Judson v. Development Tech

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ROSS JUDSON,
Plaintiff-Appellee,
v.
No. 97-1816
DEVELOPMENT TECHNOLOGIES,
INCORPORATED,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Raymond A. Jackson, District Judge.
(CA-96-267-A)
Argued: January 29, 1998
Decided: July 9, 1998
Before ERVIN and LUTTIG, Circuit Judges, and
BUTZNER, Senior Circuit Judge.
_________________________________________________________________
Affirmed in part and reversed in part by unpublished opinion. Judge
Ervin wrote the opinion, in which Judge Luttig and Senior Judge
Butzner joined.
_________________________________________________________________
COUNSEL
ARGUED: Mark Scott London, LONDON & MEAD, Washington,
D.C., for Appellant. Richard Alan Cooter, Alexandria, Virginia, for
Appellee. ON BRIEF: Herbert S. Rosenblum, ROSENBLUM &
ASSOCIATES, P.C., Alexandria, Virginia, for Appellant.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
ERVIN, Circuit Judge:
A jury found defendant-appellant Development Technologies liable
to plaintiff-appellee Ross Judson for breach of contract and fraud, and
awarded Judson $93,500 in compensatory damages and $25,000 in
punitive damages. Development Technologies appeals, alleging the
district court erred in denying its motion for a directed verdict on the
fraud count, in denying its motion for a new trial, and in awarding
punitive damages. We reverse the punitive damages award and affirm
the judgment in all other respects.
I.
In May 1993, the president of Development Technologies, Noel
Bergman, contacted Ross Judson and expressed an interest in incorpo-
rating "9 Lives," a computer program developed by Judson and mar-
keted by him as shareware, into a product Development Technologies
was developing called "Deskman/2." The parties reached an agree-
ment to that effect in October 1993, which specified that Judson was
to receive royalty payments of ten percent of the net revenue from
sales of the Deskman/2 product. In the agreement net revenue was
defined as "gross revenue, minus actual operating costs. It does not
include payments to other principles [sic]." Joint Appendix at 165.
In January 1995, Development Technologies began paying its prin-
cipals, including Judson, a fixed monthly fee. Judson received five
checks of $500 each in 1995. Although Development Technologies
contended that Judson understood and agreed that these payments
were to be in lieu of the ten-percent royalty payments previously
agreed to, Judson testified at trial that he did not agree to any such
arrangement and believed these payments were advances on royalties.
Joint Appendix at 55. At the end of 1995, Judson sent Bergman a
series of e-mails requesting sales figures for 1995 so that he could
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"evaluate what has to happen, per our agreement." Supp. Joint Appen-
dix at 6. Bergman responded that he would "let[Judson] know as
soon as we have numbers." Id. at 4.
When he failed to receive either a royalty payment or any financial
figures by March 1996, Judson filed a complaint against Development
Technologies alleging, inter alia, breach of contract and fraud. At
trial, both Development Technologies' tax returns and internal finan-
cial records were introduced. Counsel for Judson cross-examined Ber-
nard Bergman, Noel Bergman's father and Development
Technologies' "financial person," about the company's financial
records and asked him to explain a number of apparent discrepancies
between the two sets of numbers. Bernard Bergman admitted he was
unable to explain the discrepancies, and was also unable to explain to
whom certain commission payments reported in the tax returns had
been paid and how these commission payments would have affected
the company's net profits. Development Technologies failed to pre-
sent any other evidence that might have explained the discrepancies
or how the various figures in evidence fit together.
A special jury sheet was submitted to the jury. In answering the
first question posed by the special jury sheet, the jury found that
Development Technologies had breached the contract between the
parties and fixed damages at $93,500. The second question posed by
the sheet was whether Development Technologies had committed
fraud. The jury answered this question in the affirmative. The sheet
then required the jury, if it found fraud, to fix damages, which were
further subdivided into compensatory and punitive damages. The jury
left the first line, indicating the amount of compensatory damages for
fraud, blank. On the next line, which indicated the amount of punitive
damages for fraud, the jury filled in "$25,000."
After the trial, Development Technologies filed a motion under
Rule 50(b) for judgment as a matter of law on the fraud count, and
a Rule 59 motion asking for a new trial. The district court denied the
motions and Development Technologies appealed.
II.
Development Technologies first argues that the district court erred
in refusing to grant its motion for judgment as a matter of law on the
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fraud count. This Court reviews de novo the grant or denial of a
motion for judgment as a matter of law to determine whether the evi-
dence presented at trial, viewed in the light most favorable to the non-
movant, would have allowed a jury to render a verdict in the non-
movant's favor. Gairola v. Virginia Dep't of Gen. Servs., 753 F.2d
1281, 1285 (4th Cir. 1985).
In order to establish fraud under Virginia law, the plaintiff bears
the burden of proving by clear and convincing evidence: 1) a false
representation, 2) of a material fact, 3) made intentionally and know-
ingly, 4) with intent to mislead, 5) reliance by the aggrieved party,
and 6) resulting damages. Bryant v. Peckinpaugh, 400 S.E.2d 201,
203 (Va. 1991). Development Technologies contends that Judson
failed to prove that it intentionally made false representations about
its intent to pay him the agreed-upon ten percent of the net profits.
Rather, according to Development Technologies, the evidence pre-
sented by Judson proves only a simple misunderstanding between the
parties over how payments were to be made (flat fee vs. royalties).
Development Technologies' argument is without merit because
Judson presented sufficient evidence from which a jury could have
reasonably concluded that the company intended to mislead and
defraud Judson. The e-mail correspondence between Judson and
Bergman clearly shows that Judson still expected to receive royalty
payments based on the October 8, 1993 agreement, even after Devel-
opment Technologies had made a number of $500 flat-fee payments.
Bergman's responses did nothing to contradict Judson's expectation
-- on the contrary, they seemed to confirm it. This evidence, viewed
in the light most favorable to Judson, would have allowed the jury to
render a verdict for Judson on the fraud issue. The district court was
therefore correct in refusing to grant a directed verdict on the fraud
count.
III.
Development Technologies next protests that there was insufficient
evidence to support the jury's compensatory damages award on the
breach of contract claim, and that it is therefore entitled to a new trial
because the award was necessarily based on speculation and surmise.
We disagree. While it is true that the plaintiff bears the burden of
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proving his damages with reasonable certainty, see Murray v. Hadid,
385 S.E.2d 898, 904 (Va. 1989) ("A plaintiff is not required to prove
the exact amount of his damages; however, he is required to show
sufficient facts and circumstances to permit a jury to make a reason-
able estimate of those damages."), we will not disturb a district
court's decision to grant or deny a new trial absent a clear abuse of
discretion, Bristol Steel & Iron Works v. Bethlehem Steel Corp., 41
F.3d 182, 186 (4th Cir. 1994).
Development Technologies states that there is no evidence that its
1994 or 1995 tax returns were incorrect, and further points to CPA
compilations and other internal financial records as support for its
contention that Judson's actual damages could not have been as high
as the $93,500 the jury awarded. Development Technologies further
alleges that at least a portion of the company's income reported on its
tax returns came from projects other than Deskman/2, and that Judson
improperly included this portion of the company's income as part of
his evidence of damages.
While it is not exactly clear how the jury calculated its award,
viewed in the light most favorable to Judson, there was sufficient evi-
dence to support the jury's award of $93,500 in compensatory dam-
ages. Based on the clear inconsistencies between the amounts
reported in the tax returns and in the company's internal records, and
the inability of Development Technologies' personnel to give a coher-
ent explanation of its finances, the jury could have reasonably con-
cluded that the financial statements and tax returns prepared by or at
the behest of Development Technologies were not trustworthy and
were basically designed to conceal the true amount of net profit. Fur-
thermore, the jury could have rejected Development Technologies'
unsupported assertion that a significant (but unspecified) portion of its
reported net income came from projects other than Deskman/2. Based
on the evidence Judson presented, therefore, a jury reasonably could
have found $93,500 in compensatory damages, and the district court
did not abuse its discretion in refusing to grant a new trial.
IV.
Finally, Development Technologies contends that the award of
punitive damages was improper when the jury failed to award com-
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pensatory damages on the fraud claim. We agree and reverse the puni-
tive damages award.
The general rule in Virginia is that punitive damages are not
allowed for breach of contract. A & E Supply Co. v. Nationwide Mut.
Fire Ins. Co., 798 F.2d 669, 671-72 (4th Cir. 1986); Gasque v.
Mooers Motor Car Co., 313 S.E.2d 384, 388 (Va. 1984). The only
exception to this rule is where a plaintiff seeking punitive damages
can allege a "wilful, independent tort in a count separate from that
which alleges a breach of contract." Kamlar Corp. v. Haley, 299
S.E.2d 514, 518 (Va. 1983). Virginia law is also clear that an award
of compensatory damages is an "indispensable predicate" for an
award of punitive damages, except in actions for libel or slander.
Gasque, 313 S.E.2d at 388. This Circuit has interpreted these various
requirements to mean that "[u]nless compensatory damages are
pleaded, proved, and awarded in tort, a punitive damages award can-
not follow." Cancun Adventure Tours, Inc. v. Underwater Designer
Co., 862 F.2d 1044, 1049 (4th Cir. 1988).
According to the special verdict sheet filled out by the jury, the
only compensatory damages awarded were for the breach of contract
claim. Although the jury answered the second question, "Did the
defendant commit Fraud?" by circling "yes," it left the line for com-
pensatory damages on the fraud claim blank. The fact that the jury left
the line blank instead of writing in "$0" suggests that the jury may
have assumed that, given the structure of the verdict sheet, its $93,500
award for the breach of contract damages would compensate Judson
for the fraud claim as well. That assumption was incorrect, if indeed
the jury made it at all. In order to sustain punitive damages, some
amount of compensatory damages must be specifically awarded for
the independent tort alleged -- compensatory damages on the breach
of contract count will not support the award of punitive damages. See
id. Because the record indicates that the jury failed to award any com-
pensatory damages on Judson's independent tort of fraud, the $25,000
punitive damages award cannot stand.
V.
For the foregoing reasons, we reverse the jury's award of punitive
damages. The judgment is affirmed in all other respects.
AFFIRMED IN PART; REVERSED IN PART
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