Title: Today Homes, Inc. v. Williams

State: virginia

Issuer: Virginia Supreme Court

Document:

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PRESENT: Hassell, C.J., Lacy, Koontz, Kinser, Lemons, and Agee, 
JJ., and Russell, S.J. 
 
TODAY HOMES, INC., t/a CHESAPEAKE HOMES 
 
 
 
 
 
 
 
 
 
  OPINION BY 
v.  Record No. 052537 
 
 
 
JUSTICE G. STEVEN AGEE 
 
 
 
 
 
 
 
 
   September 15, 2006 
EMMA WILLIAMS, ET AL. 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
H. Thomas Padrick, Jr., Judge 
 
 
Today Homes, Inc., t/a Chesapeake Homes ("Chesapeake"), 
appeals the judgment of the Circuit Court of the City of 
Virginia Beach dismissing its amended bill of complaint against 
Emma Williams, George R. Woodhouse, and Majestic Homes, Inc.  
For the reasons set forth below, we will affirm the judgment of 
the trial court in part, reverse the judgment in part, and 
remand for further proceedings. 
I.  FACTS AND MATERIAL PROCEEDINGS BELOW 
 
Chesapeake is a property developer and builder of single-
family homes.  Like other companies in the home building 
industry, Chesapeake "needed land . . . to build houses on."  
Williams served as Chesapeake's vice president of operations 
from June 2001 until March 13, 2003, and Woodhouse was 
Chesapeake's vice president of production during the same 
period.  Williams and Woodhouse had a close working relationship 
and referred to themselves as "a team." 
In the course of her employment, Williams was "responsible 
for all purchasing activities and customer service," but not the 
 
 
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acquisition of land.  Woodhouse supervised the actual 
construction work of the homes Chesapeake built.  Neither 
person's job description involved finding or purchasing lots for 
building.1 
 
At the beginning of 2003, Frank Grossman, a realtor with 
Long & Foster Realtors, told Woodhouse about certain property he 
had listed for sale in Hampton ("the Sinclair Property").  
Woodhouse mentioned the Sinclair Property to Williams and showed 
her a site plan.  At that time, the development plan for the 
Sinclair Property included a "55 and older active adult 
communit[y]."  Woodhouse testified that he did not believe 
Chesapeake would be interested in the property because 
Chesapeake "didn't do any 55 and older active adult 
communities."  Williams also believed Chesapeake would not be 
interested in purchasing the property.  Williams and Woodhouse 
had no further discussions about the property until after 
Chesapeake terminated Williams' employment on March 13, 2003.2 
Williams testified without contradiction that prior to her 
termination, she had no intention of leaving Chesapeake and 
                     
1 Woodhouse had, however, in the past, identified possible 
building sites and brought them to Chesapeake's attention.  He 
testified that John Barnes, Chesapeake's president told him that 
seeking out properties to buy "was not [his] job, that [he] had 
enough on [his] plate with production and construction."  The 
trial court found this testimony "not believable . . . [but not] 
important in the scheme of things." 
 
 
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starting her own housing development company, and she had not 
identified any building sites for purchase.  A few days after 
the termination of her employment by Chesapeake, Scott M. Gandy, 
a vendor in the building supplies industry, offered Williams 
financial backing if she started her own housing development 
company. 
Woodhouse prepared a letter resigning from his employment 
with Chesapeake the day Williams was terminated, but did not 
submit the letter until April 24, 2003, when he gave his two 
week's notice.  During the month of April, Woodhouse was in 
salary negotiations with Art Sandler, Chesapeake's owner.  On 
May 9, at the conclusion of the two weeks, John M. Barnes, 
president of Chesapeake, asked Woodhouse to continue his 
employment with Chesapeake through at least May 20 because 
Woodhouse held the company's only North Carolina contractor's 
license, and Chesapeake's subcontractors were dependent on the 
license.  Barnes and Woodhouse agreed that Chesapeake would pay 
Woodhouse "for four weeks until someone got their license."  
That day, Barnes and Woodhouse signed a memorandum, which was 
sent to Chesapeake's vendors stating that Woodhouse was working 
on Chesapeake's "North Carolina expansion into the Raleigh and 
Charlotte markets."  Woodhouse did no further work for 
                                                                  
2 The termination of Williams' employment by Chesapeake is 
not at issue in this appeal. 
 
 
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Chesapeake after May 9, but continued to receive his salary from 
Chesapeake until the first of June, by which time Barnes had 
obtained a North Carolina contractor's license. 
After Williams' termination, but while Woodhouse remained 
employed by Chesapeake, the two discussed going into business 
together and caused Majestic to be incorporated on March 27, 
2003.  Williams and Woodhouse were listed as president and 
secretary, respectively, of Majestic.  Woodhouse began working 
for Majestic on May 15, 2003, and drew his first paycheck on 
June 1, 2003. 
After forming Majestic, Williams searched for properties to 
purchase by contacting real estate companies, including Long & 
Foster.  Near the end of March 2003, Woodhouse put Grossman in 
contact with Williams, and discussed the Sinclair Property with 
her.  When Grossman showed Williams the Sinclair Property, she 
recognized it as "the same property that [she] had heard about 
from [Woodhouse]" earlier in the year when she was working for 
Chesapeake.  Grossman also suggested to Dave Jester, president 
of Marlyn Development Corporation, which owned the Sinclair 
Property, that Jester contact Williams as a potential builder 
and that Williams had a potential partner in Woodhouse.  Jester 
testified that he was willing to deal with Majestic even though 
 
 
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it was a new company because of his personal relationship with 
Scott Gandy.3 
On April 15, 2003, Majestic entered into a contract with 
Marlyn to purchase 27 lots on the Sinclair Property.4  Williams, 
but not Woodhouse, was a signatory to the agreement on behalf of 
Majestic.  In 2004, Majestic had gross profit from the sale of 
homes on the Sinclair Property of $4,469,585.00.  There is no 
dispute that neither Williams nor Woodhouse ever disclosed the 
Sinclair Property to Chesapeake or received Chesapeake's consent 
to acquire it. 
 
Chesapeake filed a three count amended bill of complaint 
alleging Williams and Woodhouse, as corporate officers of 
Chesapeake, breached their common law and contractual fiduciary 
duty to Chesapeake when they failed to disclose the existence of 
the Sinclair Property to Chesapeake and later purchased it 
themselves through Majestic.  Chesapeake also alleged that after 
                     
3 Jester also testified that Chesapeake was "not in the 
galaxy of consideration" for the contract on the Sinclair 
Property.  He believed that Chesapeake was "not the [right] 
sized company" and the Sinclair Property development was not in 
"the nature of their type of work."  In evaluating this evidence 
the trial court found that  
whether Mr. Jester would have done business with 
Chesapeake Homes or not, is really irrelevant, it 
comes down to the opportunity and whether or not it 
was a real opportunity, one that presented itself.  So 
it's a real narrow issue . . . . 
4 This contract was subsequently voided and a new contract 
executed whereby Marlyn agreed to make Majestic the sole builder 
 
 
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Williams' termination, she "aided and assisted Woodhouse in 
breaching the fiduciary duties he owed to Chesapeake while still 
employed by it."  In a separate count, Chesapeake further 
alleged that Williams and Woodhouse conspired to breach their 
fiduciary duties to Chesapeake.  Among other remedies, 
Chesapeake sought the imposition of a constructive trust on the 
Sinclair Property owned by Majestic and $5 million in damages to 
be trebled in accordance with Code § 18.2-499, et seq. 
 
After a one-day bench trial, the trial court dismissed 
Chesapeake's amended bill of complaint and entered a final 
decree on September 27, 2005, stating that Chesapeake "failed to 
meet its burden of proof as to all counts contained in the 
Amended Bill of Complaint."  The trial court found the Sinclair 
Property was "important to [Chesapeake]," and "that [Chesapeake 
was] seeking other business opportunities."  However, the trial 
court determined that Chesapeake had not proven that Williams 
and Woodhouse breached their fiduciary duty to Chesapeake.  
Specifically, the trial court ruled Chesapeake had presented "no 
evidence that [Williams] had any . . . relevant enough 
information to go forward with any actions that would in any way 
harm [Chesapeake]," nor had Chesapeake proven that Woodhouse did 
                                                                  
for all 77 lots in the development project.  Woodhouse was a 
signatory on the second contract. 
 
 
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anything "that could be construed as a breach of fiduciary 
duty."  We granted Chesapeake this appeal. 
 
Chesapeake makes ten assignments of error which can be 
condensed to the following four issues: (1) the trial court 
erred in finding that Williams and Woodhouse (collectively "the 
Defendants") did not breach a fiduciary duty to Chesapeake when 
they failed to disclose the existence of the Sinclair Property 
to Chesapeake while one or both was still employed by 
Chesapeake, and later purchased the property through Majestic; 
(2) the trial court erred in not finding that Williams, after 
her termination, "aided and assisted" Woodhouse so she "could 
usurp the opportunity with Woodhouse while Woodhouse was still 
employed by Chesapeake;"5 (3) the trial court misallocated the 
burden of proof by placing upon Chesapeake the burden of showing 
the breach of fiduciary duty rather than requiring the 
Defendants to show that they did not breach their fiduciary 
obligations; and (4) the trial court erred in overruling 
Chesapeake's objection to questions posed to the Defendants 
about their opinions as to whether the Sinclair Property was 
something that should have been disclosed to Chesapeake or in 
which Chesapeake would have been interested. 
II. ANALYSIS 
 
 
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Chesapeake argues that it met its burden to prove that the 
Sinclair Property was a corporate opportunity for Chesapeake and 
that the Defendants, as corporate officers, were fiduciaries of 
Chesapeake and took the corporate opportunity for their own 
benefit without disclosure to Chesapeake or its consent.  
Chesapeake contends the burden of proof then shifted to the 
Defendants to prove they did not breach their fiduciary duty to 
Chesapeake.  In that regard, Chesapeake avers the trial court 
erred in placing the burden of proof for breach of fiduciary 
duty upon it, instead of the Defendants.  When the burden of 
proof is properly allocated, Chesapeake says the record clearly 
reflects the Defendants did not meet their burden and the 
resulting breach of fiduciary duty makes them liable to 
Chesapeake. 
The Defendants argue that Chesapeake's threshold burden was 
not met because the trial court did not find the Sinclair 
Property to be a corporate opportunity for Chesapeake.  Even if 
the trial court did reach that conclusion, the Defendants then 
contend a proper legal analysis based upon Solimine v. 
Hollander, 16 A.2d 203, 214-15 (N.J. Ch. 1940) and Guth v. Loft, 
Inc., 5 A.2d 503, 510-11 (Del. 1939), shows the Sinclair 
Property was not a corporate opportunity of Chesapeake under the 
                                                                  
5 Chesapeake did not assign error to the dismissal of the 
count alleging conspiracy so that issue is not before us on 
 
 
9
facts of this case.  In any event, the Defendants argue they 
learned of the Sinclair Property in their individual capacities, 
and not in their role as officers of Chesapeake.  Thus, they 
argue there was no duty of disclosure on their part and no 
corresponding breach of fiduciary duty. 
A. CHESAPEAKE'S PRIMA FACIE CASE 
We first address the question of whether the Sinclair 
Property was a corporate opportunity for Chesapeake, because if 
there was no corporate opportunity, then there was no fiduciary 
duty to breach in that regard.  Contrary to the Defendants' 
assertion on appeal, the trial court did conclude that the 
Sinclair Property was a corporate opportunity for Chesapeake: 
"[I]t's clear to the Court that these lots, any lots, were 
important to [Chesapeake], that they were, in fact, seeking 
other business opportunities."  No reasonable reading of the 
trial court's determination could lead to a conclusion other 
than that it found the Sinclair Property to be a corporate 
opportunity for Chesapeake. 
The Defendants contend, nonetheless, that there could be no 
corporate opportunity under the facts of this case.  However, 
the Defendants did not assign cross-error to the trial court's 
finding that the Sinclair Property was a corporate opportunity 
for Chesapeake.  Thus, they cannot now raise that argument on 
                                                                  
appeal.  
 
 
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appeal.  Rule 5:18(b); Monahan v. Obici Med. Mgmt. Servs., 271 
Va. 621, 637, 628 S.E.2d 330, 339-40 (2006); see also Advanced 
Marine Enters. v. PRC, Inc., 256 Va. 106, 126, 501 S.E.2d 148, 
160 (1998).  The unchallenged finding of the trial court is now 
the law of the case and binding on the parties for purposes of 
appeal.  Board of Supervisors v. Stickley, 263 Va. 1, 6, 556 
S.E.2d 748, 751 (2002). 
The trial court specifically found Williams to be "an 
officer of [Chesapeake]."  While the trial court did not use the 
same words regarding Woodhouse, it found he "was the vice 
president involving production" of Chesapeake, a fact Woodhouse 
admitted in his Answer.  The Defendants do not contest on appeal 
that they were officers of Chesapeake, and in that capacity, had 
a fiduciary relationship to Chesapeake.  Trayer v. Bristol 
Parking, Inc., 198 Va. 595, 604, 95 S.E.2d 224, 230 (1956) 
(citation omitted). 
Neither is there any dispute that Woodhouse or Williams did 
not disclose the Sinclair Property to Chesapeake or seek 
Chesapeake's consent to take the Sinclair Property.  
Accordingly, Chesapeake did prove its prima facie case as to the 
Defendants in that the Sinclair Property was a corporate 
opportunity for Chesapeake, which Williams and Woodhouse, as 
corporate officers of Chesapeake, did not disclose to Chesapeake 
or seek Chesapeake's consent to take for their direct benefit. 
 
 
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B. BREACH OF FIDUCIARY DUTY 
Our inquiry now turns to what duty, if any, the Defendants 
owed Chesapeake regarding the Sinclair Property.  It is a 
fundamental principle that a corporate officer or director is 
under a fiduciary obligation not to divert a corporate business 
opportunity for personal gain because the opportunity is 
considered the property of the corporation.  See Feddeman & Co. 
v. Langan Assocs., P.C., 260 Va. 35, 46 n.1, 530 S.E.2d 668, 675 
n.1 (2000).  Underlying this concept is the expectation that 
officers, as corporate fiduciaries, exercise the "utmost good 
faith" and loyalty in their dealings with, and on behalf of, the 
corporation.  Feddeman & Co., 260 Va. at 43, 530 S.E.2d at 673.  
"[T]his good faith forbids [a corporate officer from] placing 
himself in a position where his individual interest clashes with 
his duty to his corporation."  Rowland v. Kable, 174 Va. 343, 
366, 6 S.E.2d 633, 642 (1940).  As long as an individual remains 
a corporate officer, he "owes an undivided duty to [the 
corporation], and cannot place himself in any other position 
which would subject him to conflicting duties, or expose him to 
the temptation of acting contrary to [its] best interests."  Id. 
at 367, 6 S.E.2d at 642 (citation omitted). 
The "unbending rule" that a fiduciary "entrusted with the 
business of another cannot be allowed to make that business an 
object of interest to himself," is abrogated if the fiduciary 
 
 
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obtains the "consent of the [corporation]" after "full 
disclosure."  Id. at 366-68, 6 S.E.2d at 642-43.  As this Court 
has observed, "[t]he motive of self-interest is so natural and 
the danger of temptation to secure private advantage so great," 
that "good faith alone is not sufficient in the absence of full 
disclosure and consent of the interested parties . . . to make 
an exception to the general rule that a [corporate fiduciary] 
cannot enter into any relation or do any act inconsistent with 
the interest of the [corporation]."  Id. at 369-70, 6 S.E.2d at 
643-44. 
A "director of a corporation is held chargeable with 
knowledge of such corporate affairs as it is his duty to know 
and which he might have known had he diligently discharged his 
duties."  In re Adams Laboratories, Inc., 3 B.R. 495, 499 
(Bankr. E.D. Va. 1980).  There is no distinguishable difference 
between a corporate officer and a director in this regard as it 
relates to their fiduciary duty.  His "belief," whether in good 
faith or bad, cannot negate the clear fiduciary duty to disclose 
a corporate opportunity before taking it for himself.  Rowland, 
174 Va. at 369-70, 6 S.E.2d at 643-44.  Consequently, it makes 
no difference whether the corporate opportunity came to the 
corporate fiduciary in the fiduciary’s capacity as a corporate 
officer or in some “individual” capacity. 
 
 
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The Defendants argue that this requirement of "full 
disclosure" is an unworkable burden on a corporation's officers 
because it "require[s] corporate officers to disclose all 
business opportunities of which they learn . . . regardless of 
whether the corporate officer is planning to take advantage of 
the opportunity personally."  This view misconstrues the 
requirements of disclosure, which become operative and relevant 
only when an officer receiving information about a potential 
corporate opportunity then appropriates that opportunity for his 
own use.  See Upton v. Southern Produce Co., 147 Va. 937, 948-
49, 133 S.E. 576, 580 (1926) (Directors breached their fiduciary 
duty to a struggling corporation when they secretly purchased 
corporation stock on credit and sold it at a profit to an 
outside company without first disclosing the opportunity to the 
corporation and other stockholders.).  See also Demoulas v. 
Demoulas Super Mkts., 677 N.E.2d 159, 181 (Mass. 1997) ("[T]o 
satisfy the duty of loyalty, a fiduciary wishing to engage in a 
self-dealing transaction must disclose details of the 
transaction and the conflict of interest to the corporate 
decisionmakers."). Thus, an officer's desire to take an 
opportunity as his own, puts him on notice of his fiduciary duty 
to disclose the opportunity to the corporation before acting 
upon it for his personal benefit. 
 
 
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The trial court found that "[t]he information [Woodhouse] 
received [regarding the Sinclair Property] did not become 
important until . . . March 13," the day Williams' employment 
with Chesapeake was terminated and Woodhouse first alerted 
Barnes of his intention to resign.  That factual finding by the 
trial court was not the subject of an assignment of error or 
cross error and is now the law of the case.  Stickley, 263 Va. 
at 6, 556 S.E.2d at 751.  The Defendants' casual knowledge of 
the Sinclair Property's existence in early 2003 is not, by 
itself, a basis for requiring disclosure or attaching liability 
for any of their later actions. 
We must initially address, however, Chesapeake's contention 
that the trial court "misallocated the burden of proof, putting 
on Chesapeake Homes the burden of showing breach of fiduciary 
duty rather than requiring Williams and Woodhouse to show that 
they did not breach their fiduciary obligations."  We agree with 
Chesapeake that the trial court erred in this regard. 
Once a plaintiff has shown that a corporate opportunity 
existed and the corporate fiduciary appropriated it without 
disclosure and the consent of the corporation, a prima facie 
case has been shown.  Under our jurisprudence, the burden shifts 
to the defendant fiduciary to show why the taking of the 
corporate opportunity was not a breach of his fiduciary duty.  
"[W]hen transactions have occurred between fiduciaries and [the 
 
 
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corporation], the burden of proof lies upon the [fiduciary] to 
show that the transaction has been fair." Giannotti v. Hamway, 
239 Va. 14, 24, 387 S.E.2d 725, 731 (1990).  "The burden of 
proof lies, in all cases, upon the party who fills the position 
of active confidence to show the transaction has been fair."  
Waddy v. Grimes, 154 Va. 615, 648, 153 S.E. 807, 817 (1930). 
The trial court’s finding that neither Williams nor 
Woodhouse breached a fiduciary duty to Chesapeake was thus based 
on the wrong rule of law as it incorrectly placed the burden of 
proof on Chesapeake.  Accordingly, we will reverse the trial 
court’s judgment and remand the case to the trial court for a 
determination of whether there was a breach of fiduciary duty 
upon proper application of the burden of proof.  See, e.g., 
Gibbs v. Gibbs, 239 Va. 197, 201-02, 387 S.E.2d 499, 501-02 
(1990) (reversing the judgment of the trial court because the 
trial court placed the burden of proof on the wrong party, and 
remanding the case for further proceedings applying the proper 
burden of proof); McEntire v. Redfearn, 217 Va. 313, 316-17, 227 
S.E.2d 741, 744 (1976) (same).  However, we will reverse and 
remand only with respect to Woodhouse because the record is 
uncontradicted as to Williams regardless of the burden of proof.  
Even though the trial court erred in allocating to Chesapeake 
the burden of showing Williams’ breach of fiduciary duty, it is 
clear on this record there could be no breach by Williams. 
 
 
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Chesapeake argues that Williams’ fiduciary duty to 
Chesapeake continued following her termination on March 13 and 
that her purchase of the Sinclair Property was in violation of 
that duty.  Chesapeake cites a number of foreign cases in 
support of this argument, but all are distinguishable from the 
facts of this case, in part, because of the trial court’s 
binding factual finding that only events after Williams’ 
termination on March 13th are relevant. 
It is true that “[r]esignation or termination does not 
automatically free a director or employee from his or her 
fiduciary obligations.”  T.A. Pelsue Co. v. Grand Enterprises, 
Inc., 782 F. Supp. 1476, 1485 (D. Colo. 1991).  Liability post-
termination continues only for those "transactions completed 
after termination of the officer's association with the 
corporation, but which began during the existence of the 
relationship or that were founded on information gained during 
the relationship."  In re H. King & Assocs., 295 B.R. 246, 274 
(Bankr. N.D. Ill. 2003).  See also Thompson v. Central Ohio 
Cellular, Inc., 639 N.E.2d 462, 470 (Ohio Ct. App. 1994).  
"Whether specific conduct taken prior to resignation breaches a 
fiduciary duty requires a case by case analysis."  Feddeman, 260 
Va. at 42, 530 S.E.2d at 672. 
The record for purposes of appeal establishes that 
Williams' purchase of the Sinclair Property through Majestic was 
 
 
17
not "founded on information gained during" her employment with 
Chesapeake.  Prior to her termination, Williams had no intention 
of leaving Chesapeake and starting her own development company.  
There is no evidence in the record that she used any of 
Chesapeake's resources to establish Majestic or regarding the 
Sinclair Property.  Williams’ casual knowledge of the Sinclair 
Property before her termination triggered no duty to disclose 
because her relationship with the Sinclair Property as a 
corporate opportunity occurred only after March 13th.  After 
March 13th, Williams was under no fiduciary duty to Chesapeake 
because she was no longer an officer.6   
There was thus no basis for liability on Williams' part 
after March 13 for breach of a fiduciary duty to Chesapeake as 
she had no duty.  Thus, even though it applied the wrong burden 
of proof, the trial court did not err in dismissing the amended 
bill of complaint as to Williams.  See Hilb, Rogal & Hamilton 
Co., 247 Va. at 249, 440 S.E.2d at 923. 
C.  OTHER CLAIMS 
 
The trial court did not directly address Chesapeake’s claim 
that Williams was liable on the alternative ground that she 
“aided and assisted Woodhouse in breaching the fiduciary duties 
he owed to Chesapeake while still employed by it.”  Chesapeake 
                     
6 In contrast to Williams, Woodhouse did continue as an 
officer of Chesapeake for at least two months after March 13th 
 
 
18
assigned error to the trial court’s failure to find Williams 
liable on this basis, but Chesapeake’s entire argument on appeal 
consists of the following statement on brief:  “[S]he [Williams] 
would be liable for aiding and assisting Woodhouse in the breach 
of his fiduciary duties while he was still employed by 
Chesapeake Homes.”  Because Chesapeake has not adequately 
briefed or argued this assignment of error, we will not consider 
this assignment of error.  Rule 5:17(c); Rule 5:27; Muhammad v. 
Commonwealth, 269 Va. 451, 478, 619 S.E.2d 16, 31 (2005); 
Sheppard v. Commonwealth, 250 Va. 379, 386, 464 S.E.2d 131, 135 
(1995). 
 
Finally, Chesapeake has claimed error in the trial court’s 
failure to find liability to Chesapeake on behalf of Majestic.  
However, Chesapeake has neither pled nor alleged facts upon 
which Majestic would be liable to it.  Accordingly, the trial 
court did not err in finding for Majestic. 
III. CONCLUSION 
 
For the foregoing reasons we will reverse the trial court's 
judgment dismissing the amended bill of complaint as to 
Woodhouse and affirm the trial court's judgment as to Williams 
and Majestic.  We will remand the case to the trial court for 
further proceedings to determine whether Woodhouse breached a 
                                                                  
and took certain actions in regard to the Sinclair Property. 
 
 
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fiduciary duty to Chesapeake, in conformance with the principles 
expressed in this opinion.7 
Affirmed in part, 
reversed in part,  
and remanded. 
                     
7 In view of our resolution of the issues on appeal, we do 
not address Chesapeake's assignments of error regarding 
overruling its objections to certain questions propounded to the 
Defendants.