Present: All the Justices
TIMOTHY R. RASH, ET AL.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 950896 March 1, 1996
HILB, ROGAL & HAMILTON
COMPANY OF RICHMOND
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Randall G. Johnson, Judge
I.
In this appeal, we consider issues that arose during the
trial of a suit in equity for a breach of contract, tortious
interference with contractual relations, and common law
conspiracy.
II.
Hilb, Rogal & Hamilton Company of Richmond (HRH) filed its
amended bill of complaint against Susan M. Rash, Timothy R. Rash,
and Rash & Associates, Inc., a Virginia corporation. HRH alleged
that Mr. Rash breached his employment agreement, which included a
covenant not to compete. HRH further alleged that Mrs. Rash
tortiously interfered with its contractual relations and that Mr.
and Mrs. Rash had engaged in a common law conspiracy. HRH sought
damages, injunctive relief, costs, and attorney's fees.
At the conclusion of an ore tenus hearing, the chancellor
held that these allegations had been proven. The chancellor
assessed damages against the Rashes and Rash & Associates and
awarded costs, attorney's fees, and certain injunctive relief.
The chancellor held that the Rashes and Rash & Associates are
jointly and severally liable to HRH in the amount of $111,891,
which was stipulated by the litigants to be 75% of all
commissions that Mrs. Rash or Rash & Associates received from
certain accounts that were formerly serviced by HRH. The
chancellor's decree established a constructive trust requiring
that Mrs. Rash and Rash & Associates, as constructive trustees,
pay to HRH 75% of all commissions earned from certain accounts
that were formerly serviced by HRH. The Rashes and Rash &
Associates appeal.
III.
When a chancellor hears evidence ore tenus, his decree is
entitled to the same weight as a jury verdict, and we are bound
by the chancellor's findings of fact unless they are plainly
wrong or without evidence to support them. Morris v. Mosby, 227
Va. 517, 522, 317 S.E.2d 493, 497 (1984). Additionally, we will
review the evidence and all reasonable inferences fairly deduced
therefrom in the light most favorable to HRH, the prevailing
party below. Id.
HRH is an insurance sales firm which sells various types of
insurance, including insurance benefits products. In September
1990, HRH purchased certain tangible and intangible assets of The
James River Financial Group, Inc., including its division that
sold insurance benefits products.
As employees of the James River Financial Group, the Rashes
were involved in the marketing of benefits insurance products.
Mr. Rash was part owner of the James River Financial Group, and
he received a portion of the purchase price when HRH acquired the
James River Financial Group's assets.
After HRH acquired the James River Financial Group's assets,
Mr. Rash became a senior vice president of HRH. In this
capacity, he was in charge of HRH's group benefits division. Mr.
Rash's employment agreement with HRH, which he signed after
consultation with legal counsel, contains a covenant that
prohibits him from competing directly or indirectly against HRH
upon termination of his employment.
Mrs. Rash also became an employee of HRH. She worked as a
benefits consultant for HRH and, in that capacity, she had
complete access to HRH's confidential customer and business
information. She also worked closely with Mr. Rash, and she
accompanied him when he tried to solicit new business accounts
for HRH. Mrs. Rash was not required to sign a covenant not to
compete.
In November 1992, Mr. Rash initiated negotiations with HRH
to purchase its group benefits business. According to Mr. Rash,
Mrs. Rash was working "behind the scenes" during the negotiations
to purchase the business from HRH. During these negotiations,
the Rashes decided that if they were unable to acquire HRH's
group benefits division, Mrs. Rash would form her own competitive
insurance company and solicit HRH's accounts. Mr. Rash forwarded
a letter to his attorney stating, "I definitely believe that
either Susan or I would be successful in acquiring several of the
accounts which they don't want to sell. We could possibly keep
them all!"
Mr. Rash was unsuccessful in his attempt to purchase HRH's
group benefits division. Subsequently, the Rashes resigned from
their employment with HRH effective March 31, 1994. Later that
day, the Rashes went to a store where Mrs. Rash used Mr. Rash's
credit card to purchase a facsimile machine. Mr. Rash knew that
Mrs. Rash was purchasing this facsimile machine for use in her
new business, Rash & Associates. On another occasion, Mrs. Rash
used her husband's credit card to purchase office equipment and a
printer for Rash & Associates. Ultimately, Rash & Associates
reimbursed Mr. Rash for these expenses.
During its first month of operation, Rash & Associates,
which competed for HRH's insurance benefits accounts, conducted
business in the Rashes' jointly-owned residence. Mrs. Rash used
her husband's leased automobile to conduct business on behalf of
Rash & Associates.
Mrs. Rash encountered problems when she tried to acquire
operating capital for her new corporation. The initial business
purchases and operating expenses for her company were provided by
Mr. Rash. Mr. Rash deposited a check payable to him in the
amount of $8,000 in a joint checking account that he owned with
Mrs. Rash. Mr. Rash knew that Mrs. Rash intended to use some of
these funds to pay for Rash & Associates' operating expenses.
Mrs. Rash informed Mr. Rash that she was trying to borrow
money for Rash & Associates and that she had become frustrated
with the process of borrowing money. The Rashes discussed with
their attorney the possibility of encumbering their jointly-owned
home as security to obtain financing for Rash & Associates. Mrs.
Rash asked her husband if he would be willing to join in such a
transaction. Mr. Rash refused to do so.
During a conversation with their attorney, the Rashes
discussed the use of their jointly-owned mutual funds as
collateral to obtain the necessary financing for Rash &
Associates. Subsequently, Mr. Rash assigned his interest in the
mutual funds to his wife, who used them as collateral to obtain a
loan for Rash & Associates. Mr. Rash testified that he made the
assignment because he did not want his name to appear on any
documents relating to Rash & Associates.
Rash & Associates eventually acquired many group benefits
insurance accounts that had been serviced by HRH. Mrs. Rash
testified that in 1994, Rash & Associates received $136,011 in
commissions, and $135,000 of those commissions were from former
HRH accounts.
IV.
Mr. Rash asserts that the chancellor erred in holding that
he violated his covenant not to compete and that he engaged in a
competing business by allowing his wife to use jointly-held
marital assets to fund Rash & Associates. Additionally, Mr. Rash
asserts that he did not "engage" in his wife's business. HRH
argues, and we agree, that there is substantial evidence to
support the chancellor's finding that Mr. Rash breached his
employment agreement.
The covenant not to compete states in relevant part:
[After termination, Mr. Rash] shall not directly or
indirectly as an owner, stockholder, director,
employee, partner, agent, broker, consultant or other
participant, for a period of three (3) years from the
date of such termination:
. . . .
(e) engage in any manner in any business competing
directly or indirectly with [HRH].
(Emphasis added).
As we have often stated, "[t]he parties' contract becomes
the law of the case unless it is repugnant to some rule of law or
public policy." Winn v. Aleda Const. Co., 227 Va. 304, 307, 315,
315 S.E.2d 193, 194 (1984). Accord D.C. McClain, Inc. v.
Arlington County, 249 Va. 131, 135, 452 S.E.2d 659, 662 (1995).
Additionally, we "must give effect to the intention of the
parties as expressed in the language of their contract, and the
rights of the parties must be determined accordingly." Foti v.
Cook, 220 Va. 800, 805, 263 S.E.2d 430, 433 (1980).
The record is replete with evidence that Mr. Rash acted as a
participant who, at the very least, indirectly engaged in a
business that competed against HRH. For example, as we mentioned
above, Mr. Rash relinquished his interest in a jointly-owned
mutual fund account so that Mrs. Rash could use those funds as
collateral to secure a loan that was used for operating capital
for Rash & Associates. And, as the chancellor found, Rash and
Associates would not have been able to conduct business without
this loan.
V.
The Rashes challenge that portion of the chancellor's decree
awarding damages against them. Mrs. Rash asserts that she did
not tortiously interfere with Mr. Rash's contract with HRH or
with HRH's business expectancies. Further, she contends that the
chancellor erred by awarding contract damages on the tortious
interference claim and that the damages were punitive and without
relationship to the actual harm suffered by HRH. Mr. Rash argues
that the chancellor erred in imposing liquidated damages against
him because his contract of employment purportedly does not
provide for such damages. He also claims that the liquidated
damage provision in his contract is unenforceable because it
bears no relationship to the actual losses sustained by HRH.
As HRH observes, we cannot consider these arguments advanced
by the Rashes because there is an independent basis to support
the chancellor's ruling on these issues and that basis has not
been challenged on appeal. In his final decree, the chancellor
found that the Rashes had engaged in a common law conspiracy
against HRH. The chancellor made a unitary award of damages, and
an unspecified portion of those damages are compensation for the
Rashes' common law conspiracy against HRH. The Rashes do not
assign error to the chancellor's finding that they had engaged in
a common law conspiracy; nor do they assign error to that portion
of the chancellor's decree which awards damages to HRH because of
the Rashes' common law conspiracy.
Therefore, those portions of the chancellor's decree holding
that the Rashes had engaged in a common law conspiracy and that
HRH is entitled to recover damages resulting from that conspiracy
have become final and are not before this Court on appeal. Rule
5:17(c); see United Leasing Corp. v. Thrift Ins. Corp., 247 Va.
299, 308, 440 S.E.2d 902, 907 (1994); Crist v. Metropolitan
Mortgage Fund, 231 Va. 190, 193, 343 S.E.2d 308, 310 (1986);
Stamie E. Lyttle Co. v. County of Hanover, 231 Va. 21, 27, 341
S.E.2d 174, 178 (1986); Haynes v. Bekins Van & Storage Co., 211
Va. 231, 233, 176 S.E.2d 342, 344 (1970).
VI.
The Rashes assert that the trial court erred by imposing a
constructive trust in favor of HRH. We disagree.
In Leonard v. Counts, 221 Va. 582, 588-89, 272 S.E.2d 190,
195 (1980), we stated:
Constructive trusts are those which the law
creates, independently of the intention of the parties,
to prevent fraud or injustice. Porter v. Shaffer, 147
Va. 921, 928, 133 S.E. 614, 616 (1926). While there is
a distinction between resulting and constructive
trusts, albeit often difficult to determine, the same
remedial principles apply to both. Id. at 928-29, 133
S.E. at 616. Constructive trusts have also been
defined more comprehensively as follows:
"Constructive trusts arise, independently of
the intention of the parties, by construction
of law; being fastened upon the conscience of
him who has the legal estate, in order to
prevent what otherwise would be a fraud.
They occur not only where property has been
acquired by fraud or improper means, but also
where it has been fairly and properly
acquired, but it is contrary to the
principles of equity that it should be
retained, at least for the acquirer's own
benefit."
1 Minor on Real Property § 462 at 616 (2d ed. Ribble
1928).
Accord Overby v. White, 245 Va. 446, 449-50, 429 S.E.2d 17, 19
(1993); Greenspan v. Osheroff, 232 Va. 388, 400, 351 S.E.2d 28,
36-37 (1986).
Here, the chancellor found that the Rashes engaged in a
common law conspiracy by diverting HRH's contracts to Mrs. Rash's
corporation. Certainly, such conduct constitutes an improper
means which, under the facts and circumstances of this case,
justifies the imposition of the constructive trust.
VII.
Because we find no error in the decree appealed from, it
will be affirmed.
Affirmed.