Today Homes, Inc. v. Williams

PRESENT: Hassell, C.J., Lacy, Koontz, Kinser, Lemons, and Agee,
JJ., and Russell, S.J.

TODAY HOMES, INC., t/a CHESAPEAKE HOMES
OPINION BY
v. Record No. 052537 JUSTICE G. STEVEN AGEE
September 15, 2006
EMMA WILLIAMS, ET AL.

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
H. Thomas Padrick, Jr., Judge

Today Homes, Inc., t/a Chesapeake Homes ("Chesapeake"),

appeals the judgment of the Circuit Court of the City of

Virginia Beach dismissing its amended bill of complaint against

Emma Williams, George R. Woodhouse, and Majestic Homes, Inc.

For the reasons set forth below, we will affirm the judgment of

the trial court in part, reverse the judgment in part, and

remand for further proceedings.

I. FACTS AND MATERIAL PROCEEDINGS BELOW

Chesapeake is a property developer and builder of single-

family homes. Like other companies in the home building

industry, Chesapeake "needed land . . . to build houses on."

Williams served as Chesapeake's vice president of operations

from June 2001 until March 13, 2003, and Woodhouse was

Chesapeake's vice president of production during the same

period. Williams and Woodhouse had a close working relationship

and referred to themselves as "a team."

In the course of her employment, Williams was "responsible

for all purchasing activities and customer service," but not the

1
acquisition of land. Woodhouse supervised the actual

construction work of the homes Chesapeake built. Neither

person's job description involved finding or purchasing lots for

building.1

At the beginning of 2003, Frank Grossman, a realtor with

Long & Foster Realtors, told Woodhouse about certain property he

had listed for sale in Hampton ("the Sinclair Property").

Woodhouse mentioned the Sinclair Property to Williams and showed

her a site plan. At that time, the development plan for the

Sinclair Property included a "55 and older active adult

communit[y]." Woodhouse testified that he did not believe

Chesapeake would be interested in the property because

Chesapeake "didn't do any 55 and older active adult

communities." Williams also believed Chesapeake would not be

interested in purchasing the property. Williams and Woodhouse

had no further discussions about the property until after

Chesapeake terminated Williams' employment on March 13, 2003.2

Williams testified without contradiction that prior to her

termination, she had no intention of leaving Chesapeake and

1
Woodhouse had, however, in the past, identified possible
building sites and brought them to Chesapeake's attention. He
testified that John Barnes, Chesapeake's president told him that
seeking out properties to buy "was not [his] job, that [he] had
enough on [his] plate with production and construction." The
trial court found this testimony "not believable . . . [but not]
important in the scheme of things."

2
starting her own housing development company, and she had not

identified any building sites for purchase. A few days after

the termination of her employment by Chesapeake, Scott M. Gandy,

a vendor in the building supplies industry, offered Williams

financial backing if she started her own housing development

company.

Woodhouse prepared a letter resigning from his employment

with Chesapeake the day Williams was terminated, but did not

submit the letter until April 24, 2003, when he gave his two

week's notice. During the month of April, Woodhouse was in

salary negotiations with Art Sandler, Chesapeake's owner. On

May 9, at the conclusion of the two weeks, John M. Barnes,

president of Chesapeake, asked Woodhouse to continue his

employment with Chesapeake through at least May 20 because

Woodhouse held the company's only North Carolina contractor's

license, and Chesapeake's subcontractors were dependent on the

license. Barnes and Woodhouse agreed that Chesapeake would pay

Woodhouse "for four weeks until someone got their license."

That day, Barnes and Woodhouse signed a memorandum, which was

sent to Chesapeake's vendors stating that Woodhouse was working

on Chesapeake's "North Carolina expansion into the Raleigh and

Charlotte markets." Woodhouse did no further work for

2
The termination of Williams' employment by Chesapeake is
not at issue in this appeal.

3
Chesapeake after May 9, but continued to receive his salary from

Chesapeake until the first of June, by which time Barnes had

obtained a North Carolina contractor's license.

After Williams' termination, but while Woodhouse remained

employed by Chesapeake, the two discussed going into business

together and caused Majestic to be incorporated on March 27,

2003. Williams and Woodhouse were listed as president and

secretary, respectively, of Majestic. Woodhouse began working

for Majestic on May 15, 2003, and drew his first paycheck on

June 1, 2003.

After forming Majestic, Williams searched for properties to

purchase by contacting real estate companies, including Long &

Foster. Near the end of March 2003, Woodhouse put Grossman in

contact with Williams, and discussed the Sinclair Property with

her. When Grossman showed Williams the Sinclair Property, she

recognized it as "the same property that [she] had heard about

from [Woodhouse]" earlier in the year when she was working for

Chesapeake. Grossman also suggested to Dave Jester, president

of Marlyn Development Corporation, which owned the Sinclair

Property, that Jester contact Williams as a potential builder

and that Williams had a potential partner in Woodhouse. Jester

testified that he was willing to deal with Majestic even though

4
it was a new company because of his personal relationship with

Scott Gandy.3

On April 15, 2003, Majestic entered into a contract with

Marlyn to purchase 27 lots on the Sinclair Property.4 Williams,

but not Woodhouse, was a signatory to the agreement on behalf of

Majestic. In 2004, Majestic had gross profit from the sale of

homes on the Sinclair Property of $4,469,585.00. There is no

dispute that neither Williams nor Woodhouse ever disclosed the

Sinclair Property to Chesapeake or received Chesapeake's consent

to acquire it.

Chesapeake filed a three count amended bill of complaint

alleging Williams and Woodhouse, as corporate officers of

Chesapeake, breached their common law and contractual fiduciary

duty to Chesapeake when they failed to disclose the existence of

the Sinclair Property to Chesapeake and later purchased it

themselves through Majestic. Chesapeake also alleged that after

3
Jester also testified that Chesapeake was "not in the
galaxy of consideration" for the contract on the Sinclair
Property. He believed that Chesapeake was "not the [right]
sized company" and the Sinclair Property development was not in
"the nature of their type of work." In evaluating this evidence
the trial court found that
whether Mr. Jester would have done business with
Chesapeake Homes or not, is really irrelevant, it
comes down to the opportunity and whether or not it
was a real opportunity, one that presented itself. So
it's a real narrow issue . . . .
4
This contract was subsequently voided and a new contract
executed whereby Marlyn agreed to make Majestic the sole builder

5
Williams' termination, she "aided and assisted Woodhouse in

breaching the fiduciary duties he owed to Chesapeake while still

employed by it." In a separate count, Chesapeake further

alleged that Williams and Woodhouse conspired to breach their

fiduciary duties to Chesapeake. Among other remedies,

Chesapeake sought the imposition of a constructive trust on the

Sinclair Property owned by Majestic and $5 million in damages to

be trebled in accordance with Code § 18.2-499, et seq.

After a one-day bench trial, the trial court dismissed

Chesapeake's amended bill of complaint and entered a final

decree on September 27, 2005, stating that Chesapeake "failed to

meet its burden of proof as to all counts contained in the

Amended Bill of Complaint." The trial court found the Sinclair

Property was "important to [Chesapeake]," and "that [Chesapeake

was] seeking other business opportunities." However, the trial

court determined that Chesapeake had not proven that Williams

and Woodhouse breached their fiduciary duty to Chesapeake.

Specifically, the trial court ruled Chesapeake had presented "no

evidence that [Williams] had any . . . relevant enough

information to go forward with any actions that would in any way

harm [Chesapeake]," nor had Chesapeake proven that Woodhouse did

for all 77 lots in the development project. Woodhouse was a
signatory on the second contract.

6
anything "that could be construed as a breach of fiduciary

duty." We granted Chesapeake this appeal.

Chesapeake makes ten assignments of error which can be

condensed to the following four issues: (1) the trial court

erred in finding that Williams and Woodhouse (collectively "the

Defendants") did not breach a fiduciary duty to Chesapeake when

they failed to disclose the existence of the Sinclair Property

to Chesapeake while one or both was still employed by

Chesapeake, and later purchased the property through Majestic;

(2) the trial court erred in not finding that Williams, after

her termination, "aided and assisted" Woodhouse so she "could

usurp the opportunity with Woodhouse while Woodhouse was still

employed by Chesapeake;"5 (3) the trial court misallocated the

burden of proof by placing upon Chesapeake the burden of showing

the breach of fiduciary duty rather than requiring the

Defendants to show that they did not breach their fiduciary

obligations; and (4) the trial court erred in overruling

Chesapeake's objection to questions posed to the Defendants

about their opinions as to whether the Sinclair Property was

something that should have been disclosed to Chesapeake or in

which Chesapeake would have been interested.

II. ANALYSIS

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 Chesapeake argues that it met its burden to prove that the

Sinclair Property was a corporate opportunity for Chesapeake and

that the Defendants, as corporate officers, were fiduciaries of

Chesapeake and took the corporate opportunity for their own

benefit without disclosure to Chesapeake or its consent.

Chesapeake contends the burden of proof then shifted to the

Defendants to prove they did not breach their fiduciary duty to

Chesapeake. In that regard, Chesapeake avers the trial court

erred in placing the burden of proof for breach of fiduciary

duty upon it, instead of the Defendants. When the burden of

proof is properly allocated, Chesapeake says the record clearly

reflects the Defendants did not meet their burden and the

resulting breach of fiduciary duty makes them liable to

Chesapeake.

The Defendants argue that Chesapeake's threshold burden was

not met because the trial court did not find the Sinclair

Property to be a corporate opportunity for Chesapeake. Even if

the trial court did reach that conclusion, the Defendants then

contend a proper legal analysis based upon Solimine v.

Hollander, 16 A.2d 203, 214-15 (N.J. Ch. 1940) and Guth v. Loft,

Inc., 5 A.2d 503, 510-11 (Del. 1939), shows the Sinclair

Property was not a corporate opportunity of Chesapeake under the

5
Chesapeake did not assign error to the dismissal of the
count alleging conspiracy so that issue is not before us on

8
facts of this case. In any event, the Defendants argue they

learned of the Sinclair Property in their individual capacities,

and not in their role as officers of Chesapeake. Thus, they

argue there was no duty of disclosure on their part and no

corresponding breach of fiduciary duty.

A. CHESAPEAKE'S PRIMA FACIE CASE

We first address the question of whether the Sinclair

Property was a corporate opportunity for Chesapeake, because if

there was no corporate opportunity, then there was no fiduciary

duty to breach in that regard. Contrary to the Defendants'

assertion on appeal, the trial court did conclude that the

Sinclair Property was a corporate opportunity for Chesapeake:

"[I]t's clear to the Court that these lots, any lots, were

important to [Chesapeake], that they were, in fact, seeking

other business opportunities." No reasonable reading of the

trial court's determination could lead to a conclusion other

than that it found the Sinclair Property to be a corporate

opportunity for Chesapeake.

The Defendants contend, nonetheless, that there could be no

corporate opportunity under the facts of this case. However,

the Defendants did not assign cross-error to the trial court's

finding that the Sinclair Property was a corporate opportunity

for Chesapeake. Thus, they cannot now raise that argument on

appeal.

9
appeal. Rule 5:18(b); Monahan v. Obici Med. Mgmt. Servs., 271

Va. 621, 637, 628 S.E.2d 330, 339-40 (2006); see also Advanced

Marine Enters. v. PRC, Inc., 256 Va. 106, 126, 501 S.E.2d 148,

160 (1998). The unchallenged finding of the trial court is now

the law of the case and binding on the parties for purposes of

appeal. Board of Supervisors v. Stickley, 263 Va. 1, 6, 556

S.E.2d 748, 751 (2002).

The trial court specifically found Williams to be "an

officer of [Chesapeake]." While the trial court did not use the

same words regarding Woodhouse, it found he "was the vice

president involving production" of Chesapeake, a fact Woodhouse

admitted in his Answer. The Defendants do not contest on appeal

that they were officers of Chesapeake, and in that capacity, had

a fiduciary relationship to Chesapeake. Trayer v. Bristol

Parking, Inc., 198 Va. 595, 604, 95 S.E.2d 224, 230 (1956)

(citation omitted).

Neither is there any dispute that Woodhouse or Williams did

not disclose the Sinclair Property to Chesapeake or seek

Chesapeake's consent to take the Sinclair Property.

Accordingly, Chesapeake did prove its prima facie case as to the

Defendants in that the Sinclair Property was a corporate

opportunity for Chesapeake, which Williams and Woodhouse, as

corporate officers of Chesapeake, did not disclose to Chesapeake

or seek Chesapeake's consent to take for their direct benefit.

10
 B. BREACH OF FIDUCIARY DUTY

Our inquiry now turns to what duty, if any, the Defendants

owed Chesapeake regarding the Sinclair Property. It is a

fundamental principle that a corporate officer or director is

under a fiduciary obligation not to divert a corporate business

opportunity for personal gain because the opportunity is

considered the property of the corporation. See Feddeman & Co.

v. Langan Assocs., P.C., 260 Va. 35, 46 n.1, 530 S.E.2d 668, 675

n.1 (2000). Underlying this concept is the expectation that

officers, as corporate fiduciaries, exercise the "utmost good

faith" and loyalty in their dealings with, and on behalf of, the

corporation. Feddeman & Co., 260 Va. at 43, 530 S.E.2d at 673.

"[T]his good faith forbids [a corporate officer from] placing

himself in a position where his individual interest clashes with

his duty to his corporation." Rowland v. Kable, 174 Va. 343,

366, 6 S.E.2d 633, 642 (1940). As long as an individual remains

a corporate officer, he "owes an undivided duty to [the

corporation], and cannot place himself in any other position

which would subject him to conflicting duties, or expose him to

the temptation of acting contrary to [its] best interests." Id.

at 367, 6 S.E.2d at 642 (citation omitted).

The "unbending rule" that a fiduciary "entrusted with the

business of another cannot be allowed to make that business an

object of interest to himself," is abrogated if the fiduciary

11
obtains the "consent of the [corporation]" after "full

disclosure." Id. at 366-68, 6 S.E.2d at 642-43. As this Court

has observed, "[t]he motive of self-interest is so natural and

the danger of temptation to secure private advantage so great,"

that "good faith alone is not sufficient in the absence of full

disclosure and consent of the interested parties . . . to make

an exception to the general rule that a [corporate fiduciary]

cannot enter into any relation or do any act inconsistent with

the interest of the [corporation]." Id. at 369-70, 6 S.E.2d at

643-44.

A "director of a corporation is held chargeable with

knowledge of such corporate affairs as it is his duty to know

and which he might have known had he diligently discharged his

duties." In re Adams Laboratories, Inc., 3 B.R. 495, 499

(Bankr. E.D. Va. 1980). There is no distinguishable difference

between a corporate officer and a director in this regard as it

relates to their fiduciary duty. His "belief," whether in good

faith or bad, cannot negate the clear fiduciary duty to disclose

a corporate opportunity before taking it for himself. Rowland,

174 Va. at 369-70, 6 S.E.2d at 643-44. Consequently, it makes

no difference whether the corporate opportunity came to the

corporate fiduciary in the fiduciary’s capacity as a corporate

officer or in some “individual” capacity.

12
 The Defendants argue that this requirement of "full

disclosure" is an unworkable burden on a corporation's officers

because it "require[s] corporate officers to disclose all

business opportunities of which they learn . . . regardless of

whether the corporate officer is planning to take advantage of

the opportunity personally." This view misconstrues the

requirements of disclosure, which become operative and relevant

only when an officer receiving information about a potential

corporate opportunity then appropriates that opportunity for his

own use. See Upton v. Southern Produce Co., 147 Va. 937, 948-

49, 133 S.E. 576, 580 (1926) (Directors breached their fiduciary

duty to a struggling corporation when they secretly purchased

corporation stock on credit and sold it at a profit to an

outside company without first disclosing the opportunity to the

corporation and other stockholders.). See also Demoulas v.

Demoulas Super Mkts., 677 N.E.2d 159, 181 (Mass. 1997) ("[T]o

satisfy the duty of loyalty, a fiduciary wishing to engage in a

self-dealing transaction must disclose details of the

transaction and the conflict of interest to the corporate

decisionmakers."). Thus, an officer's desire to take an

opportunity as his own, puts him on notice of his fiduciary duty

to disclose the opportunity to the corporation before acting

upon it for his personal benefit.

13
 The trial court found that "[t]he information [Woodhouse]

received [regarding the Sinclair Property] did not become

important until . . . March 13," the day Williams' employment

with Chesapeake was terminated and Woodhouse first alerted

Barnes of his intention to resign. That factual finding by the

trial court was not the subject of an assignment of error or

cross error and is now the law of the case. Stickley, 263 Va.

at 6, 556 S.E.2d at 751. The Defendants' casual knowledge of

the Sinclair Property's existence in early 2003 is not, by

itself, a basis for requiring disclosure or attaching liability

for any of their later actions.

We must initially address, however, Chesapeake's contention

that the trial court "misallocated the burden of proof, putting

on Chesapeake Homes the burden of showing breach of fiduciary

duty rather than requiring Williams and Woodhouse to show that

they did not breach their fiduciary obligations." We agree with

Chesapeake that the trial court erred in this regard.

Once a plaintiff has shown that a corporate opportunity

existed and the corporate fiduciary appropriated it without

disclosure and the consent of the corporation, a prima facie

case has been shown. Under our jurisprudence, the burden shifts

to the defendant fiduciary to show why the taking of the

corporate opportunity was not a breach of his fiduciary duty.

"[W]hen transactions have occurred between fiduciaries and [the

14
corporation], the burden of proof lies upon the [fiduciary] to

show that the transaction has been fair." Giannotti v. Hamway,

239 Va. 14, 24, 387 S.E.2d 725, 731 (1990). "The burden of

proof lies, in all cases, upon the party who fills the position

of active confidence to show the transaction has been fair."

Waddy v. Grimes, 154 Va. 615, 648, 153 S.E. 807, 817 (1930).

The trial court’s finding that neither Williams nor

Woodhouse breached a fiduciary duty to Chesapeake was thus based

on the wrong rule of law as it incorrectly placed the burden of

proof on Chesapeake. Accordingly, we will reverse the trial

court’s judgment and remand the case to the trial court for a

determination of whether there was a breach of fiduciary duty

upon proper application of the burden of proof. See, e.g.,

Gibbs v. Gibbs, 239 Va. 197, 201-02, 387 S.E.2d 499, 501-02

(1990) (reversing the judgment of the trial court because the

trial court placed the burden of proof on the wrong party, and

remanding the case for further proceedings applying the proper

burden of proof); McEntire v. Redfearn, 217 Va. 313, 316-17, 227

S.E.2d 741, 744 (1976) (same). However, we will reverse and

remand only with respect to Woodhouse because the record is

uncontradicted as to Williams regardless of the burden of proof.

Even though the trial court erred in allocating to Chesapeake

the burden of showing Williams’ breach of fiduciary duty, it is

clear on this record there could be no breach by Williams.

15
 Chesapeake argues that Williams’ fiduciary duty to

Chesapeake continued following her termination on March 13 and

that her purchase of the Sinclair Property was in violation of

that duty. Chesapeake cites a number of foreign cases in

support of this argument, but all are distinguishable from the

facts of this case, in part, because of the trial court’s

binding factual finding that only events after Williams’

termination on March 13th are relevant.

It is true that “[r]esignation or termination does not

automatically free a director or employee from his or her

fiduciary obligations.” T.A. Pelsue Co. v. Grand Enterprises,

Inc., 782 F. Supp. 1476, 1485 (D. Colo. 1991). Liability post-

termination continues only for those "transactions completed

after termination of the officer's association with the

corporation, but which began during the existence of the

relationship or that were founded on information gained during

the relationship." In re H. King & Assocs., 295 B.R. 246, 274

(Bankr. N.D. Ill. 2003). See also Thompson v. Central Ohio

Cellular, Inc., 639 N.E.2d 462, 470 (Ohio Ct. App. 1994).

"Whether specific conduct taken prior to resignation breaches a

fiduciary duty requires a case by case analysis." Feddeman, 260

Va. at 42, 530 S.E.2d at 672.

The record for purposes of appeal establishes that

Williams' purchase of the Sinclair Property through Majestic was

16
not "founded on information gained during" her employment with

Chesapeake. Prior to her termination, Williams had no intention

of leaving Chesapeake and starting her own development company.

There is no evidence in the record that she used any of

Chesapeake's resources to establish Majestic or regarding the

Sinclair Property. Williams’ casual knowledge of the Sinclair

Property before her termination triggered no duty to disclose

because her relationship with the Sinclair Property as a

corporate opportunity occurred only after March 13th. After

March 13th, Williams was under no fiduciary duty to Chesapeake

because she was no longer an officer.6

There was thus no basis for liability on Williams' part

after March 13 for breach of a fiduciary duty to Chesapeake as

she had no duty. Thus, even though it applied the wrong burden

of proof, the trial court did not err in dismissing the amended

bill of complaint as to Williams. See Hilb, Rogal & Hamilton

Co., 247 Va. at 249, 440 S.E.2d at 923.

C. OTHER CLAIMS

The trial court did not directly address Chesapeake’s claim

that Williams was liable on the alternative ground that she

“aided and assisted Woodhouse in breaching the fiduciary duties

he owed to Chesapeake while still employed by it.” Chesapeake

6
In contrast to Williams, Woodhouse did continue as an
officer of Chesapeake for at least two months after March 13th

17
assigned error to the trial court’s failure to find Williams

liable on this basis, but Chesapeake’s entire argument on appeal

consists of the following statement on brief: “[S]he [Williams]

would be liable for aiding and assisting Woodhouse in the breach

of his fiduciary duties while he was still employed by

Chesapeake Homes.” Because Chesapeake has not adequately

briefed or argued this assignment of error, we will not consider

this assignment of error. Rule 5:17(c); Rule 5:27; Muhammad v.

Commonwealth, 269 Va. 451, 478, 619 S.E.2d 16, 31 (2005);

Sheppard v. Commonwealth, 250 Va. 379, 386, 464 S.E.2d 131, 135

(1995).

Finally, Chesapeake has claimed error in the trial court’s

failure to find liability to Chesapeake on behalf of Majestic.

However, Chesapeake has neither pled nor alleged facts upon

which Majestic would be liable to it. Accordingly, the trial

court did not err in finding for Majestic.

III. CONCLUSION

For the foregoing reasons we will reverse the trial court's

judgment dismissing the amended bill of complaint as to

Woodhouse and affirm the trial court's judgment as to Williams

and Majestic. We will remand the case to the trial court for

further proceedings to determine whether Woodhouse breached a

and took certain actions in regard to the Sinclair Property.

18
fiduciary duty to Chesapeake, in conformance with the principles

expressed in this opinion.7

Affirmed in part,
reversed in part,
and remanded.

7
In view of our resolution of the issues on appeal, we do
not address Chesapeake's assignments of error regarding
overruling its objections to certain questions propounded to the
Defendants.

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