Title: Ehrhardt v. SustainedMED, LLC
Citation: N/A
Docket Number: 201160
State: Virginia
Issuer: Virginia Supreme Court
Date: December 2, 2021

PRESENT:  All the Justices 
 
MARILYN EHRHARDT, ET AL. 
 
 
 
 
 
 
 
 
 
    OPINION BY 
v.  Record No. 201160 
 
 
 
         JUSTICE S. BERNARD GOODWYN 
 
 
 
 
 
 
           
  
  December 2, 2021 
SUSTAINEDMED, LLC 
 
FROM THE CIRCUIT COURT OF THE COUNTY OF FAIRFAX 
Michael F. Devine, Judge 
In this appeal, we consider whether the circuit court’s award of attorneys’ fees as well as 
expenses and costs exceeded the maximum indemnification amount allowed under an indemnity 
agreement. 
BACKGROUND 
On November 17, 2009, Marilyn Ehrhardt, John Ehrhardt, Stephen Mallete, Michael 
High, Victor Su, and Michael Sutton (collectively, the Sellers) entered into a stock purchase 
agreement (the SPA) for the sale of their collective shares in Cyfluent, Inc. (Cyfluent) to 
SustainedMED, LLC (SustainedMED).  The SPA also included an attachment showing that 
Cyfluent had a contract with Hygea Health Network, Inc. (Hygea).  Per the Sellers’ 
representations during the negotiations of the sale, SustainedMED was led to believe that Hygea 
owned a network of physician practices with 165,000 members, and that the Hygea contract 
guaranteed Cyfluent revenue of $800,000 per month, substantially increasing the value of the 
Cyfluent stock being sold to SustainedMED. 
The total purchase price for the sale of the Cyfluent stock to SustainedMED was 
$4,900,000.  SustainedMED paid $2,100,000 in cash and $2,800,000 through the issuance of 
several promissory notes (collectively, the Promissory Notes) payable to the Sellers. 
After closing on the purchase, SustainedMED subsequently learned that Hygea owns, at 
best, only four physician practices, with roughly 100 members, and that its contract with 
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Cyfluent did not produce any significant revenue.  Thus, contrary to the representations which 
had been made to SustainedMED by the Sellers, neither Cyfluent nor SustainedMED ever 
received any significant value from the Hygea contract. 
The SPA includes an Indemnity Agreement which requires the Sellers to indemnify 
SustainedMED for losses resulting from inaccuracies in or breach of any representations or 
warranties made by the Sellers.  Consequently, SustainedMED sent the Sellers a direct indemnity 
claim notice, claiming that representations and warranties concerning the revenue which would 
be produced by the Hygea contract had been breached.  By this time, SustainedMED had paid 
$700,000 on the Promissory Notes, but still owed the Sellers $2,100,000 for the purchase of the 
Cyfluent stock, pursuant to the terms of the Promissory Notes and the SPA.  In its notice, 
SustainedMED stated that “[p]ursuant to Section 10.5(d) of the [SPA],” it was “withholding 
payment under [the] Promissory Note[s]” until its indemnity claim concerning the 
misrepresentations was resolved.  The Sellers rejected SustainedMED’s indemnity claim. 
On January 12, 2011, SustainedMED filed suit against the Sellers in the Circuit Court of 
Fairfax County, with Count I of the complaint alleging breach of the Indemnity Agreement 
because of the misrepresentations made concerning the Hygea contract, and Count II alleging 
fraud in the inducement.  In Count III of the complaint, SustainedMED sought a declaratory 
judgment that SustainedMED was “entitled to withhold payment under the Promissory Notes and 
use the Promissory Notes to satisfy its indemnity claim against [the Sellers].”  In Count III, it 
also asserted that “pursuant to Section 10.5(d) of the SPA, Plaintiff may use the Promissory 
Notes to satisfy an indemnity claim of Plaintiff that is finally determined to be due and owing by 
[the Sellers].”  Additionally, SustainedMED sought recovery of its costs and reasonable 
attorneys’ fees. 
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The Sellers filed a responsive pleading that included their answer, additional defenses 
and pleas, a motion to crave oyer, a demurrer, counterclaims, and demands for attorneys’ fees 
and costs. 
The terms of the SPA outline the indemnity agreement between the parties: 
10.  
INDEMNIFICATION. 
 
10.1  Indemnification by Sellers.  Sellers shall jointly and severally indemnify 
and hold [SustainedMED] harmless against and from and in respect of any and all 
Losses which are incurred by virtue of or result from (a) (i) the inaccuracy in or 
breach of any representation or warranty made by any Seller in this Agreement or 
any certificate executed in connection herewith . . . or (b) enforcing 
[SustainedMED’s] indemnification rights provided for hereunder. 
 
. . . . 
 
10.5  Certain Limitations on Indemnification Obligations. 
 
(a) Except as otherwise expressly provided in this Section 10, 
[SustainedMED] shall not be entitled to receive any indemnification 
payments under Section 10.1 based upon any inaccuracy in or breach of 
any representation or warranty, until the aggregate amount of Losses 
incurred by [SustainedMED] exceeds $25,000.00 (the “Deductible 
Amount”), and thereafter Sellers shall be liable for all Losses over the 
Deductible Amount. 
 
(b) The maximum aggregate amount of indemnification payments which 
[SustainedMED] shall be entitled to receive under Section 10.1 based 
upon any inaccuracy in or breach of any representation or warranty shall 
not exceed $4,900,000.00. 
 
. . . . 
 
(d) [SustainedMED], at [its] sole election, may use the Promissory Notes 
to satisfy any indemnity claim of [SustainedMED] hereunder that is finally 
determined to be due and owing by any Seller. To the extent a claim is 
pending at the time that a payment is due under the Promissory Notes, 
[SustainedMED] shall be entitled to withhold payment under the 
Promissory Notes until such claim is resolved. 
 
 
Section 1.1 of the SPA defines losses as “all actions, suits, proceedings, hearings, 
investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, 
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rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, 
Taxes, Liens (other than Permitted Liens), losses, expenses, and fees, including court costs and 
reasonable attorneys’ fees and expenses.” 
SustainedMED’s claim for breach of the contract’s Indemnity Agreement and its request 
for declaratory judgment, as well as the Sellers’ counterclaims for breach of contract, were heard 
at a bench trial, separate from the jury trial held regarding SustainedMED’s claim of fraud in the 
inducement.*  At the end of the six-day bench trial, the circuit court ruled in favor of 
SustainedMED, finding that the Sellers breached the terms of the Indemnity Agreement and that 
SustainedMED was entitled to indemnification for the losses caused by the Sellers’ 
misrepresentations.  It also granted SustainedMED judgment on its declaratory judgment claim. 
In essence, it required that the purchase price of the stock, $4,900,000, be returned to 
SustainedMED pursuant to the terms of the Indemnity Agreement.  The circuit court awarded 
SustainedMED damages in the amount of $2,775,000, which represented the $2,800,000 
SustainedMED had already paid to the Sellers for the stock, less the $25,000 deductible 
mentioned in Section 10.5(a) of the SPA, and it ruled that the $2,100,000 amount SustainedMED 
owed to the Sellers on the Promissory Notes be “extinguished.”  It explained that “[t]he effect of 
this judgment is that SustainedMED will have acquired Cyfluent, which had no value as an 
ongoing concern, and will have paid nothing for it.” 
 
* Pursuant to the terms of the SPA, SustainedMED waived its right to a jury trial 
concerning any disputes arising under that contract.  However, the circuit court determined that 
SustainedMED was entitled to a jury trial on its fraud in the inducement claim, and a jury trial 
was held on that claim in which the jury found in favor of SustainedMED.  The Sellers 
subsequently filed a motion to set aside the jury’s verdict, and the circuit court granted the 
motion, holding that SustainedMED failed to establish all the elements of fraudulent inducement.  
That claim is not relevant to this appeal. 
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The circuit court memorialized its bench ruling in an order in which it reiterated its award 
in favor of SustainedMED on its indemnification and declaratory judgment claims. 
Pre-trial, the parties agreed that litigation regarding attorneys’ fees and costs would 
follow resolution of the parties’ other claims; SustainedMED subsequently requested an award of 
its attorneys’ fees as well as litigation expenses and costs incurred in pursuing its indemnity 
claim pursuant to the terms of Section 10.1 of the SPA.  The circuit court thereafter conducted a 
hearing on the issue.  SustainedMED argued that the indemnification award was only 
$2,775,000, which was more than $2,000,000 below the SPA’s indemnification cap, and it 
presented evidence concerning the attorneys’ fees and costs incurred in the litigation of all its 
claims against the Sellers.  The Sellers argued that, in addition to the $2,775,000 cash award, the 
extinguished liability on the Promissory Notes formed part of the indemnification claim relief 
awarded to SustainedMED, and thus the value of the discharged Promissory Notes (a principal 
amount of $2,100,000.06) should be included in the computation of the amount of the payments 
SustainedMED was allowed to recover under the indemnification cap in the SPA for attorneys’ 
fees and costs.  They also claimed that SustainedMED’s evidence failed to separate out the 
amounts paid (losses incurred) in pursuing the indemnity claim from those funds expended in 
pursuing SustainedMED’s other claims against the Sellers. 
At the end of the hearing, the circuit court took the matter under advisement.  Over three 
years later, and without additional argument or explanation, the circuit court awarded 
SustainedMED $972,323.50 in attorneys’ fees and $64,225 in litigation expenses and costs. 
The Sellers appeal.  We granted one assignment of error: 
The trial court misinterpreted the Stock Purchase Agreement and failed to follow 
Virginia law regarding its awards to SustainedMED of attorneys’ fees, expenses, 
and costs.  The court reversibly erred in making such awards because they 
exceeded the Stock Purchase Agreement’s cap on indemnity claim losses, and the 
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awards were not limited to specific indemnity claims on which SustainedMED 
succeeded. 
 
ANALYSIS 
This Court “review[s] issues of contract interpretation de novo.”  City of Chesapeake v. 
Dominion SecurityPlus Self Storage, 291 Va. 327, 334 (2016). 
This Court construes a contract “as written, without adding terms that were not included 
by the parties.”  Id. at 335.  The fundamental question before this Court is “what did the parties 
agree to as evidenced by their contract, and the guiding light for such construction is the 
intention of the parties as expressed by them in the words they have used.”  RECP IV WG Land 
Investors LLC v. Capital One Bank (USA), N.A., 295 Va. 268, 283 (2018) (citation and internal 
quotation marks omitted).  When a contract is clear and unambiguous, the “[w]ords that the 
parties used in a contract are normally given their usual, ordinary, and popular meaning.”  Id. 
Section 10.5(a) of the SPA entitles SustainedMED to seek indemnification for “losses” 
resulting from any inaccuracy in or breach of any of the Sellers’ representations.  Section 1.1 of 
the SPA defines losses rather expansively as “all actions, suits, proceedings, . . . damages, dues, 
penalties, fines, costs, amounts paid in settlement, liabilities, obligations, . . . losses, expenses, 
and fees, including court costs and reasonable attorneys’ fees and expenses.”  Section 10.5(b) of 
the SPA limits the maximum aggregate amount that SustainedMED is entitled to receive under 
the Indemnity Agreement, based upon any inaccuracy in or breach of any representations or 
warranty, to $4,900,000, the amount it paid for the stock. 
Section 10.5(d) allows SustainedMED to elect to use forgiveness of the Promissory Notes 
in satisfaction of its indemnification claims against the Sellers.  In requesting declaratory relief in 
its complaint, SustainedMED relies on Section 10.5(d) of the SPA, emphasizing that it is entitled 
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 to use the Promissory Notes in satisfaction of its indemnification claims, and asking the circuit 
court to grant declaratory relief that SustainedMED is “entitled to withhold payment under the 
Promissory Notes and use the Promissory Notes to satisfy its indemnity claim.” 
The circuit court concluded that SustainedMED was entitled to repayment of what it paid 
for the Cyfluent stock as indemnification for the losses caused by the inaccurate statements and 
breach of the representations made by the Sellers.  SustainedMED paid $4,900,000 for the stock 
through cash payments and Promissory Notes.  The circuit court stated that it wanted to provide 
SustainedMED relief so that SustainedMED “will have paid nothing for [the stock].” 
In its declaratory judgment claim, SustainedMED asked that the outstanding Promissory 
Notes be used to satisfy its indemnity claim.  In its order, the circuit court specifically stated that 
it granted the declaratory relief sought by SustainedMED.  It did so by extinguishing any liability 
that SustainedMED still had to pay pursuant to the $2,100,000 in Promissory Notes used to pay 
for the stock.  In other words, as requested by SustainedMED, the extinguishment of the 
Promissory Notes was used to satisfy, in part, SustainedMED’s indemnification claim.  The 
circuit court awarded the remainder of the indemnification claim, regarding SustainedMED’s 
payment for the stock, through entry of a judgment in the amount of $2,775,000. 
The scope of Section 10.5(b) and the definition of losses in Section 1.1 of the SPA allows 
SustainedMED to recover attorneys’ fees and the costs of litigation incurred in pursuing its 
indemnification claim, as long as the total indemnification that SustainedMED is awarded does 
not exceed the indemnification cap stated in Section 10.5(b).  In this case, the circuit court 
awarded SustainedMED $2,775,000 in cash damages and further awarded it forgiveness of 
exactly $2,100,000.06 in Promissory Notes obligations.  We agree with the Sellers that the value 
of the discharged Promissory Notes is payment for indemnification amounts that SustainedMED 
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was entitled to receive pursuant to the terms of the SPA.  We further conclude that the relief 
requested by SustainedMED in its complaint, and the amount of SustainedMED’s extinguished 
debt, should be included in the computation of the aggregate total amount of indemnification 
SustainedMED was entitled to receive under the SPA’s indemnification cap.  Thus, 
SustainedMED had been awarded a total of $4,875,000.06 to satisfy its indemnification claims 
prior to the circuit court considering its claim for losses resulting from the payment of attorneys’ 
fees and litigation costs.  Under Section 10.5(b) of the SPA, the limitation cap for 
indemnification is $4,900,000. 
From the foregoing, we conclude that, because of the indemnification cap expressed in 
the SPA, the maximum award of attorneys’ fees and costs that SustainedMED can recover, in 
relation to the breach for which SustainedMED is being indemnified, is $24,999.94.  As a result, 
the circuit court erred in awarding SustainedMED more than $24,999.94 in attorneys’ fees and 
costs. 
However, the evidence in the record is sufficient to support the circuit court’s award of 
attorneys’ fees and costs to SustainedMED, and it is sufficient to support a conclusion that the 
attorneys’ fees and costs incurred by SustainedMED in pursuing its indemnity claim were at least 
$24,999.94.  Therefore, we will reduce the amount recoverable by SustainedMED for attorneys’ 
fees and costs incurred in pursuing its indemnity claim to $24,999.94. 
CONCLUSION 
In summary, for the reasons stated, we hold that the circuit court erred in awarding 
SustainedMED attorneys’ fees and costs in excess of $24,999.94 on its indemnification claim 
because of the SPA’s indemnification cap of $4,900,000.  We therefore will reverse the 
judgment of the circuit court concerning the amount of the attorneys’ fees, litigation costs, and 
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expenses awarded to SustainedMED.  In addition, we will award SustainedMED attorneys’ fees 
and costs in the total amount of $24,999.94, and enter final judgment. 
 
Reversed and final judgment.