Clark v. Scott

Present: All the Justices

C. BENSON CLARK, ET AL.

v. Record No. 982377 OPINION BY JUSTICE BARBARA MILANO KEENAN
September 17, 1999
ANNETTE E. SCOTT

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Thomas S. Kenny, Judge

In this appeal from a decree providing an accounting in the

dissolution of a partnership, we consider whether the evidence

supports the chancellor's award of damages, which was for an

amount less than that recommended by a commissioner in chancery.

In 1988, Dr. C. Benson Clark and Dr. Annette E. Scott

formed a partnership known as Clark and Scott Dental Associates

(the partnership). They entered into a written agreement (the

partnership agreement) under the terms of which they shared the

expenses of operating a dental practice in an office condominium

in Fairfax County. Clark owned the office condominium and

leased it to the partnership. As part of the partnership

agreement, the partners agreed to "exert their best endeavors

and skills for the interest, profit and advantages of the

partnership."

At the time they formed the partnership, Clark had been a

dentist for about 19 years, and Scott had been a dentist for
three years. Clark also maintained separate dental practices

with other partners in Newport News and Chesapeake.

Scott engaged in the general practice of dentistry, while

Clark specialized in providing dental implants and other forms

of reconstructive surgery. Clark and Scott orally agreed that

Scott would refer patients to Clark for surgery, and Clark would

refer patients to Scott for general dentistry. Clark planned to

treat patients in the partnership's office for no more than five

days per month, while Scott worked there on a full-time basis.

Under the terms of the partnership agreement, Scott was

responsible for the day-to-day management of the dental

practice.

The partnership began operating in April 1989. In June

1990, Clark filed a bill of complaint in the trial court seeking

dissolution of the partnership and payment from Scott of sums

allegedly due Clark under the partnership agreement. Clark

alleged in the bill of complaint that the relationship between

the partners began to deteriorate in January 1990, and that the

partners' "ability to maintain a working business relationship

has evaporated."

In February 1991, Clark filed a warrant in debt in the

general district court alleging that Scott owed him rent under

the office lease. On Scott's motion, the general district court

removed the warrant in debt to the circuit court.

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 When Scott vacated the partnership's office in June 1991,

she removed equipment, furniture, and supplies belonging to the

partnership. Clark filed a second bill of complaint in the

circuit court, requesting return of the partnership's property,

as well as an award of damages allegedly caused by Scott's

removal of the property. The chancellor entered a permanent

injunction, requiring Scott to return the equipment and

reserving Clark's damage claim for later determination.

The chancellor entered orders consolidating the three cases

and referred the matter to a commissioner in chancery. The

chancellor directed the commissioner to consider whether the

partnership should be dissolved and to determine the status of

the accounts between the partners. The chancellor also asked

the commissioner to determine whether the partnership had

breached the office lease by failing to pay rent and, if so, the

amount of damages due Clark under the lease. Finally, the

chancellor directed the commissioner to determine whether and to

what extent Scott's removal of partnership property from the

office had caused Clark damage.

At an ore tenus hearing before the commissioner, Clark

testified that on one Saturday in January 1990, he arrived at

the partnership office to treat some patients and found that the

lock on the outer door had been changed. He stated that he was

unable to enter the office, and explained that this was the

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first time he was aware of a problem concerning the partnership.

Soon thereafter, a receptionist in the office informed him that

Scott had instructed the office staff not to make any more

appointments for him. Clark testified that he contacted his

attorney, who advised him that he did not have the right to

enter the office forcibly. Clark stated that the lack of access

to the office was one reason he did not attempt to return there,

and also explained that he and Scott "were not communicating,"

that Scott was "generally uncooperative," and that their

business relationship had "deteriorated to a point that it was

just uncomfortable."

Clark testified that he lost about $75,000 in income as a

result of not being able to use the office between January 1990

and July 1991. He estimated that in November and December 1989,

he treated "[p]robably three [patients]" there each month and

earned about $4,500 per month.

In March 1991, Clark acquired a new partner who began

treating patients in the partnership office prior to Scott's

departure in June 1991. Clark testified that within one year of

starting his dental practice with the new partner, Clark was

earning about $18,000 per month based on surgeries he performed

two days per month.

Scott testified that beginning in the summer of 1989, she

referred "very few" patients to Clark because she "did not have

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any faith or confidence" in the quality of the treatment he

provided to his patients. She explained that her business

relationship with Clark was strained further in the fall of 1989

when she disagreed with the accounting procedures he used to

monitor each partner's contributions to the partnership

expenses.

Scott testified that she did not remember changing the lock

on the outer door of the office in January 1990. She explained

that she changed the lock in April 1990 for security reasons,

and that a key was available for Clark's use but that she did

not know if he ever asked for or obtained the key.

Scott admitted that when she left the partnership office in

June 1991, she removed some equipment belonging to the

partnership. She stated that she was concerned about her

personal liability for repayment of the loan that the

partnership had obtained to purchase the equipment.

In his report to the court, the commissioner found that

Scott denied Clark access to the partnership's office, from

January 15, 1990 to March 15, 1991, with the intent to terminate

the partnership. The commissioner concluded that Clark

sustained a loss of profits from business income as a result of

Scott's actions. To determine the amount of lost profit damages

Clark sustained each month during this time period, the

commissioner used the $4,500 amount that Clark testified he

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earned in both November and December 1989, and deducted from

that amount Clark's share of the monthly partnership expenses.

The commissioner found that Clark would have made a profit of

$2,438 per month during these 14 months, and recommended a

damage award of $34,132 for profits lost during that period.

The commissioner also determined that Clark had paid

partnership expenses from January 1990 to March 1991. Finding

that Clark received no benefit from these payments because of

the "lockout," the commissioner recommended that Scott reimburse

Clark the sum of $19,612 for those partnership expense payments.

The commissioner concluded that under the terms of the

lease, Clark, as the owner of the leased premises, was entitled

to reimbursement of his attorney's fees incurred as a result of

the partnership's breach of the lease. Noting that Scott had

conceded that "at least some rent" had not been paid, the

commissioner recommended that Scott pay $3,000 for Clark's

attorney's fees related to the partnership's breach of the

lease.

Finally, the commissioner found that during 1989, Clark

overpaid the sum of $16,763.74 for expenses due under the terms

of the partnership agreement, and recommended that Scott

reimburse Clark this amount. Based on these findings, the

commissioner recommended that the trial court enter judgment in

Clark's favor in the total amount of $73,507.74.

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 Scott filed exceptions to the commissioner's report,

arguing that the evidence failed to support the commissioner's

finding that Scott denied Clark access to the office with the

intent to terminate the partnership. Scott also asserted that

the commissioner improperly based his recommendation of damages

for Clark's loss of business profits on speculative evidence.

The chancellor held that the evidence did not support the

commissioner's finding that Scott denied Clark access to the

office. Thus, the chancellor rejected the commissioner's

recommendations for damages incurred during the "lockout"

period, namely, the $19,612 sum that Clark paid for partnership

expenses, and the $34,132 sum for Clark's lost profits.

Finally, the chancellor concluded that the lease was a

partnership obligation, and that the evidence did not support a

conclusion that Scott was solely responsible for breach of the

lease. Therefore, the chancellor allowed Clark only one half

the $3,000 in attorney's fees recommended by the commissioner.

The chancellor confirmed the commissioner's finding that Scott

owed Clark $16,763.74 for Clark's overpayment of partnership

expenses in 1989, and entered final judgment for Clark in the

total amount of $18,263.74. Clark appeals from this judgment.

The standard of review that we apply on appeal is well

established. In equity suits in which the chancellor has set

aside some of the commissioner's findings, we examine the

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evidence to determine whether, under a correct application of

the law, the evidence supports the findings of the commissioner

or the conclusions of the trial court. Carter v. County of

Hanover, 255 Va. 160, 166-67, 496 S.E.2d 42, 45 (1998); Orgain

v. Butler, 255 Va. 129, 132, 496 S.E.2d 433, 435 (1998); Hill v.

Hill, 227 Va. 569, 577, 318 S.E.2d 292, 296-97 (1984). In doing

so, we give due regard to the commissioner's findings on those

subjects that particularly depend on the commissioner's ability

to see, hear, and evaluate the testimony of the witnesses.

Carter, 255 Va. at 167, 496 S.E.2d at 45; Hurd v. Watkins, 238

Va. 643, 646, 385 S.E.2d 878, 880 (1989); Hill, 227 Va. at 577,

318 S.E.2d at 297.

Clark argues that the evidence supports the commissioner's

finding that Scott unilaterally breached the partnership

agreement by denying Clark access to the partnership office from

January 1990 to March 1991. In response, Scott asserts that the

evidence showed that the partners' business relationship

deteriorated over a period of time, and that Clark made no

effort to continue the partnership.

The commissioner accepted Clark's version of the events

that transpired during this time period while the chancellor did

not. Our review of the record reveals that the evidence

reasonably supports either conclusion. Since resolution of this

factual dispute rests strongly on the credibility of the

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witnesses, we must defer to the commissioner's ability to

evaluate the testimony and evidence given in his presence. Id.

Thus, we will reverse the chancellor's holding rejecting the

commissioner's finding that Scott breached the partnership

agreement by denying Clark access to the office.

This finding, that Scott denied Clark use of the

partnership's office, was the basis for the commissioner's

recommendation that Scott pay Clark $19,612 for partnership

expense payments he made during the period he was excluded from

the office. Scott did not contest the commissioner's finding

that Clark paid that amount for partnership expenses related to

the conduct of the partnership's business. Based on this

uncontested finding, which is supported by the evidence, we will

reverse the chancellor's determination denying Clark

reimbursement of that amount.

Clark next argues that the evidence supports the

commissioner's finding that he sustained $34,132 in lost profits

during the "lockout" period. In response, Scott contends that

even accepting the commissioner's determination that she denied

Clark access to the office, Clark failed as a matter of law to

prove this portion of his damage claim. We agree with Scott.

While a plaintiff claiming lost profits from a business is

not required to prove damages with mathematical precision, the

plaintiff must produce sufficient evidence to permit the trier

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of fact to estimate these damages with reasonable certainty.

TechDyn Sys. Corp. v. Whittaker Corp., 245 Va. 291, 298, 427

S.E.2d 334, 339 (1993); Goldstein v. Kaestner, 243 Va. 169, 173,

413 S.E.2d 347, 349 (1992); ADC Fairways Corp. v. Johnmark

Constr., Inc., 231 Va. 312, 318, 343 S.E.2d 90, 93 (1986). When

an established business, with a proven earning capacity, is

interrupted, the prior and subsequent record of the business'

profits may be used to permit an intelligent and probable

estimate of damages during a period at issue. Commercial Bus.

Sys., Inc. v. BellSouth Servs., Inc., 249 Va. 39, 50, 453 S.E.2d

261, 268 (1995); Mullen v. Brantley, 213 Va. 765, 768-69, 195

S.E.2d 696, 699-700 (1973). See ITT Hartford Group, Inc. v.

Virginia Fin. Assoc., Inc., 258 Va. ___, ___, ___ S.E.2d ___,

___ (1999) decided today. However, since a new business is a

speculative venture whose success depends on a multitude of

contingencies, evidence of that business' initial profits does

not provide the required safeguards permitting a reasonably

certain estimate of damages for the purpose of proving lost

profits. Id.

Here, the evidence is undisputed that the partnership's

dental practice began in April 1989 and was in operation for

only eight months when Scott breached the partnership agreement.

The evidence also established that the partnership's business

was "very light" in the early months of the practice and did not

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begin to be "busy" until November or December 1989, just prior

to Scott's breach in January 1990.

This record fails to disclose evidence reasonably

supporting a conclusion that the partnership's dental practice

achieved the status of an established business by January 1990.

Therefore, since the partnership's dental practice was a new

enterprise lacking an established earning capacity, the evidence

does not permit a reasonably certain estimate that Clark's

earnings in November and December 1989 were a reliable indicator

of the amount he would have earned between January 1990 and

March 1991. See Mullen, 213 Va. at 768-69, 195 S.E.2d at 699-

700.

Clark's testimony regarding his earnings from his later

partnership with a new partner also does not provide a basis for

an intelligent and probable estimate of the profits he would

have earned from his partnership with Scott. Clark testified

that this later partnership was a completely new and separate

undertaking that did not involve patients from his prior

partnership with Scott. Thus, since the evidence is

insufficient as a matter of law to support the commissioner's

recommendation that Clark be awarded $34,132 in lost profits, we

will affirm the part of the chancellor's judgment rejecting this

recommendation.

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 Finally, Clark argues that the chancellor erred in awarding

him only half the attorney's fees recommended by the

commissioner. We find no merit in this argument. As the

chancellor correctly noted, attorney's fees were allowable only

under the terms of the lease between Clark and the partnership.

Clark failed to prove that Scott was solely responsible for the

partnership's failure to make all the payments due under the

lease agreement. Thus, we will affirm that part of the judgment

awarding Clark, as lessor of the office condominium, one half

the attorney's fees attributable to his enforcement of the lease

agreement against the partnership.

In summary, we hold that the evidence supports the

following awards in Clark's favor: 1) $16,763.74 for his

overpayment of partnership expenses in 1989; 2) $19,612 for

Clark's payment of partnership expenses during the "lockout"

period; and 3) $1,500 in attorney's fees for the partnership's

breach of the lease agreement. Therefore, we will affirm in

part, and reverse in part, the chancellor's judgment and enter

final judgment in favor of Clark in the total amount of

$37,875.74.

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

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