Court Opinion

ID: 9962346
Source: CourtListenerOpinion
Date Created: 2024-04-23 15:19:42.274334+00
Date Added: 2024-06-11T08:20:27.799990
License: Public Domain

COURT OF APPEALS OF VIRGINIA

            Present: Chief Judge Decker, Judges Fulton and Ortiz
PUBLISHED

            Argued at Richmond, Virginia

            J&R ENTERPRISES, ET AL.
                                                                               OPINION BY
            v.     Record No. 0697-23-2                                     JUDGE DANIEL E. ORTIZ
                                                                               APRIL 23, 2024
            WARE CREEK REAL ESTATE CORP., ET AL.

                                FROM THE CIRCUIT COURT OF NEW KENT COUNTY
                                            B. Elliott Bondurant, Judge

                           Benjamin P. Kyber (Kevin W. Mottley; The Mottley Law Firm PLC,
                           on briefs), for appellants.

                           Christopher W. McDonald (Kevin A. Lake; McDonald, Sutton &
                           Duval, PLC, on brief), for appellees.

                   An adverse witness’s testimony may not bind a calling party if it is inherently incredible.

            To determine this, a circuit court must sift through the testimony to ascertain what is and what is

            not inherently incredible. Appellants, J&R Enterprises and Thomas L. White, as the executor of

            the estate of John R. Filichko and trustee of the John R. Filichko Revocable Trust (collectively

            “J&R”), seek to enforce a judgment against Ware Creek Real Estate Corp. (“WCRE”), Ware

            Creek Building Corp. (“WCBC”), and W. Walker Ware, IV (collectively “WCRE”) by piercing

            WCRE’s corporate veil and reverse piercing WCBC’s corporate veil. The circuit court applied

            the adverse witness rule to bind J&R to all of Ware’s testimony, as J&R’s sole witness. The

            court then granted WCRE’s motion to strike and entered judgment for defendants. Because the

            circuit court failed to sift through Ware’s testimony and then declared Ware’s testimony binding

            on J&R despite finding it all to be incredible, we reverse the judgment and remand consistent

            with the instructions set forth in this opinion.
                                          BACKGROUND

         Following a bench trial in December 2010, the circuit court awarded WCRE a money

judgment against J&R in the sum of $300,000 regarding a real estate brokerage commission

dispute. On appeal, the Supreme Court reversed the award. The Court remanded the case for

consideration of J&R’s request for attorney fees incurred below and on appeal. On remand, the

circuit court awarded J&R $76,812.73 in costs and fees. J&R then filed a complaint against

Ware, WCRE, and WCBC,1 seeking to pierce WCRE’s corporate veil and reverse pierce WCBC

to collect its judgment.

         WCRE is a real estate brokerage firm. WCBC was initially established to construct

homes. After 2010, however, WCBC stopped doing home construction and mostly engaged in

smaller renovation projects. During the five years before the trial, both corporations had no

other shareholders, officers, directors, or employees—Ware “alone control[ed]” them as sole

owner and shareholder. WCRE and WCBC have been winding down and have not filed federal

or state tax returns in several years. Neither WCRE nor WCBC has earned any revenue since

2017 and 2018 respectively, apart from a sale of Ware’s own real estate in 2021 and a few

listings he acquired about a month before the hearing. Neither corporation owns any personal

property—other than some office supplies—nor real estate; rather, both operate out of a single

building, which Ware owns. WCRE and WCBC’s only other source of funds is loans from

Ware.2

         1
         The complaint also named Ware Creek Corp. (“WCC”) and sought to reverse pierce its
corporate veil, but the circuit court entered an order nonsuiting J&R’s claim against it on
November 1, 2022.
         2
          Ware made $1,841,501.12 in purported loans to WCRE between 1998 and sometime in
2019. During this time, Ware made loans to WCBC totaling $1,122,217.73. No loan repayment
notes in the accounting records of either company were submitted into evidence.
                                              -2-
       At the bench trial, J&R presented WCRE and WCBC’s credit card statements, loans,

canceled checks, and financial records, to demonstrate Ware’s use of WCRE and WCBC to pay

for alleged personal expenses. J&R also called Ware as its only witness. As the sole owner and

shareholder of WCRE and WCBC, the circuit court declared Ware to be an adverse witness.

Ware’s testimony largely related to whether expenses paid for by WCRE and WCBC were

incurred for valid business purposes. These expenses included charges for numerous restaurants,

amusement park and movie theater tickets, medical procedures and supplements, jewelry, taxes

on a boat and real estate property owned by Ware, and grocery and retail purchases. As J&R’s

counsel questioned Ware about these expenses, he struggled to recall most details about the

purchases, though he often maintained that they were indeed legitimate business expenses. He

insisted that—although WCRE and WCBC had not earned profits since 2017 and 2018

respectively, had no other employees, nor performed work for any customers at the time—any

and all expenses were business related and not personal.

       At the conclusion of J&R’s evidence, WCRE moved to strike. The circuit court sustained

the motion, finding that although Ware’s testimony was “inherently incredible,” the documents

submitted into evidence failed to prove that the expenses paid were for improper business

purposes. The circuit court acknowledged that the financial statements “may raise questions”

regarding the legitimacy of WCRE’s and WCBC’s expenses but concluded that the adverse

witness rule precluded the court from “infer[ring] anything” from those statements. On March

30, 2023, the circuit court entered summary judgment in favor of WCRE, in accordance with

Rule 1:11, and dismissed J&R’s complaint.

                                              -3-
                                              ANALYSIS

                                       I. Standard of Review

       When reviewing a circuit court’s decision on a motion to strike, an appellate court must

“review the evidence in the light most favorable to the non-moving party.” Kiddell v. Labowitz,

284 Va. 611, 629 (2012). As a result, we must give J&R “the benefit of all substantial conflict in

the evidence, and all fair inferences that may be drawn therefrom.” Hadeed v. Medic-24, Ltd.,

237 Va. 277, 281 (1989) (quoting Matney v. Cedar Land Farms, Inc., 216 Va. 932, 934 (1976)).

The question for this Court is whether “upon a careful consideration of all the evidence, . . .

reasonable [people] may differ on the conclusion to be reached.” Walton v. Walton, 168 Va.

418, 422 (1937) (omission in original).

       In other words:

               [T]he trial court should resolve any reasonable doubt as to the
               sufficiency of the evidence in plaintiff’s favor and should grant the
               motion only when it is conclusively apparent that plaintiff has
               proven no cause of action against defendant, or when it plainly
               appears that the trial court would be compelled to set aside any
               verdict found for the plaintiff as being without evidence to support
               it.

Collelo v. Geographic Servs., Inc., 283 Va. 56, 67 (2012).

                                  II. Adverse Witness Rule

       When a party has called an adverse witness, their testimony is usually “‘binding’ on the

calling party.” Colas v. Tyree, 302 Va. 17, 26 (2023) (quoting Kent Sinclair, The Law of

Evidence in Virginia § 15-40[c], at 1183 (8th ed. 2018)). “The rule is apparently grounded in the

notion that, ‘[b]y calling the witness . . . a party represents him to the court as worthy of credit.’”

Id. (alterations in original) (quoting 1 Francis Wharton, A Commentary on the Law of Evidence

in Civil Cases 523-24 (1877)). But the testimony is binding only if it is “uncontradicted and is

not inherently improbable.” Economopoulos v. Kolaitis, 259 Va. 806, 812 (2000). A court

                                                 -4-
reviews adverse witness testimony differently from the way it weighs the sufficiency of ordinary

evidence. “[T]he adverse party witness rule requires a reviewing court to examine the testimony

of a party called as a witness by the opposing party and to sift what is uncontradicted from what

is contradicted (or inherently incredible).” Colas, 302 Va. at 28. If testimony is contradicted or

inherently incredible, the plaintiff is not bound by it. See id. On the other hand, if the testimony

is “clear, logical, reasonable, and not in conflict with plaintiff’s evidence,” it is binding.3 S & W

Motor Lines, Inc. v. Bayliss, 212 Va. 124, 125 (1971); see also Beale v. Jones, 210 Va. 519, 522

(1970).

          In Colas v. Tyree, the Supreme Court reversed a jury finding for Tyree’s estate on its

claim of battery against Detective Colas, who shot and killed Tyree during a standoff with

police. Colas, 302 Va. at 21-24. Applying the adverse witness rule, the Supreme Court found no

evidence to contradict the detective’s account that he was justified in firing the shot because he

was acting in the defense of another officer when Tyree raised a knife in close proximity to the

officer. Id. at 31-33. Because Colas’s testimony was uncontradicted and not inherently

improbable, the estate was bound by his testimony. Id. at 33.

          Here, J&R called Ware to testify. So, his testimony is binding on J&R, but only insofar

as it is uncontradicted on a given factual point, is “clear, reasonable, logical,” and not incredible.

See S & W Motor Lines, 212 Va. at 125. Although the circuit court found Ware’s testimony to

be “inherently incredible,” the court found that it was bound by the testimony and could not infer

or speculate about the business purpose of each expense from the financial records—the only

other evidence submitted by J&R. But a finding of inherent incredibility is a recognized

         The Supreme Court has “repeatedly rejected the notion that the ‘positive testimony’ of
          3

an adverse party witness . . . can be overcome by . . . inferences”—or speculation—“drawn from
primary facts, or ‘negative’ testimony from a witness.” Colas, 302 Va. at 28; see also Ragland v.
Rutledge, 234 Va. 216, 219 (1987); Norfolk & Portsmouth Belt Line R.R. Co. v. C.F. Mueller
Co., 197 Va. 533, 537-40 (1955).
                                               -5-
exception to the adverse witness rule. See Colas, 302 Va. at 31 (“The plaintiffs are bound by the

testimony from this adverse party witness unless it is contradicted or inherently incredible or

improbable.”). The circuit court’s finding of incredibility cannot then support the application of

the adverse witness rule.

       Furthermore, the method the court determined Ware’s incredibility was inconsistent with

the test laid out in Colas, as the court should not “look to the witness’s credibility globally,” like

it did here. Id. at 28 (emphasis added). Rather, the court should have “sift[ed]” through the

testimony to determine what was and was not credible or contradicted. Id.; see also Sinclair,

supra, at 1183 (the rule applies “only to so much of the adverse witness’s testimony as is not

contradicted by or in conflict with the calling party’s other evidence”).

       If Ware’s testimony is not inherently incredible on a specific factual point, J&R is bound

by it. The opposite is also true—if Ware’s testimony is inherently incredible on a particular

factual point, J&R is not bound by it and the court can draw any reasonable inferences from the

evidence. Accordingly, the court might find Ware’s testimony about the status of WCRE and

WCBC, as well as his admissions that he made certain purchases, to be credible. But the court

might also disregard other parts of his testimony, such as his assessment of an expense’s business

purpose, for being incredible. Consistent with the circuit court’s role as factfinder, we remand

for the court to sift Ware’s testimony, consistent with Colas and the adverse witness rule.

                                            CONCLUSION

       The circuit court erred in applying the adverse witness rule to Ware’s testimony. Thus,

we reverse the motion to strike and remand with instructions to reconsider the evidence, binding

J&R to only those portions of Ware’s testimony that are not inherently incredible, and then

determine whether J&R put forward sufficient evidence to survive a motion to strike.

                                                                            Reversed and remanded.

                                                 -6-