Court Opinion

ID: 1031757
Source: CourtListenerOpinion
Date Created: 2013-07-05 08:36:43.649002+00
Date Added: 2024-06-11T15:27:10.428638
License: Public Domain

UNPUBLISHED

                   UNITED STATES COURT OF APPEALS
                       FOR THE FOURTH CIRCUIT

                             No. 08-1569

BNX SYSTEMS CORPORATION,

                Debtor - Appellee,

           v.

JOHN NARDOLILLI,

                Defendant - Appellant.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.   Liam O‟Grady, District
Judge. (1:07-cv-01308-LO-TRJ)

Argued:   January 28, 2010                       Decided:   March 1, 2010

Before TRAXLER,    Chief   Judge,   and   KING    and   GREGORY,   Circuit
Judges.

Vacated and remanded by unpublished per curiam opinion.

ARGUED: Steven Ellison, BROAD & CASSEL, West Palm Beach,
Florida, for Appellant. Kevin M. O‟Donnell, HENRY & O‟DONNELL,
PC, Alexandria, Virginia, for Appellee.   ON BRIEF: Drewry B.
Hutcheson, Jr., MCGINLEY ELSBERG & HUTCHESON, PLC, Alexandria,
Virginia, for Appellant.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

       John Nardolilli appeals a bankruptcy court judgment against

him and in favor of BNX Systems Corporation (“BNX”) concerning

BNX‟s claims of abuse of process and intentional interference

with business expectancy.             Finding the evidence insufficient to

sustain BNX‟s claims, we vacate the judgment and remand for

entry of judgment in Nardolilli‟s favor.

                                           I.

       Worldwide Investigations & Research, Inc. (“Worldwide”) and

BNX    are     both     corporations       that       provide      computer      security

solutions for businesses.              Nardolilli is Worldwide‟s president

and    principal.         After      Worldwide        and    BNX    entered      into   an

agreement to sell certain technologies to Citibank, a dispute

arose between Worldwide and BNX resulting in litigation pending

in    the    Southern    District     of   Florida.          Part    of   that    dispute

concerned intellectual property rights to software BNX developed

under a contract with Worldwide.                  While the Florida action was

pending, BNX filed for Chapter 11 bankruptcy protection.

       In the months preceding the bankruptcy filing, BNX hired a

company      to    market   BNX      in    the       hopes   of     either    obtaining

additional capital or identifying a partner for a merger with,

or acquisition of, BNX.               Eventually, BNX decided to file for

bankruptcy        protection   and    found      a    company,      Aladdin   Knowledge

                                           2
Systems, that agreed to make a bid of $750,000 in a proposed

auction of BNX‟s assets in bankruptcy.                    In an effort to expedite

the process, BNX requested that the bankruptcy court approve the

proposed bidding procedures, set a deadline of noon on January

23, 2006, for third parties to submit qualified bids, and set

January 30, 2006, as the date for the sale of BNX‟s assets.

Worldwide objected on the basis that some of the assets that BNX

proposed to sell were the subject of Worldwide‟s claims in the

Florida litigation.             The bankruptcy court ultimately overruled

Worldwide‟s objections.

     Shortly      thereafter,        Worldwide      filed      a    complaint        in    the

bankruptcy court seeking a determination of ownership rights to

certain    of     BNX‟s       assets,    including           some     of       BNX‟s      core

technology.       Worldwide also filed a separate objection to BNX‟s

motion    to    sell    its   assets.        The   objection        alleged      that     BNX

sought to sell intellectual property that belonged to Worldwide.

Additionally,      Nardolilli        asserted      in   a    letter       to   the     United

States Department of Commerce that the sale of BNX‟s assets

would violate export restrictions.                 The government inquiry that

followed       resulted    in    a   several-week           delay    of    the    intended

January 30, 2006, sale date.

     Between       February       24,   2006,       and      March        2,    2006,     the

bankruptcy      court     conducted     an   expedited        trial       on   Worldwide‟s

complaint and objection.             On March 2, 2006, upon the completion

                                             3
of    the    trial,    the        court    reopened       the    bidding       process.

Subsequently, Citibank made a bid for the first time.1                          Aladdin

and Citibank then made several additional bids and eventually a

substantial portion of BNX‟s assets were sold to Citibank for

$2.2 million.       The remaining assets were sold to a third party

for an additional $38,000.

      Thereafter,      BNX    filed       an      adversary     proceeding     in    the

bankruptcy court, objecting to certain proofs of claims filed by

Worldwide     and     asserting       counterclaims.             The    counterclaims

alleged under Virginia law that Worldwide and Nardolilli had

abused the process of the bankruptcy court and had intentionally

interfered in BNX‟s legitimate business expectancies regarding

the sale of its assets by filing false claims in the bankruptcy

court asserting ownership of BNX‟s intellectual property.                             The

counterclaims       further       asserted       that   Worldwide      and   Nardolilli

filed false claims in order to delay the sale process and create

a    cloud   on   title      so    that    Worldwide       and    Nardolilli        would

eventually be able to purchase BNX assets at a reduced price.

Worldwide ultimately filed a Chapter 7 bankruptcy petition in

      1
       Citibank was the only qualified bidder other than Aladdin.
During the trial, Worldwide had itself purportedly submitted a
qualified bid but was later forced to rescind it because
Worldwide never received the financing commitment necessary to
bid on BNX‟s assets.

                                             4
the Southern District of Florida, and the case was stayed as to

it.

      After a trial, the bankruptcy court found BNX had proven

its claims for abuse of process and interference with business

expectancy against Nardolilli.                The court awarded judgment to

BNX against Nardolilli in the amount of $223,957.00 in actual

damages and $100,000.00 in punitive damages.2                  The district court

subsequently affirmed the judgment on appeal.

                                         II.

      Nardolilli    argues     that      the    bankruptcy         court   erred   in

awarding judgment to BNX, contending that BNX failed to produce

evidence sufficient to establish the elements of either of its

claims.    We agree.3

      We   review      the    district         court‟s       decision      de   novo,

“effectively    standing      in   its   shoes    to     consider     directly     the

findings   of   fact    and    conclusions       of    law    by    the    bankruptcy

court.” Cypher Chiropractic Ctr. v. Runski (In re Runski), 102

      2
       The actual damages were for “attorneys‟ fees incurred to
resist Nardolilli‟s false claims and the costs of operating BNX
for the additional weeks while the claims were being resolved
and the auction finally held.” J.A. 476.
      3
        Because we conclude that Nardolilli was entitled to
judgment in his favor on this ground, we do not address his
remaining arguments.

                                          5
F.3d 744, 745 (4th Cir. 1996).         “[W]e review legal conclusions

by the bankruptcy court de novo and may overturn its factual

determinations only upon a showing of clear error.”               Id.   The

parties agree that Virginia law governs BNX‟s claims.

                                 A.

     Nardolilli first argues that BNX failed to present evidence

sufficient to sustain its abuse-of-process claim.

     Abuse of process is “the wrongful use of process after it

has been issued.”    Triangle Auto Auction, Inc. v. Cash, 380

S.E.2d 649, 650 (Va. 1989).   The elements of an abuse-of-process

claim are:   “(1) the existence of an ulterior purpose; and (2)

an act in the use of the process not proper in the regular

prosecution of the proceedings.”       Donohoe   Constr.    Co.    v.   Mt.

Vernon Assoc., 369 S.E.2d 857, 862 (Va. 1988).        In light of the

presence of the second element, “[a] legitimate use of process

to its authorized conclusion, even when carried out with bad

intention,” does not constitute abuse of process.          Id.; see Ross

v. Peck Iron & Metal Co., 264 F.2d 262, 268 (4th Cir. 1959).

Rather, “[t]he gravamen of the tort lies in the abuse or the

perversion of the process after it has been issued.”4              Donohoe

     4
        The Donohoe court explained that, in this way, abuse of
process    is  different  from  the   “kindred, but   distinctly
different” tort of malicious prosecution, which involves
“maliciously causing process to issue.” Donohoe Constr. Co. v.
(Continued)
                                   6
Constr. Co., 369 S.E.2d at 862 (emphasis added); see Restatement

(Second) of Torts § 682 cmt. a (1977) (explaining that it is

“[t]he subsequent misuse of . . . process, [even if] properly

obtained,”        that   constitutes   the     tort   of    abuse    of   process

(emphasis added)).         An example of such an act would be suing a

person, obtaining a judgment against him, and then, after he is

aware that the debt has been paid, taking out execution on the

judgment.         See id. cmt. a, illus. 2.            Other examples would

include using the process that has already been issued to force

the payment of a debt, see Mullins v. Sanders, 54 S.E.2d 116,

122 (Va. 1949), or “as a means of extortion,” Donohoe Constr.

Co., 369 S.E.2d at 862.

       It    is     evidence    concerning     the    second       element   that

Nardolilli contends is lacking.              In response, BNX argues only

that it established that Nardolilli filed his claims in order to

attempt to buy BNX for less than market value.                 But while BNX‟s

evidence on this point certainly tends to show that Nardolilli‟s

filing of his claims was improperly motivated, it does not show

that he committed any improper act to unfairly use those claims

once they were filed.           In the view of BNX, the abuse-of-process

tort   was    complete     as   soon   as    the   claims   were    filed.    As

Mt. Vernon Assocs., 369 S.E.2d 857, 862 (Va. 1988) (internal
quotation marks omitted).

                                        7
explained    previously,       this    simply         cannot       be   because         of   the

necessity of an improper use of the process after filing.                                    See

id.   at    862-63     (holding      that        evidence         was   insufficient          to

establish abuse-of-process when although it supported the jury‟s

finding    that    defendant      “filed        [a]     mechanic‟s       lien      with      the

ulterior purpose of avoiding imposition of liquidated damages

for delay     [of performance of a construction contract]                                or of

forcing a settlement” of claims relating to the contract, it

failed to establish that the defendant “committed any „act in

the use of the process not proper in the regular prosecution of

the proceeding‟”).        In Virginia, even the issuance of a baseless

process will not alone be sufficient to support a claim for

abuse of process.        See Glidewell v. Murray-Lacy & Co., 98 S.E.

665, 668 (Va. 1919) (explaining that whether                            the process is

baseless    is    immaterial    in     an    action         for    abuse     of    process).

There must be a subsequent perversion of that process, and that

is what is lacking here.

                                            B.

      Nardolilli       next    contends          that       BNX    failed     to       present

evidence to sustain its claim for interference with business

expectancy.

      To establish such a cause of action under Virginia law, a

plaintiff     must     show     “(1)        the       existence         of    a        business

relationship      or    expectancy,         with        a    probability          of    future

                                            8
economic benefit to plaintiff; (2) defendant‟s knowledge of the

relationship        or    expectancy;       (3)     a    reasonable           certainty    that

absent defendant‟s intentional misconduct, plaintiff would have

continued in the relationship or realized the expectancy; and

(4) damage to plaintiff.”                Commercial Bus. Sys., Inc. v. Halifax

Corp., 484 S.E.2d 892, 896 (Va. 1997).                                To prove the first

element, the evidence “must establish expectancy by and between

two parties at least, based upon something that is a concrete

move in that direction.”                  Moore v. United Int‟l Investigative

Servs., Inc., 209 F. Supp. 2d 611, 619-20 (E.D. Va. 2002).

      Here,     BNX       failed    to    prove        such      an   expectancy,        having

presented no evidence that, at the time of Nardolilli‟s filings,

it   expected       any    buyer,    let       alone    a     particular        buyer,    would

outbid   Aladdin.           And,    even       assuming       that      BNX    established   a

business      expectancy      with       its    expected         sale    to    Aladdin,     BNX

suffered no loss from any interference with that sale, as it

resulted in BNX receiving a much larger bid from Citibank.

      BNX maintains that it showed it had a business expectancy

in   having    an     auction      free    from     the       effects     of    Nardolilli‟s

improper      filings,       and    BNX        argues       it    established       all     the

necessary elements with regard to that expectancy.                                BNX points

us to no authority supporting this novel theory.                               An expectancy

in such a process is simply not the sort of expectancy that the

tort of interference with business expectancy protects.                                    See,

                                                9
e.g., Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 49 Cal.

Rptr.   2d        793,   804        (Cal.     Ct.       App.    1996)     (holding    that

“interference with the market” theory of liability could not be

employed to prove the tort, which “applies to interference with

existing     noncontractual          relations          which    hold    the   promise     of

future economic advantage”); cf. DurretteBradshaw, P.C. v. MRC

Consulting, L.C., 670 S.E.2d 704, 707 (Va. 2009) (explaining

that the commission of the tort of interference with an existing

contract     requires     an     “inten[t]         to    affect    the    contract    of   a

specific     person”     (internal          quotation      marks    omitted)).        BNX‟s

evidence was therefore insufficient on this claim as well.

                                             III.

     Because        we   conclude       that       BNX    failed    to    establish      the

elements     of    either      of    its    claims,       we    vacate   the   bankruptcy

court‟s judgment and remand for entry of judgment against BNX.

                                                                   VACATED AND REMANDED

                                              10