Case Title: Feddeman & Company v. Langan Associates P.C.

Citation: 

Docket Number: 991996

State: virginia

Court: Virginia Supreme Court

Date: 2000-06-09T00:00:00Z

Document:
Present:  All the Justices 
 
FEDDEMAN & COMPANY, C.P.A., P.C. 
 
v.  Record No. 991996     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
June 9, 2000 
LANGAN ASSOCIATES, P.C., ET AL. 
 
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 
Alfred D. Swersky, Judge 
 
 
Feddeman & Company appeals a judgment setting aside a 
$3,300,000 jury verdict in its favor against six of its former 
employees and one of its competitors.  Feddeman & Company, the 
plaintiff below, is a certified public accounting firm that, 
in 1997, had 31 employees and over $3,000,000 in yearly 
revenues.  W. Kent Feddeman was a 95% shareholder and the 
president of the company. 
 
The defendants are Langan Associates, a rival accounting 
firm, John P. Langan, its president, three former directors 
and employees of Feddeman & Company, Joseph M. Kotwicki, 
Cheryl L. Jordan, and J. Andrew Smith, and three former 
employees of Feddeman & Company, Nathaniel T. Bartholomew, 
Robert A. Casey, and John G. Wooldridge. 
 
The events giving rise to this litigation began in August 
1996, when Kent Feddeman initiated discussions with John 
Langan regarding a possible buyout or merger of the two 
companies.  In early 1997, Feddeman asked Kotwicki to take 
over the negotiations. 
 
In the summer of 1997, the American Express Company made 
an offer to purchase both Langan Associates and Feddeman & 
Company.  On August 31, 1997, Langan, Kotwicki, Bartholomew, 
Smith, Casey, Wooldridge, and Jeffrey S. Tenenbaum, Langan 
Associates' attorney, met in Tenenbaum's office.  At this 
meeting, the attendees determined that they would refuse the 
American Express offer, and Kotwicki, Smith, Bartholomew, 
Casey, and Wooldridge would form a "Buying Group."  The Buying 
Group planned to purchase Feddeman's 95% interest in Feddeman 
& Company and then merge the company with Langan Associates.  
The Buying Group also raised the possibility that they might 
have to resign from Feddeman & Company if the buyout 
negotiations were unsuccessful.  The members of the Buying 
Group signed a retainer agreement with Tenenbaum authorizing 
him to represent them.  At this meeting, or shortly 
thereafter, Kotwicki gave sample Feddeman & Company engagement 
letters and nonsolicitation agreements, along with other 
corporate and employment documents, to Tenenbaum in 
preparation for the merger.  Feddeman was aware of and did not 
oppose this two-step merger process. 
 
On September 29, 1997, the Buying Group offered Feddeman 
$2,000,000 for his interest in Feddeman & Company.  In making 
the offer, Kotwicki reminded Feddeman that the corporate 
 
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directors were not bound by noncompete agreements and that 
they were free to leave Feddeman & Company if they wished. 
 
On November 4, 1997, Feddeman made a counteroffer to the 
Buying Group.  Four days later, Kotwicki told Feddeman that 
the counteroffer nullified the Buying Group's prior offer, and 
that if the Buying Group were to make another offer, it would 
be lower than the first. 
 
On November 10, 1997, a second meeting was held at the 
offices of Langan Associates, again with Langan, Tenenbaum, 
and the Buying Group.  Tenenbaum had been asked to do legal 
research on any potential liability which could arise if the 
Buying Group resigned and were subsequently employed by Langan 
Associates.  Based on his research, Tenenbaum advised the 
Buying Group that to avoid liability, if they ultimately chose 
to resign, they should not solicit Feddeman & Company clients 
or employees until after their resignation, not use company 
resources in the preparation of their resignations, not make 
negative or adverse statements about Feddeman & Company, and 
not remove any company property.  The Buying Group agreed that 
they would resign on December 1, 1997 if they "hadn't made a 
deal" with Feddeman and that the resignations "would be a form 
of leverage that could be used" in the negotiations. 
 
On November 12, 1997, at 7:00 a.m., Jordan, the members 
of the Buying Group except Casey, and four other Feddeman & 
 
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Company senior employees met at Smith's house.  At this 
meeting, the Buying Group reported on the status of the merger 
negotiations, and indicated that if the negotiations did not 
improve there was a possibility that the Buying Group would 
resign on December 1, 1997.  The Buying Group indicated that 
they believed Langan Associates would hire them if they 
resigned.  They also told the senior employees present that 
they "would take care of them." 
On November 19, 1997, Kotwicki again discussed the 
resignation plan with Jordan.  She indicated that she would be 
on vacation on December 1, so Kotwicki gave her a letter of 
resignation drafted for her by Tenenbaum, which she signed and 
gave to her own attorney. 
 
On November 24, Feddeman's attorney presented Kotwicki 
with a $4,000,000 stock purchase proposal in which Feddeman 
would be paid over the course of eight years.  Two days later, 
the Buying Group made a counteroffer of $4,000,000 to be paid 
over a ten year period, with no personal guarantees and a 
covenant not to compete from Feddeman. 
 
Meanwhile, Feddeman learned of the proposed walkout and 
contacted Johnson & Lambert, a national accounting firm, to 
see if it could provide assistance if needed, and additionally 
to discuss possible merger options. 
 
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On December 1, 1997, Feddeman announced to some of his 
employees that Johnson & Lambert had expressed interest in 
making a presentation to Feddeman & Company employees on 
December 3.  The Buying Group met with Feddeman immediately 
after this announcement.  Feddeman told them Johnson & Lambert 
had an interest in acquiring the firm, and that there would be 
positions for everyone.  The Buying Group met with Feddeman a 
second time in his office, this time without Kotwicki.  They 
questioned the potential merger with Johnson & Lambert and its 
impact on the planned buyout and merger with Langan 
Associates.  Feddeman told them he just wanted them to hear of 
another opportunity and he advised them to talk to his lawyer. 
 
Following the meetings with Feddeman, members of the 
Buying Group met at lunch and decided to resign.  They planned 
to talk to the senior managers after work to inform them of 
the resignation decision.  After lunch, Kotwicki called 
Langan, informed him that the Buying Group was resigning, and 
asked if Langan Associates would hire the Buying Group and any 
others who might resign.  Langan agreed. 
 
Kotwicki had letters of resignation prepared for three 
senior employees, Mary D. Komatsoulis, James B. Kanuch, and 
Mike A. Benoudiz.  That evening, after attending an event with 
Feddeman, Benoudiz and Kanuch met with Smith and were given 
the prepared letters of resignation.  They were told of the 
 
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Buying Group's decision to resign and to work for Langan 
Associates, and that "they could come too."  Smith, Benoudiz, 
and Kanuch returned to the office, and while Smith gathered 
his personal effects, Benoudiz and Kanuch signed their letters 
of resignation and gave them to Smith.  That evening 
Komatsoulis, at Bartholomew's request, met with him.  After 
the meeting, Komatsoulis returned to the office and signed her 
letter of resignation.  A fourth employee was told to contact 
Kotwicki because he had a letter of resignation for her to 
sign. 
 
That evening, Kotwicki called Jordan, who contacted her 
attorney and instructed him to release her letter of 
resignation.  Kotwicki also obtained a letter of resignation 
from his son, Michael Kotwicki, a Feddeman & Company employee. 
 
The next morning, December 2, prior to going to work, 
Kotwicki went to Smith's house and collected the letters of 
resignation obtained from various employees.  After leaving 
Smith's house, Kotwicki delivered 11 letters of resignation to 
Kent Feddeman.  Feddeman accepted the resignations. 
 
That evening, Langan Associates held a reception for the 
Feddeman employees who had not yet resigned.  Eventually, 25 
of the 31 Feddeman & Company employees resigned and began 
working for Langan Associates.  By December 3, all the 
Feddeman & Company clients had been contacted by employees of 
 
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Langan Associates, and 50% of those clients eventually 
transferred their business to Langan Associates.  
 
On April 9, 1998, Feddeman & Company filed an Amended 
Motion for Judgment asserting inter alia the following causes 
of action:  Count I - Breach of Fiduciary Duty by Director 
Defendants, Count II - Usurpation of Corporate Business 
Opportunity as to Director Defendants and Employee Defendants, 
Count III - Breach of Fiduciary Duty of Employee Defendants, 
Count IV - Intentional Interference with Contract and Business 
Expectancies By All Defendants, and Count VI – Violation of 
Va. Code §§ 18.2-499 and –500, Conspiracy to Injure Another in 
Trade or Business, By All Defendants.  Count V was dismissed 
by the trial court upon defendants' Plea in Bar. 
 
The defendants filed a counterclaim which alleged 
intentional interference with contractual rights and 
prospective economic advantage, unfair competition, and libel 
and slander. 
 
Following a seven-day trial, the jury returned a verdict 
in favor of Feddeman & Company and against the defendants on 
all remaining counts in the Amended Motion for Judgment, with 
one exception.  Cheryl Jordan was found not to have usurped a 
corporate business opportunity.  The jury awarded damages in 
the amount of $3,300,000.  The jury found in favor of the 
plaintiff on defendants' counterclaim. 
 
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The defendants filed a Motion To Strike and To Set Aside 
the Verdict and, following further briefing and argument, the 
trial court granted that motion.  Feddeman & Company filed 
this appeal, and the defendants assigned cross-error. 
I. 
On appellate review of the trial court's action setting 
aside the verdict, we consider whether there was sufficient 
credible evidence to establish the claims against the 
defendants, and we consider the evidence and reasonable 
inferences therefrom in the light most favorable to the 
plaintiff.  Nichols v. Kaiser Foundation Health Plan, 257 Va. 
491, 494, 514 S.E.2d 608, 609 (1999); Carter v. Lambert, 246 
Va. 309, 313-14, 435 S.E.2d 403, 405-06 (1993). 
 
In Counts I and III of the Motion for Judgment, the 
plaintiff claimed that defendants Kotwicki, Smith, Jordan, 
Casey, Bartholomew, and Wooldridge breached their fiduciary 
duties to the corporation.  In setting aside the jury's 
verdicts in favor of the plaintiff on Counts I and III, the 
trial court concluded that these defendants did not breach 
their fiduciary duties because they were entitled to engage in 
"reasonable preparations to compete within certain 
limitations." 
 
We agree that, prior to resignation, these defendants 
were entitled to make arrangements to resign, including plans 
 
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to compete with their employer, and that such conduct would 
not ordinarily result in liability for breach of fiduciary 
duty.  However, the right to make such arrangements is not 
absolute.  This right, based on a policy of free competition, 
must be balanced with the importance of the integrity and 
fairness attaching to the relationship between employer and 
employee or corporation and corporate director.  Science 
Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 962-63 
(Del. 1980); Maryland Metals, Inc. v. Metzner, 382 A.2d 564, 
568 (Md. 1978).  Under certain circumstances, the exercise of 
the right may constitute a breach of fiduciary duty.  
Restatement (Second) of Agency § 393 cmt. 1 (1957). 
Liability for breach of fiduciary duty has been imposed 
when the employees or directors misappropriated trade secrets, 
misused confidential information, and solicited an employer's 
clients or other employees prior to termination of employment.  
See, e.g., Maryland Metals, and cases cited therein.  Whether 
specific conduct taken prior to resignation breaches a 
fiduciary duty requires a case by case analysis. 
 
In Duane Jones Co. v. Burke, 117 N.E.2d 237 (N.Y. 1954), 
certain officers, directors, and employees of an advertising 
agency "met and agreed to take over the business" of their 
employer "either by purchase of the controlling interest in 
the corporation or by resignation en masse and the formation 
 
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of a new agency."  Id. at 245.  The employees presented a 
purchase offer for the controlling interest in the agency and 
told the majority stockholder, who was also president of the 
agency, that if the offer was not accepted, the employees 
would resign.  The offer was rejected and shortly thereafter 
the members of the group submitted resignations on the same 
day in substantially identical form.  A new advertising agency 
was formed and, within a month, the new agency had acquired 9 
of the approximately 25 clients formerly serviced by the old 
company, Duane Jones Co., and had acquired more than 50% of 
that agency's personnel.  The evidence also showed that the 
new agency acquired certain clients and employees through the 
action of the defendants while those defendants were 
completing their duties with their former employer, although 
the defendants had already stated their intention to resign.  
Id.
 
In approving the jury verdict in favor of the plaintiff, 
the Court of Appeals of New York concluded that each of the 
defendants was required to " 'exercise the utmost good faith 
and loyalty in the performance of his duties' " and that their 
conduct " 'fell below [that] standard.' "  Id. at 245. 
 
Similarly in ABC Trans National Transport, Inc. v. 
Aeronautics Forwarders, Inc., 413 N.E.2d 1299 (Ill. App. 
1980), the court found that the coordinated resignation of key 
 
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management employees pursuant to their organized plan 
resulting in "the sudden, potentially crippling loss of half 
of [the employer's] business and major customers, as well as 
substantial numbers of its personnel" was an actionable breach 
of fiduciary duty.  Id. at 1306. 
 
The evidence in the instant case is substantially similar 
to that in the Duane Jones case.  Here, the employee and 
director defendants met and formulated a plan to resign en 
masse if Kent Feddeman rejected their buyout offer, knowing 
that a resignation or walk out by all of them would "be 
devastating to" the corporation.  The plan included 
anticipation of future employment with Langan Associates, a 
rival business, and such future employment included securing 
plaintiff's clients and employees as clients and employees of 
Langan Associates.  The record shows that these defendants 
informed other employees of the plan to resign, supplied 
resignation letters for use by other employees, and told 
employees that they were "going to go join John Langan, and 
they could come too." 
A total of 11 resignations were submitted on December 2 
and, within four days, a total of 25 of the plaintiff's 31 
employees resigned and joined Langan Associates.  By December 
5, all of the plaintiff's clients had been solicited to join 
 
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Langan Associates and approximately half of those clients 
eventually moved their accounts to Langan Associates. 
In considering this evidence, the jury was instructed 
that employees and directors of a corporation are required to 
"exercise the utmost good faith and loyalty" toward the 
corporation and may not act "in a manner adverse to the 
corporation's interest."  The jury was also told that 
corporate directors, while employed by the corporation, could 
inform other employees of their intent to leave the 
corporation, but could not solicit such employees to join them 
in a rival business and could not use confidential or 
proprietary information.  
The evidence shows that these defendants did more than 
prepare to leave their employment and advise others of their 
plan.  As in Duane Jones, the totality of the defendants' 
actions provided credible evidence to support a jury 
determination that their conduct fell below the required 
standard of good faith and loyalty and constituted a breach of 
fiduciary duty.  Therefore, the judgment of the trial court 
setting aside the jury verdict in favor of plaintiff on Counts 
I and III was error. 
II. 
 
Count VI of the Motion for Judgment charged that the 
employee and director defendants, along with Langan Associates 
 
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and John P. Langan, individually, violated Code §§ 18.2-499 
and –500 because these defendants, intentionally and without 
legal justification, conspired to injure plaintiff's business 
and, as a result of that conspiracy, plaintiff suffered 
financial harm.  The jury was instructed that to prevail on 
this count, the plaintiff had to prove by clear and convincing 
evidence that these defendants combined for the purpose of 
willfully and maliciously injuring plaintiff's business and 
that the business was injured as a result of these actions.  
The jury was further told that  
[t]he term 'malice' means that the defendants 
acted intentionally, purposefully and without 
legal justification.  Without legal justification 
may include a breach of their fiduciary duty or 
assisting someone to breach their fiduciary duty.  
Should corporate officers or directors act in 
concert to breach their fiduciary duties and 
cause injury to the corporation, they may be 
liable for conspiracy.  The term 'malice' does 
not require the plaintiff to prove that a 
conspirator was motivated by hatred, personal 
spite, ill will or a desire to injure the 
plaintiff. 
 
The jury returned a verdict finding that all corporate 
director and employee defendants as well as John Langan and 
Langan Associates violated §§ 18.2-499 and -500.  The trial 
court set aside the jury verdict, finding that there was no 
evidence that these defendants "combined with an intent to 
injure" plaintiff and that there was no evidence of "unlawful 
acts in furtherance of the combination."  
 
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The plaintiff contends that the jury's finding of 
conspiracy was supported by evidence that John Langan and the 
members of the Buying Group met on August 31, November 10, and 
November 12 and formulated a plan to impose "leverage" on 
Feddeman to accept the buyout offer.  The plan was that the 
members of the Buying Group would resign en masse if Feddeman 
refused the buyout offer and, with Langan's agreement, go to 
work for Langan Associates.  Jordan, although not a member of 
the Buying Group, was told of and agreed to participate in the 
resignation plan.  The plan also included securing the 
resignations of other senior employees, whom John Langan also 
agreed to hire. 
The plaintiff maintains that Langan Associates' 
participation in the conspiracy is shown by evidence that its 
legal counsel represented the Buying Group, advised the Buying 
Group regarding the resignation and solicitation of other 
employees and clients of the plaintiff, drafted Jordan's 
resignation letter, and was paid for these services by Langan 
Associates. 
 
Establishing a conspiracy in violation of §§ 18.2-499 and 
–500 does not require proof that the conspirators' "primary 
and overriding purpose is to injure another."  Advanced Marine 
Enterprises v. PRC Inc., 256 Va. 106, 117, 501 S.E.2d 148, 154 
(1998).  As indicated in the instruction given to the jury in 
 
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this case, the plaintiff was only required to show that the 
defendants acted "intentionally, purposefully, and without 
lawful justification."  Id., 501 S.E.2d at 154-55. 
The trial court concluded that the defendants' actions 
were undertaken for no other purpose than "to effectuate the 
planned merger."  However, considering the evidence and all 
reasonable inferences therefrom in the light most favorable to 
the plaintiff, as we must, we find that this conclusion was 
error. 
The evidence is clear that the plan to submit 
resignations was initiated as a means of exerting leverage 
against Feddeman to accept the Buying Group's offer and thus 
facilitate a merger of plaintiff with Langan Associates.  This 
plan was based on the principle that the departure of the 
defendants and the other employees would so adversely impact 
the plaintiff that Feddeman would not accept those 
resignations and let the employees depart.  Injury to the 
plaintiff was a known and intended result of the plan.  The 
employee and director defendants cannot avoid responsibility 
for their actions because their resignation plan was not their 
first or preferred choice of action.  The evidence in this 
case is clearly sufficient to support a jury determination, 
not only that the defendants acted intentionally and 
 
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purposefully, but that they knew and intended that their 
resignation plan, if implemented, would injure the plaintiff. 
This knowledge was not limited to the employee and 
director defendants.  John Langan and Langan Associates were 
aware that the resignation plan was considered "leverage" and 
that, if implemented, would adversely affect the plaintiff.   
Langan and Langan Associates facilitated development of the 
plan by providing legal services and agreeing to hire 
plaintiff's former employees. 
The evidence also supports a jury determination that the 
defendants' actions were without legal justification.  The 
jury was instructed that the failure of legal justification 
"may include a breach of their fiduciary duty or assisting 
someone to breach their fiduciary duty."  As discussed above, 
the evidence was sufficient to support a jury finding that the 
planned resignation en masse from Feddeman & Company was a 
breach of the director and employee defendants' fiduciary 
duties.  The evidence was also sufficient to show that the 
conduct of John Langan and Langan Associates assisted the 
director and employee defendants in the breach of their 
fiduciary duties.  Applying the jury instruction to this 
evidence, we find there was sufficient credible evidence for 
the jury to conclude that the defendants' actions were without 
legal justification.  
 
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Accordingly, the trial court erred in setting aside the 
jury verdict in favor of the plaintiff on Count VI. 
III. 
The plaintiff sought compensatory damages for a single 
injury resulting from the various causes of action and the 
jury awarded a single damage amount of $3,300,000.  In light 
of our holding that the trial court erred in setting aside the 
jury verdict in favor of the plaintiff on the breach of 
fiduciary duty counts, and the statutory conspiracy count, it 
is unnecessary to consider the plaintiff's assignments of 
error regarding the trial court's action in setting aside the 
jury's verdicts on the intentional interference with contract 
and business expectancy and usurpation of corporate 
opportunity.1  However, the defendants argue that, even if the 
trial court erred in setting aside the jury verdict, final 
judgment should not be entered in favor of the plaintiff, 
because the trial court erred in instructing the jury. 
In an assignment of cross-error, the defendants assert 
that the trial court erred when it refused two jury 
instructions offered by the defendants concerning breach of 
                     
1 We also note that usurpation of corporate business 
opportunity is generally considered a breach of fiduciary duty 
rather than conduct constituting a distinct cause of action.  
Trayer v. Bristol Parking, Inc., 198 Va. 595, 603-04, 95 
S.E.2d 224, 230 (1956); Meiselman v. Meiselman, 309 N.C. 279, 
306-08, 307 S.E.2d 551, 567 (N.C. 1983). 
 
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fiduciary duty.  The trial court stated that it would not give 
these two instructions because the matters they addressed were 
covered in other instructions.  Additionally, the trial court 
observed that other instructions adequately set out the 
elements of the cause of action and that one of the 
instructions "sounds like [defendants'] closing argument." 
We agree that the proposed instructions were cumulative 
of other instructions given on this issue.  While a party is 
entitled to jury instructions supporting his theory of the 
case, if supported by adequate evidence, a trial judge is not 
required to give proffered jury instructions which are 
cumulative or repeat matters contained in other instructions.  
Medlar v. Mohan, 242 Va. 162, 168-69, 409 S.E.2d 123, 127 
(1991); Adams v. Plaza Theatre, Inc., 186 Va. 403, 409-10, 43 
S.E.2d 47, 51 (1947).  Therefore, the trial court's refusal to 
give the defendants' proffered instructions was not error. 
IV. 
 
In summary, for the reasons stated, we will reverse the 
judgment of the trial court and reinstate the verdict of the 
jury in favor of the plaintiff on Counts I, III, and VI.  
Because the trial court did not consider entry of an award in 
 
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accordance with the provisions of § 18.2-500, we will remand 
the case for entry of a judgment consistent with this opinion.2
Reversed and remanded. 
                     
2 Section 18.2-500 provides that a person injured in his 
business through violation of § 18.2-499 may recover "three-
fold the damages by him sustained" along with costs and 
attorneys' fees. 
 
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