Labovitz, Peter C. v. WA Times Corp

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 7, 1998 Decided April 20, 1999

No. 97-7203

Peter C. Labovitz and

Sharon M. Labovitz,

Appellants/Cross-Appellees

v.

The Washington Times Corporation and

News World Communications, Inc.,

Appellees/Cross-Appellants

Consolidated with

No. 97-7204

Appeals from the United States District Court

for the District of Columbia

(No. 95cv00138)

Stacy A. Feuer argued the cause for appellants/cross-
appellees. With her on the briefs was Alan B. Croft. Eric L.
Lewis entered an appearance.

Lee T. Ellis, Jr. argued the cause and filed the briefs for
appellees/cross-appellants.

Before: Ginsburg, Henderson and Rogers, Circuit Judges.

Opinion for the Court filed by Circuit Judge Rogers.

Rogers, Circuit Judge: Peter and Sharon Labovitz, share-
holders, directors, and officers of DCI Publishing, Inc., appeal
the dismissal of several counts of their complaint alleging that
the Washington Times,1 a daily metropolitan newspaper,
attempted to acquire DCI at a "distressed price." The
Labovitzes alleged that the Times' dealings with them and
DCI substantially reduced the value of their interests in DCI,
triggered their personal guarantees of loans to DCI, and
resulted in the seizure of personal property that they had
pledged as collateral for DCI's obligations. Because, in their
view, these injuries represent individual claims, the Labo-
vitzes contend that the district court erred in dismissing them
under Delaware and Virginia law on the ground that they
were derivative of losses suffered by DCI. On cross appeal,
the Times contends that the district court erred in excluding
evidence relevant to its setoff defense that any injury Mr.
Labovitz suffered from the alleged breach of the Times'
contract with him was "set off" by his failure to make certain
payments on behalf of DCI to a third-party bank.

Because a personal guarantor is sufficiently similar to a
creditor of a corporation, and because the Labovitzes' com-
plaint does not allege facts showing a special injury to them-
selves, we affirm the dismissal of their claims for breach of
fiduciary duty, fraud, and negligent misrepresentation as
derivative under Delaware law. Because, further, the Labo-
vitzes are not the real parties in interest to pursue claims of
damage to their property interests in DCI under the Virginia
Conspiracy Act, we affirm the dismissal of their claim under
that statute. Finding no abuse of discretion by the district
court in excluding evidence proffered as part of the Times'

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1 We will refer to both appellees, the Washington Times and its
parent company, News World Communications, as "the Times."

setoff defense, we affirm the orders and judgment of the
district court.

I.

In reviewing the order dismissing seven counts of the
Labovitzes' complaint, this court views the allegations in the
complaint as true, although it need not accept "purely legal
conclusions masquerading as factual allegations." Maljack
Prods., Inc. v. Motion Picture Ass'n of America, Inc., 52 F.3d
373, 375 (D.C. Cir. 1995). DCI, incorporated in Delaware,
operated several suburban community newspapers in Mary-
land and Virginia. The Labovitzes and another individual,
John Hanes, apparently each owned one-half of DCI prior to
1991.2 According to the complaint, in January 1991, the
Times began discussions with the Labovitzes and Hanes
about acquiring DCI. During the course of their negotia-
tions, the Times provided cash and printing services to DCI
worth over $2 million. After several months, the Times
decreased its financial contributions to DCI but told the
Labovitzes that it would fully fund DCI after they executed
several loan agreements. Under these agreements, which the
parties signed in August 1991, the Times acquired a fifty-
percent ownership interest in DCI in exchange for providing
several million dollars in cash and services to allow DCI to
continue operating. The Times also had the option of acquir-
ing total control of DCI and its assets at fair market value
after two and one-half years. To avoid public scrutiny of the
Times' ownership interest in DCI,3 the parties structured the
deal in the form of a loan from the Times to DCI. Peter

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2 Specifically, the complaint alleges that the Labovitzes owned
"no less than one-half of the controlling interest" of DCI, while
John Hanes and companies affiliated with him owned "approximate-
ly one-half." The complaint's wording suggests that the Labovitzes
and Hanes were the only shareholders in DCI; the Labovitzes'
brief, however, suggests that several of the companies under DCI's
control had minority shareholders.

3 The Labovitzes allege that the Times wished to keep its
involvement in DCI secret because of the newspaper's ties to the
Unification Church and its leader Reverend Sun Myung Moon.

Labovitz retained his management positions as president and
chief executive officer of DCI.

Shortly thereafter, however, the Times began secret nego-
tiations with John Hanes with the idea of committing DCI to
purchase accounting and consulting services from the Times
that it could not afford. In addition, the Times' agents,
Richard Jones and Michael Webb, proposed to Peter Labovitz
that he relinquish day-to-day control of DCI in exchange for
payments of $20,000 monthly for six months and a promise
that the Times would provide further financial support to
DCI. Within a few months after Peter Labovitz agreed to
those terms, he was barred from access to DCI financial
records, and the Times transferred DCI assets and personnel
to the Times and elsewhere without his knowledge, instruct-
ing DCI employees to refrain from communicating with him.
The Times also refused to pay him $20,000 monthly and
demanded that he and Sharon Labovitz surrender their inter-
ests and involvement in DCI, which they declined to do. The
Times then withdrew its financial support from DCI and
demanded that DCI pay $2 million in deferred printing,
composing, accounting, and consulting service costs. Accord-
ing to the complaint:

[t]he Times knew that its actions in withdrawing support
from DCI would cause substantial injury to plaintiffs by
(a) substantially reducing the value of plaintiffs' interests
in DCI; (b) triggering plaintiffs' personal guarantees of
DCI's corporate debts, and (c) leading to the seizure of
plaintiffs' property, which had been pledged as collateral
for DCI's obligations.

In January 1993, DCI filed for bankruptcy,4 and in 1995, the
Labovitzes filed suit against the Times.

In their complaint the Labovitzes allege that the Times
owed them a fiduciary duty (count one) because of its "de
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The Times allegedly feared that publicity of its ownership interest
in DCI would adversely affect DCI's revenues due to negative
public attitudes about the Unification Church.

4 In July 1996, the bankruptcy court approved a settlement
between NationsBank (one of DCI's creditors) and the Times. The

facto control" over DCI, and that it breached this duty by (1)
operating DCI for its own benefit, rather than DCI's; (2)
attempting to force Peter Labovitz to turn over his shares in
DCI to the Times at a distressed price and to surrender his
management role; and (3) refusing to pay Peter Labovitz the
agreed-upon compensation of $20,000 monthly for six months.
They further allege that the Times committed fraud (counts
two and three) and negligent misrepresentation (count four)
by making false statements about its commitment to the
financial success of DCI to induce them to sign loan docu-
ments in August 1991, and to surrender day-to-day control of
DCI. They also allege that the Times violated the Virginia
Conspiracy Act (counts five and six), s 18.2-499(A) & (B), by
conspiring with the Times' agents and John Hanes to injure
the Labovitzes' business and property interests in DCI. Fi-
nally, they allege breach of contract (count seven) and prom-
issory estoppel (count eight) based on the Times' failure to
pay Peter Labovitz $20,000 monthly and to continue to sup-
port DCI financially.

The district court granted the Times' motion to dismiss the
complaint except for count seven (breach of contract). The
court ruled that the dismissed counts involved claims for
injuries that derived from losses suffered by DCI, and that
under Delaware and Virginia law,5 the Labovitzes could not
pursue their claims as individuals. Labovitz v. Washington
Times Corp., 900 F. Supp. 500, 504 (D.D.C. 1995). Specifical-

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settlement required that NationsBank, acting on behalf of DCI,
agree to dismiss with prejudice its claims against the Times for
breach of contract, breach of fiduciary duty, fraud, negligent mis-
representation, and equitable subordination, but it preserved the
Labovitzes' right to pursue any personal claims they might have
against the Times. The Labovitzes agreed to the terms of the
settlement. Although the Times contends that the Labovitzes
violated this agreement by pursuing their claims, the court must
first determine whether the Labovitzes' claims are individual or
derivative, before it can address the impact of the settlement. In
view of our disposition, however, we do not reach this issue.

5 The district court applied Delaware law to counts one through
four and Virginia law to counts five and six. The Labovitzes do not

ly, the court found that the injuries alleged by the Labo-
vitzes--such as loss in stock value and losses associated with
their status as guarantors--were derivative in nature. Id. at
504-05. On the remaining claim for breach of contract, a jury
awarded Peter Labovitz $120,000.

On appeal, both sides contend that the district court erred,
the Labovitzes maintaining that the dismissed counts involved
claims for individual injuries separate and apart from those
suffered by DCI, and the Times maintaining that the exclu-
sion of evidence that Peter Labovitz failed to make certain
mortgage payments on behalf of DCI to an outside lender
was relevant as a setoff defense. We address three primary
issues, the first two de novo, Maljack, 52 F.3d at 375, and the
third for abuse of discretion, see Chedick v. Nash, 151 F.3d
1077, 1084 (D.C. Cir. 1998): (1) whether under Delaware law
the Labovitzes were the real parties in interest to pursue
claims for breach of fiduciary duty, fraud, and negligent
misrepresentation,6 (2) whether Virginia law permits the La-
bovitzes to bring claims under the Virginia Conspiracy Act,
ss 18.2-499 & -500, and (3) whether the district court abused
its discretion by excluding as irrelevant evidence related to
the Times' setoff defense.

II.

A.

Under Delaware law, shareholders can bring an individual
claim if they suffer injuries "directly or independently of the

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appeal the dismissal of count eight for promissory estoppel; it
became moot when the district court allowed Peter Labovitz to
pursue his breach of contract claim under count seven.

6 Although the Times characterizes this as a standing question,
the issue here is who is the real party in interest, see Fed. R. Civ.
P. 17(a), to bring a lawsuit "under the governing substantive law to
enforce the asserted right." Whelan v. Abell, 953 F.2d 663, 672
(D.C. Cir. 1992). In the shareholder context, the question is
"whether the corporation should be entitled to bring an action, at
least in the first instance, without the distraction of stockholders'
suits." Id.

corporation."7 Kramer v. Western Pacific Indus., Inc., 546
A.2d 348, 351 (Del. 1988). Claims based on injury to the
corporation, however, are derivative in nature and any dam-
ages suffered are owed to the corporation. Id. To determine
whether claims are individual or derivative, courts "must look
to the nature of the wrongs alleged in the body of the
complaint, not to the plaintiffs' designation or stated inten-
tion." Id. (quoting Lipton v. News Int'l, Plc, 514 A.2d 1075,
1078 (Del. 1986)). Plaintiffs must allege a "special injury" to
themselves, apart from that suffered by the corporation.
Cowin v. Bresler, 741 F.2d 410, 414-15 (D.C. Cir. 1984). This
injury can arise in two situations: first, "where the allegedly
wrongful conduct violates a duty to the complaining share-
holder independent of the fiduciary duties owed that party
along with all other shareholders," such as a duty that arises
out of an employment relationship, or second, "where the
conduct causes an injury to the shareholders distinct from
any injury to the corporation itself," such as losses resulting
from a company wrongfully withholding dividends. Id.; see
also Williams v. Mordkofsky, 901 F.2d 158, 164 (D.C. Cir.
1990). The Delaware Supreme Court observed in Lipton that
"[a] shareholder who suffers an injury peculiar to itself should
be able to maintain an individual action, even though the

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7 The district court noted in its order that neither party ad-
dressed which state law governed claims one through four of the
complaint. Conducting its own choice-of-law analysis, the district
court concluded that Delaware law governed the Labovitzes' share-
holder claims of breach of fiduciary duty, fraud, and negligent
misrepresentation because DCI was incorporated in that state--a
conclusion the parties do not contest on appeal. See also Cowin v.
Bresler, 741 F.2d 410, 414 n.4 (D.C. Cir. 1984).

The Labovitzes' complaint intermingles injuries that are clearly
derivative under Delaware law, such as a loss in the value of stock
affecting all shareholders, see Kramer v. Western Pacific Indus.,
Inc., 546 A.2d 348, 353 (Del. 1988), with other injuries that may or
may not be so. To some extent the failure to address the choice-of-
law issue would explain the difficulty now confronting the Labo-
vitzes in attempting to fit the language of the complaint into legal
theories recognized under Delaware law.

corporation also suffers an injury from the same wrong." 514
A.2d at 1079.

The Labovitzes allege in their complaint that the Times'
"de facto control over DCI's operations" created a fiduciary
relationship "between the Times, on the one hand, and DCI
and the [Labovitzes], on the other." On appeal, the Labo-
vitzes contend that because of this relationship the Times
owed the Labovitzes a "special duty." The Labovitzes, how-
ever, merely assert that such a duty exists without explaining
its exact nature or citing any relevant authority. Although
the Labovitzes contend that they suffered injuries in roles
other than shareholder, see Cowin, 741 F.2d at 415, they fail
to describe in any detail the fiduciary duty owed to them in
those roles. See Taha v. Engstrand, 987 F.2d 505, 507 (8th
Cir. 1993). But see Barger v. McCoy Hillard & Parks, 488
S.E.2d 215, 222 (N.C. 1997). But, assuming that the Times
owed the Labovitzes a duty in their non-shareholder roles,
the Labovitzes fail to identify how their injuries are unique to
themselves and independent of the harm suffered by DCI.

The Labovitzes' major contention on appeal focuses on
their role as guarantors of DCI's loan obligations. Specifical-
ly, they allege that the Times' failure to fund DCI fully as
promised prevented DCI from making payments on its debt
obligations, thereby triggering the Labovitzes' personal guar-
antees. In effect, the Times allegedly set into motion a series
of events that first injured DCI and then the Labovitzes.
While acknowledging that Delaware courts had not yet ad-
dressed whether a stockholder-guarantor could bring suit for
injuries suffered as a result of wrongdoing inflicted on a
corporation, the district court relied on the analysis of the
Seventh Circuit Court of Appeals in Mid-State Fertilizer Co.
v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333, 1336-37
(7th Cir. 1989), in concluding that the Labovitzes' injuries as
guarantors were directly tied to the fate of the corporation
and therefore were derivative losses.

In Mid-State, the sole shareholders of Mid-State (Lasley
and Maxine Kimmel) guaranteed their company's financial

obligations when it obtained revolving credit from a bank.
When the bank discovered that Mid-State was operating at a
loss, it placed restrictions on new credit, pushing Mid-State
into default. Both Mid-State and the Kimmels sued the bank
for violations of the Racketeer Influenced and Corrupt Orga-
nizations Act, 18 U.S.C. ss 1962(a) and 1964(c), and the Bank
Holding Company Act, 12 U.S.C. ss 1972 and 1975. Id. at
1333-35. Applying general principles of corporate law, id. at
1335, the Seventh Circuit held that the Kimmels' injuries
were derivative of Mid-State's because guarantors were no
different from "shareholders, creditors, managers, lessors,
suppliers, and the like [who] cannot recover on account of
injury done the corporation," in part because allowing such
suits "restrict[s] recoveries to the directly-injured party."8
Id. at 1336. The court explained, persuasively in our view,
that:

[t]he participants most directly affected by injury inflict-
ed on the firm are the stockholders--for their investment
is first to be wiped out. Creditors come next. Guaran-
tors are contingent creditors. If the firm stiffs a credi-
tor, that creditor can collect from the guarantor; the
guarantor succeeds to the original creditor's claim
against the firm. We know that creditors cannot recover
directly from injury inflicted on a firm, so guarantors as
potential creditors likewise cannot recover.

Id. In their various roles in the corporation, including as
guarantors, the Kimmels "gained and lost with Mid-State. A
blow costing Mid-State $1 could not cost the Kimmels more
than $1, [and] [a]n award putting the $1 back in Mid-State's
treasury would restore the Kimmels to their former position."
Id. at 1335. The court concluded that guarantors "must take
their place in line as creditors in the bankruptcy action (or
outside of it), dependent now as before on the success of the

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8 Likewise, in Taha v. Engstrand, the Eighth Circuit Court of
Appeals observed that "[s]hareholders, creditors or guarantors of
corporations generally may not bring individual actions to recover
what they consider their share of the damages suffered by the
corporation." 987 F.2d at 507.

firm in which they invested." Id. at 1336-37. Only "[w]hen
they suffer direct injury--injury independent of the firm's
fate-- ... may [they] pursue their own remedies."9 Id. at
1336. Weissman v. Weener, 12 F.3d 84, 86 (7th Cir. 1993)
reaffirmed Mid-State's analysis, holding that even when a
third party injures a corporation, forcing it into bankruptcy
and triggering its guarantors' obligations on loans, the
shareholder-guarantors' claims are generally derivative rath-
er than direct, and therefore they are not "the real party in
interest." Id. at 87.

The Labovitzes attempt to distinguish Mid-State and its
progeny on three grounds. They first contend that the
Times owed them a special duty, but, as discussed earlier,
they fail to describe the exact nature or origin of such a
purported duty. See supra p. 8. Assuming such a duty
existed, however, an injury flowing from the triggering of the
guarantees is a collateral consequence of the Times' direct
injuries to DCI. As in Weissman, a shareholder-guarantor is
not a "real party in interest" where he or she "is suing not
the bank [collecting on the guarantee] but rather the third
party whose alleged wrongdoing is said to have driven the
corporation into bankruptcy." 12 F.3d at 87. Second, the
Labovitzes allege that the Times intended to harm them, but
they fail to explain how this factor changes the derivative
nature of their injury: to the extent the Times never intend-
ed to "provide necessary future financial support" for DCI,
DCI and not the Labovitzes suffered a direct injury.

Finally, the Labovitzes attempt to distinguish Mid-State,
where the plaintiffs failed to "establish a nexus between the
bank's wrongdoing and their agreement to enter into the
guarantees," Appellants' Br. at 26, by relying on Judge
Ripple's concurring opinion cautioning parties not to read
Mid-State to mean that guarantors can never bring a claim
for injury because "there are situations--especially in the
case of a closely held corporation--where the relationship

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9 The court specifically observed that "[t]he Kimmels do not
contend that [the bank] broke the contracts by which the Kimmels
guaranteed Mid-State's borrowings." Id. at 1336.

between the corporation and the guarantor, combined with
the conditions directly imposed by the bank on the guarantor,
may require that the guarantor have standing to bring such
actions." Mid-State, 877 F.2d at 1340 (Ripple, J., concur-
ring).10 To the extent the Labovitzes suffered injury in their
role as guarantors on debts owed to parties other than the
Times, Mid-State and Weissman clearly identify such losses
as derivative. The more difficult question arises for guaran-
tees made on loans owed directly to the Times; if the Times'
conduct forces DCI into bankruptcy, it will also trigger the
Labovitzes' loan obligations to the Times. The Labovitzes
maintain that they personally guaranteed $2 million advanced
to DCI by the Times.11 Taking the allegation as true, see
EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621, 625
(D.C. Cir. 1997), still does not demonstrate how the Labo-
vitzes have suffered a special injury apart from other credi-
tors and guarantors. The fact that the Times may have
required the Labovitzes to make good on their guarantees
when DCI defaulted on its loan obligations is a duty imposed
on every guarantor. Weissman, 12 F.3d at 87. John Hanes
stands in no different position than the Labovitzes. See
supra n.11; see also DLB Collection Trust v. Harris, 893
P.2d 593, 597 (Utah Ct. App. 1995). Finally, to the extent the
Times may have breached the loan agreements that estab-
lished these guarantees, the Labovitzes' breach of contract
claim relates only to the Times' failure to pay Peter Labovitz
agreed-upon compensation, a claim he pursued before a jury,
and its failure to fund DCI fully, a direct injury to the
corporation rather than Mr. Labovitz.12 Put otherwise, as

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10 The court in Weissman, however, noted that Judge Ripple's
view remained an open question in the Seventh Circuit Court of
Appeals. 12 F.3d at 87.

11 Although this allegation appears in the Labovitzes' brief and
not in the complaint, an exhibit attached to the complaint suggests
that the Times may have sought "personal guarantees" from Peter
Labovitz and John Hanes.

12 Buschmann v. Professional Men's Assoc., 405 F.2d 659 (7th
Cir. 1969), on which the Labovitzes rely, is distinguishable. Busch-

contingent creditors, the Labovitzes fail to explain why their
injury places them in a different position than every other
creditor and guarantor owed money when DCI entered bank-
ruptcy, nor do they plead a breach of contract claim related to
the guarantees.13

We can quickly dispose of the Labovitzes' remaining claims
of injury. Although they concede on appeal that the loss they
suffered in share value is a derivative harm, see Kramer, 546
A.2d at 353, they contend that they suffered individual inju-
ries to the extent that the Times fraudulently induced Peter
Labovitz to leave his management position. This injury was
part and parcel of Peter Labovitz's breach of contract claim.
Furthermore, the failure to keep DCI financially afloat is an
injury suffered directly by the corporation and only indirectly
experienced by the Labovitzes as shareholders or guarantors.

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mann entered into a contract to establish a new corporation,
transfer assets to it in exchange for stock, and guarantee the
corporation's debts to a third-party bank. In exchange, the Associ-
ation promised to manage the new corporation, an obligation it
allegedly violated by diverting the corporation's assets for its own
use. Id. at 662. The court held that, even though the corporation
had a claim for mismanagement, Buschmann, the stockholder-
guarantor, also had an individual cause of action for breach of
contract against the Association "even though the corporate cause
of action and Buschmann's cause of action result from the same
wrongful acts." Id. at 662, 663. Peter Labovitz's breach of con-
tract claim does not relate to his role as guarantor.

13 During oral argument, counsel for the Labovitzes argued
that, as to several of the corporation's loans, they were co-obligors,
rather than "contingent lenders" as in the case of Mid-State. We
need not explore the rights of co-obligors to sue in these circum-
stances, however, because the Labovitzes failed to raise this conten-
tion in their initial brief, and to the extent they mention in their
reply brief that they were "co-obligors, guarantors, and pledgors,"
they failed to make an argument as to how the different labels
represent different harms; the discussion in their briefs of the
injury they suffered relates to their role as guarantors. Under the
circumstances, we decline to consider this contention. See Natural
Resources Defense Council, Inc. v. EPA, 25 F.3d 1063, 1071 n.4
(D.C. Cir. 1994).

See id. Likewise, to the extent the Labovitzes relied on the
Times' promises to keep DCI afloat in exchange for their
signing the loan agreements, DCI suffered the direct injury,
not the Labovitzes.

Consequently, the district court properly dismissed counts
one through four of the complaint because the Labovitzes'
alleged injuries derive from harm directly inflicted on DCI
and are not any different from those suffered by other
individuals (such as shareholders or creditors) in a similar
position to the Labovitzes. As the Seventh Circuit in Mid-
State observed, to allow recovery by individual shareholders
for derivative claims

is a form of double counting. "Corporation" is but a
collective noun for real people--investors, employees,
suppliers with contract rights, and others. A blow that
costs "the firm" $100 injures one or more of those
persons. If, however, we allow the corporation to litigate
in its own name and collect the whole sum (as we do), we
must exclude attempts by the participants in the venture
to recover for their individual injuries.... Divvying up
the recovery [to the participants individually] would be a
nightmare.... Why undertake such a heroic task when
recovery by the firm handles everything automatically?--
for investors, workers, lessors, and others share any
recovery according to the same rules that govern all
receipts.

877 F.2d at 1335-36. Indeed, "a suit by an indirectly injured
victim could be an attempt to circumvent the relative priority
its claim would have in the directly injured victim's liquidation
proceedings." Holmes v. Securities Investor Protection
Corp., 503 U.S. 258, 274 (1992) (citing Mid-State, 877 F.2d at
1336). The remedy for the Labovitzes, therefore, was in the
bankruptcy court because any recovery by DCI could be
redistributed to its creditors, including the Labovitzes. To
the extent that DCI was not made whole, the proper place to
object was at the time of the bankruptcy settlement agree-
ment, to which the Labovitzes consented.

B.

The Labovitzes also contend that the district court erred in
viewing their claims under the Virginia Conspiracy Act as
alleging only derivative injuries.14 In counts five and six, the
Labovitzes allege that the Times "wilfully and maliciously"
conspired with John Hanes and a consultant, hired by the
Times to examine DCI's management, to "injure the business
and property interests of plaintiffs Peter Labovitz and Sharon
Labovitz in DCI." These counts, as the district court found,
"clearly reveal that [the Labovitzes] are alleging injury to
their interests in the DCI corporation only," and that these
losses were also derivative in nature. Labovitz, 900 F. Supp.
at 506 n.10.

Under ss 18.2-499 and -500 of the Virginia Conspiracy
Act, a right of action exists "only when malicious conduct is
directed at one's business, not one's person"; claims relating
to one's employment and employment reputation are not
covered by the statute. Buschi v. Kirven, 775 F.2d 1240,
1259 (4th Cir. 1985); see also Picture Lake Campground, Inc.
v. Holiday Inns, Inc., 497 F. Supp. 858, 863-64 (E.D. Va.
1980). In Picture Lake, the district court ruled that a
business ("First Management") renting property to a second
business ("Picture Lake") could not pursue claims under
either ss 18.2-499 & 18.2-500 or common law tort for injuries
suffered by the second business. The district court reasoned
that

just as a stockholder of a corporation has no standing to
sue third parties for wrongs inflicted by those third
parties upon the business and property interest of the
corporation, it is evident that First Management has no
standing to sue [defendant] Holiday Inns for wrongs

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14 Va Code Ann. s 18.2-499(A)(i) (Michie 1996) prohibits con-
spiracies "for the purpose of ... willfully and maliciously injuring
another in his reputation, trade, business or profession by any
means whatever...." Section 18.2-499(B) forbids attempts to
procure the participation of another person to enter a conspiracy
under s 18.2-499(A). Section 18.2-500 authorizes treble damages
for violations of s 18.2-499.

allegedly inflicted by Holiday Inns on the business or
property interests of Picture Lake.

497 F. Supp. at 863. Likewise, DCI rather than the Labo-
vitzes has the authority under the Virginia statute to pursue
conspiracy claims against the Times. Neither the Labovitzes'
complaint nor their briefs on appeal shed much light on the
specific property interests the Times' alleged conspiracy in-
jured, other than their interests in DCI. Before the district
court, the Labovitzes claimed as injury harms that are not
personal to themselves, such as the decline in value of their
stock, cf. Kramer, 546 A.2d at 353, and the losses suffered in
their role as guarantors, cf. Mid-State, 877 F.2d at 1336-37.
To the extent the Labovitzes allege loss of management as an
injury, the Fourth Circuit has made clear that "[t]he employ-
ment relation [is to] be characterized as a personal right as
opposed to a business interest and is without the ambit" of
the Virginia Conspiracy Act. Buschi, 775 F.2d at 1259
(internal quotation marks omitted).

The Virginia Supreme Court's subsequent decision in Luck-
ett v. Jennings, 435 S.E.2d 400 (Va. 1993), is consistent with
this outcome. In Luckett, the court held that a shareholder-
officer in the corporation "Quantum" had sufficiently alleged
an injury to his business as a result of the conduct of several
third parties. The plaintiff had not specifically alleged the
nature of the injury to his business in the complaint, although
elsewhere the complaint described him as a real estate devel-
oper. Id. at 402. The court concluded that "[w]hether
Luckett has a business that is separate and distinct from
Quantum, and whether he has sustained injury to that busi-
ness distinguishable from injury to Quantum, are issues of
fact to be resolved at trial."15 Id. Unlike Luckett, the
Labovitzes' complaint identifies their injuries by reference to
their property interests "in DCI," rather than in other busi-
nesses. The district court therefore properly ruled that the

__________
15 The Luckett court did not reach the defendants' argument
that other cases barred the plaintiff's claim because he suffered an
investor- or employee-related injury rather than a business-related
injury. Id. at 306.

Labovitzes cannot pursue their claims under the Virginia
conspiracy statute.

C.

On cross-appeal, the Times contends that the district court
improperly excluded evidence relating to Peter Labovitz's
failure to make mortgage payments owed to an outside
lender, Burke & Herbert Bank, on behalf of DCI. The
Times sought to introduce this evidence on the theory that
any debt owed by the Times to Peter Labovitz should be "set
off" in part by the amount of these payments. The district
court rejected the evidence as irrelevant under Fed. R. Evid.
401, noting that the doctrine of mutuality barred the Times'
theory, as the Times and DCI were "separate legal entities"
and the Times could not rely on a debt Labovitz owed to DCI
to set off a debt the Times might owe to him. Labovitz v.
Washington Times Corp., No. 95-138, at 5 (D.D.C. Sept. 30,
1997). We find no abuse of discretion, Chedick, 151 F.3d at
1084, nor legal error, FTC v. Texaco, Inc., 555 F.2d 862, 876
n.29 (D.C. Cir. 1977).

The Times contends on appeal that Peter Labovitz's failure
to pay the outside lender forced DCI to make these payments
in his stead, thereby creating a setoff against any injury he
suffered from the Times' alleged failure to pay him $120,000
for relinquishing control of DCI. To demonstrate mutuality,
the Times points to evidence such as a memorandum sent by
John Hanes claiming that DCI paid Peter Labovitz certain
mortgage payments that he failed to pass on to the Burke &
Herbert Bank. At most, however, this evidence as well as
the other documents and testimony identified by the Times
only shows mutuality between DCI and Peter Labovitz, not
between the Times and Labovitz. Attempting to link DCI
with the Times by pointing to language in the complaint
alleging that the Times acquired a fifty-percent ownership
interest in DCI, the Times cites no authority for the proposi-
tion that a debt owed to a company is also owed individually
to a shareholder. Indeed, the Times' contention is inconsis-
tent with its position that only DCI, and not its shareholders,

can pursue claims against third parties for injuries that DCI
suffered directly.

For the first time on appeal, the Times makes two addition-
al contentions, first, that mutuality is not required for equita-
ble setoffs where courts forgo the strict requirement of
mutuality "for a clear equity or to prevent irremediable
injustice," and second, that the excluded evidence would show
that Peter Labovitz "knew that he was dealing with DCI
when he made the alleged arrangement to receive" $120,000
in exchange "for withdrawing from DCI leadership activities,"
and that therefore the contract to surrender control of DCI
was between Labovitz and DCI, not Labovitz and the
Times.16 Having failed to raise either contention in the
district court, the Times is barred from doing so now. See
United States v. Baucum, 66 F.3d 362, 363 (D.C. Cir. 1995);
Kattan by Thomas, v. District of Columbia, 995 F.2d 274, 278
(D.C. Cir. 1993).

Accordingly, because counts one through four are deriva-
tive claims, and the Labovitzes do not have a cause of action
under the Virginia conspiracy statute, and because exclusion
of the mortgage payment evidence proffered by the Times
was not an abuse of discretion, we affirm the district court's
orders and the judgment.

__________
16 The Times concedes that it "did not use the words 'impeach-
ment evidence' in its proffer and opposition to the motion in limine"
to exclude the setoff evidence, but maintains that the evidence, by
its very nature, was impeachment evidence. We disagree that the
Times' impeachment contention clearly flows from the mutuality
arguments it made in the district court, or that the district court
necessarily would have understood its proffer as such.