Court Opinion

ID: 1059313
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:36:01.640814+00
Date Added: 2024-06-11T13:06:14.603211
License: Public Domain

Present:   All the Justices

DILIP R. PATEL
                       OPINION BY JUSTICE LEROY R. HASSELL, SR.
v.   Record No. 011913              June 7, 2002

ANAND, L.L.C.

      FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
             Clifford R. Weckstein, Judge Designate

                               I.

      In this appeal of a judgment entered in favor of a

plaintiff against a defendant in an action for fraud, breach

of fiduciary duty, and breach of contract, we consider whether

the plaintiff introduced evidence to establish that it

incurred damage to the value of its ground lease as a result

of the defendant's conduct.

                               II.

      Plaintiff, Anand, L.L.C. (Anand), a Virginia limited

liability corporation, filed its amended motion for judgment

against Clifford Kent Allison, Deep Enterprises, Inc. (Deep

Enterprises), and Dilip R. Patel.    Nayan K. Bhatt and Dinesh

K. Bhatt, members of Anand, filed a separate motion for

judgment against Allison, alleging that he committed acts

and/or omissions that constituted legal malpractice.   The

circuit court consolidated these actions and during the first

day of a jury trial, Anand and the Bhatts settled their claims

against Deep Enterprises.
     At the conclusion of the trial, the jury returned a

verdict in favor of Anand against Dilip Patel in the amount of

$1,250,000 in damages for actual fraud, breach of fiduciary

duty, and breach of contract.    The jury awarded Anand $500,000

in punitive damages against Dilip Patel, and the court reduced

that award to $350,000 as required by Code § 8.01-38.1.        The

jury returned a verdict in favor of the Bhatts against Allison

for $52,500 in compensatory damages and $100,000 in punitive

damages, and that verdict is not challenged in this appeal.

     Dilip Patel filed a petition for appeal and assigned

error to six different rulings of the circuit court.      We

awarded Dilip Patel an appeal limited to one assignment of

error.   In spite of this Court's order that limited the issues

in this appeal, Dilip Patel has included in his brief, under

the guise of questions presented, assignments of error that we

specifically rejected.   We will not consider these so-called

questions presented, and we remind counsel for Dilip Patel of

their duty to comply with this Court's order.

                                III.

     Even though the record in this case is voluminous, we

will only discuss those facts that are relevant to the narrow

issue presented in this appeal.       Deep Enterprises is a

Virginia corporation.    When Deep Enterprises was formed, Dilip

Patel, president and director of Deep Enterprises, owned 50%

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of its stock.   Rajesh Patel, who also owned 50% of the

corporation's stock, was the vice president, secretary, and a

director of the corporation.

     Deep Enterprises owned, as its only asset, the right to

purchase a long-term ground lease from the Federal Deposit

Insurance Corporation (FDIC).   The ground lease, recorded

among the land records in the City of Hampton, permitted the

owner of the leasehold estate to use the land and improvements

that are the subjects of the lease for a term of 99 years.    An

old hotel, which had been closed, was situated on the property

that was the subject of the leasehold estate.

     In late 1994 or sometime in 1995, Rajesh Patel approached

Allison, who at that time was an attorney licensed to practice

law in this Commonwealth.   Rajesh Patel informed Allison that

Rajesh Patel had been the successful bidder at an auction to

purchase a ground lease from the FDIC. *   The ground lease was

for a period of 99 years, with 82 or 83 years remaining on the

lease.

     The FDIC required that Deep Enterprises pay $918,961 to

purchase the ground lease, which included an $80,000 deposit

that had been paid and an additional contingency fund for the

removal of asbestos from the hotel situated on the property.

     *
       Even though initially the Resolution Trust Corporation
acquired ownership of the ground lease, the FDIC acquired the
Resolution Trust Corporation's interests.

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Dilip Patel and Rajesh Patel, purportedly acting on behalf of

Deep Enterprises, were unable to raise this money and,

therefore, Deep Enterprises undertook numerous dilatory

efforts, including the filing of litigation in a federal

district court, to delay the closing on the ground lease.

Ultimately, Deep Enterprises and the FDIC reached a settlement

that required Deep Enterprises to close on the ground lease

contract on or before June 14, 1996, or it would forfeit the

$80,000 deposit.

     In the fall of 1995, Deep Enterprises caused two

appraisals to be performed on the property.   One appraisal,

referred to as the Copeland appraisal, placed a fair market

value on the property subject to the ground lease at

$2,670,000.   Another appraisal established the value of the

same property at $500,000.

     Colonial Downs, L.L.C., an entity that had constructed a

horse race track in New Kent County, Virginia, had an interest

in the acquisition of the ground lease.   Gilbert D. Short,

Colonial Downs' employee, made an offer to Deep Enterprises to

purchase the ground lease in November 1995 for $1,000,000.

Subsequently, Colonial Downs increased its offer to purchase

the ground lease to $1,496,000.

     In an effort to secure financing to close on the ground

lease, in November 1995, Deep Enterprises sold 30% of its

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shares to several English investors for $300,000.    However, in

late May 1996, Dilip Patel and Rajesh Patel were anxious

because they were still unable to raise the capital necessary

to purchase the ground lease, and they were worried that Deep

Enterprises would forfeit the $80,000 deposit.   They began to

search frantically for additional investors.    At the same

time, Allison, Rajesh Patel, and Dilip Patel participated in a

scheme to deceive the English investors and convinced them to

forward an additional $300,000 to Deep Enterprises under the

guise that the money was necessary to obtain an extension of

the June 14, 1996 closing date from the FDIC.    As a part of

this scheme, Allison created a fictitious letter to lead the

English investors to believe that Colonial Downs desired to

purchase the ground lease promptly.

     During his search for additional investors, Dilip Patel

met Dinesh K. Bhatt and Nayan K. Bhatt, brothers who were

physicians in Martinsville, Virginia.   Upon Dilip Patel's

directions, Allison forwarded a copy of the Copeland appraisal

that valued the ground lease at $2,670,000 to Dinesh Bhatt and

Nayan Bhatt.

     During several conversations, Dilip Patel made the

following representations to Dinesh Bhatt.   The value of the

ground lease was between $1,500,000 to $2,000,000.   Colonial

Downs was willing to purchase the ground lease for a price in

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excess of $1,000,000.   Dilip Patel had paid most of a sum of

$200,000 to the FDIC as a deposit for a contract to purchase

the ground lease.   Dilip Patel would contribute $200,000, the

Bhatts would contribute $700,000, and the sum of $900,000

would be used by Deep Enterprises to acquire the ground lease.

Deep Enterprises, in turn, would immediately transfer the

property to Dinesh Bhatt, Nayan Bhatt, and Dilip Patel.

     Even though the Bhatts had only known Dilip Patel for

about three months, Dilip Patel convinced them to invest

$700,000 in the plan to obtain ownership of the ground lease.

Dilip Patel and Allison falsely assured Dinesh Bhatt that the

shareholders of Deep Enterprises had unanimously agreed with

the decision to transfer the corporation's interest in the

ground lease to Dinesh Bhatt, Nayan Bhatt, and Dilip Patel.

The Bhatts made their $700,000 investment, and the closing

occurred on June 14, 1996.   Later, Dilip Patel, acting on

behalf of Deep Enterprises, but without the consent or

knowledge of the English minority shareholders, conveyed Deep

Enterprises' interest in the ground lease to Dinesh Bhatt,

Nayan Bhatt, and Dilip Patel.   Anand, a limited liability

corporation formed by Dilip Patel and the Bhatts, acquired the

ground lease.   Subsequently, the English investors learned

that they had been defrauded and contacted Dinesh Bhatt, who

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was unaware of their involvement or the fraudulent acts of

Allison, Rajesh Patel, and Dilip Patel.

                               IV.

     Dilip Patel argues that Anand failed to present evidence

that would permit the jury to conclude that Anand suffered

damage to its interest in the ground lease as a result of

Patel's fraudulent acts.   Patel contends that Anand failed to

prove any loss between the difference in the value of the

ground lease that it bargained for and the value of the ground

lease that it actually received.      Responding, Anand asserts

that it presented evidence of the amount it paid for the

ground lease, $900,000, and the amount of offers that

prospective purchasers made for the ground lease.     Anand also

argues that it presented evidence regarding the renovation

costs for the hotel on the property and the amount it paid in

lease payments and in franchise and application fees.     Anand

also says that it presented evidence of the amount of

mechanic's liens that encumbered the property, as well as

evidence of litigation expenses from a separate lawsuit that

challenged its legal interest in the ground lease.

     We stated in Carstensen v. Chrisland Corp., 247 Va. 433,

444, 442 S.E.2d 660, 666-67 (1994), the following principle

that is equally pertinent here:

          "In Long & Foster Real Estate, Inc. v. Clay,
     231 Va. 170, 343 S.E.2d 297 (1986), we considered

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     the measure of damages in a case where a fiduciary
     withheld information from its principal which, if
     disclosed, would have caused the principal to reject
     the transaction. In that case, we held that the
     measure of damages is the difference between the
     value of the item bargained for and the value of the
     item actually received. Id. at 175-76, 343 S.E.2d
     at 300-01, cited with approval in, Duvall,
     Blackburn, Hale & Downey v. Siddiqui, 243 Va. 494,
     498, 416 S.E.2d 448, 450 (1992)."

We applied this principle in Prospect Development Co. v.

Bershader, 258 Va. 75, 91, 515 S.E.2d 291, 300 (1999):

          "Generally, a person who acquired property by
     virtue of a commercial transaction and who has been
     defrauded by false representations is entitled to
     recover as damages the difference between the actual
     value of the property at the time the contract was
     made and the value that the property would have
     possessed had the representation been true."

     Applying this established principle, we hold that Anand

failed to present evidence that would permit the jury to

conclude that Anand suffered damage because it failed to

obtain clear title to the ground lease in the fall of 1996.

Anand failed to present evidence of the actual value of the

ground lease that it bargained for – a ground lease which

would have had a clear title – and the value of the ground

lease that it actually received – a ground lease with a cloud

on the title.   The record simply does not contain this

evidence.

     Upon our review of the record, we hold that the only

legally cognizable item of compensatory damage that Anand

presented at trial was the sum of $23,148.77 that it incurred

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in litigation expenses related to a lawsuit that Deep

Enterprises filed against Anand in the Circuit Court of the

City of Hampton.   In that lawsuit, Deep Enterprises challenged

Anand's legal interest in the ground lease.      We observe that a

party, required to act in the protection of his interests by

bringing or defending an action against a third person, may

recover attorney's fees incurred in that action against the

original entity or person who breached a duty owed, in this

instance, Dilip Patel.   Prospect Development Co., 258 Va. at

92, 515 Va. at 301; Fidelity Nat'l Ins. Co. v. Southern

Heritage Ins., 257 Va. 246, 253-54, 512 S.E.2d 553, 557-58

(1999); Owen v. Shelton, 221 Va. 1051, 1055-56, 277 S.E.2d

189, 192 (1981); Hiss v. Friedberg, 201 Va. 572, 577-78, 112

S.E.2d 871, 875-76 (1960); see Restatement (Second) of Torts

§ 914 (1977).   And, we note that Dilip Patel did not challenge

this element of damage in the circuit court.

     Anand contends, however, that it incurred the following

compensable damages as a result of Dilip Patel's acts:      costs

incurred in the renovation of the hotel, the costs of the

ground lease payments, the costs associated with franchise and

application fees for the hotel, and the costs of mechanic's

liens that encumbered the property.      We disagree.   Anand

failed to establish that Dilip Patel's actions were a

proximate cause of these costs.       See Murray v. Hadid, 238 Va.

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722, 730-31, 385 S.E.2d 898, 903-04 (1989).   For example,

Anand incurred costs and expenses associated with the ground

lease payments and fees, as well as renovation expenses, in

its attempt to develop the hotel.   Additionally, the

mechanic's liens were not proximately caused by any act

committed by Dilip Patel.

                              V.

     We will reverse that portion of the judgment that

included damages that are not recoverable and we will reduce

the jury's verdict of compensatory damages to $23,148.77, and

we will enter final judgment in favor of Anand.   We will also

enter final judgment in favor of Anand on the punitive damage

award because that award is not the subject of any assignment

of error in this appeal.

                                                Affirmed in part,
                                                reversed in part,
                                                modified in part,
                                              and final judgment.

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