Petr Bocek v. JGA Associates, LLC

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1590
PETR BOCEK, M.D., PHD,
Plaintiff − Appellant,
v.
JGA ASSOCIATES, LLC; JOSEPH P. AMATO; A2 MEDICAL GROUP,
INC.,
Defendants – Appellees,
and
ALLERGY CARE CENTERS, VIRGINIA, INC.,
Defendant,
v.
LENKA BOCEK,
Movant.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:11-cv-00546-CMH-JFA)
Argued: March 19, 2013 Decided: August 1, 2013
Before TRAXLER, Chief Judge, and WILKINSON and NIEMEYER, Circuit
Judges.
Affirmed in part, reversed in part, and remanded by unpublished
opinion. Chief Judge Traxler wrote the opinion, in which Judge
Niemeyer concurred in part and concurred in the judgment. Judge
Niemeyer wrote a separate opinion concurring in part and
concurring in the judgment. Judge Wilkinson wrote a separate
opinion concurring in part and dissenting in part.
ARGUED: S. Micah Salb, LIPPMAN, SEMSKER & SALB, PLLC, Bethesda,
Maryland, for Appellant. David Edward Sher, SHER, CUMMINGS &
ELLIS, Arlington, Virginia; Brian Christopher Athey, WEBSTER
BOOK, LLP, Alexandria, Virginia, for Appellees. ON BRIEF: Mary
E. Kuntz, Ph.D., Judah Katz, Jeff J. Kim, LIPPMAN, SEMSKER &
SALB, PLLC, Bethesda, Maryland, for Appellant. Mark D.
Cummings, SHER, CUMMINGS & ELLIS, Arlington, Virginia, for
Appellees JGA Associates, LLC, and Joseph P. Amato.
Unpublished opinions are not binding precedent in this circuit.
2
TRAXLER, Chief Judge:
Petr Bocek brought this action against business consultant
Joseph Amato and two companies associated with Amato after the
defendants purchased a medical practice for themselves rather
than for Bocek. The district court granted summary judgment in
favor of the defendants, and Bocek appeals. We affirm in part,
reverse in part, and remand for further proceedings.
I.
Plaintiff Petr Bocek is a medical doctor specializing in
the treatment of allergies. Defendant Joseph Amato is the
manager and sole member of defendant JGA Associates, LLC, a
business consulting firm.
Bocek contacted Amato seeking assistance with the formation
and financing of a new allergy care medical practice. On
November 10, 2010, the parties entered into a contract (the
“Consulting Agreement”) through which JGA agreed “to review and
report on the feasibility of the proposed allergy medicine
practice and prepare a business proposal for funding a start-up
medical practice” and “render such other services as may be
agreed upon by the Client and the Consultant.” J.A. 64. Under
the terms of the Agreement, JGA would be compensated through
“development fees” (hourly billing for consulting services) and
3
a “completion fee” of two percent of the face amount of any
business loan arranged by JGA.
A few days after signing the Consulting Agreement, Bocek
asked Amato about the feasibility of buying an existing medical
practice rather than starting a new practice. Bocek told Amato
that Allergy Care Centers (“ACC”), where Bocek had previously
worked, was being offered for sale by the administrator of the
estate (the “Estate”) of ACC’s owner, who had died two years
earlier. Amato responded positively, explaining that “[t]he
acquisition of an existing operating practice is always more
attractive if the price and the historic financial performance
make sense.” J.A. 68. After Bocek raised the possibility of
buying ACC, there were no further discussions about Bocek
starting a new practice; the relationship between Bocek and
Amato focused exclusively on acquiring ACC’s assets.
Bocek told Amato that his acquisition of ACC might be
complicated because he had been fired from ACC and was in the
process of negotiating a severance package, and Bocek asked
Amato to pursue the purchase of ACC without revealing Bocek’s
identity as the buyer. To keep Bocek’s name out of the
negotiations, Amato and Bocek ultimately settled on a “straw
purchase” approach by which JGA (or an alternate holding company
set up by Amato) would buy ACC and transfer it to Bocek after
closing.
4
Emails show that by the end of December 2010, the parties
were in general agreement on the overall structure and ultimate
goal of the deal – ownership of the practice by Bocek – and what
needed to be done to move forward with the transaction. There
was, however, no agreement as to the structure or mechanics of
the transfer from JGA to Bocek. For example, in a December 23
email, Amato told Bocek that while there were still open issues,
Amato “intend[ed] to move forward” with the purchase of ACC
“based on a few specific parameters,” including:
1. That our firm (or an alternate holding
company) intends to initially purchase the practice
with the direct intention of selling the practice (or
the holding company) to you.
2. That you will commit to work with our firm
during the due diligence process with the sole
intention of becoming the eventual owner of ACC. The
timing of the change in ownership would be automatic
and agreed to by our firm and yourself before we
execute the Purchase Agreement. The transfer of
ownership to you will depend on your ability to fund
the purchase of the practice from our firm and how
quickly “we” are able to secure third-party financing
for you to buy the practice from our firm; or if
third-party financing is not immediately available,
our firm would hold a seller-held note until such time
that conventional funding can take out our note. The
bottom line is that we would intend on transferring
ownership to you as soon as all parties agree we can,
that is after our firm’s purchase of the practice from
the estate.
. . .
4. That you commit to buying the practice and/or
running the practice (as owner or lead physician, your
choice) under contract with the new company as a
condition of us purchasing ACC. There may be a reason
5
you do not want to own the practice immediately after
our purchase of the firm; if so, we need to understand
specifically what you want and we need to be sure that
if we purchase the practice, day one you will be the
company's lead physician (either as the owner or key
employee). You will need to understand that we will
not go through with the purchase of ACC if you are not
a direct part of our exit strategy.
J.A. 75. An email sent by Amato a few days later, after Bocek
had passed along questions from his attorney about the purchase,
reconfirmed the basic plan:
We are not purchasing the business on the behalf of an
undisclosed purchaser; JGA “is” purchasing the
business. Our intentions with the business after the
deal is consummated will not be a concern for the
Seller; we will be sure that nothing precludes us from
selling the business once we have purchased [it]. . .
. But please understand our only intention once we
own the business would be to sell the business to you;
and as I said before I do not think the estate could
care less.
J.A. 81 (emphasis added).
On January 22, 2011, Amato sent Bocek an invoice for his
services. The invoice reflected Bocek’s prior payment of $3,800
and sought an additional $4,574.40 “for expanded hours and
third-party costs associated with the project development and
acquisition negotiations for the purchase of the Allergy Care
Center business operation on behalf of JGA Associates and Dr.
Petr Bocek.” J.A. 1048.
On February 3, Amato sent the Estate a Letter of Intent
(“LOI”) through which “JGA Associates, LLC, or its assigns”
offered to purchase ACC’s assets for $1,000,000. J.A. 102. The
6
LOI obligated the parties to negotiate in good faith, but the
LOI was otherwise not binding; until the execution of a mutually
agreeable asset purchase agreement, either side could walk away
from the transaction without penalty. The Estate accepted the
offer and returned an executed copy of the LOI to Amato late in
the afternoon on February 8, 2011.
Earlier that same day (February 8), Amato had visited one
of the ACC offices to meet with Margaret Crook, ACC’s practice
manager. During the meeting, Crook told Amato that Bocek had
been fired after he sexually harassed employees and used another
doctor’s prescription pad to forge prescriptions for himself.
This was the first Amato had heard of these issues; Bocek had
told Amato that he had been fired, but he never provided any
details about what happened, and Amato never asked. After
meeting with Crook, Amato stalled and put off Bocek’s various
inquiries until he could verify what he had learned.
On February 15, the Estate filed a petition in a
Pennsylvania “Orphan’s Court” seeking approval for the sale of
ACC. Bocek was then unaware that the sale was moving forward --
Amato had not informed Bocek that he submitted the LOI to the
Estate on February 3 or that the LOI had been accepted.
On February 17, 2011, after reviewing documents that
confirmed Crook’s information, Amato sent a letter notifying
Bocek of his intent to terminate their contractual relationship
7
in 10 days, in accordance with the terms of the Consulting
Agreement. Amato explained the termination in general terms,
stating that during the due diligence process, “it became
apparent . . . that your involvement in any potential
transaction would . . . sour the deal. It also became evident
that we could not move forward with your participation in any
potential transaction without the possibility of serious
repercussions thereafter.” J.A. 118.
Counsel for Bocek responded on February 22. Among other
things, counsel noted that Amato, as Bocek’s agent, had a
continuing duty of loyalty to Bocek and that Amato would be
breaching his contractual and fiduciary duties “if [he] were to
turn the acquisition of ACC into a deal which is of benefit to
[him].” J.A. 1084. At the time of this letter, counsel was
unaware of evidence showing that Amato did not take his duty of
loyalty seriously. For example, while Bocek was under the
impression that JGA would buy ACC and then sell it to Bocek at
cost, Amato and potential investors were emailing each other
about the possibility of buying ACC for $1 million and
immediately flipping it to Bocek for $2 million. See J.A. 1021-
22. In addition, Amato repeatedly told Bocek that when a letter
of intent was submitted to the Estate, the purchase price
offered would be $1.2 million, even though Amato had already
8
submitted multiple draft LOIs with a purchase price of $1
million to the Estate. See J.A. 1059-68.
On March 2, 2011, Amato incorporated a new company, A2
Medical Group, Inc., to serve as the purchaser of ACC’s assets.
JGA at some point assigned its interests in the transaction to
A2, 1 and the Estate and A2 executed an asset purchase agreement
on May 13, 2011. Ten days later, the Orphan’s Court approved
the sale of ACC to “JGA Associates, LLC and its assigns in
accordance with the purchase amount and terms set forth in the
May 13, 2011 Asset Purchase Agreement.” J.A. 1129. The sale
closed on June 22, 2011. At no time between the February 17
termination of the Consulting Agreement and the closing of the
sale did Bocek make an offer to purchase ACC.
After unsuccessfully seeking an injunction to prohibit
Amato and JGA from buying ACC, Bocek filed an amended complaint
1
No written assignment appears in the record, but emails
from Amato and his partner in A2 make it clear enough for
summary-judgment purposes that an assignment was effectuated in
a way that was acceptable to the parties. See J.A. 899 (March 8
email from Amato informing Estate that his corporate attorney
and his partner will “have the assignment document prepared that
will tie the transaction together”); id. (March 8 email to
Estate from Amato’s partner stating that the attorney will “get
me the assignment document to transfer the purchase from JGA to
A2 Medical Group, Inc. since that will be the formal acquisition
company”); see also Amato deposition, J.A. 1102 (“JGA
eventually, as the Estate knew, was going to assign the purchase
to someone. A2 medical was eventually established as the entity
that would receive that assignment with the permission of the
Estate.”).
9
asserting four causes of action against Amato, JGA, and A2: (1)
fraudulent conveyance and constructive trust; (2) breach of
fiduciary duties; (3) breach of contract; and (4) breach of
fiduciary duties as joint venturers. The district court granted
summary judgment in favor of the defendants and dismissed the
case. Bocek appeals, arguing that he presented evidence
sufficient to preclude summary judgment as to each cause of
action.
II.
Summary judgment is appropriate “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). “We review a district court's decision to grant
summary judgment de novo, applying the same legal standards as
the district court and viewing all facts and reasonable
inferences therefrom in the light most favorable to the
nonmoving party.” T-Mobile Northeast LLC v. City Council of
Newport News, 674 F.3d 380, 384-85 (4th Cir. 2012) (internal
quotation marks omitted).
A.
We begin with Count III, the breach of contract claim. The
amended complaint set out the relevant terms of the Consulting
Agreement, including the portion through which JGA agreed to
10
“render such other services as may be agreed upon by the Client
and the Consultant.” J.A. 26, 55. Bocek also alleged that he
and JGA “agreed that JGA would purchase ACC’s assets as a ‘straw
purchaser’ and immediately transfer ownership thereof to Bocek.”
J.A. 55. Bocek alleged that JGA breached the Consulting
Agreement by, inter alia, using information learned from Bocek
for JGA’s own benefit, and that JGA breached the contract by
entering into the LOI and transferring its rights to A2, “thus
ensuring that Bocek could not . . . acquire ACC’s assets.” J.A.
55.
The district court granted summary judgment in favor of
the defendants. In the district court’s view, Bocek was not
claiming that JGA breached the Consulting Agreement, see J.A.
1207 n.1, but was only alleging that JGA breached a separate,
oral agreement for the straw purchase and immediate re-transfer
of ACC (the “Straw Purchase Agreement”). And with that
understanding of the claim, the court then rejected it,
explaining that “there is no evidence that the oral contract
allegedly breached ever validly existed due to the absence of a
meeting of the minds on the issue of Dr. Bocek’s entitlement to
rights in [ACC] subsequent to the execution of the Consulting
Agreement.” J.A. 1207. The defendants approach the issue
similarly, contending on appeal that Bocek’s breach of contract
claim is premised not on the Consulting Agreement, but on “the
11
untenable and unsupported notion that he had an oral agreement
with JGA to purchase a $1 million medical practice even though
there is no evidence that he and JGA ever agreed on any of the
material terms necessary to purchase [ACC].” Brief of Appellee
at 43.
While the Amended Complaint included allegations about the
Straw Purchase Agreement, it also very clearly alleged breaches
of the Consulting Agreement. 2 On appeal, however, Bocek focuses
on the Straw Purchase Agreement, not the Consulting Agreement.
Bocek does not identify the district court’s misreading of his
breach of contract claim as an issue on appeal, see Brief of
Appellant at 2, nor does he argue in the substantive portions of
his brief that the defendants’ actions amounted to breaches of
the Consulting Agreement. To the contrary, Bocek states
throughout his brief that the services performed by JGA in
connection with the ACC acquisition were not performed under the
Consulting Agreement but were instead performed under the Straw
2
See J.A. 26, ¶ 45 (referring to November 2010 Consulting
Agreement as “the Agreement”); J.A. 55, ¶ 305 (“JGA agreed, per
the terms of the Agreement, to ‘render such other services as
may be agreed upon by the Client and the Consultant from time to
time.”); id., ¶ 309 (“JGA breached the Agreement by utilizing
information learned from Bocek . . . to fully analyze the
desirability of purchasing ACC’s assets for JGA’s benefit and
not for the benefit of JGA’s client, Bocek.”); id., ¶ 310 (“JGA
breached the Agreement by . . . .”); id., ¶ 311 (“JGA further
breached the Agreement by . . . .”).
12
Purchase Agreement. 3 Because Bocek’s position on appeal is that
the defendants’ ACC-related actions breached the Straw Purchase
Agreement, not the Consulting Agreement, we are constrained to
conclude that Bocek has waived any breach of contract claim
premised on a breach of the Consulting Agreement. See, e.g.,
West Va. CWP Fund v. Stacy, 671 F.3d 378, 389 (4th Cir. 2011)
(arguments not raised in opening brief are waived).
The question, then, is whether a breach of contract claim
based on the putative Straw Purchase Agreement is viable. See
Progressive Constr. Co. v. Thumm, 161 S.E.2d 687, 691 (Va. 1968)
(To be binding and enforceable, a contract “must identify the
subject matter and spell out the essential commitments and
agreements with respect thereto.”). Bocek argues that the
evidence in the record shows a meeting of the minds on all
material terms of the Straw Purchase Agreement -- the identity
of the parties, the nature of the work to be performed, the
3
See, e.g., Brief of Appellant at 38-39 (“The acquisition
of ACC was not envisioned by the Parties in the making of the
[Consulting] Agreement and so the terms of that Agreement do not
extend to the acquisition of an existing practice.”); id. at 42
n.15 (“[T]he [Consulting] Agreement cannot be read to govern the
acquisition of ACC because there is no evidence in the record of
any agreement between the parties to expand the scope of work.
Furthermore, the work necessary for the ACC acquisition was the
subject of a separate agreement in which the Parties addressed,
inter alia, JGA’s compensation for those services and its role
as straw purchaser.”); id. at 45 n.17 (“The agreement for JGA’s
assistance to acquire ACC was clearly not envisioned . . . or
done pursuant to the [Consulting] Agreement.”).
13
duration of the agreement, and the compensation to be paid. See
Reid v. Boyle, 527 S.E.2d 137, 145 (Va. 2000) (listing essential
terms of a contract for services). According to Bocek, the
district court improperly focused on the asset purchase
agreement that the parties intended to enter into after JGA’s
straw purchase of ACC rather than the Straw Purchase Agreement.
In Bocek’s view, the mechanics of the transfer from JGA to Bocek
is not a material term of the ACC acquisition deal, and the
absence of agreement over those details does not preclude
enforcement of the contract. We disagree.
The record shows that the parties were considering a number
of ways to structure the transfer, including: (1) Bocek being
made a minority partner in the entity actually purchasing ACC;
(2) Bocek running the practice under contract with the
purchasing entity; (3) Bocek obtaining a loan to cover the full
purchase price, which would permit the transfer to Bocek
immediately after the ACC purchase was completed; and (4) JGA or
Amato holding the note for the purchase price and Bocek repaying
with the proceeds of the allergy practice, with the expectation
that Bocek could re-finance with an institutional lender and pay
off the loan within 18-24 months. The ultimate transfer of ACC
from JGA to Bocek was the whole point of the ACC transaction,
and the various ways contemplated by the parties to accomplish
that transfer have widely varying costs and consequences. Under
14
these circumstances, it is difficult to describe the structure
and terms of that transfer as anything but essential to the
purported contract. And because the transfer from JGA to Bocek
is an essential term, an agreement to agree in the future is not
sufficient. See Allen v. Aetna Cas. & Sur. Co., 281 S.E.2d 818,
819 (Va. 1981) (per curiam) (“[A]n agreement to make a
settlement, without specifying more, constitutes only an
agreement to negotiate at a later date.”); 1 Williston on
Contracts § 4:29 (4th ed.) (“[I]f an essential element is
reserved for the future agreement of both parties, as a general
rule, the promise can give rise to no legal obligation until
such future agreement.”).
The parties “must assent to the same thing in the same
sense, and their minds must meet as to all the terms,” and those
terms “must be sufficiently definite to enable a court to give
it an exact meaning, and must obligate the contracting parties
to matters definitely ascertained or ascertainable.” Smith v.
Farrell, 98 S.E.2d 3, 7 (Va. 1957); see Restatement (Second) of
Contracts § 33(2) (contract terms must be certain enough to
provide “a basis for determining the existence of a breach and
for giving an appropriate remedy”). In this case, the parties
never agreed on the structure of the transfer from JGA to Bocek,
an essential part of the deal, and the Straw Purchase Agreement
is therefore not enforceable. See R. K. Chevrolet, Inc. v.
15
Hayden, 480 S.E.2d 477, 480 (Va. 1997) (“A contract will be
enforced if its obligations are reasonably certain.”). And
because the Straw Purchase Agreement is now the sole basis for
Bocek’s breach of contract claim, the district court properly
granted summary judgment in favor of the defendants on that
count.
B.
We turn next to the breach of fiduciary duty claim. In his
Amended Complaint, Bocek alleged that Amato and JGA, as his
agents, owed him various fiduciary duties, including a duty of
loyalty. Bocek alleged that he brought the ACC business
opportunity to JGA during the existence of the agency relation,
and that JGA was acting on behalf of Bocek when it began
negotiating with the Estate and conducting due diligence. Bocek
alleged that the defendants breached their fiduciary duties by,
inter alia, using information obtained on Bocek’s behalf to
pursue the acquisition of ACC for themselves, refusing to return
the due diligence materials to him, and, of course, buying ACC
for their own benefit rather than for Bocek’s benefit.
The evidence in the record is more than sufficient, for
summary-judgment purposes, to support the factual allegations
outlined above, and there is little question that, under the
general law of agency, the conduct Bocek alleges is a clear
breach of fiduciary duty. Agents are fiduciaries and owe their
16
principals a strict duty of loyalty. See Restatement (Third) of
Agency § 8.01 (“An agent has a fiduciary duty to act loyally for
the principal’s benefit in all matters connected with the agency
relationship.”). An agent breaches his fiduciary duties by
purchasing for himself property that he was to purchase for his
principal. See Rowland v. Kable, 6 S.E.2d 633, 642 (Va. 1940)
(“One who is entrusted with the business of another cannot be
allowed to make that business an object of interest to himself.
. . . The rule applies alike to agents, partners, guardians,
executors and administrators . . . .”); Horne v. Holley, 188
S.E. 169, 172 (Va. 1936) (“It is well settled that where one
person sustains a fiduciary relation to another he cannot
acquire an interest in the subject matter of the relationship
adverse to such other party.”). An agent likewise breaches his
fiduciary duty by using confidential information belonging to
the principal for the agent’s own benefit. See Restatement
(Third) of Agency § 8.05(2) (“An agent has a duty . . . not to
use or communicate confidential information of the principal for
the agent’s own purposes or those of a third party.”).
The district court nonetheless granted summary judgment for
the defendants, concluding that Bocek could seek recovery for
those breaches of fiduciary duty only through a breach of
contract cause of action. Noting that a claim for breach of
fiduciary duty can sound in contract or tort, see Augusta Mut.
17
Ins. Co. v. Mason, 645 S.E.2d 290, 293 (Va. 2007), the district
court held that the fiduciary duties at issue in this case arose
from the Consulting Agreement, not independently of it. The
court therefore concluded that “the recovery in tort Dr. Bocek
seeks is proscribed as a matter of law,” J.A. 1204, and that the
defendants were entitled to summary judgment on Count II. See
Augusta Mutual, 645 S.E.2d at 293 (where single act can support
a claim for breach of contract and a claim breach of a duty
arising in tort, “in order to recover in tort, the duty
tortiously or negligently breached must be a common law duty,
not one existing between the parties solely by virtue of the
contract” (internal quotation marks omitted)); see also Station
#2, LLC v. Lynch, 695 S.E.2d 537, 540 (Va. 2010) (“[A]n omission
or non-performance of a duty may sound both in contract and in
tort, but only where the omission or non-performance of the
contractual duty also violates a common law duty.”).
Many of Bocek’s challenges to this ruling are unpersuasive,
as they appear to rest on a misapprehension of the principles
underlying the legal rule applied in Augusta Mutual.
Nevertheless, we find ourselves in agreement with Bocek that the
timing of the breach of duty in this case makes the rule
inapplicable.
As the decision in Augusta Mutual demonstrates, Virginia
courts vigilantly police the border between tort and contract
18
law so as “[t]o avoid turning every breach of contract into a
tort.” Augusta Mutual, 645 S.E.2d at 293. Nonetheless,
recovery in tort is permitted in cases where the tort was
committed after the termination of the parties’ contract. See
Condominium Servs., Inc. v. First Owners’ Ass’n, 709 S.E.2d 163,
171 (Va. 2011) (rejecting defendant’s assertion that plaintiff
could not proceed on tort claim and breach of contract claim:
“Because the Management Agreement had terminated [when the tort
was committed], CSI’s alleged acts did constitute the
independent, willful tort of conversion, separate from the
contract.” (internal quotation marks omitted)); cf. Today Homes,
Inc. v. Williams, 634 S.E.2d 737, 744 (Va. 2006) (agent’s
liability for breach of fiduciary duty continues after
termination of the agency relationship only for “transactions
completed after termination of the officer’s association with
the corporation, but which began during the existence of the
relationship or that were founded on information gained during
the relationship” (internal quotation marks omitted)).
The agency relation terminated on February 27, 2011, ten
days after Amato gave Bocek the notice required under the
Consulting Agreement, well before the breaches of fiduciary duty
alleged in this case. Because the contractual relationship
ended before the torts were committed, Bocek’s breach of
fiduciary duty claims are therefore independent of the
19
Consulting Agreement, and Bocek is entitled to proceed on and
recover for those claims in tort. 4 See Condominium Servs., 709
S.E.2d at 171. Accordingly, the district court erred by
granting summary judgment against the breach of fiduciary duty
claim asserted in Count II of the amended complaint.
C.
We turn now to Bocek’s fraudulent conveyance claim. Under
Virginia law,
[e]very gift, conveyance, assignment or transfer of .
. . any estate, real or personal, . . . with intent to
delay, hinder or defraud creditors, purchasers or
other persons of or from what they are or may be
lawfully entitled to shall, as to such creditors,
purchasers or other persons, their representatives or
assigns, be void.
Va. Code Ann. § 55-80. The district court granted summary
judgment against the claim because Bocek could not show a
conveyance of ACC assets by JGA:
Plaintiff cannot establish the existence of a
conveyance by JGA because JGA never owned [ACC’s]
assets to convey them. [ACC] did not bind itself when
it executed the Letter of Intent with JGA, nor did JGA
bind itself to acquire the assets. The Letter of
Intent served to permit JGA or its assigns to purchase
[ACC’s] assets. In the end, A2 purchased the assets
4
Our determination that Bocek waived his right to proceed
on any breach of contract based on the Consulting Agreement has
no bearing on the breach of fiduciary duty claim. Bocek’s
failure to argue on appeal that the defendants breached the
Consulting Agreement amounted to a waiver of that claim, but it
cannot be viewed as a waiver of facts alleged in the complaint
and separate theories argued below and pursued on appeal.
20
of [ACC] directly from the Estate. JGA never acquired
[ACC’s] assets, and therefore JGA never had any legal
right or entitlement to those assets. Having no legal
interest in [ACC], JGA could not legally have conveyed
or assigned any rights to the assets of [ACC].
J.A. 1200.
As Bocek points out, however, his fraudulent conveyance
claim is not based on JGA’s conveyance of ACC’s assets to A2,
but on JGA’s conveyance of its right to purchase ACC’s assets.
See J.A. 49, ¶¶ 253-54. While the district court’s focus on
ownership rather than the right to purchase was arguably
erroneous in light of the allegations in the Amended Complaint,
we find no error in the court’s ultimate disposition of Bocek’s
fraudulent conveyance claim.
The purpose of the fraudulent conveyance statute is to
protect creditors from a debtor’s efforts to shield his property
from being used to satisfy his debts. See Buchanan v. Buchanan,
585 S.E.2d 533, 535 (Va. 2003) (“The essence of fraudulent
conveyance . . . is the diminution of the debtor’s estate to the
detriment of the creditor’s right of realization.” (internal
quotation marks omitted)). As Bocek recognizes, see Brief of
Appellant at 26 n.7, a conveyance diminishes the debtor’s estate
and works to the detriment of creditors, however, only if the
property conveyed has value. See, e.g., 37 Am. Jur. 2d,
Fraudulent Conveyances & Transfers § 72 (“If nothing of value is
transferred when property is transferred . . ., then there is
21
nothing to avoid and recover and no fraudulent conveyance.”); 37
C.J.S. Fraudulent Conveyances § 9 (“A transfer of property of
little or no value will generally not be treated as fraudulent
as against creditors. . . .”); see also Balzer & Assocs., Inc.
v. The Lakes on 360, Inc., 463 S.E.2d 453, 456 (Va. 1995)
(allowing fraudulent conveyance claim to proceed where
creditor’s evidence “support[ed] the reasonable inference of the
property having value at or above the established level of the
encumbrances upon it”). In this case, however, there simply is
no evidence in the record showing that the property conveyed had
value.
The JGA-to-A2 assignment is the only relevant conveyance,
and the property conveyed by that assignment was, in Bocek’s
words, JGA’s “right to acquire ACC.” Brief of Appellant at 26.
At the time of the assignment, 5 however, the only rights JGA had
were those arising under the LOI accepted by the Estate. And as
previously noted, the LOI was not binding – neither JGA nor the
Estate had any obligation under the LOI to proceed with the sale
unless and until they agreed on the terms of the asset purchase
agreement. The LOI, therefore, was nothing more than an
5
The precise date of the assignment cannot be determined
from the record. Nonetheless, because the asset purchase
agreement required by the LOI was executed by A2 rather than
JGA, the assignment must have taken place sometime before the
purchase agreement was signed on May 13, 2011.
22
unenforceable agreement to negotiate, see Allen, 281 S.E.2d at
819, not an option contract, as Bocek insists. See, e.g., Hart
v. Hart, 544 S.E.2d 366, 373 (Va. 2001) (“An option is merely a
continuing offer to sell, irrevocable during the option period.”
(internal quotation marks omitted)). 6
Because the LOI was not binding and enforceable, it gave
JGA no enforceable rights to purchase ACC. And because Bocek
can point to no evidence showing that these unenforceable rights
had value, the district court properly rejected the fraudulent
conveyance claim.
D.
Finally, we turn to the joint venture claim. “A joint
venture is established by contract, express or implied, where
two or more persons jointly undertake a specific business
enterprise for profit, with each to share in the profits or
losses and each to have a voice in the control and management.”
Ortiz v. Barrett, 278 S.E.2d 833, 840 (Va. 1981).
“Coadventurers stand in a fiduciary relation to each other, and
within the scope of the enterprise they are bound by the same
standards of good conduct and square dealing as are required
6
To the extent that Bocek argues that the Pennsylvania
court’s approval of the sale gave value to JGA’s right to buy
ACC, the court approval came after JGA assigned its interests to
A2. There simply is no evidence showing that JGA’s “right” had
value when assigned.
23
between partners.” Jones v. Galleher & Co., 47 S.E.2d 333, 337
(Va. 1948).
Bocek argues (in the alternative to Counts II and III) that
if no principal-agent relationship existed between him and Amato
(through JGA), then the relationship was one of joint venturers,
and that the defendants’ acquisition of ACC for their own
benefit violated the fiduciary duties they owed Bocek. We
disagree. As we have previously discussed, the parties never
reached agreement on how the transfer of ACC’s assets from JGA
to Bocek would be structured, and there simply is no evidence
showing that Bocek and Amato ever reached an agreement to
operate the ACC offices together, with each sharing in the
profits and having a say in management and control of the
business. See Ortiz, 278 S.E.2d at 840. The district court
therefore properly granted summary judgment in favor of the
defendants on the joint venture claim.
III.
Accordingly, for the foregoing reasons, we hereby affirm
the district court’s grant of summary judgment in favor of the
defendants on Bocek’s breach of contract, fraudulent conveyance,
and joint venture claims. We reverse the grant of summary
24
judgment on the claim for breach of fiduciary duty and remand
for further proceedings on that claim.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
25
NIEMEYER, Circuit Judge, concurring in part and concurring in
the judgment:
I would allow the breach of fiduciary claim to proceed to
trial, and therefore I concur in the result reached in Part
II(B) of Chief Judge Traxler’s opinion. My reasoning for doing
so, however, differs somewhat from that relied on by Judge
Traxler.
Bocek retained JGA Associates as his agent to assist him in
forming a new medical practice or in rendering other services,
as the parties agreed. Pursuant to their “Consulting
Agreement,” JGA became actively involved in Bocek’s effort to
purchase an existing medical practice that he had learned was
for sale, Allergy Care Centers, and JGA’s services thereafter
related solely to purchasing Allergy Care Centers. JGA was paid
for these services as provided in the Consulting Agreement.
During the course of providing services to Bocek in
connection with the purchase of Allergy Care Centers, JGA
wrongfully began planning to acquire Allergy Care Centers for
itself, and to that end, it terminated the Consulting Agreement
with Bocek and thereafter, through an affiliated entity,
acquired Allergy Care Centers.
In my judgment, these facts, if ultimately proved, give
rise to a classic claim for breach of the duty of loyalty
inherent in the agency agreement that existed between Bocek and
26
JGA. See Restatement (Third) of Agency § 8.01. An agent
clearly breaches this duty of loyalty by purchasing for itself
property that it was purchasing for its principal. See, e.g.,
Rowland v. Kable, 6 S.E.2d 633, 642 (Va. 1940); Horne v. Holley,
188 S.E. 169, 172 (Va. 1936).
The fact that JGA terminated the agency agreement before
taking advantage of the opportunity that came to it while it was
an agent provides no defense. The viable claim remains that JGA
came upon the opportunity to purchase Allergy Care Centers
during the course of its work for Bocek in assisting him to
purchase that practice and, in order to seize that opportunity
for itself, terminated the agency relationship. The law would
be a buffoon if it allowed JGA to take Bocek’s opportunity
simply by ending the agency relationship and proceeding
thereafter in furtherance of its own interest.
It is well-established that various duties survive
contracts even after the contracts have ended. Surely, an
attorney could not breach a duty of loyalty or confidentiality
to a client after the lawyer had completed his service to the
client. See Reese v. Va. Int'l Terminals, Inc., 894 F. Supp. 2d
665, 671 (E.D. Va. 2012) (explaining that Rule 1.9 of the
Virginia Rules of Professional Conduct governs a lawyer’s duty
of loyalty to former clients). Similarly, an agent’s fiduciary
obligations do not disappear when the agency relationship ends.
27
See, e.g., Today Homes, Inc. v. Williams, 634 S.E.2d 737, 744
(Va. 2006) (stating that fiduciary obligations continue “after
termination of the officer’s association with the corporation”
for transactions that “began during the existence of the
relationship or that were founded on information gained during
the relationship” (internal quotation marks omitted)).
I therefore join in the judgment to reverse the dismissal
of the breach of fiduciary duty claim and to remand that claim
for trial on the merits. I also concur in the other portions of
Chief Judge Traxler’s opinion, as well as the judgment.
28
WILKINSON, Circuit Judge, concurring and dissenting:
Breach of contract is not a tort. Virginia law makes clear
that a plaintiff may not recover in tort for breach of a duty
that exists solely by virtue of a contract. See Augusta Mut.
Ins. Co. v. Mason, 645 S.E.2d 290, 293 (Va. 2007). Here,
appellant Petr Bocek entered into a contract (the “Consulting
Agreement”) with appellee JGA Associates (“JGA”). Under that
agreement, JGA’s president, appellee Joseph Amato, agreed to
provide Bocek with business consulting services in connection
with the development and purchase of an allergy care practice. 1
The relationship between Bocek and Amato later soured, and Bocek
commenced this litigation alleging, inter alia, that Amato
breached his fiduciary duty by misappropriating a confidential
business opportunity that he learned about from Bocek in the
course of the consulting relationship. However, because Amato’s
duty to Bocek arose solely from the Consulting Agreement, I
cannot conclude that Bocek is entitled to recover in tort for
the alleged breach. And because Bocek has expressly argued on
appeal that Amato’s actions did not violate the Consulting
1
Since Amato is the only relevant officer of JGA for
purposes of this appeal, I shall use “Amato” to refer to
appellees Amato and JGA collectively.
29
Agreement, I cannot conclude that Bocek is entitled to recover
for breach of contract. I therefore respectfully dissent. 2
I.
As the lead opinion acknowledges, a plaintiff may not
recover in tort for breach of a duty that arises solely from a
contract. See Augusta, 645 S.E.2d at 293; see also Lead Op. at
18. The aim of this general rule is “[t]o avoid turning every
breach of contract into a tort.” Augusta, 645 S.E.2d at 293.
Here, the duty that Amato allegedly breached arose solely from
the Consulting Agreement, thus barring recovery in tort.
A.
The gravamen of Bocek’s tort claim is that Amato “breached
his fiduciary duties to Bocek by lying to Bocek about the
contemplated purchase price of ACC’s assets,” “failing to inform
Bocek about material aspects of his dealings with [ACC],” and
“using to [his own] advantage information [he] gained from Bocek
in the course of [the] agency by pursuing ACC’s assets for [his]
own financial gain.” J.A. 51-52. However, as a review of the
Consulting Agreement reveals, these allegations actually speak
to a breach of two contractual duties imposed on Amato.
2
I concur in the lead opinion’s disposition of Bocek’s
other claims.
30
Pursuant to that contract, Amato agreed to “make a diligent
effort to review and report on the feasibility of the proposed
allergy medicine practice” and “render such other services as
may be agreed upon by the Client and the Consultant from time to
time.” J.A. 64. As relevant here, the Consulting Agreement
imposed two specific duties on Amato: (1) a duty to “update
[Bocek] on an ongoing and regular basis as to the [Amato’s]
progress in fulfilling [his] obligations and performing the
services contemplated”; and (2) a duty to “not use any of
[Bocek’s] [i]nformation for [Amato’s] own account.” J.A. 64-65.
But for the Consulting Agreement, the two parties would not have
had any relationship whatsoever and, thus, Amato would not have
had the two aforementioned duties to Bocek.
Notwithstanding Bocek’s labeling of his tort claim as such,
the duties Amato allegedly breached arose solely by virtue of
the contract, and any recovery by Bocek for Amato’s actions is
therefore limited to a contract claim. See Augusta, 645 S.E.2d
at 293. While tort law exists to “provide[] redress . . . for
the violation of certain common law and statutory duties
involving the safety of persons and property, which are imposed
to protect the broad interests of society,” Filak v. George, 594
S.E.2d 610, 613 (Va. 2004), those “broad interests of society”
are not at issue here because Amato and Bocek came together ex
31
ante and bargained for certain terms that were to govern their
relationship.
B.
The lead opinion argues that although Amato had a
contractual duty not to profit from Bocek’s information while
the Consulting Agreement was still in effect, that duty
terminated with the contract. However, given Amato’s ability to
unilaterally abrogate the Consulting Agreement while providing
only 10 days notice, this contractual duty to refrain from
misusing Bocek’s information survived the termination. Under
Virginia law, a contract must be given a construction consistent
with “the intention of the parties as disclosed by the
instrument in light of the surrounding circumstances.” Columbia
Realty Venture, LLC v. Dong Dang, 83 Va. Cir. 258, 261 (2011)
(quoting Kirschbaum v. Blair, 34 S.E. 895, 897 (Va. 1900)).
Although the Consulting Agreement does not explicitly indicate
that Amato’s duty not to profit from Bocek’s information
survived the contract’s termination, the parties plainly
intended such survival. Consider the consequences of the
contrary conclusion. If Amato’s duty terminated with the
contract, he would have been able to obtain valuable,
confidential information from his unsuspecting client and then
use that information to his own advantage whenever he chose to
do so. Such a scheme would eviscerate the very contract
32
provision barring Amato from using his client’s information in
the first place.
The sole case that the lead opinion cites in its support,
Condominium Services Inc. v. First Owners’ Ass’n, 709 S.E.2d 163
(Va. 2011), only underscores the difficulty with its position.
The test used by the Virginia Supreme Court for the tort of
conversion requires that “the duty tortiously or negligently
breached must be a common law duty, not one existing between the
parties solely by virtue of the contract.” Id. at 171 (internal
quotation marks omitted). See also Restatement (Second) of Torts
§ 222A (“Conversion is an intentional exercise of dominion or
control over a chattel” of another). The conversion in that case
existed irrespective of contract. It arose from the freestanding
duty of any citizen to respect the lawful property rights of
another. Here, as discussed above, the breach of duty was one
both established and stemming exclusively from the contract.
Unlike in Condominium Services, in this case, there was no
“independent, willful tort . . . separate from the contract.”
Id. (internal quotation marks omitted).
Finally, the lead opinion holds that Bocek can advance his
breach of fiduciary duty claims in tort because Amato terminated
the Consulting Agreement “well before the breaches of fiduciary
duty alleged in this case.” Lead Op. at 19. As noted above, it
is my view that the contract’s requirement that Amato not profit
33
from information provided by Bocek survived the termination.
Furthermore, the lead opinion acknowledges that Amato had begun,
before he terminated the contract, to use information he
acquired from Bocek to contemplate the sale of ACC for his own
gain and that of his associates. See Lead Op. 8-9; J.A. 1021-22.
Although Amato did not purchase ACC until after the contract was
terminated, Bocek provided him with important information while
the parties were under contract. Cf. Today Homes, Inc. v.
Williams, 634 S.E.2d 737, 744 (Va. 2006) (“Liability post-
termination continues only for those transactions completed
after termination of the officer's association with the
corporation, but which . . . were founded on information gained
during the relationship” (internal quotation marks omitted)).
Amato’s breach of fiduciary duty arose from information gained
during and as a result of the contract. Bocek’s remedy should
lie in contract.
II.
The parties’ sole relationship arose from the contract. The
contract set the framework of that relationship. The contract
established the duties these parties owed to one another. The
contract afforded Amato the access to information he misused.
The alleged wrongdoing is only wrong because it stemmed from
that contractual understanding. Bocek cannot circumvent the
34
origins of the relationship by declining to argue the relevant
contract claim on appeal and opting instead to press what may
seem a more lucrative claim and more open-ended recovery in
tort. This blurs the line Virginia law has long labored to
maintain. I would affirm in toto and respectfully dissent. 3
3
Inasmuch as there is no single majority approach, I have
confined this dissent to Chief Judge Traxler’s lead opinion. As
to my friend’s concurring opinion, to the extent that it can be
read to advocate a free standing agency-based breach of
fiduciary duty tort to every contract violation, that view is of
further distance than the Chief Judge’s asserted temporal
limitation from my own.
35