Eden v. Weight

PRESENT: Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and
Lemons, JJ., and Carrico, S.J.

ABIGAIL EDEN, ET AL.

v. Record No. 021567 OPINION BY JUSTICE ELIZABETH B. LACY
April 17, 2003
YVONNE D. WEIGHT, ET AL.

FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Leslie M. Alden, Judge

Abigail Eden and Paul Shriver, co-administrators of the

Estate of Sara B. Shriver, seek reversal of the trial court's

action setting aside a jury verdict in their favor and

entering judgment in favor of Yvonne D. Weight and Mark J.

Caraluzzi. The co-administrators filed an amended bill of

complaint alleging that they were damaged as a result of their

reliance upon false representations of material fact made by

Weight and Caraluzzi regarding the sale of certain stock held

by the Estate. Following a two-day trial, the jury returned a

verdict finding that Weight and Caraluzzi had engaged in

constructive fraud and awarding the co-administrators a total

of $156,000 in damages.

Weight and Caraluzzi filed motions to set aside the

verdict which the trial court granted, holding that there was

no evidence that, after July 15, 1996, the co-administrators

acted to their detriment in reliance on the misrepresentations

of Weight and Caraluzzi and no evidence that the co-

administrators suffered any damage prior to July 15, 1996.
Because we conclude that the record in this case supports the

trial court's action in setting aside the jury verdict, we

will affirm the judgment of the trial court.

FACTS

In reviewing whether a trial court erred in setting aside

a jury verdict, we apply well-established principles. We

consider the evidence in the light most favorable to the party

in whose favor the verdict was rendered and, if there is any

evidence in the record to support the jury's verdict, we must

reinstate that verdict. Simmons v. Miller, 261 Va. 561, 572,

544 S.E.2d 666, 673 (2001).

Sara Shriver was an original investor in, and member of

the Board of Directors of Shirlington Cuisine, Inc. (SCI or

the Corporation), a corporation engaged in the restaurant

business. At the time of her death in 1995, SCI operated one

restaurant called Bistro Bistro and a second restaurant was

scheduled to open in November 1995 in Reston. The Corporation

was also negotiating for the purchase of a third restaurant in

Ballston. Sara Shriver died intestate on September 15, 1995,

survived by six adult children, including Abigail Eden and

Paul Shriver. Sara Shriver's 140 shares of SCI stock were

included in the Estate. Following her funeral, the children

discussed the administration of the decedent's Estate with

Weight, an SCI shareholder and member of the Corporation's

2
Board of Directors. Weight was also an attorney and personal

friend of Sara Shriver. Weight told the heirs that there were

some restrictions on the sale of the SCI stock because the

Corporation had Subchapter S status for purposes of state and

federal income taxation purposes. She also told the heirs

that disposition of the stock might be restricted by a

shareholders' agreement which she suggested they would find

among Sara Shriver's papers.

The heirs met again in December and designated Shriver

and Eden as co-administrators of the Estate. They also

decided to sell the SCI stock. They had "no sense of urgency"

and planned on selling the stock sometime in the second

quarter of 1996. Although they had not located a

shareholders' agreement or otherwise determined what

restrictions might apply to disposition of the stock, the

heirs believed that they could not distribute the stock among

themselves and that the sale of the stock was restricted based

on the information previously given to them by Weight.

In March 1996, Shriver contacted Caraluzzi seeking help

and information regarding the value of the stock and the

ability of the Estate to sell the SCI stock. Based on the

information in Sara Shriver's files, Eden knew that the stock

had been valued at $250 a share in the past, but because of

the size and regularity of the dividends paid by the

3
Corporation, Eden believed the stock was worth more than $250.

Caraluzzi told Shriver that SCI would like to buy the Estate's

shares but suggested that Shriver and the Estate wait until

May 1996 when the SCI stock would be revalued and the value

would likely increase. Caraluzzi also advised Shriver that

there were limitations on the number of shareholders because

of the Corporation's Subchapter S status and that, while more

than one heir could hold stock, six heirs would be too many.

In April, Shriver asked Caraluzzi about the shareholders'

agreement. Caraluzzi told Shriver he could pick up a copy of

the agreement at Caraluzzi's office. The material Shriver

received was only an unexecuted, partial shareholders'

agreement, containing provisions on transfer restrictions and

transfers upon a shareholder's death. After seeing this

material, Shriver believed an executed copy of the full

agreement existed.

In May, Shriver again asked Caraluzzi for the value of

the SCI stock. Caraluzzi replied that revaluation of the

stock had not yet been concluded and suggested that the Estate

make SCI an offer for the purchase of the Estate's stock.

Following this conversation, Shriver discussed the matter of

valuation and sale of the stock with an accountant. The

accountant advised that a restaurant broker would not be

interested in a minority share of the restaurant. The

4
accountant also suggested that Shriver could compare the

dividends the Estate had been receiving from SCI "to treasury

bills in order to get some sort of a valuation." On July 2,

1996, Shriver received SCI financial information for the years

1994 and 1995. Using the accountant's suggested valuation

formula, Shriver determined the SCI stock had a high value of

$1,800 a share, and a low value of less than $200 per share.

Shriver testified, however, that he felt he needed additional

information to reach an accurate value for the stock.

Eden also contacted Caraluzzi in an attempt to determine

the value of the stock. In a telephone conversation on July

2, 1996, Caraluzzi told Eden that he was meeting with an

accountant and would get back to Eden with the requested

information within two weeks. During that conversation, Eden

made the following notations: "Meeting w/ accountant 1 wk

from Monday. 'This is objective.' Sell the treasury stock.

Rules are not clear."

When Eden called Caraluzzi two weeks later, Caraluzzi

said he would not give Eden the stock value because the SCI

Board of Directors had not yet approved the new value. Eden

also requested a list of SCI's shareholders, and Caraluzzi

said he would have to check with Weight before releasing the

list. Following these conversations, Eden was "confused,

dismayed, disappointed" and "full of suspicion."

5
 On July 15, Eden sent the following electronic mail (E-

mail) to her siblings:

Thought you all would be interested in the process
Paul and I worked out for the stock.
1.) Find out what Mark C[araluzzi] and his account
think the stock is worth.
2.) Confirm that valuation with our own "expert" and
against what we know now about valuing stock.
3.) Offer to sell the stock to the company outright
for a lump sum payment due immediately. (They will
not be able to do it because of cash flow.)
4.) Get the list of current syndicate members and
send an offer letter. Because they already own
stock, they can make an offer on all or part of the
stock. . . .
5.) If there are no takers, sell the stock to an
investor through a restaurant broker. . . .

Paul is working on first draft of letter. We have
requested that Mark C[araluzzi] contact us as soon
as possible with the valuation. In a prior
conversation, Mark indicated that he had some people
outside the syndicate that might be interested.
Therefore, we might add a step 4.5) to try to sell
to them.

Several days later, SCI sent a memorandum to its

shareholders setting up a special meeting on July 30 to allow

the shareholders to see the Corporation's new Ballston

restaurant and to offer 140 shares of the Corporation's

treasury stock for sale at $1,450 per share. The memorandum

indicated the sale of treasury stock was to raise funds to

complete construction and operation of the new restaurant that

the Corporation was acquiring in Ballston. The memorandum

also indicated that Caraluzzi intended to contact the

shareholders individually before the meeting.

6
 Shriver testified that this memorandum was his first

indication that SCI would be selling treasury shares. He

immediately attempted to get the list of current shareholders

and picked up the list from Caraluzzi's office "[n]o more than

a week later." He also decided to value the stock at $1,200 a

share, an amount that the co-administrators "would be willing

to accept." Eden testified that when she saw the SCI

memorandum on July 24, she realized that "the corporation has

other interests. This is a competition. They're issuing

treasury stock."

Eden telephoned Weight on July 23. In that conversation,

Eden expressed her frustration with Caraluzzi, asking Weight

to explain Caraluzzi's "evasiveness and the dissembling and

the putting off of giving information." Weight replied that

there must be some explanation because she did not believe

Caraluzzi would mislead and evade them. Weight also cautioned

Eden that the Estate would be "opening [itself] up for

liability" if Estate stock was sold to persons other than the

original shareholders or the Corporation.

On July 25, Shriver sent an E-mail to his siblings,

informing them that he was preparing to sell the Estate's

stock to the Corporation's existing shareholders at $1,200 per

share. In asking his siblings if any of them wished to buy

stock, he stated, "I know this isn't much time, but we have to

7
move quickly because of other stock arrangements going on

within Bistro Bistro."

The next day, Shriver sent a memorandum to SCI's

shareholders offering 126 of the Estate's shares for sale at a

price of $1,200 per share. Shriver followed the memorandum

with telephone calls to the persons on the shareholders' list.

Two of the shareholders expressed an interest in acquiring

some of the Estate's stock, and a third stated a willingness

to purchase 11 shares.

Eden sent an E-mail to her siblings on July 29 regarding

the Estate's stock offerings, stating in part:

We wanted to let them know the stocks were available
before they paid for the Treasury Stock just issued
by the company at $1,450/share.

. . . .

The situation is hairy, because we are making an
offer below the price offered by the company for the
Treasury Stock. They are selling the Treasury Stock
to bankroll construction on the new Ballston
restaurant. Paul is going to attend the next
meeting on Tuesday night to make sure Caraluzzi
doesn't say or do anything to undermine our offer.

We did this because since Paul first contacted Mark
Caraluzzi he has delaye[d] and dissembled. We have
run out of time and patience.

Shriver went to the shareholders' meeting on July 30. At

that meeting, Caraluzzi told Shriver that he would direct the

current shareholders to buy the Estate's stock and the

Corporation would try to sell the treasury stock to the

8
outside investors. Furthermore, if the sale to outside

investors was successful, the Corporation would purchase the

rest of the Estate's stock. Shriver testified that, based on

this representation, he stopped trying to market the Estate's

stock to either current or new investors.

In August, Weight told Shriver that the Corporation would

be changing its Subchapter S status. Shriver, believing that

the Corporation would no longer be subject to any restrictions

connected with Subchapter S status, contacted his siblings in

an August 6 E-mail asking if any of them wanted to purchase

some of the Estate's stock. On August 12, Shriver told

Caraluzzi that "126 or 116" of the Estate's shares would be

available for purchase by other shareholders or the

Corporation and 24 shares would be retained by family members.

Caraluzzi replied that "he should be able to sell all of those

within two weeks, some of them within the next week, and that

the corporation would buy any shares that the current

shareholders did not buy."

On August 12, 1996, Caraluzzi issued a memorandum to the

SCI shareholders offering SCI stock for sale at $1,200 per

share. On August 26, the shareholder who had indicated a

willingness to purchase 11 of the Estate's shares informed

Shriver by letter that she no longer wished to purchase those

shares. She changed her mind because Caraluzzi told her the

9
Corporation was buying the Estate's shares and because of

"restraints" on her, as a member of the Board of Directors.

In response to this letter, Shriver contacted Caraluzzi, who

explained that "it would be simpler" if the Corporation sold

shares to the current shareholders and then bought the

Estate's shares "in a single block." Shriver also received a

message from Caraluzzi's office in late August stating that

"half the stock" was sold. In response to a request from

Caraluzzi, Shriver sent a letter dated August 29, 1996

notifying Caraluzzi of the Estate's desire to sell 116 shares

at $1,200 per share. The offer would remain open until

November 20, but the Estate preferred that the shares be sold

by September 30, 1996. Shriver received a check from the

Corporation for $12,000 representing the sale of ten shares on

September 26, 1996.

The Corporation sold 228 shares of its treasury stock

between August and December 1996. Ninety-five shares were

sold to current shareholders and fifty shares to new investors

at the price of $1,200 per share between August 15 and August

28. 1 Sixty-eight shares were sold to four new investors

between August 28 and September 6, 1996 at a price of $1,450 a

1
The new investors were Sue Riley, an employee of the
Corporation, and her mother.

10
share. An existing investor purchased 15 shares at $1,650 a

share in November 1996. 2

The Corporation made no further purchases of the Estate's

stock, although Caraluzzi suggested in November 1996 that the

Corporation purchase the remaining 106 shares on a time

payment plan "as a way to allow the Shriver's to be able to

sell the stock in the near future." This offer was not

accepted by the co-administrators and no further purchases of

Estate's stock were made by the Corporation, other

shareholders, or outside investors. The Corporation filed for

bankruptcy in 1998.

DISCUSSION

To prevail on a claim of constructive fraud, the co-

administrators must produce evidence that Weight and Caraluzzi

(the defendants) innocently or negligently made false

statements of material fact upon which the co-administrators

relied to their detriment. Blair Constr. v. Weatherford, 253

Va. 343, 346, 485 S.E.2d 137, 138 (1997). The

misrepresentations must relate to a present or pre-existing

fact, not statements involving promises or future events,

unless the evidence shows an intent not to fulfill such

promise when made. Id. at 346-47, 485 S.E.2d at 139. All

2
Two new investors purchased 24 shares at $1,750 a share
in 1997.

11
three elements of the cause of action, false statements

negligently made, reliance, and damages, must be established

by clear and convincing evidence. Id. at 346, 485 S.E.2d at

138.

In their briefs before this Court, the co-administrators

succinctly stated their position on appeal as follows:

Simply stated, plaintiffs were placed under the
false impression that there were restrictions
placed on disposition of the stock and that SCI was
in the process of valuing that stock. Plaintiffs
did not distribute the stock or sell it on their
own because they thought it was impermissible to do
so, and because they thought properly valuing the
stock was not yet possible.

The evidence recited above shows that as of July 15, the co-

administrators' actions to further the sale of the stock no

longer proceeded upon a belief that there were restrictions on

the sale of the stock to outside investors or that a proper

value could not be put on the stock.

Eden's July 15 E-mail described a process for selling the

stock that included sale to existing shareholders as well as

outside investors at a price of $1,200 per share. The July 29

E-mail acknowledged that the offering price was less than the

price set by the Corporation. Other statements in E-mails

sent by the co-administrators and testimony at trial reflect

the co-administrators' distrust of the defendants:

[M]ake sure Caraluzzi doesn't say or do
anything to undermine our offer.

12
 Caraluzzi [ ] has delaye[d] and dissembled;

have to move quickly because of other stock
arrangements going on within Bistro Bistro.

realize that . . . the corporation has other
interests. This is a competition. They're
issuing treasury stock.

The plan of action created by the co-administrators on July 15

and their distrust of the defendants belie claims that the co-

administrators acted in reliance on the defendants'

misrepresentations after that date. By that time, the co-

administrators knew that the Estate's shares could be sold to

outside investors, in addition to current shareholders, and

had placed their own value on the stock at a level below the

level set by the Corporation. The co-administrators did not

trust the defendants, had established a value for the SCI

stock, and had created a plan for disposition of the stock

both to current SCI shareholders and new investors. 3

3
The record shows that after July 30, based on the
defendants' continued statements that the Corporation would
buy and would encourage current shareholders to purchase the
Estate's stock, the co-administrators stopped soliciting
potential purchasers. Such promises, however, cannot form the
basis of a constructive fraud claim, Blair Constr., 253 at
346-47, 485 S.E.2d at 139, and the co-administrators have
stated in their brief before this Court, that their case "does
not rest on a promise that SCI buy the stock from the
corporation and plaintiffs' reliance on that promise or the
general advice of the defendants." Furthermore, the record
shows that defendants offered to purchase the stock from the
co-administrators, spreading payments for the stock over time;

13
 Based on this record, we agree with the trial court that

there is no evidence to support the co-administrators'

allegations that they relied on the defendants'

misrepresentations when planning and taking action necessary

to sell the Estate's stock after July 15, 1996.

To the extent the co-administrators relied on the

misrepresentations in deciding upon a course of action before

July 15, they have failed to produce evidence of damage. The

co-administrators' evidence of damage at trial was the number

of shares sold between August and December 1996 and the price

of those shares. Their theory was that the shares sold by the

Corporation during that period at those prices "[c]ertainly

would have been sold by the estate but for the actions of the

defendant." None of this evidence, however, shows that any of

these shares were or would have been sold prior to July 15,

1996, or at what price the shares would have sold during that

time period.

For the reasons stated above, we conclude that the trial

court did not err in holding that there was no evidence that

the co-administrators relied upon the misrepresentations of

the defendants after July 15, 1996 and no evidence of damage

suffered by the co-administrators prior to that date.

however, the co-administrators rejected those offers,
requiring a cash sale.

14
Accordingly, the judgment of the trial court setting aside the

jury verdict and entering judgment in favor of the defendants

is affirmed.

Affirmed.

15