitations, at least one non-managing member of
Birchwood-Manassas brought an action during that limitations period
seeking to have Birchwood-Manassas dissolved.
As a matter of law, an action could have been filed to pursue
collection of the loans within the statute of limitations.
Birchwood-Manassas has not proven the existence of an extraordinary
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circumstance that could not have been avoided by the exercise of
due diligence. "Equity aids the vigilant, not those who sleep on
their rights." Chesapeake & Ohio Ry. Co. v. Willis, 200 Va. 299,
306, 105 S.E.2d 833, 839 (1958). Birchwood-Manassas is not
entitled to equitable relief. The circuit court did not err in
granting the Defendants’ plea in bar.
For the foregoing reasons, we affirm the judgment of the
Circuit Court of Prince William County. The appellant shall pay to
the appellees two hundred and fifty dollars damages.
This order shall be certified to the said circuit court, and
shall be published in the Virginia Reports.
A Copy,
Teste:
Patricia L. Harrington, Clerk
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