PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

GALE M. LEVINE; MARINA SHORES,

LTD.,

Plaintiffs-Appellants,

v.

F. WAYNE McLESKEY,

Defendant-Appellee,

and

W. HAYES DAUGHTREY; COHNPHILLIPS, LTD.; MICHAEL F. BELL;

No. 95-1799

ISBRANDTSEN, FANCHER & JEFFORDS,

P.C.; CLARK & STANT, P.C.; MARION

B. GOODMAN, Employee of

Lynnhaven Dry Storage Marina,

Incorporated; CHARLES W. GUTHRIE,

Employee of Lynnhaven Dry

Storage Marina, Incorporated;

FENTON C. DAUGHTREY; CHARLES

COLLETT; DAVID I. LEVINE;

JERROLD G. WEINBERG,

Movants.

Appeal from the United States District Court

for the Eastern District of Virginia, at Norfolk.

Raymond A. Jackson, District Judge.

(CA-94-512-2)

Argued: December 4, 1995

Decided: December 31, 1998

Before WIDENER, ERVIN, and WILKINS, Circuit Judges.

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Affirmed in part, vacated in part, and remanded by published opinion.

Judge Widener wrote the opinion, in which Judge Ervin and Judge

Wilkins concurred.

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COUNSEL

ARGUED: Wyatt B. Durrette, Jr., DURRETTE, IRVIN, LEMONS

& BRADSHAW, P.C., Richmond, Virginia, for Appellants. Conrad

Moss Shumadine, Walter DeKalb Kelley, Jr., WILLCOX & SAVAGE, P.C., Norfolk, Virginia, for Appellee. ON BRIEF: Arnold C.

Moore, Jr., Barrett E. Pope, DURRETTE, IRVIN, LEMONS &

BRADSHAW, P.C., Richmond, Virginia; J. Gray Lawrence, Jr.,

HOWELL, DAUGHERTY, BROWN & LAWRENCE, Norfolk, Virginia, for Appellants. Frank A. Edgar, WILLCOX & SAVAGE, P.C.,

Norfolk, Virginia, for Appellee.

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OPINION

WIDENER, Circuit Judge:

Plaintiffs Gale M. Levine (Levine) and Marina Shores, Ltd.

(Marina Shores or the marina) appeal the grant of summary judgment

in favor of defendant F. Wayne McLeskey (McLeskey) on all counts

of a 15-count complaint alleging federal antitrust and various state

law claims. We agree with the district court that the litigation which

plaintiffs allege was objectively baseless was not sham, but hold that

the court erred in deciding that the plaintiffs were collaterally estopped from relitigating facts found by a jury in a state court trial when

those facts as found did not support a final judgment. Our decision

requires that summary judgment be vacated on plaintiff Marina

Shores' claims on Count II (Sherman Act, 15 U.S.C.§ 1), Count V

(Virginia Antitrust Act, Va. Code § 59.1-9.5), and Count XV (Virginia Conspiracy Act) since that part of its judgment was essentially

based on the same collateral estoppel. We affirm the district court's

grant of summary judgment on Counts I, III, IV, that part of Count

V based on the Virginia Antitrust Act, Va. Code§ 59.1-9.6, VII, VIII,

IX, X, XII, and XIII for the reasons stated in its opinion, Levine v.

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McLeskey, 881 F. Supp. 1030 (E.D. VA 1995). 1 We remand for further proceedings consistent with this opinion.

I.

There being no claim they are erroneous, we adopt the facts set

forth in the district court's opinion, Levine , 881 F. Supp. at 1036-39,

and summarize the following facts which are pertinent to this appeal.

Defendant McLeskey operates Lynnhaven Dry Storage Marina,

Inc. (Lynnhaven Marina) which for many years has been the principal

dry storage marina in its area of Virginia Beach, Va. In 1989, plaintiff

Levine and her husband formed Marina Shores to develop a complex

including dry boat storage, wet slips, stores, and a restaurant to compete with Lynnhaven Marina. Levine intended to build an apartment

complex and shopping centers on nearby land following construction

of the marina.

During construction, Levine entered into an agreement with one

Norman Cohn to open and manage the marina's restaurant. Cohn

named the restaurant Hoppers II and formed Cohn-Phillips, Ltd. to

operate it. On October 5, 1990, Cohn-Phillips signed a 15-year lease

for the restaurant that required monthly rental payments. To provide

for equipment and start-up costs, Levine gave Cohn a credit line of

approximately $95,000 that required Cohn to repay advances within

two days of demand or lose the right to operate the restaurant. Levine

explained repayment would be required when construction was complete.

Levine completed construction of the marina in April, 1991 and a

few weeks later demanded Cohn repay the credit line. Needing

money, Cohn approached McLeskey, who purchased 50% of Cohn

Phillips. McLeskey and the Levines have had a long-standing dislike

for each other that predates the current dispute.

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1 Plaintiff Levine does not appeal the district court's ruling on her

claims for defamation, Count VI, and intentional infliction of emotional

distress, Count XI of the complaint.

 3
When Cohn-Phillips failed to pay the rent due for April and May

1991, Marina Shores exercised its contractual right to terminate the

lease on June 2, 1991. On June 3, 1991, Cohn-Phillips tendered the

delinquent rent,2 which was rejected, and refused to vacate, so on June

7, 1991, Marina Shores filed an unlawful detainer action in the circuit

court of Virginia Beach, seeking possession and damages for mismanagement of the restaurant (the Hoppers case). Marina Shores contended Cohn-Phillips breached the lease not only by failing to pay

rent but also by management acts or omissions that contravened the

lease's requirements.3 Cohn-Phillips counterclaimed, alleging that

from June 3, 1991 to the date of trial, Marina Shores breached the

lease, tortiously interfered with Cohn-Phillips' business expectancy,

and conspired to injure Cohn-Phillips' business. Marina Shores, 435

S.E.2d at 138.

The circuit court of Virginia Beach granted partial summary judgment to Cohn-Phillips on the ground that the lease provision authorizing Marina Shores to terminate for non-payment of rent was invalid

because it did not require Marina Shores to serve notice to pay or quit

and then wait five days before seeking possession. 435 S.E.2d at 137-

38. The case was tried on Marina Shores' other claims of breach and

Cohn-Phillips' counterclaims. On April 1, 1992, the jury found in

Cohn-Phillips' favor on all claims and awarded damages, although the

circuit court set aside the conspiracy verdict.

On appeal, the Virginia Supreme Court reversed the judgment for

Cohn-Phillips and held that Cohn-Phillips' failure to pay rent was a

breach that, under the lease, entitled Marina Shores to terminate without notice or demand. 435 S.E.2d at 138. Since Cohn-Phillips' counterclaims were based on Marina Shores' conduct after terminating the

lease, and therefore premised on the notion that the termination was

improper, the Virginia Supreme Court's decision effectively vacated

Cohn-Phillips' damage award. 435 S.E.2d at 138.

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2 The date of the tender was stated by the Virginia Supreme Court in

Marina Shores v. Cohn-Phillips, Ltd., 435 S.E.2d 136, 138 (Va. 1993).

3 The district court details the factual allegations of Marina Shores'

mismanagement claims at 881 F. Supp. 1039.

 4
The Virginia Supreme Court issued its opinion September 17,

1993. The parties continued to litigate in state court, however, both

before and after the opinion was issued and up to the March 19, 1994

filing date of this suit. The district court's opinion describes the

details and status of this litigation at 881 F. Supp. 1037-39.

Plaintiffs grounded the majority of their claims in the present

action on 1) the allegation that Cohn-Phillips' counterclaims in the

Hoppers case and the litigation it subsequently initiated were objectively baseless and thus a sham, and 2) the allegations of mismanagement asserted to demonstrate a breach of the lease in the Hoppers

case. The district court held that neither the counterclaims nor the

subsequent litigation was sham, and that plaintiffs were collaterally

estopped from relitigating the factual allegations relating to CohnPhillips' operation of the restaurant that plaintiffs had advanced in the

Hoppers case.

We affirm the district court's holding that the counterclaims and

other litigation alleged to be objectively baseless were not sham, for

the reasons stated in its opinion. Levine, 881 F. Supp. at 1041-44. We

disagree, however, that the judgment in the Hoppers case, which the

Virginia Supreme Court reversed, precludes the plaintiffs from presenting evidence relating to Cohn-Phillips' operation of the restaurant

and, as well, to plaintiffs' claim of a conspiracy.

II.

The district court noted correctly that the preclusive effect of a

state court judgment in federal court depends on state law, and that

for a collateral estoppel to be set up, Virginia law requires:

(1) the parties to the two proceedings must be the same, (2)

the issue of fact sought to be litigated must have been actually litigated in the prior proceeding, (3) the issue of fact

must have been essential to the prior judgment, and (4) the

prior proceeding must have resulted in a valid, final judgment against the party against whom the doctrine is sought

to be applied.

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Levine, 881 F. Supp. at 1040 (citing Glasco v. Ballard, 452 S.E.2d

854, 855 (Va. 1995)).

The court erred, however, in concluding that the Virginia Beach

circuit court fact finding based on the jury verdict in favor of CohnPhillips remained valid and supportive of collateral estoppel although

it did not support a final judgment.4 The Virginia Beach circuit court

jury heard the case on plaintiffs' allegations of mismanagement and

Cohn-Phillips' counterclaims. But the Virginia Supreme Court concluded:

As stated by Cohn-Phillips on brief, all damages claimed for

breach of contract, tortious interference with a business

expectancy, and conspiracy were "for the time period commencing June 3[, 1991,] and continuing on up to the date of

trial." Before any alleged damages were sustained, however,

the lease had been lawfully terminated by Marina Shores

because of Cohn-Phillips' default and breach. Therefore, all

rights that may have arisen by virtue of the lease had been

terminated. Thus, Cohn-Phillips' claims have no merit.

Marina Shores, 435 S.E.2d at 138. Thus the final judgment was not

based on fact finding favorable to Cohn-Phillips. There being no final

judgment based on fact finding favorable to Cohn-Phillips, there is no

fact finding which can be given preclusive effect against plaintiffs as

to the operation of the restaurant as a part of a conspiracy. South Carolina Nat'l Bank v. Atlantic States Bankcard Ass'n , 896 F.2d 1421,

1430 (4th Cir. 1990) ("Reversal of a decision renders it invalid, and

application of collateral estoppel clearly should not be based upon an

invalid decision."). The fact that the Virginia Supreme Court reversed

the circuit court "on the issue of whether the lease was properly terminated due to nonpayment of rent, not on the manner of Hoppers operation," 881 F. Supp. at 1041, will not necessarily preclude plaintiffs'

claims in this action since "[i]f the appellate court terminates the case

by final rulings as to some matters that leave it unnecessary to resolve

other matters, preclusion is limited to the matters actually resolved by

the appellate court." 18 Wright, Miller & Cooper, Federal Practice

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4 As noted, the jury's verdict favorable to Cohn-Phillips based on conspiracy was set aside by the trial court.

 6
and Procedure, § 4432, at 302 (1981). Thus, the factual issue that is

precluded by the Hoppers case and the decision of the Virginia

Supreme Court is that evidence supporting Marina Shores termination

of the restaurant lease for Cohn-Phillips' failure to pay rent.

III.

The district court granted summary judgment on a basis other than

collateral estoppel on plaintiffs' claims at Counts I, III, IV, VII, VIII,

IX, X, XII, and XIII, and also that part of plaintiffs' claim on Count

V under the Virginia Antitrust Act, Va. Code § 59.1-9.6 (Monopoly).

We affirm the district court's grant of summary judgment on these

counts for the reasons sufficiently stated in its opinion.

That leaves for consideration Count II, that part of Count V under

the Virginia Antitrust Act, § 59.1-9.5 (Conspiracy); and Counts XIV

and XV.

The district court granted judgment in favor of the defendant on

Count II, which was under § 1 of the Sherman Act, 15 U.S.C. § 1,

because of its holding that Marina Shores could not satisfy the conspiracy element, by this referring to its holding on collateral estoppel.

Because of our holding on collateral estoppel, as explained above,

that part of the district court's judgment as to Marina Shores' claim

under Count II, § 1 of the Sherman Act, must be vacated and

remanded for further consideration by the district court. We express

no opinion on the merits of, or defenses to, that claim other than that

Marina Shores is not collaterally bound in its assertion of a claim

under Count II by the fact finding relied upon by the district court in

its decision.

That part of Count V of the complaint, which was under the Virginia Antitrust Act, § 59.1-9.5, comparable to the claim under § 1 of

the Sherman Act in Count II of the complaint, must be vacated for the

same reason and remanded for further consideration by the district

court. We express no opinion on the merits of, or defenses to, that

claim, also, other than as to the lack of collateral estoppel effect of

Marina Shores, 435 S.E.2d 136, as related above.

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Counts XIV and XV of the complaint are Levine's and Marina

Shores' claims under the Virginia Conspiracy Act, Va. Code § 18.2-

499. Since the Virginia Conspiracy Act requires a conspiracy, "a

combination of two or more persons," Allen Realty Corp. v. Holbert,

227 Va. 441, 449 (1984), we construe the holding of the district court

to be that it granted summary judgment on Counts XIV and XV

because of its holding as to the collateral estoppel effect of the fact

finding in Marina Shores, 435 S.E.2d 136, which we have discussed

above. Its judgment as to Counts XIV and XV also must be vacated

and remanded for further consideration by the district court. As with

our holding on Count II and that part of Count V under the Virginia

Antitrust Act relating to a conspiracy, we express no opinion on the

merits of, or defenses to, Counts XIV and XV other than the fact that

there is no collateral estoppel effect with respect to the fact finding

relied upon by the district court in its decision.

IV.

Our holding in this opinion with respect to sham litigation remains

in full force, however.

On remand, there may be asserted in defense to the plaintiffs'

claims on Counts II, V (Va. Code § 59.1-9.5), XIV and XV any

defense except the collateral estoppel relied upon by the district court

in its decision appealed from.

The judgment of the district court as to Counts I, III, IV, VII, VIII,

IX, X, XII, XIII, and that part of Count V relating to Va. Code § 59.1-

9.6 is accordingly

AFFIRMED.

The judgment of the district court as to Counts II, XIV, XV, and

that part of Count V relating to Virginia Code § 59.1-9.5 is accordingly

VACATED AND REMANDED

FOR FURTHER CONSIDERATION.

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