Title: Nolte v. MT Tech. Enters., LLC

State: virginia

Issuer: Virginia Supreme Court

Document:

Present: Kinser, C.J., Lemons, Goodwyn, Millette, Mims, and 
Powell, JJ., and Koontz, S.J. 
 
BRUCE B. NOLTE, ET AL.  
 
v.  Record No. 111490  
OPINION BY JUSTICE DONALD W. LEMONS 
 
 
 
 
 
 
 
June 7, 2012 
MT TECHNOLOGY ENTERPRISES, LLC 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
Margaret P. Spencer, Judge 
 
Among the several issues we address in this appeal are 
whether the Circuit Court of the City of Richmond ("trial 
court") erred when it held that MT Technology Enterprises, LLC 
("MT") satisfied the registration requirements of Code § 13.1-
1057(A) and when it imposed sanctions, pursuant to Rule 
4:12(b), against Cristol, LLC ("Cristol"), Bruce Nolte 
("Nolte"), Andrew Miller ("Miller"), Koichi Fukuda ("Fukuda"), 
and Gregory Koenig ("Koenig"). 
I. Facts and Proceedings Below 
 
MT is a Delaware entity "that acquires intellectual 
property for license and sale and acquires equipment for lease 
or sale."  MT owns intellectual property rights related to the 
development of totally reflecting transmitter film ("TRT"), 
"one component of many hundred components that are used in 
liquid crystal display[s]" utilized in flat screen televisions, 
computers, and cell phones.  Ronald Trice ("Trice"), a patent 
attorney, and Dr. John Magno ("Magno"), a scientist, formed MT 
and held controlling membership interests. 
 
2 
 
Trice and Magno also formed Cristol, a Delaware entity, at 
approximately the same time they formed MT.  Cristol is a 
technology development company in the business of developing 
high strength fibers.  Together, Trice and Magno held a 
controlling membership interest in Cristol.  Trice was a member 
of Cristol's Board of Managers ("Board") and served as the 
corporate secretary, and Magno was the Chief Executive Officer 
("CEO") and chairman of the Board.  Christopher Miller ("C. 
Miller"), Nolte, Miller, and Fukuda (together, the "minority 
owners") were also members of Cristol's Board. 
 
In April 2008, MT licensed its rights to the TRT diffuser 
technology to Laser Energetics, Inc. ("LEI").  Pursuant to the 
agreement between MT and LEI, Magno owed duties to LEI for a 
period of two years.  In August 2008, MT and Cristol executed a 
lease agreement.  Pursuant to the agreement, MT leased 
equipment to Cristol for $3,000 per month. 
 
The relationship between Magno and Trice and the minority 
owners began to decline.  The minority owners insisted that 
Magno resign his position as CEO and from the Board.  The 
minority owners would not agree to dedicate funding to product 
development, so Magno and Trice began looking for outside 
funding in the fall of 2008.  They also considered selling 
Cristol.  As a result, the minority owners accused Magno and 
Trice of performing "a coup" and trying to "take over" Cristol. 
 
3 
 
In January 2009, Miller sent an e-mail to the other 
minority owners and to Koenig, an employee of Cristol.  
Miller's email first discussed Magno's financial situation.  
Miller informed the minority owners and Koenig that he spoke 
with Magno about an upcoming Board meeting that Magno "should 
attend, for the sole purpose of discussing [Magno's] financial 
situation and determining what we can do to increase money in 
his pocket."  Miller's email next discussed Magno's thoughts on 
Trice.  Miller stated that "[Magno] is not yet willing to cut 
the ties with [Trice]," but after an outside patent lawyer 
reviews "the quality of [Trice's] work, [I] can take another 
round on chiseling away at [Trice's] and [Magno's] 
relationship." 
 
A meeting of Cristol's Board was held, as scheduled, on 
February 4, 2009.  When Magno arrived, Nolte, Koenig, C. 
Miller, and Cristol's attorney Charles W. Hundley ("Hundley") 
were present and Miller participated by telephone.  These 
individuals told Magno that Trice was the reason for an 
unrelated company's bankruptcy, Trice was going to sue him, and 
he should not communicate with Trice.  During the meeting, 
Trice called Magno on his cell phone, but the individuals at 
the meeting did not permit him to answer.  Magno was directed 
to turn over his electronic mail ("e-mail") password so they 
could install an auto-forwarding device on his e-mail and 
 
4 
intercept any e-mails from Trice.  They threatened to withhold 
Magno's paycheck unless he ended all communication with Trice, 
and Magno acceded to their demands. 
 
Trice then arrived at the meeting where he was presented 
with a memorandum containing "a list of allegations against 
[him] followed by a list of demands."  The demands included, 
among other things, resigning from Cristol's Board and ceasing 
all communications with Magno about Cristol. 
 
After the February 2009 meeting, demands continued to be 
placed on Magno, which prevented him from fulfilling his duties 
to MT and to LEI.  Additionally, Cristol stopped making regular 
payments to MT on the equipment lease. 
 
In May 2009, Trice told Magno that he was going to file a 
lawsuit against Cristol and Cristol's Board.  On June 2, 2009, 
MT filed a complaint against Cristol, Nolte, Miller, Fukuda, 
Koenig, C. Miller, Hundley, and Cherry, Seymour, Hundley & 
Baronian, P.C. ("Hundley's firm").  Miller threatened to 
withhold Magno's paycheck unless he signed a letter addressed 
to MT's counsel requesting that MT drop the lawsuit and an 
affidavit supporting Cristol's, Nolte's, Miller's, Fukuda's, 
Koenig's, C. Miller's, Hundley's, and Hundley's firm's special 
plea in bar.  Magno testified that he was required to sign a 
letter and an affidavit, neither of which he drafted, in order 
to receive his paycheck. 
 
5 
 
MT subsequently filed an amended complaint in October 
2009.  Specifically, MT's five-count amended complaint alleged: 
Count I - statutory conspiracy against Cristol, 
Nolte, Miller, Fukuda, Koenig, C. Miller, 
Hundley, and Hundley's firm;  
 
Count II - tortious interference with economic 
expectancy in MT technologies against Cristol, 
Nolte, Miller, Fukuda, Koenig, C. Miller, 
Hundley, and Hundley's firm;  
  
Count III - tortious interference with agreements 
between Magno and MT against Cristol, Nolte, 
Miller, Fukuda, Koenig, C. Miller, Hundley, and 
Hundley's firm;  
 
Count IV - tortious interference with 
relationship between Magno and Trice against 
Cristol, Nolte, Miller, Fukuda, Koenig, C. 
Miller, Hundley, and Hundley's firm; and  
 
Count V - breach of contract and unjust 
enrichment against Cristol. 
 
In response, Cristol, Nolte, Miller, Fukuda, Koenig, and C. 
Miller jointly filed an answer, and together Hundley and 
Hundley's firm filed an answer. 
 
Prior to trial, MT filed motions to compel answers to 
interrogatories and the production of documents from Cristol, 
Nolte, Miller, Fukuda, Koenig, and C. Miller because they had 
not timely responded to MT's discovery requests.  MT also filed 
motions to compel Hundley and Hundley's firm to respond to 
 
6 
discovery requests.  The trial court granted MT's motions to 
compel in an April 21, 2010 order.1 
 
Thereafter, in June 2010, MT filed a motion to show cause 
and a motion to compel and for sanctions as to Cristol, Nolte, 
Miller, Fukuda, Koenig, and C. Miller because they had not 
complied with the trial court's April 21, 2010 order.  The 
trial court concluded that Cristol, Nolte, Miller, Fukuda, 
Koenig, and C. Miller failed to fully respond to previously 
ordered discovery and ordered them to pay sanctions to 
reimburse MT for the costs of filing the motion to show cause. 
 
MT then filed a motion for default judgment against Fukuda 
because he did not appear at his deposition and "his counsel 
indicated that he refuse[d] to travel from Japan for his 
deposition."  Cristol, Nolte, Miller, Fukuda, Koenig, and C. 
Miller continued to disregard the trial court's orders; 
consequently, MT filed a motion for sanctions pursuant to Rule 
4:12.  The trial court held a hearing on these motions on 
September 23, 2010, and in an October 19, 2010 order: (1) 
granted MT's motion for sanctions against defendants Cristol, 
Nolte, Miller, and Koenig pursuant to Rule 4:12(b)(2)(B); (2) 
denied MT's motion for sanctions against C. Miller; and (3) 
                     
1 That same day, the trial court entered an order 
dismissing the action with prejudice as to Hundley and 
Hundley's firm. 
 
7 
granted MT's motion for default judgment against Fukuda.2  
Specifically, in its sanctions order, the trial court prohibited 
Cristol, Nolte, Miller, and Koenig "from opposing the claims 
[MT] alleged within its Amended Complaint or introducing any 
evidence at trial in support of any of the defenses they alleged 
within their respective Answers to said Amended Complaint" and 
granted default judgment against Fukuda.  (Emphasis added.) 
 
The case proceeded to a jury against Cristol, Nolte, 
Miller, Fukuda, and Koenig (collectively, the "defendants") on 
all five counts.  The trial court instructed the jury that prior 
rulings in this case prevent "the defendants from opposing 
[MT's] claims in the amended complaint and [prevent] the 
defendants from introducing any evidence at trial."  The trial 
court interpreted its pre-trial ruling to bar defendants from 
cross-examining MT's witnesses. 
 
Thereafter, the jury returned a verdict in favor of MT and 
awarded damages as follows: 
Cristol, LLC 
$784,000 in compensatory damages  
 
Koichi Fukuda  
$700,000 in compensatory damages 
and $300,000 in punitive damages 
 
Andrew Miller 
$700,000 in compensatory damages 
and $350,000 in punitive damages 
 
                     
2 On October 29, 2010, ten days after the trial court 
entered its sanction order, MT moved to nonsuit defendant C. 
Miller, and the trial court entered a nonsuit order as to 
defendant C. Miller. 
 
8 
Bruce Nolte  
$700,000 in compensatory damages 
and $350,000 in punitive damages 
 
Gregory Koenig  
$700,000 in compensatory damages 
 
MT moved to treble the compensatory awards, and the trial court 
granted the motion.  
 
The defendants filed a "Motion To Set Aside Verdict And 
For New Trial," objecting to: (1) the trial court's imposition 
of sanctions against them; (2) the trial court's refusal of 
defendants' proffered jury instructions; (3) the trial court's 
denial of the defendants' right of cross-examination; and (4) 
the trial court's withdrawal of liability issues from the 
jury's consideration.  The defendants also filed a "Motion For 
Judgment Notwithstanding The Verdict," arguing that the 
evidence was insufficient to support either a claim of tortious 
interference or a claim of statutory conspiracy. 
 
In March 2011, the defendants filed a "Supplemental Motion 
For Judgment Notwithstanding The Verdict," alleging that MT 
could not maintain the action because it failed to register and 
obtain a certificate of authority ("certificate") as required 
by Code § 13.1-1057(A) and because MT failed to register, it 
had no business expectancies as a matter of law.  MT objected, 
arguing that the defendants' supplemental motion was untimely 
because the trial court ordered that post-verdict motions be 
filed by January 5, 2011. 
 
9 
 
After a post-trial hearing in April 2011, the trial court 
denied the defendants' post-trial motions and entered judgment 
in favor of MT in the amounts awarded by the jury on May 18, 
2011.  On May 27, 2011, MT filed a motion to modify the May 18, 
2011 order, claiming that "[f]ollowing the announcement of the 
jury verdict, [MT] moved the [trial court] to treble the 
compensatory damages awarded by the jury consistent with the 
business conspiracy statute" and "[t]he [trial court] did so 
but the ruling has not been memorialized via written Order."  
On June 8, 2011, the trial court entered an order trebling the 
compensatory damages without a hearing, which recited that the 
defendants did not file a response to MT's motion.  The order 
recited in part:  
The treble damages ordered on the 
compensatory awards are: 
 
Cristol, LLC 
 
$2,352,000 
 
 
Koichi Fukuda  
$2,100,000 
 
 
Andrew Miller  
$2,100,000 
 
 
Bruce Nolte 
 
$2,100,000 
 
 
Gregory Koenig  
$2,100,000   
On July 7, 2011, the defendants filed an objection to the 
trial court's trebling of damages, arguing that: (1) the trial 
court denied the defendants due process of law because the 
order was entered without a hearing and without defendants' 
 
10 
input; (2) "only damages arising from a conspiracy claim may be 
trebled"; (3) the "jury's verdict did not specify what amount 
of damages, if any, were attributable to the conspiracy claim"; 
and (4) the trial court "engaged in impermissible speculation 
in trebling the entire verdict." 
The defendants timely filed a petition for appeal, and we 
granted the appeal on the following assignments of error: 
1. The trial court erroneously allowed MT Technology 
Enterprises LLC to maintain this action without a 
certificate of authority.  
 
2. The trial court erred when it entered judgment for breach 
of a void contract and for tortious interference with 
business expectancies that could not exist as a matter of 
Virginia law.  
 
3. The trial court abused its discretion in imposing an 
excessive sanction in response to a discovery dispute. 
 
4. The trial court erroneously refused to permit the 
defendants to cross-examine the plaintiff's witnesses at 
trial. 
 
5. The trial court erroneously withdrew the issue of 
liability from the jury. 
 
6. The trial court erroneously entered judgment on the jury's 
verdict of tortious interference after MT Technology 
failed to adduce any evidence that defendants knew that an 
employee common to the two firms owed any duties to MT 
Technology. 
 
7. The trial court erroneously granted judgment on the 
plaintiff's claim of statutory conspiracy. 
 
8. The trial court erroneously trebled the damages awarded in 
this case, and erroneously entered an order to that effect 
without notice to the defendants, depriving them of due 
process. 
 
 
11 
II. Analysis 
A. Standards of Review 
The first assignment of error involves issues of statutory 
interpretation.  
[A]n issue of statutory interpretation is a pure 
question of law which we review de novo.  When 
the language of a statute is unambiguous, we are 
bound by the plain meaning of that language.  
Furthermore, we must give effect to the 
legislature’s intention as expressed by the 
language used unless a literal interpretation of 
the language would result in a manifest 
absurdity.  If a statute is subject to more than 
one interpretation, we must apply the 
interpretation that will carry out the 
legislative intent behind the statute. 
 
Conyers v. Martial Arts World of Richmond, Inc., 273 Va. 96, 
104, 639 S.E.2d 174, 178 (2007) (citations omitted). 
 
The third and fourth assignments of error involve the 
review of a sanction imposed by the trial court, which we 
review for an abuse of discretion.  Flora v. Shulmister, 262 
Va. 215, 220, 546 S.E.2d 427, 429 (2001).  We have stated that 
[a]n abuse of discretion . . . can occur in three 
principal ways: when a relevant factor that 
should have been given significant weight is not 
considered; when an irrelevant or improper factor 
is considered and given significant weight; and 
when all proper factors, and no improper ones, 
are considered, but the court, in weighing those 
factors, commits a clear error of judgment. 
 
Landrum v. Chippenham & Johnston-Willis Hosps., Inc., 282 Va. 
346, 352, 717 S.E.2d 134, 137 (2011) (quoting Kern v. TXO Prod. 
Corp., 738 F.2d 968, 970 (8th Cir. 1984)). 
 
12 
The sixth and seventh assignments of error challenge the 
sufficiency of the evidence.  Pursuant to Code § 8.01-680, 
"[t]he standard of review for determining the sufficiency of 
evidence on appeal is well established.  [The reviewing court] 
must examine the evidence in the light most favorable to [MT], 
the prevailing party at trial," and the trial court's judgment 
will not be disturbed "unless it is plainly wrong or without 
evidence to support it."  Hedrick v. Commonwealth, 257 Va. 328, 
340, 513 S.E.2d 634, 641 (1999) (citing Code § 8.01-680 and 
other supporting authorities).  
B. Code § 13.1-1057 
The defendants assert that the "trial court erroneously 
allowed MT Technology Enterprises LLC to maintain this action 
without a certificate of authority."  We disagree. 
Code § 13.1-1057(A) states that "[a] foreign limited 
liability company transacting business in the Commonwealth may 
not maintain any action, suit, or proceeding in any court of 
the Commonwealth until it has registered in the Commonwealth."  
(Emphasis added.)  While we have not yet interpreted at what 
point during a lawsuit a foreign LLC must fulfill the 
requirements in Code § 13.1-1057(A), we have interpreted a 
statute that imposed a registration requirement on a foreign 
corporation.  See Phlegar v. Virginia Foods, Inc., 188 Va. 747, 
749-51, 51 S.E.2d 227, 228-230 (1949).  The statute at issue in 
 
13 
Phlegar contained language similar to the language in Code 
§ 13.1-1057(A).  Compare former Code § 4722(1)-3, with Code 
§ 13.1-1057(A).  The statute construed in Phlegar stated, in 
relevant part, "no action shall be maintained in any of the 
courts in this State by any such person, firm or corporation 
. . . until the certificate required by this act has been 
filed."  188 Va. at 750, 51 S.E.2d at 229 (emphasis added). 
In Phlegar, the plaintiff commenced her action and, 
thereafter, the defendants appeared and filed "pleas of the 
general issue" contesting registration.  Id. at 748, 51 S.E.2d 
at 228.  Plaintiff later complied with the registration 
requirement.  Id.  The trial court dismissed the action and, in 
so doing, held "it was necessary to comply with the statute 
prior to the institution of the suit, and that the subsequent 
compliance therewith was not sufficient."  Id.  We reversed, 
concluding that "[i]t is not the right to begin the action, but 
the right to maintain it, that is withheld for failure to 
comply with its terms.  It takes no right away from the 
offending party after compliance.  When its terms are met, the 
barriers theretofore existing are removed."  Id. at 751, 51 
S.E.2d at 230 (emphasis added).  In reaching this conclusion in 
Phlegar, we relied in part on our decision in Bain v. Boykin, 
180 Va. 259, 23 S.E.2d 127 (1942), where we interpreted former 
Code § 4722(1)-3 and held a certificate "filed after the 
 
14 
bringing of [an] action and prior to the time of final judgment 
was a sufficient compliance with the statute."  Id. at 751, 51 
S.E.2d at 229. 
Here, MT is a foreign LLC subject to the registration 
requirements of Code § 13.1-1057(A).  The jury returned a 
verdict for MT in December 2010, MT obtained a certificate from 
the SCC in March 2011, and the trial court entered final 
judgment for MT in June 2011.  Pursuant to Code § 13.1-1057(A), 
MT "may not maintain any action . . . until it has registered 
in the Commonwealth."  (Emphasis added.)  "Maintain" is defined 
as "[t]o continue (something)," not to start or commence.  
Black's Law Dictionary 1039 (9th ed. 2009).  Because MT 
obtained a certificate from the State Corporation Commission 
before the trial court entered its final order, our prior cases 
in similar matters compel us to hold that the trial court did 
not err in its interpretation of Code § 13.1-1057(A). 
Additionally, the defendants assert that the "trial court 
erred when it entered judgment for breach of a void contract 
and for tortious interference with business expectancies that 
could not exist as a matter of Virginia law."  
At oral argument, defendants' counsel stated:  
In assignment two, we've asked the court to find 
that there was no contract expectancy as a matter 
of law because the contract was made illegally, 
without the registration.  
 
 
15 
In response, the Appellee has argued that 
there's nothing in the record that establishes 
this contract was, in fact, made in Virginia. 
 
I have looked through the short plain statement 
of 315 paragraphs in their complaint, and it 
appears to me that they're correct. 
 
Because of the defendants' concession at oral argument, we will 
not address this assignment of error. 
C. The Trial Court's Sanction Order 
 
"Rule 4:12(b) governs discovery abuses and provides for 
sanctions against a party who fails to comply with a court's 
order to provide or permit discovery. A trial court generally 
exercises 'broad discretion' in determining the appropriate 
sanction for failure to comply with an order relating to 
discovery."  Walsh v. Bennett, 260 Va. 171, 175, 530 S.E.2d 
904, 907 (2000) (citing Woodbury v. Courtney, 239 Va. 651, 654, 
391 S.E.2d 293, 295 (1990)).  As a result, we accord deference 
to the trial court's decision and will reverse only if the 
trial court abused its discretion.  Flora, 262 Va. at 220, 546 
S.E.2d at 429.  
 
"The determination whether a trial court has abused its 
discretion is fact-specific."  Walsh, 260 Va. at 175, 530 
S.E.2d at 907.  Moreover, "[i]n evaluating whether the trial 
court abused its discretion, 'we do not substitute our judgment 
for that of the trial court.  Rather, we consider only whether 
the record fairly supports the trial court's action.' "  AME 
 
16 
Fin. Corp. v. Kiritsis, 281 Va. 384, 393, 707 S.E.2d 820, 824 
(2011) (quoting Beck v. Commonwealth, 253 Va. 373, 385, 484 
S.E.2d 898, 906 (1997)). 
In January 2010, MT filed motions to compel answers to 
interrogatories and the production of documents from Cristol, 
Nolte, Miller, Fukuda, Koenig, and C. Miller because the 
defendants did not timely respond to MT's discovery requests.  
The trial court granted MT's motions at a March 12, 2010 
hearing, and the ruling was memorialized in an order dated April 
21, 2010. 
 
In June 2010, MT filed a motion to show cause and a motion 
to compel and for sanctions.  The trial court considered these 
motions at a June 23, 2010 hearing.  In an order dated July 6, 
2010, the trial court ordered the defendants to pay MT: (1) 
"$1,000 in sanctions to reimburse [MT] for attorney's fees and 
costs incurred in filing the Motion to Show Cause and bringing 
it to the [trial court] for a hearing"; and (2) "$100 to 
reimburse the plaintiff for the attorney's fees and costs 
incurred as a result of counsel's inappropriate objections 
during the depositions of" C. Miller and Nolte. 
 
In June 2010, MT also filed a motion for default judgment 
against Fukuda, and then in September of that year filed a 
motion for sanctions against the defendants pursuant to Rule 
4:12.  In an order dated October 19, 2010, the trial court 
 
17 
granted MT's motion for default judgment against Fukuda and 
MT's motion for sanctions against Cristol, Nolte, Miller, and 
Koenig pursuant Rule 4:12(b)(2)(B).  Specifically, the relief 
provided to MT under Rule 4:12(b)(2)(B) precluded Cristol, 
Nolte, Miller, and Koenig "from opposing the claims [MT] 
alleged within its Amended Complaint or introducing any 
evidence at trial in support of any of the defenses they 
alleged within their respective Answers to said Amended 
Complaint."  (Emphasis added.) 
 
Pursuant to Rule 4:12(b)(2), 
[i]f a party . . . fails to obey an order to 
provide or permit discovery, . . . the court in 
which the action is pending may make such orders 
in regard to the failure as are just, and among 
others the following: 
 
. . . . 
(B) An order refusing to allow the disobedient 
party to support or oppose designated claims or 
defenses, or prohibiting him from introducing 
designated matters in evidence. 
 
(C) An order . . . rendering a judgment by 
default against the disobedient party[.] 
 
Rule 4:12(b)(2)(B)&(C) (emphasis added).  Cristol, Nolte, 
Miller, and Koenig repeatedly refused to respond fully to 
discovery and comply with the trial court's orders. 
 
Significantly, upon the violation of a court order it was 
within the trial court's discretion to impose any specifically 
tailored sanctions "as are just" as stated in Rule 4:12(b)(2), 
 
18 
which allows a trial court to select from a range of orders 
illustrated in this Rule, including the most drastic sanction 
of striking a party's case or "rendering a judgment by default 
against the disobedient party" as provided in Rule 
4:12(b)(2)(C).  In this case, the trial court reserved that 
more severe sanction for Fukuda, who failed to appear at his 
deposition.3 
 
The trial court's choice of sanction was not impermissible 
and, in the circumstances presented in this case, we hold that 
the trial court did not abuse its discretion in imposing this 
sanction in response to the sanctioned parties' failures to 
comply with discovery obligations under the Rules and pursuant 
to express orders of the court. However, we must separately 
analyze the scope of the sanction. 
D. Precluding the Defendants 
from Cross-Examining MT's Witnesses 
 
 
At the beginning of the second day of a two-day jury 
trial, in response to a question posed by the jury, the trial 
court explained the scope of its October 19, 2010 sanction 
order to the attorneys, outside the presence of the jury, as 
follows: 
                     
3 The record does not reveal that Fukuda was ordered to 
appear, which would have justified the entry of default 
judgment under Rule 4:12(b)(2)(C) and under Brown v. Black, 260 
Va. 305, 310-11, 534 S.E.2d 727, 729-30 (2000).  However, this 
issue was not raised on appeal and we will not consider it. 
 
19 
[I]t precludes the defendant[s] from introducing 
any evidence, which means the evidence the 
defendants introduce has to support [MT's] 
claims.  The order specifically says introducing 
any evidence at trial in support of any of the 
defenses they allege.  It doesn't say defenses as 
to liability.  It doesn't say defenses as to 
damages.  It says in support of any of the 
defenses they alleged.  So it's clear the 
defendants' evidence has to support the 
plaintiff's amended complaint. 
 
The order also . . . precludes the defendants 
from opposing the claims [MT] alleged within its 
amended complaint . . . .  The order says claims.  
So it precludes the defendant[s] from opposing 
the claims in the amended complaint, and that 
means if we have to go over the amended complaint 
and identify everything that's a claim, then 
that's what we have to do, but it's clear that 
the jury is confused as you can see from the 
note, and it's clear that the Court has to 
correct any mistakes that the Court made 
yesterday in allowing the defendants to oppose 
claims plaintiff alleged in the complaint or 
introduce any evidence, whether that evidence 
came through testimony on cross-examination, 
whether that evidence came through witnesses.  
 
 
The trial court told the parties it would "tell the jury 
that there have been prior decisions in this case which 
preclude the defendants from opposing the plaintiff's claims in 
the amended complaint and will preclude the defendants from 
introducing any evidence at trial.  A denial is an opposition.  
An attack on credibility is an opposition."  The trial court 
interpreted the sanction it imposed against Cristol, Nolte, 
Miller, and Koenig, precluding them "from opposing the claims 
[MT] alleged . . . or introducing any evidence at trial in 
 
20 
support of any of the defenses," to prohibit cross-examination 
of MT's witnesses. 
 
Limiting a party's right to cross-examination as a 
sanction for discovery abuses is not without precedent.  But, 
in the case of a default judgment rendered pursuant to Rule 
3:19(c), the defendant is permitted to participate in the 
damages hearing by opposing and objecting to the plaintiff's 
damages proof, and itself "offer[ing] evidence regarding the 
quantum of damages."  Here the trial court correctly found that 
a lesser sanction than default judgment was warranted.  
However, in the particular circumstances of this case, we hold 
that it was an abuse of discretion to prohibit cross-
examination and introduction of evidence by defendants in the 
damages presentation to the jury.  The sanction was too harsh.  
E. Withdrawing the Issue of Liability from the Jury 
The defendants assert that the "trial court erroneously 
withdrew the issue of liability from the jury."  At the 
beginning of the second day of the jury trial, the trial court, 
in discussing MT's burden, stated that "[MT] still has to 
establish all of the elements and [MT] still has the burden of 
proof."  The trial court further stated that "there are five 
counts in the complaint and [MT has] to present evidence 
sufficient to meet those counts by the requisite burden of 
proof and the defendant[s] can argue that [MT] did not meet 
 
21 
that burden of proof."  The defendants suggested that the trial 
court certify an interlocutory appeal pursuant to Code § 8.01-
670.1.  The trial court declined the request.  At that time, 
the trial court had not made a ruling withdrawing the issue of 
liability from the jury. 
At the conclusion of the evidence, the trial court 
informed the attorneys of the instructions it intended to give 
and those it did not intend to give to the jury.  The 
defendants made no objections at this time.  The trial court 
then called the jury back into the courtroom.   
 
In reading the instructions to the jury, the trial court 
stated: 
The issues in this case are, number one, the 
amount of damages proximately caused from 
plaintiff's claim of the individual defendants' 
tortious interference with its business 
expectancy; number two, the amount of damages 
proximately caused from plaintiff's claim of the 
individual defendants' tortious interference with 
its agreements with John Magno and Laser 
Energetics, Incorporated; number three, the 
amount of damages proximately caused from 
plaintiff's claim of the individual defendants' 
tortious interference with its business 
expectancy and the relationship between John 
Magno and Ronald Trice; number four, the amount 
of damages proximately caused from Cristol's 
breach of its equipment lease with plaintiff; 
number five, the amount of damages proximately 
caused from plaintiff's claim of the defendants' 
conspiracy to injure plaintiff in its trade, 
business, profession or occupation. 
 
 
22 
(Emphasis added.)  The defendants did not object to this 
instruction. 
Moreover, the verdict form did not ask the jury to 
consider liability; rather, it only asked the jury to fix the 
amount of MT's damages.  Specifically, the trial court stated: 
The final instruction is the jury verdict 
form that must be signed by the foreperson when 
the jury has reached a unanimous verdict.  It 
reads as follows.  We, the jury, on the issues 
joined, find in favor of the plaintiff against 
the following defendants and award damages as 
indicated.  Cristol, LLC compensatory; Koichi 
Fukuda, compensatory blank, punitive blank, 
total; Andrew Miller compensatory blank, punitive 
blank, total blank; Bruce Nolte compensatory, 
punitive, total; Gregory Koenig compensatory, 
total.  We, on the issues joined find in favor of 
the plaintiff.  Signed by the foreperson. 
 
Again, the defendants did not object to the trial court's 
instruction.  The trial court then stated that "the jury is now 
ready for closing argument." 
 
After closing arguments and after the jury returned a 
verdict for MT, the trial court informed the attorneys of the 
timeline for filing post-trial motions.  The defendants then 
stated, "[w]e'll just note our objections for the record, Your 
Honor, and the substance will be in the post-verdict motions."  
Significantly, however, the defendants did not object at trial 
to the trial court's ruling submitting only the issue of 
damages to the jury. 
 
23 
In oral argument before the Court, counsel conceded that 
the defendants did not object to the trial court's withdrawal 
of liability from the jury's consideration until after the jury 
returned its verdict.  Nonetheless, defendants maintain that 
the assignment of error was preserved because "it was raised at 
a time in which the trial court still had the ability to do 
something about it."  
We have previously stated:  
The purpose of Rule 5:25 is to give the 
trial court an opportunity to rule on a matter 
with knowledge of the substance of a party's 
objection, in order to avoid needless mistrials, 
reversals, and appeals. Generally, the reasons 
for objecting to the grant or refusal of a jury 
instruction must be presented to the trial court 
before such objection will be considered on 
appeal.  The objection must be made in the trial 
court when the instruction is tendered.  
 
Morgen Indus. v. Vaughan, 252 Va. 60, 67-68, 471 S.E.2d 489, 
493 (1996) (internal citations omitted) (emphasis added).  
Because the defendants first objected to the trial court 
withdrawing the issue of liability from the jury in a "Motion 
To Set Aside Verdict And For New Trial" on January 5, 2011, 
which was 15 days after the trial court instructed the jury, we 
hold that this assignment of error is barred by Rule 5:25 
because the defendants did not state their objection to the 
trial court's ruling "with reasonable certainty at the time of 
the ruling."  Rule 5:25. 
 
24 
Because we hold that the trial court abused its discretion 
by forbidding cross-examination of witnesses regarding damages, 
we will reverse and remand the judgment of the trial court for 
further proceedings.  Because of the posture of this case, it 
is unnecessary to address defendants' assignment of error 
regarding trebling of damages for statutory conspiracy.  
III. Conclusion 
 
We will reverse the judgment of the trial court in part 
and remand the case for further proceedings on damages only.  
At such hearing, the issue of damages for statutory conspiracy 
and tortious interference shall be tried and the defendants 
will be permitted the opportunity to cross-examine witnesses 
and introduce evidence addressing the amount of damages to be 
recovered by plaintiff.  However, because the trial court's 
imposition of a Rule 4:12(b)(2)(B) sanction is affirmed, on 
remand the defendants may not challenge their liability for 
recovery of any damages that are found by the trier of fact on 
the claims presented in counts I through V of the amended 
complaint. 
Affirmed in part, 
reversed in part, 
and remanded. 
 
 
JUSTICE POWELL, concurring in part and dissenting in part. 
 
 
25 
 
I agree with the majority’s holding that the trial court 
abused its discretion in prohibiting the defendants from cross-
examining or introducing evidence regarding the quantum of 
damages.  While I also recognize that Rule 4:12(b)(2)(B) allows 
the trial court to refuse to allow a disobedient party to 
support or oppose designated claims or defenses, the Rule must 
yield to the right of basic cross-examination.  Thus, I write 
separately to emphasize the well-established principle that 
cross-examination of adverse witnesses is an absolute right. 
 
Although the trial court would allow the defendants to 
cross-examine MT’s witnesses, it limited such cross-examination 
to only offering evidence in support of MT.  In other words, it 
refused to allow the defendants to test the prejudice or bias 
of any of MT’s witnesses.  Clearly, such limitation was 
prejudicial to the defendants and their already meager case. 
 
Furthermore, it should be noted that the trial court’s 
sanction applied to both aspects of the case, liability and 
damages.  Although the majority recognizes that the trial 
court’s sanctions were a lesser sanction than default judgment 
and that the trial court compounded the impact of its sanction 
ruling, the majority limits its holding strictly to the issue 
of damages.  In other words, the majority ignores the fact that 
the defendants were not able to cross-examine MT’s witnesses on 
the issue of liability.  The majority offers Rule 3:19(c)(3) as 
 
26 
an example of the fact that cross-examination is allowed “even 
in the case of a default judgment.”  The majority subsequently 
notes that there was no default judgment in this case, but then 
inexplicably applies Rule 3:19(c), which only applies to 
default judgment, to allow cross-examination on only the issue 
of damages.  Thus, the majority interprets the same sanction in 
two different ways: with regard to liability, as only requiring 
MT to present unopposed prima facie evidence; with regard to 
damages, as only striking the defendants’ affirmative defenses. 
 
On day two of the trial, the trial court removed the issue 
of liability from the jury.  In so doing, the trial court 
specifically stated: 
The plaintiff still has to establish all of the 
elements and the plaintiff still has the burden 
of proof.  Whether it’s preponderance, whether 
it’s clear and convincing, the plaintiff 
obviously has the burden of proof, and the 
defendant can move to strike the plaintiff’s 
evidence after the plaintiff presents that 
evidence and the Court will rule on the motion 
to strike . . . . 
. . . . 
[T]o the extent there are five counts in the 
[complaint] and those counts are statutory 
conspiracy, three tortious interference counts 
and one breach of contract or unjust enrichment 
count, the plaintiff does have to present 
evidence sufficient to meet those counts by the 
requisite burden of proof and the defendant can 
argue that the plaintiff did not meet that 
burden of proof. 
(Emphasis added). 
 
27 
 
Clearly, the plaintiff was still required to prove 
liability.  The fact that the trial court was deciding the 
issue of liability is not the same thing as granting default 
judgment on the issue of liability. 
For two centuries past, the policy of the Anglo-
American system of evidence has been to regard 
the necessity of testing by cross-examination as 
a vital feature of the law.  The belief that no 
safeguard for testing the value of human 
statements is comparable to that furnished by 
cross-examination, and the conviction that no 
statement (unless by special exception) should 
be used as testimony until it has been probed 
and sublimated by that test, has found 
increasing strength in lengthening experience. 
5 Wigmore on Evidence § 1367, at 32 (James H. Chadbourn ed., 
rev. ed. 1974). 
 
Recognizing the important function cross-examination 
serves, the United States Supreme Court has stated that “[i]n 
almost every setting where important decisions turn on 
questions of fact, due process requires an opportunity to 
confront and cross-examine adverse witnesses.”  Goldberg v. 
Kelly, 397 U.S. 254, 263 (1970).  Similarly, this Court has 
recognized that “cross-examination on a matter relevant to the 
litigation and put in issue by an adversary’s witness during a 
judicial investigation is not a privilege but an absolute 
right.”  Basham v. Terry, 199 Va. 817, 824, 102 S.E.2d 285, 290 
(1958) (citations omitted) (emphasis added).  “Although the 
court has discretion to control the manner and scope of cross-
 
28 
examination[], it is only after the right of cross-examination 
has been ‘substantially and fairly exercised’ that the 
allowance or disallowance of further cross-examination becomes 
discretionary.”  Charles E. Friend, The Law of Evidence in 
Virginia 112 (6th ed. 2003) (emphasis added).  “The 
justification for an absolute right is that a rule in the 
converse would be prejudicial to the party denied the right of 
cross-examination.”  Food Lion, Inc. v. Cox, 257 Va. 449, 450, 
513 S.E.2d 860, 861 (1999). 
 
This Court has previously explained that where an absolute 
right is denied, there can be no exceptions and we must reverse 
and remand the judgment below and remand the case for a new 
trial on all issues.  Id. at 450-51, 513 S.E.2d at 861 (“The 
right violated by that ruling is absolute; the adjective 
‘absolute’ definitively excludes exceptions.”); see also State 
Highway & Transp. Comm’r v. Cantrell, 223 Va. 185, 187, 288 
S.E.2d 435, 436 (1982).  Furthermore, “[t]he bias of a witness 
is always a relevant subject of inquiry when confined to 
ascertaining previous relationship, feeling and conduct of the 
witness.”  Henning v. Thomas, 235 Va. 181, 188, 366 S.E.2d 109, 
113 (1988) (quoting Henson v. Commonwealth, 165 Va. 821, 825-
26, 183 S.E. 435, 437 (1936)) (emphasis added).  The prejudice 
of a witness is a similarly relevant subject of inquiry.  Id. 
 
29 
(“The bias of a witness, like prejudice and relationship, is 
not a collateral matter.” (emphasis omitted)). 
 
It is undisputed that the defendants were denied their 
absolute right to cross-examine MT’s witnesses in all aspects 
of this case.  While I also recognize that the trial court 
could have rendered default judgment on the issue of liability 
and foregone the presentation of evidence on that issue, 
because the trial court did not actually enter default 
judgment, its ban on cross-examination was an abuse of 
discretion.  See Landrum v. Chippenham & Johnston-Willis 
Hosps., Inc., 282 Va. 346, 352, 717 S.E.2d 134, 137 (2011).  
Accordingly, I would reverse the trial court and remand the 
matter for a new trial on both liability and damages.