James Dunlap v. Cottman Transmissions Systems

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-2327
JAMES M. DUNLAP,
Plaintiff - Appellant,
v.
COTTMAN TRANSMISSIONS SYSTEMS, LLC; TODD P. LEFF,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Arenda Wright Allen, District
Judge. (2:11-cv-00272-AWA-DEM)
Argued: May 14, 2013 Decided: August 21, 2013
Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, and WYNN and
DIAZ, Circuit Judges.
Unpublished Order of Certification to the Supreme Court of
Virginia.
ARGUED: Crystal M. Johnson, UNIVERSITY OF GEORGIA SCHOOL OF
LAW, Appellate Litigation Clinic, Athens, Georgia, for
Appellant. James C. Rubinger, PLAVE KOCH PLC, Reston, Virginia,
for Appellees. ON BRIEF: Peter B. Rutledge, Paula Briceno,
Brittany Cambre, UNIVERSITY OF GEORGIA SCHOOL OF LAW, Appellate
Litigation Clinic, Athens, Georgia, for Appellant. Benjamin B.
Reed, PLAVE KOCH, PLC, Reston, Virginia, for Appellees.
PER CURIAM:
I. Questions Certified
The United States Court of Appeals for the Fourth Circuit,
exercising the privilege afforded it by the Supreme Court of
Virginia through its Rule 5:40 to certify questions of law to
the Supreme Court of Virginia when a question of Virginia law is
determinative in a pending action and there is no controlling
Virginia precedent on point, requests the Supreme Court of
Virginia to exercise its discretion to answer the following
questions:
1. May a plaintiff use tortious interference with contract or
tortious interference with business expectancy as the
predicate unlawful act for a claim under the Virginia
business conspiracy statute, Va. Code §§ 18.2-499, 18.2-
500?
2. Does a two-year or five-year statute of limitations apply
to claims of tortious interference with contract and
tortious interference with business expectancy under Va.
Code § 8.01-243?
We acknowledge that the Supreme Court of Virginia may restate
these questions. See Va. Sup. Ct. R. 5:40(d).
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II. Nature of the Controversy and Statement of Relevant Facts
AAMCO Transmissions, Inc. is a nationwide transmission and
automobile repair company that operates through local
franchises. This case involves a dispute between an AAMCO
franchisee named James Dunlap and various parties related to
AAMCO and its recent attempt to eliminate certain local
franchises with overlapping business areas in Virginia.
Dunlap, the plaintiff-appellant, has operated a pair of
AAMCO franchises for over 30 years. In 2006, AAMCO was acquired
by an asset-management company that already held a large share
of Cottman Transmission Systems, LLC, an AAMCO competitor.
Because of the substantial overlap among the businesses – and
the potential for competition among local franchisees – the new
AAMCO owners attempted to convert Cottman franchises to AAMCO
franchises and then close some existing franchises. Dunlap
found himself among the disfavored franchisees. See J.A. 5-8,
11-14.
Dunlap fought AAMCO to stay in business, and the parties
eventually litigated and settled cross-disputes for trademark
infringement and wrongful termination of Dunlap’s franchise
agreements. Subject to conditions not particularly relevant
here, this settlement allowed Dunlap to continue to operate his
AAMCO franchises. Then, as now, Dunlap maintained that AAMCO
tried to terminate his franchises for minor or trumped up
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violations of their franchise agreements as a pretext to force
him out of business. See J.A. 11-14; AAMCO Transmissions, Inc.
v. Dunlap, 2011 WL 3586225 (E.D. Pa. Aug. 16, 2011). Because
AAMCO was the contracting party, and its duties were resolved in
the prior litigation, Dunlap’s present complaint is not directed
to AAMCO itself. Instead, Dunlap now asserts that the decision
to force him out of business was a conspiracy for personal
profit among new AAMCO principal Todd Leff, Cottman Transmission
Systems, and certain of Dunlap’s local competitors who would
benefit from his exit. J.A. 11-20. He maintains that AAMCO’s
actions, precipitated by these other parties, caused irreparable
harm to his business by depriving him of marketing benefits that
typically flow from a franchise arrangement. The present
complaint thus names Leff and Cottman as defendants in an action
for: (1) violation of Virginia’s business conspiracy statute,
(2) tortious interference with contract, and (3) tortious
interference with business expectancy. J.A. 4-5, 20-24.
The district court dismissed the business conspiracy count
for failure to allege a valid “unlawful act” as a predicate for
the conspiracy. It relied on a recent Virginia Supreme Court
decision called Station #2, LLC v. Lynch, 280 Va. 166 (2010),
which held that “a conspiracy merely to breach a contract that
does not involve an independent duty arising outside the
contract is insufficient to establish a civil claim under [the
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Virginia business conspiracy statute].” Id. at 174. The
district court then found that “[a]ll of the duties involved in
this case arise out of and the damages flow from contractual
obligations” – namely, the franchise agreements between Dunlap
and AAMCO. J.A. 43-44. Accordingly, the district court
concluded that applying the business conspiracy statute in this
case would risk exactly what the Virginia Supreme Court had
tried expressly to avoid: “turning every breach of contract into
an actionable claim for fraud.” Station #2, 280 Va. at 174
(citation omitted). In dismissing this claim, it joined another
district court from this Circuit that recently rejected a
tortious interference allegation as the predicate for a business
conspiracy count under the rule announced in Station #2. See
J.A. 43 (discussing Zurich Am. Ins. Co. v. Turbyfill, 2010 WL
4065527 (W.D. Va. Oct. 15, 2010)).
Next, the district court dismissed both of the independent
common-law tort claims as untimely. Virginia has a five-year
statute of limitations for injuries to property rights, see Va.
Code § 8.01-243(B), but a two-year statute of limitations for
actions related to personal injuries, id. § 8.01-243(A).
Relying on Willard v. Moneta Bldg. Supply, Inc., 262 Va. 473(2001), the district court noted that “an allegation of nothing
more than disappointed economic expectations does not amount to
an injury to property” because “the law of contracts provides
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the sole remedy for such a loss.” J.A. 45 (quoting Willard, 262
Va. at 480). Having already characterized the common-law tort
claims as flowing from breach of contract for purposes of the
conspiracy count, the district court again relied on Station #2
to classify them as contract (and, thus, personal injury) claims
for purposes of the two-year statute of limitations. J.A. 44-45
& n.2. In other words, because the injury in this case went to
Dunlap’s disappointed expectations about how AAMCO would perform
and the profitability of Dunlap’s business – and not to a
property injury as such – the district court applied the shorter
statute of limitations, and dismissed.
III. Legal Discussion and Relevant Virginia Case Law
A. Business Conspiracy Issue
The reason to certify the first issue is straightforward:
The Virginia Supreme Court’s recent decision in Station #2
signals obvious skepticism about business conspiracy claims
predicated on contract disputes, but we are unable to ascertain
with certainty how far that skepticism extends.
On the one hand, Station #2 clearly represents an important
change in Virginia’s business conspiracy law, and we agree with
the district court that this case raises concerns of the kind
addressed there. In Station #2, the Virginia Supreme Court at
least partly rejected its established case law making it
actionable to “conspire[] to procure the breach of a contract.”
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See 280 Va. at 174 (rejecting Chaves v. Johnson, 230 Va. 112(1985), and Worrie v. Boze, 198 Va. 533 (1956)). The Court
noted that, while it had previously approved such claims, it was
now “of opinion that a conspiracy merely to breach a contract
that does not involve an independent duty arising outside the
contract is insufficient to establish a civil [conspiracy]
claim.” Id. (emphasis added). The Court warned against
allowing mere contract disputes to be transformed into claims of
fraud and conspiracy. Id. And the standard that it announced
appears to ask whether the duty that has been violated “aris[es]
outside the contract,” id. – a standard one might think unmet by
garden-variety claims of tortious interference with contract or
with the business expectations that contract law protects.
On the other hand, there are plausible reasons to limit
Station #2’s holding to actual breach of contract claims, and to
distinguish tortious interferences with contract or business
expectancy. As Dunlap points out, see Appellant’s Br. 15-16,
the duty not to interfere with the agreements of others arises
as a common-law corollary of the contract, not from the contract
itself. Indeed, it cannot arise from the contract itself
because the duty is one that falls upon third parties, not the
parties to the agreement. According to Dunlap, this distinction
is sufficient to place the violated duty “outside the contract”
for purposes of Station #2.
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Whether (and when) this is a meaningful distinction is, we
think, a question that is best posed to the Virginia Supreme
Court, for it involves interpretation of its precedents and
important questions of state law and policy. To begin, Station
#2 does not definitively settle the question: It is true that
the duty to avoid contractual interference does not flow
directly from a party’s contractual agreements, but it is also
true that the ultimate duty that is breached is contractual, and
the set of harms redressed flows entirely from the contract. In
other words, Station #2 poses a question of how to conceptualize
tortious interference for the purpose of the conspiracy
statute’s unlawful act requirement, but does not answer it.
Moreover, in typical cases alleging tortious interference the
challenged conduct will – as here – involve discussions and
negotiations among one contracting party and potential business
partners about the possibility of breaching the old contract and
starting a new relationship. Whether to view such negotiations
as “conspiratorial” is an important question of state policy:
Doing so elevates the sanctity of contract, but perhaps too far.
A state court could easily conclude that it is adequate, and
more likely to encourage efficient business decisions, to give
the harmed party only the benefit of its contractual
expectations through a simple breach of contract action against
its counter-party. Cf. Station #2, 280 Va. at 174 (expressing
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concern about “turning every breach of contract into an
actionable claim for fraud”) (citation omitted).
Moreover, especially in light of these policy concerns, it
may be that the right answer involves finer distinctions of the
kind that the Virginia Supreme Court is better fit to make. For
example, it is possible that tortious interference claims should
sometimes constitute “unlawful acts” for purposes of the
business conspiracy statute, but only in exceptional cases. Cf.
Advanced Marine Enters., Inc. v. PRC Inc., 256 Va. 106, 117-18
(1998) (allowing conspiracy claim predicated on tortious
interference, before Station #2, in a case involving
“outrageous” conduct such as theft of corporate files by
breaching employees). The extent to which Station #2 preserves
any such claim is unclear, however, and so we think it best to
seek a definitive answer from the Virginia Supreme Court.
B. Statute of Limitations Issue
The reason to certify the second question is even more
straightforward: The question which statute of limitations to
apply to tortious interference claims is a pure legal issue that
has not been settled by the Virginia Supreme Court. Virginia
applies a two-year statute of limitations to claims regarding
personal injuries and a five-year statute of limitations to
claims regarding injuries to property. See, e.g., Willard, 262
Va. at 478. But that distinction can be hard to draw, and the
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Virginia Supreme Court has previously disagreed with how this
Circuit has attempted to articulate it. See id. at 479(rejecting the test applied in Brown v. Am. Broad. Co., 704 F.2d
1296, 1303-04 (4th Cir. 1983)). As with the previous issue, we
believe that this question at bottom concerns an ambiguity in
the Virginia Supreme Court’s recent precedent that is best
resolved by that Court.
Indeed, the Virginia Supreme Court’s decision in Willard
can be read to support either side in this case. Willard held
that an infringement on the dissenters’ rights of corporate
shareholders was an injury to property interests for purposes of
the five-year statute of limitations. Id. at 481. In so doing,
it made clear that “conduct . . . directed at [another’s]
property, . . . constitutes an injury to property,” for purposes
of the limitation periods whether the injury is direct or
indirect. Id. at 480 (citation omitted). But it also
emphasized that “disappointed economic expectations do[] not
amount to an injury to property” because “the law of contracts
provides the sole remedy for such a loss.” Id. Dunlap
plausibly argues that the conduct here was directed at his
property (that is, his franchises). The district court,
however, plausibly viewed the injuries as flowing from Dunlap’s
disappointed expectations about those franchises’ profitability
had AAMCO continued to perform under its contracts. As with the
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previous issue, it is possible to conceptualize tortious
interference as being fundamentally a part of the protections
for business expectations provided by the “law of contracts,”
id., or as a protection for contractually secured property
rights that sounds most fundamentally in the law of torts.
Accordingly, it may be wise judicial policy to impose the same
limitations period for tortious interference as for the breach
of contract that it ultimately addresses, or it may not.
Especially given our decision to seek the guidance of the
Virginia Supreme Court on the first issue in this case, we
prefer to ask that Court to settle this related issue as well.
In sum, we find ourselves unable to predict with confidence
how the Virginia Supreme Court would rule on the questions
discussed above. As a result, we respectfully request that the
Virginia Supreme Court answer our certified questions.
IV. Certified Questions Determine This Proceeding
We also note, briefly, that the two questions together
determine the outcome of this case. If the district court’s two
holdings regarding tortious interference are correct as a matter
of Virginia law, we would affirm. If either is incorrect, we
would reverse and remand for further proceedings because these
were the sole rationales adopted by the district court in
dismissing the case.
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V. The Parties and Their Counsel
A.
The Plaintiff–Appellant is James Dunlap. Counsel for the
Plaintiff–Appellant is:
Peter B. Rutledge
Paula Briceno
Brittany Cambre
Crystal M. Johnson
University of Georgia School of Law
Appellate Litigation Clinic
100 Herty Drive,
Athens, GA 30602
(706) 542-1328 (Telephone)
(706) 542-5556 (Facsimile)
B.
The Defendants–Appellees are Todd P. Leff and Cottman
Transmission Systems, LLC. Counsel for the Defendants–Appellees
is:
James C. Rubinger
Benjamin B. Reed
Plave Koch PLC
12355 Sunrise Valley Drive,
Suite 230
Reston, VA 20191
(703) 774-1200 (Telephone)
(703) 774-1201 (Facsimile)
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VI. Conclusion
Pursuant to the privilege made available by Virginia
Supreme Court Rule 5:40, we respectfully:
1) Certify the questions stated in Part I of this Order of
Certification to the Supreme Court of Virginia for resolution;
2) Order the Clerk of this Court to forward to the Supreme Court
of Virginia, under the official seal of this Court, a copy of
this Order of Certification, together with the original or
copies of the record before this Court to the extent requested
by the Supreme Court of Virginia; and
3) Order that any request for all or part of the record be
fulfilled by the Clerk of this Court simply upon notification
from the Clerk of the Supreme Court of Virginia.
QUESTIONS CERTIFIED
FOR THE COURT
/s/ James A. Wynn, Jr.
Circuit Judge
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