Court Opinion

ID: 1038042
Source: CourtListenerOpinion
Date Created: 2013-08-22 00:00:57.210007+00
Date Added: 2024-06-11T15:38:29.221799
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                                No. 11-2327

JAMES M. DUNLAP,

                  Plaintiff - Appellant,

           v.

COTTMAN TRANSMISSIONS SYSTEMS, LLC; TODD P. LEFF,

                  Defendants - Appellees.

Appeal from the United States District Court for the Eastern
District of Virginia, at Norfolk. Arenda Wright Allen, District
Judge. (2:11-cv-00272-AWA-DEM)

Argued:   May 14, 2013                         Decided:    August 21, 2013

Before Sandra Day O’CONNOR, Associate Justice (Retired), Supreme
Court of the United States, sitting by designation, and WYNN and
DIAZ, Circuit Judges.

Unpublished     Order   of   Certification    to   the   Supreme   Court   of
Virginia.

ARGUED:   Crystal M. Johnson, UNIVERSITY OF GEORGIA SCHOOL OF
LAW,   Appellate   Litigation   Clinic,  Athens,   Georgia,   for
Appellant. James C. Rubinger, PLAVE KOCH PLC, Reston, Virginia,
for Appellees.    ON BRIEF:   Peter B. Rutledge, Paula Briceno,
Brittany Cambre, UNIVERSITY OF GEORGIA SCHOOL OF LAW, Appellate
Litigation Clinic, Athens, Georgia, for Appellant.    Benjamin B.
Reed, PLAVE KOCH, PLC, Reston, Virginia, for Appellees.
PER CURIAM:

                            I.    Questions Certified

       The United States Court of Appeals for the Fourth Circuit,

exercising the privilege afforded it by the Supreme Court of

Virginia through its Rule 5:40 to certify questions of law to

the Supreme Court of Virginia when a question of Virginia law is

determinative in a pending action and there is no controlling

Virginia     precedent      on    point,       requests      the    Supreme       Court    of

Virginia     to   exercise       its    discretion      to    answer       the    following

questions:

  1.    May a plaintiff use tortious interference with contract or

        tortious    interference             with   business       expectancy       as    the

        predicate     unlawful         act    for   a   claim      under    the   Virginia

        business conspiracy statute, Va. Code §§ 18.2-499, 18.2-

        500?

  2.    Does a two-year or five-year statute of limitations apply

        to   claims    of    tortious         interference         with    contract       and

        tortious interference with business expectancy under Va.

        Code § 8.01-243?

We acknowledge that the Supreme Court of Virginia may restate

these questions.      See Va. Sup. Ct. R. 5:40(d).

                                              2
 II.     Nature of the Controversy and Statement of Relevant Facts

       AAMCO Transmissions, Inc. is a nationwide transmission and

automobile       repair       company      that       operates       through         local

franchises.        This    case     involves    a    dispute      between       an   AAMCO

franchisee named James Dunlap and various parties related to

AAMCO    and     its    recent      attempt    to     eliminate       certain         local

franchises with overlapping business areas in Virginia.

       Dunlap,    the   plaintiff-appellant,           has      operated    a    pair    of

AAMCO franchises for over 30 years.                 In 2006, AAMCO was acquired

by an asset-management company that already held a large share

of   Cottman     Transmission       Systems,        LLC,    an    AAMCO    competitor.

Because of the substantial overlap among the businesses – and

the potential for competition among local franchisees – the new

AAMCO owners attempted to convert Cottman franchises to AAMCO

franchises     and     then   close     some   existing         franchises.          Dunlap

found himself among the disfavored franchisees.                       See J.A. 5-8,

11-14.

       Dunlap fought AAMCO to stay in business, and the parties

eventually     litigated      and   settled    cross-disputes         for       trademark

infringement      and     wrongful      termination        of    Dunlap’s       franchise

agreements.       Subject      to   conditions       not     particularly        relevant

here, this settlement allowed Dunlap to continue to operate his

AAMCO franchises.          Then, as now, Dunlap maintained that AAMCO

tried    to    terminate      his   franchises       for     minor   or     trumped     up

                                           3
violations of their franchise agreements as a pretext to force

him out of business.              See J.A. 11-14; AAMCO Transmissions, Inc.

v. Dunlap, 2011 WL 3586225 (E.D. Pa. Aug. 16, 2011).                             Because

AAMCO was the contracting party, and its duties were resolved in

the prior litigation, Dunlap’s present complaint is not directed

to AAMCO itself.           Instead, Dunlap now asserts that the decision

to    force   him    out    of    business       was   a    conspiracy   for    personal

profit among new AAMCO principal Todd Leff, Cottman Transmission

Systems, and certain of Dunlap’s local competitors who would

benefit from his exit.                J.A. 11-20.          He maintains that AAMCO’s

actions, precipitated by these other parties, caused irreparable

harm to his business by depriving him of marketing benefits that

typically     flow    from        a    franchise       arrangement.       The   present

complaint thus names Leff and Cottman as defendants in an action

for: (1) violation of Virginia’s business conspiracy statute,

(2)    tortious      interference         with      contract,     and    (3)    tortious

interference with business expectancy.                     J.A. 4-5, 20-24.

       The district court dismissed the business conspiracy count

for failure to allege a valid “unlawful act” as a predicate for

the conspiracy.            It relied on a recent Virginia Supreme Court

decision called Station #2, LLC v. Lynch, 280 Va. 166 (2010),

which held that “a conspiracy merely to breach a contract that

does    not   involve        an       independent      duty    arising    outside   the

contract is insufficient to establish a civil claim under [the

                                             4
Virginia   business        conspiracy      statute].”        Id.   at   174.       The

district court then found that “[a]ll of the duties involved in

this case arise out of and the damages flow from contractual

obligations” – namely, the franchise agreements between Dunlap

and    AAMCO.       J.A.      43-44.      Accordingly,      the    district    court

concluded that applying the business conspiracy statute in this

case   would    risk   exactly     what    the    Virginia    Supreme    Court     had

tried expressly to avoid: “turning every breach of contract into

an actionable claim for fraud.”                  Station #2, 280 Va. at 174

(citation omitted).           In dismissing this claim, it joined another

district    court      from    this    Circuit     that    recently     rejected     a

tortious interference allegation as the predicate for a business

conspiracy count under the rule announced in Station #2.                           See

J.A. 43 (discussing Zurich Am. Ins. Co. v. Turbyfill, 2010 WL

4065527 (W.D. Va. Oct. 15, 2010)).

       Next, the district court dismissed both of the independent

common-law tort claims as untimely.                 Virginia has a five-year

statute of limitations for injuries to property rights, see Va.

Code § 8.01-243(B), but a two-year statute of limitations for

actions    related       to     personal       injuries,     id.    § 8.01-243(A).

Relying on Willard v. Moneta Bldg. Supply, Inc., 262 Va. 473

(2001), the district court noted that “an allegation of nothing

more than disappointed economic expectations does not amount to

an injury to property” because “the law of contracts provides

                                           5
the sole remedy for such a loss.”            J.A. 45 (quoting Willard, 262

Va. at 480).       Having already characterized the common-law tort

claims as flowing from breach of contract for purposes of the

conspiracy count, the district court again relied on Station #2

to classify them as contract (and, thus, personal injury) claims

for purposes of the two-year statute of limitations.                 J.A. 44-45

& n.2.      In other words, because the injury in this case went to

Dunlap’s disappointed expectations about how AAMCO would perform

and   the    profitability    of   Dunlap’s    business    –   and    not    to    a

property injury as such – the district court applied the shorter

statute of limitations, and dismissed.

        III.   Legal Discussion and Relevant Virginia Case Law

                       A.    Business Conspiracy Issue

      The reason to certify the first issue is straightforward:

The   Virginia     Supreme    Court’s   recent   decision      in    Station      #2

signals     obvious   skepticism     about    business    conspiracy        claims

predicated on contract disputes, but we are unable to ascertain

with certainty how far that skepticism extends.

      On the one hand, Station #2 clearly represents an important

change in Virginia’s business conspiracy law, and we agree with

the district court that this case raises concerns of the kind

addressed there.       In Station #2, the Virginia Supreme Court at

least     partly   rejected    its   established    case       law   making       it

actionable to “conspire[] to procure the breach of a contract.”

                                        6
See 280 Va. at 174 (rejecting Chaves v. Johnson, 230 Va. 112

(1985), and Worrie v. Boze, 198 Va. 533 (1956)).                          The Court

noted that, while it had previously approved such claims, it was

now “of opinion that a conspiracy merely to breach a contract

that does not involve an independent duty arising outside the

contract   is    insufficient      to   establish      a    civil   [conspiracy]

claim.”       Id.   (emphasis   added).         The    Court     warned     against

allowing mere contract disputes to be transformed into claims of

fraud and conspiracy.        Id.     And the standard that it announced

appears to ask whether the duty that has been violated “aris[es]

outside the contract,” id. – a standard one might think unmet by

garden-variety claims of tortious interference with contract or

with the business expectations that contract law protects.

     On the other hand, there are plausible reasons to limit

Station #2’s holding to actual breach of contract claims, and to

distinguish     tortious    interferences       with   contract      or    business

expectancy.      As Dunlap points out, see Appellant’s Br. 15-16,

the duty not to interfere with the agreements of others arises

as a common-law corollary of the contract, not from the contract

itself.    Indeed,     it   cannot      arise   from       the   contract    itself

because the duty is one that falls upon third parties, not the

parties to the agreement.          According to Dunlap, this distinction

is sufficient to place the violated duty “outside the contract”

for purposes of Station #2.

                                        7
      Whether (and when) this is a meaningful distinction is, we

think, a question that is best posed to the Virginia Supreme

Court,   for    it    involves       interpretation          of    its    precedents       and

important questions of state law and policy.                            To begin, Station

#2 does not definitively settle the question:                            It is true that

the   duty     to    avoid    contractual           interference          does    not     flow

directly from a party’s contractual agreements, but it is also

true that the ultimate duty that is breached is contractual, and

the set of harms redressed flows entirely from the contract.                               In

other words, Station #2 poses a question of how to conceptualize

tortious     interference          for    the       purpose        of     the     conspiracy

statute’s      unlawful      act   requirement,           but     does    not    answer    it.

Moreover, in typical cases alleging tortious interference the

challenged     conduct      will     –   as    here   –    involve       discussions       and

negotiations among one contracting party and potential business

partners about the possibility of breaching the old contract and

starting a new relationship.                  Whether to view such negotiations

as “conspiratorial” is an important question of state policy:

Doing so elevates the sanctity of contract, but perhaps too far.

A state court could easily conclude that it is adequate, and

more likely to encourage efficient business decisions, to give

the   harmed        party     only       the       benefit      of       its     contractual

expectations through a simple breach of contract action against

its counter-party.           Cf. Station #2, 280 Va. at 174 (expressing

                                               8
concern     about    “turning        every       breach     of        contract      into    an

actionable claim for fraud”) (citation omitted).

     Moreover, especially in light of these policy concerns, it

may be that the right answer involves finer distinctions of the

kind that the Virginia Supreme Court is better fit to make.                                 For

example, it is possible that tortious interference claims should

sometimes     constitute         “unlawful        acts”     for       purposes       of    the

business conspiracy statute, but only in exceptional cases.                                 Cf.

Advanced Marine Enters., Inc. v. PRC Inc., 256 Va. 106, 117-18

(1998)     (allowing        conspiracy       claim        predicated          on    tortious

interference,        before       Station         #2,     in      a        case    involving

“outrageous”    conduct          such   as       theft    of     corporate         files    by

breaching employees).            The extent to which Station #2 preserves

any such claim is unclear, however, and so we think it best to

seek a definitive answer from the Virginia Supreme Court.

                       B.    Statute of Limitations Issue

     The    reason    to     certify    the      second     question         is    even    more

straightforward:       The question which statute of limitations to

apply to tortious interference claims is a pure legal issue that

has not been settled by the Virginia Supreme Court.                                 Virginia

applies a two-year statute of limitations to claims regarding

personal    injuries       and   a   five-year          statute       of    limitations      to

claims regarding injuries to property.                     See, e.g., Willard, 262

Va. at 478.     But that distinction can be hard to draw, and the

                                             9
Virginia Supreme Court has previously disagreed with how this

Circuit      has    attempted        to     articulate              it.      See    id.     at     479

(rejecting the test applied in Brown v. Am. Broad. Co., 704 F.2d

1296, 1303-04 (4th Cir. 1983)).                      As with the previous issue, we

believe that this question at bottom concerns an ambiguity in

the    Virginia      Supreme       Court’s       recent          precedent         that    is    best

resolved by that Court.

       Indeed, the Virginia Supreme Court’s decision in Willard

can be read to support either side in this case.                                    Willard held

that   an    infringement          on     the    dissenters’              rights    of    corporate

shareholders was an injury to property interests for purposes of

the five-year statute of limitations.                           Id. at 481.         In so doing,

it    made   clear        that    “conduct       .    .     .    directed      at       [another’s]

property, . . . constitutes an injury to property,” for purposes

of    the    limitation          periods    whether         the       injury       is    direct     or

indirect.           Id.    at     480     (citation             omitted).          But     it     also

emphasized      that       “disappointed         economic            expectations         do[]     not

amount to an injury to property” because “the law of contracts

provides      the    sole        remedy    for       such       a    loss.”         Id.         Dunlap

plausibly      argues       that    the     conduct         here      was     directed      at     his

property      (that       is,     his     franchises).                The     district          court,

however, plausibly viewed the injuries as flowing from Dunlap’s

disappointed expectations about those franchises’ profitability

had AAMCO continued to perform under its contracts.                                     As with the

                                                10
previous      issue,        it    is        possible          to     conceptualize        tortious

interference as being fundamentally a part of the protections

for business expectations provided by the “law of contracts,”

id.,    or    as    a    protection          for     contractually           secured      property

rights      that    sounds       most       fundamentally            in    the    law    of   torts.

Accordingly, it may be wise judicial policy to impose the same

limitations period for tortious interference as for the breach

of    contract       that    it     ultimately               addresses,      or    it    may       not.

Especially         given    our     decision            to    seek    the    guidance         of    the

Virginia      Supreme       Court      on    the     first         issue    in    this    case,      we

prefer to ask that Court to settle this related issue as well.

       In sum, we find ourselves unable to predict with confidence

how    the    Virginia      Supreme          Court       would       rule    on   the    questions

discussed above.            As a result, we respectfully request that the

Virginia Supreme Court answer our certified questions.

            IV.    Certified Questions Determine This Proceeding

       We    also    note,       briefly,      that          the     two    questions     together

determine the outcome of this case.                           If the district court’s two

holdings regarding tortious interference are correct as a matter

of Virginia law, we would affirm.                             If either is incorrect, we

would reverse and remand for further proceedings because these

were    the       sole   rationales          adopted          by    the     district     court       in

dismissing the case.

                                                   11
                  V.   The Parties and Their Counsel

                                   A.

      The Plaintiff–Appellant is James Dunlap.         Counsel for the

Plaintiff–Appellant is:

Peter B. Rutledge
Paula Briceno
Brittany Cambre
Crystal M. Johnson
University of Georgia School of Law
Appellate Litigation Clinic
100 Herty Drive,
Athens, GA 30602
(706) 542-1328 (Telephone)
(706) 542-5556 (Facsimile)
                                B.

      The   Defendants–Appellees   are   Todd   P.   Leff   and   Cottman

Transmission Systems, LLC.     Counsel for the Defendants–Appellees

is:

James C. Rubinger
Benjamin B. Reed
Plave Koch PLC
12355 Sunrise Valley Drive,
Suite 230
Reston, VA 20191
(703) 774-1200 (Telephone)
(703) 774-1201 (Facsimile)

                                   12
                                VI. Conclusion

       Pursuant     to   the   privilege   made    available     by   Virginia

Supreme Court Rule 5:40, we respectfully:

1) Certify the questions stated in Part I of this Order of

Certification to the Supreme Court of Virginia for resolution;

2) Order the Clerk of this Court to forward to the Supreme Court

of Virginia, under the official seal of this Court, a copy of

this   Order   of    Certification,    together     with   the    original   or

copies of the record before this Court to the extent requested

by the Supreme Court of Virginia; and

3) Order that any request for all or part of the record be

fulfilled by the Clerk of this Court simply upon notification

from the Clerk of the Supreme Court of Virginia.

                                                  QUESTIONS CERTIFIED

                                                  FOR THE COURT

                                                  /s/ James A. Wynn, Jr.
                                                       Circuit Judge

                                      13