Case Title: PGI Inc. v. Rathe Productions Inc.

Citation: 

Docket Number: 021181

State: virginia

Court: Virginia Supreme Court

Date: 2003-02-28T00:00:00Z

Document:
PRESENT: Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and 
Lemons, JJ., and Carrico,1 S.J. 
 
PGI, INC. 
 
 
 
OPINION BY 
v.  Record No. 021181 
JUSTICE DONALD W. LEMONS 
 
 
 
February 28, 2003 
RATHE PRODUCTIONS, INC. 
 
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY 
William T. Newman, Jr., Judge 
 
 
In this appeal, we consider whether the trial court erred 
by striking plaintiff’s claim for punitive damages and refusing 
to submit the issue to the jury for determination, and by 
setting aside a plaintiff’s jury verdict on a claim of tortious 
conversion of property. 
I. 
Facts and Proceedings Below 
 
PGI, Inc. (“PGI”) specializes in the marketing and 
production of various events including exhibitions, conferences, 
and corporate meetings.  Rathe Productions, Inc. (“Rathe”) is a 
specialty producer of museum displays.  Beginning in 1997, both 
PGI and Rathe provided a range of services to the Smithsonian 
Institute (“Smithsonian”) for the management and production of 
“America’s Smithsonian Exposition,” a traveling museum that 
displayed a variety of historical and cultural exhibits (the 
“Exposition”).  The Exposition was scheduled to tour ten 
selected cities in the United States.  However, after touring 
                     
 
1 Chief Justice Carrico presided and participated in the 
hearing and decision of this case prior to the effective date of 
just five cities, the Smithsonian’s funding was depleted.  The 
Smithsonian solicited bids for private operation, financing, and 
management of the Exposition. 
 
PGI and Rathe (“PGI/Rathe”) submitted a joint proposal to 
manage and operate the Exposition, which the Smithsonian 
accepted.  To help secure needed corporate sponsorship to 
finance the completion of the Exposition’s 1997 tour, PGI/Rathe 
subcontracted Odell, Simms & Associates, Inc. (“OSA”).  
Unfortunately, the tour ended after reaching only eight of the 
ten scheduled cities. 
 
Although the Exposition did not complete its tour due to 
lack of resources, the Smithsonian was encouraged by attendance 
at the exhibits in the cities visited.  Accordingly, the 
Smithsonian hired PGI/Rathe for $250,000 to conduct a market 
study (the “Market Study”) to investigate the feasibility of 
producing and touring a self-sustaining international 
Exposition.  PGI/Rathe subcontracted with OSA for aid in the 
completion of the Market Study.  A PGI executive presented the 
findings of the Market Study to the Smithsonian, which concluded 
that the risks of such a venture outweighed the potential 
benefits.  After the Market Study was completed, PGI, on behalf 
of PGI/Rathe and OSA, submitted an invoice to the Smithsonian 
for the previous management of the Exposition and for conducting 
                                                                  
his retirement on January 31, 2003. 
 
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the Market Study.  The Smithsonian did not immediately pay the 
amounts invoiced, and asked for a more detailed accounting and 
explanation of the charges. 
 
In an effort to collect all monies owed by the Smithsonian, 
PGI/Rathe officials met and decided that it would be more 
advantageous for Rathe to actively pursue payment from the 
Smithsonian because of its ongoing business relationship with 
the Smithsonian.  After submission of additional billing 
information, the Smithsonian responded with an offer to pay 
$127,153.06 for the Market Study and $65,588.51 for management 
of the Exposition.  Rathe countered the Smithsonian’s offer by 
asking for $315,588.51, which included $250,000 for the Market 
Study and $65,588.51 for management of the Exposition.  In a 
letter dated April 14, 2000, Rathe offered to settle the Market 
Study and management accounts for $258,320.  The letter also 
indicated that distribution of settlement proceeds would include 
PGI and OSA.  On July 20, 2000, Rathe entered into a settlement 
agreement with the Smithsonian to satisfy the Market Study and 
management invoices in exchange for $250,000.  Rathe failed to 
notify either PGI or OSA of the settlement or to distribute any 
of the proceeds to them.  After learning of the settlement 
approximately six months later, representatives from OSA and PGI 
demanded that Rathe properly distribute the settlement proceeds, 
but Rathe refused. 
 
 3
 
On February 1, 2001, PGI filed a motion for judgment in the 
Circuit Court of Arlington County.  Subsequent to PGI filing its 
motion for judgment, OSA filed a separate suit in the Circuit 
Court of Arlington County on March 1, 2001 against PGI and Rathe 
seeking to recover $50,000 in compensatory damages from PGI 
and/or Rathe for breach of contract.  By Order dated May 25, 
2001, OSA’s suit was consolidated with PGI’s suit.  Count One of 
PGI’s motion for judgment alleged conversion and sought $125,000 
in compensatory damages and $125,000 in punitive damages.  In 
the alternative, Count Two of the motion for judgment alleged 
assumpsit and sought $125,000 in compensatory damages plus 
interest and costs, including attorney’s fees.  Prior to jury 
selection, Rathe submitted a motion in limine requesting the 
trial court to order PGI to choose between its tort theory of 
conversion and its contract theory of assumpsit.  The trial 
court granted Rathe’s motion.  Forced to choose, PGI chose to 
proceed to trial on its conversion claim. 
 
Upon completion of PGI’s presentation of evidence, the 
trial court sustained Rathe’s motion to strike the claim for 
punitive damages.  At the conclusion of PGI’s case-in-chief and 
after Rathe’s motion to strike was argued, OSA presented its 
evidence on its claim of breach of contract for the 
subcontracting work it performed for PGI/Rathe.  Thereafter, 
Rathe presented its evidence.  At the conclusion of Rathe’s 
 
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presentation of evidence, Rathe again moved to strike PGI’s 
evidence.  The trial court refused the motion and allowed the 
case to be presented to the jury.  The trial court instructed 
the jury that it should return a verdict for PGI if it found 
that PGI proved by clear and convincing evidence2 that Rathe had 
converted PGI’s property.  The jury returned a verdict in favor 
of PGI against Rathe in the amount of $100,000, and a verdict of 
$50,000 in favor of OSA against Rathe. 
 
Rathe’s post-trial motions included a renewed motion to 
strike PGI’s evidence and a motion to set aside the verdict.  
The trial court granted Rathe’s motion to strike, set aside the 
verdict, and entered judgment in favor of Rathe.  PGI appeals 
the adverse judgment of the trial court. 
II. Analysis 
 
On appeal, PGI maintains that the trial court erred by 
ordering it to elect between its cause of action based in 
contract and its cause of action based in tort.  PGI further 
maintains that the trial court erred in striking PGI’s claim for 
punitive damages, and in setting aside the jury’s verdict and 
entering final judgment for Rathe.  Rathe did not file briefs in 
the case on appeal and did not participate.  We agree with PGI 
that the trial court erred in striking its claim for punitive 
                     
 
2 There is no issue before us concerning the evidentiary 
standard to be applied. 
 
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damages before it was submitted to the jury, and in striking its 
evidence entirely, setting aside the jury’s verdict, and 
entering final judgment for Rathe. 
 
The final judgment order in this matter recites that the 
jury’s verdict is set aside and final judgment is ordered in 
favor of Rathe “for the reasons stated in the Court’s letter 
opinion.”  A review of the trial court’s letter opinion reveals 
three reasons for the trial court’s action: 
(1)  PGI did not present evidence at trial to 
establish that a partnership existed between the 
parties or that the parties had common law duties 
to each other. 
(2)  PGI’s claims are solely based on a breach of 
contract theory, therefore, an action in tort is 
not appropriate. 
(3)  PGI did not present credible evidence to 
support its claim for conversion. 
The trial court erred in each of these holdings. 
 
A.  The Joint Venture 
 
We have previously stated that “[a] joint venture exists 
where two or more parties enter into a special combination for 
the purpose of a specific business undertaking, jointly seeking 
a profit, gain, or other benefit, without any actual partnership 
or corporate designation.”  Roark v. Hicks, 234 Va. 470, 475, 
362 S.E.2d 711, 714 (1987). 
A joint adventure exists when two or more persons 
combine a joint business enterprise for their 
mutual benefit, with an express or implied 
understanding or agreement that they are to share 
 
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in the profits or losses of the enterprise, and 
that each is to have a voice in its control and 
management. 
Smith v. Grenadier, 203 Va. 740, 744, 127 S.E.2d 107, 110 (1962) 
(quoting 10 Michie’s Jurisprudence, Joint Adventures § 2, 
p. 695). 
 
The trial court properly instructed the jury concerning the 
evidence necessary to find a joint venture between PGI and 
Rathe.  On the theory of conversion, the jury had to find that a 
joint venture existed in order to reach its verdict in favor of 
PGI.  As we have recently stated, 
the trial court’s authority to set aside a jury 
verdict “can only be exercised where the verdict 
is plainly wrong or without credible evidence to 
support it.  If there is a conflict in the 
testimony on a material point, or if reasonable 
[persons] may differ in their conclusions of fact 
to be drawn from the evidence, or if the 
conclusion is dependent on the weight to be given 
the testimony, the trial judge cannot substitute 
his conclusion for that of the jury merely 
because he would have voted for a different 
verdict if he had been on the jury.” 
Shalimar Dev., Inc. v. Federal Deposit Ins. Corp., 257 Va. 565, 
569-70, 515 S.E.2d 120, 123 (1999) (quoting Lane v. Scott, 220 
Va. 578, 581, 260 S.E.2d 238, 240 (1979)). 
 
The record is more than adequate to support the jury’s 
finding, and the trial court erred by substituting its own view 
of the evidence.  In a letter from the Smithsonian dated May 12, 
 
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1997 to PGI and Rathe, referred to as a “Notice to Proceed,” the 
following “understandings” are evident: 
[T]he Smithsonian is confident that Rathe/PGI, 
together with its proposed team, will provide the 
management and production expertise needed to 
bring new levels of success to [America’s 
Smithsonian Exposition] and to launch a similar 
and even more successful international 
exhibition. 
 
This letter serves to formally notify 
Rathe/PGI that it has been chosen as the 
exclusive contractor of the [Smithsonian] for 
management and production of the remainder of 
[the America’s Smithsonian Exposition] . . . .  
This letter also authorizes Rathe/PGI . . . as 
the exclusive producer of a similar international 
tour . . . . 
 
The “Notice to Proceed” letter is replete with references 
to PGI and Rathe in a joint capacity, namely “PGI/Rathe,” for a 
limited purpose.  The letter is signed “ACCEPTED AND AGREED” by 
representatives of PGI and Rathe.  The exhibits introduced at 
trial include a “Proposed International Tour Feasibility Study” 
submitted to the Smithsonian as “A Joint Venture Report by 
Rathe/PGI.”  Finally, the testimony overwhelmingly supports the 
finding of a joint venture and includes the testimony of Cynthia 
Engel, President and Chief Operating Officer of PGI, that the 
relationship with Rathe was “a joint venture and that all 
expenses would be paid and if there was a profit, it would be 
split.”  The evidence reveals that Rathe and PGI created a joint 
venture with shared management responsibilities and the 
 
 8
expectation of shared profits.  The trial court erred in holding 
otherwise. 
B.  Basis for PGI’s Cause of Action 
 
The trial court held that “PGI’s claims are solely based on 
a breach of contract theory[;] therefore, an action in tort is 
not appropriate.”  The trial court’s ruling misapprehends the 
nature of the relationship created between PGI and Rathe and the 
law that applies.  In Legum Furniture Corp. v. Levine, 217 Va. 
782, 787, 232 S.E.2d 782, 786 (1977), we cited 46 Am. Jur. 2d 
Joint Ventures §§ 36, 37 with approval as follows: 
The rights, duties, and obligations of joint 
venturers and of members of syndicates, as 
between themselves, depend primarily upon the 
terms of the contract by which they assumed that 
relationship.  They are also affected, however, 
by certain general principles which operate in 
the absence of specific provisions in the 
contract, or sometimes in conjunction with such 
provisions.  These principles . . . are much the 
same as, or at least are clearly analogous to, 
those which govern the relations of partners. 
In Roark, 234 Va. at 475, 362 S.E.2d at 714, we restated the 
principle at stake with greater emphasis: “the rules of law 
governing the rights, duties, and liabilities of joint venturers 
are substantially the same as those which govern partnerships.” 
 
There is no express contract between PGI and Rathe which 
establishes this joint venture.  As previously stated, the 
evidence more than amply establishes an implied contract for a 
joint venture.  To the extent that this implied agreement does 
 
 9
not address an issue, the law of partnership is applied.  The 
Virginia Uniform Partnership Act (the “Act”), Code §§ 50-73.79 
to -73.149, “governs relations among the partners and between 
the partners and the partnership” except as provided in a 
partnership agreement and to the extent that the agreement does 
not violate certain specific statutory requirements.  Code § 50-
73.81.  If the issue in question is not addressed by the 
partnership agreement or the Act, “the principles of law and 
equity” apply.  Code § 50-73.82.3
 
At common law, ordinarily one partner was not permitted to 
sue another partner before settlement of all partnership 
business occurred.  See, e.g., Dulles Corner Props. II Ltd. 
P’ship v. Smith, 246 Va. 153, 155, 431 S.E.2d 309, 311 (1993).  
But even at common law, an exception to the general rule was 
made for circumstances such as those presented in this case.  In 
Pugh v. Newbern, 136 S.E. 707, 708-09 (N.C. 1927) (citations 
omitted), the Supreme Court of North Carolina stated such an 
exception: 
The general rule is that one partner cannot 
sue another partner at law until there has been a 
complete settlement of the partnership affairs 
and a balance struck. 
 
. . . . 
 
                     
 
3 There is no dispute that the law of Virginia applies to 
this controversy.  See Code § 50-73.84. 
 
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There are, however, well established 
exceptions to the general rule.  A partner may 
maintain an action at law against his copartner 
upon claims growing out of the following state of 
facts: 
 
. . . . 
 
6.  Where the partnership is for a single 
venture or special purpose which has been 
accomplished, and nothing remains to be done 
except to pay over the claimant’s share. 
 
See also Johnson v. Jackson, 82 F. Supp. 915, 917 (E.D. Pa. 
1949); L.H. Heiselt, Inc. v. Brown, 120 P.2d 644, 646 (Colo. 
1941); Ruschoff v. Wachsmuth, 242 N.W. 296, 297 (Minn. 1932); 
Warren v. Warren, 784 S.W.2d 247, 252 (Mo. Ct. App. 1989); Davis 
v. Johnson, 689 S.W.2d 297, 300 (Tex. Ct. App. 1985); 59A Am. 
Jur. 2d Partnership § 552 (2002). 
 
Nothing in the Act abridges this common law exception.  
Rather, the Act expands the exception by providing the 
following: 
§ 50-73.103  Actions by partnership and partners. 
. . . . 
 
B. 
A partner may maintain an action against the 
partnership or another partner for legal or 
equitable relief, with or without an 
accounting as to partnership business, to: 
1. 
Enforce that partner’s rights under the 
partnership agreement; 
2. 
Enforce that partner’s rights under this 
chapter, . . . [; or] 
3. 
Enforce the rights and otherwise protect the 
interests of that partner, . . . . 
 
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A cause of action for conversion lies independent of an 
action in contract and may provide a separate basis, distinct 
from the contract, upon which one partner may sue another.  The 
trial court erred in holding to the contrary. 
C.  Conversion 
 
In United Leasing Corp. v. Thrift Ins. Corp., 247 Va. 299,  
305, 440 S.E.2d 902, 905 (1994) (quoting Universal C.I.T. Credit 
Corp. v. Kaplan, 198 Va. 67, 75, 92 S.E.2d 359, 365 (1956)), we 
stated that the tort of conversion “encompasses ‘any wrongful 
exercise or assumption of authority . . . over another’s goods, 
depriving him of their possession; [and any] act of dominion 
wrongfully exerted over property in denial of the owner’s right, 
or inconsistent with it.’ ”  The trial court erred in holding 
that PGI did not prove the elements of conversion. 
 
As previously noted, PGI proved the creation of a joint 
venture with Rathe with the expectation of “split” profits.  
Upon completion of the objective of the joint venture, all that 
remained was the collection of accounts receivable from the 
Smithsonian and payment of OSA.  When difficulties arose in the 
collection of sums due to the joint venture from the 
Smithsonian, a further agreement was reached between the joint 
venturers to authorize Rathe to negotiate and settle the claim.  
Thereafter, Rathe wrote the Smithsonian indicating that a 
compromised settlement figure “will allow PGI, [Rathe] and [OSA] 
 
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to receive a reduced final payment.”  A settlement was reached 
with Rathe executing the settlement agreement on behalf of its 
co-venturer, PGI.  Rathe received $250,000 from the Smithsonian 
but refused to pay any of the proceeds to PGI or pay the 
outstanding billing of OSA, contrary to its express agreement to 
do so. 
 
Upon the evidence presented, the jury was entitled to find 
that Rathe without justification wrongfully withheld settlement 
proceeds from PGI.  None of the elements to sustain a cause of 
action for conversion are missing. 
D.  Punitive Damages 
Citing insufficient evidence, the trial court struck PGI’s 
claim for punitive damages without submission of the issue to 
the jury.  In Baker v. Marcus, 201 Va. 905, 909-10, 114 S.E.2d 
617, 620-21 (1960) (internal citations omitted), we summarized 
our prior cases concerning the award of punitive or “exemplary” 
damages. 
 
Compensatory damages are awarded as 
compensation for the pecuniary loss – as amends 
or recompense for the injury inflicted.  
Exemplary damages are something in addition to 
full compensation, and something not given as 
plaintiff’s due, but for the protection of the 
public, as a punishment to defendant, and as a 
warning and example to deter him and others from 
committing like offenses. 
. . . . 
 
 
 13
 
The theory upon which exemplary, punitive, 
or vindictive damages, sometimes called “smart 
money,” are allowed is not so much as 
compensation for the plaintiff’s loss as to warn 
others, and to punish the wrongdoer if he has 
acted wantonly, oppressively, recklessly, or with 
such malice as implies a spirit of mischief, or 
criminal indifference to civil obligations. 
. . . . 
 
 
Exemplary damages are allowable only where 
there is misconduct or malice, or such 
recklessness or negligence as evinces a conscious 
disregard of the rights of others.  But where the 
act or omission complained of is free from fraud, 
malice, oppression, or other special motives of 
aggravation, damages by way of punishment cannot 
be awarded, and compensatory damages only are 
permissible . . . . 
 
Wilful or wanton conduct imports knowledge 
and consciousness that injury will result from 
the act done.  The act done must be intended or 
it must involve a reckless disregard for the 
rights of another and will probably result in an 
injury.  Ill will is not a necessary element 
. . . . 
 
Proof of actual malice is not necessary.  
Malice may be inferred from circumstances. 
No evil intent can be presumed from a mere 
mistake, or misadventure.  “An absence of evil 
purpose is an absence of malice.  No mere 
inadvertence, mistake, or accidental occurrence 
can be malicious, although negligent. . . .” 
 
 
Viewing the evidence in the light most favorable to PGI, as 
we must, PGI and Rathe were joint venturers for a particular 
purpose.  They agreed to split revenues equally.  Upon 
completion of the venture, billing problems arose.  Empowered 
with the authority to settle, Rathe accepted $250,000 from the 
 
 14
Smithsonian in full satisfaction of outstanding claims of the 
joint venture on July 25, 2000.  In breach of its duty of 
loyalty, duty of care, and obligation of good faith and fair 
dealing (Code § 50-73.102), Rathe did not inform PGI that it had 
received the $250,000 in settlement from the Smithsonian.  
Approximately six months later in late January 2001, PGI 
discovered through a telephone conversation with an OSA 
representative that Rathe had received the settlement funds.  
That same day, PGI telephoned Rathe and made a demand for its 
and OSA’s portion of the proceeds.  Rathe refused.  Thereafter, 
PGI filed suit. 
If reasonable persons, upon the facts presented, could 
differ regarding whether the conduct in question was so willful 
and wanton as to show a conscious disregard for the rights of 
others, “the trial court may not remove the issue of punitive 
damages from the jury’s consideration.”  Huffman v. Love, 245 
Va. 311, 315, 427 S.E.2d 357, 360 (1993).  The trial court erred 
in doing so in this case. 
E. Election 
 
PGI assigns error to the trial court’s order that it elect 
between theories of tort and contract.  Our resolution of other 
issues in this appeal renders it unnecessary to address this 
assignment of error. 
F.  Conclusion 
 
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For the reasons stated, the trial court erred in refusing 
to submit the issue of punitive damages to the jury and in 
setting aside the verdict of $100,000 in favor of PGI and 
entering judgment for Rathe.  We will reinstate the jury’s 
verdict and remand to the trial court with directions to enter 
judgment on the verdict and empanel a jury to hear evidence and 
decide PGI’s claim for punitive damages. 
Reversed and remanded.
 
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