UNPUBLISHED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Vacated and remanded by unpublished per curiam opinion.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Unpublished opinions are not binding precedent in this circuit.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.
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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).
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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
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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
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