PRESENT: Hassell, C.J., Lacy, Keenan, Koontz, Kinser, and
Lemons, JJ., and Carrico, 1 S.J.
PGI, INC.
OPINION BY
v. Record No. 021181 JUSTICE DONALD W. LEMONS
February 28, 2003
RATHE PRODUCTIONS, INC.
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY
William T. Newman, Jr., Judge
In this appeal, we consider whether the trial court erred
by striking plaintiff’s claim for punitive damages and refusing
to submit the issue to the jury for determination, and by
setting aside a plaintiff’s jury verdict on a claim of tortious
conversion of property.
I. Facts and Proceedings Below
PGI, Inc. (“PGI”) specializes in the marketing and
production of various events including exhibitions, conferences,
and corporate meetings. Rathe Productions, Inc. (“Rathe”) is a
specialty producer of museum displays. Beginning in 1997, both
PGI and Rathe provided a range of services to the Smithsonian
Institute (“Smithsonian”) for the management and production of
“America’s Smithsonian Exposition,” a traveling museum that
displayed a variety of historical and cultural exhibits (the
“Exposition”). The Exposition was scheduled to tour ten
selected cities in the United States. However, after touring
1
Chief Justice Carrico presided and participated in the
hearing and decision of this case prior to the effective date of
just five cities, the Smithsonian’s funding was depleted. The
Smithsonian solicited bids for private operation, financing, and
management of the Exposition.
PGI and Rathe (“PGI/Rathe”) submitted a joint proposal to
manage and operate the Exposition, which the Smithsonian
accepted. To help secure needed corporate sponsorship to
finance the completion of the Exposition’s 1997 tour, PGI/Rathe
subcontracted Odell, Simms & Associates, Inc. (“OSA”).
Unfortunately, the tour ended after reaching only eight of the
ten scheduled cities.
Although the Exposition did not complete its tour due to
lack of resources, the Smithsonian was encouraged by attendance
at the exhibits in the cities visited. Accordingly, the
Smithsonian hired PGI/Rathe for $250,000 to conduct a market
study (the “Market Study”) to investigate the feasibility of
producing and touring a self-sustaining international
Exposition. PGI/Rathe subcontracted with OSA for aid in the
completion of the Market Study. A PGI executive presented the
findings of the Market Study to the Smithsonian, which concluded
that the risks of such a venture outweighed the potential
benefits. After the Market Study was completed, PGI, on behalf
of PGI/Rathe and OSA, submitted an invoice to the Smithsonian
for the previous management of the Exposition and for conducting
his retirement on January 31, 2003.
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the Market Study. The Smithsonian did not immediately pay the
amounts invoiced, and asked for a more detailed accounting and
explanation of the charges.
In an effort to collect all monies owed by the Smithsonian,
PGI/Rathe officials met and decided that it would be more
advantageous for Rathe to actively pursue payment from the
Smithsonian because of its ongoing business relationship with
the Smithsonian. After submission of additional billing
information, the Smithsonian responded with an offer to pay
$127,153.06 for the Market Study and $65,588.51 for management
of the Exposition. Rathe countered the Smithsonian’s offer by
asking for $315,588.51, which included $250,000 for the Market
Study and $65,588.51 for management of the Exposition. In a
letter dated April 14, 2000, Rathe offered to settle the Market
Study and management accounts for $258,320. The letter also
indicated that distribution of settlement proceeds would include
PGI and OSA. On July 20, 2000, Rathe entered into a settlement
agreement with the Smithsonian to satisfy the Market Study and
management invoices in exchange for $250,000. Rathe failed to
notify either PGI or OSA of the settlement or to distribute any
of the proceeds to them. After learning of the settlement
approximately six months later, representatives from OSA and PGI
demanded that Rathe properly distribute the settlement proceeds,
but Rathe refused.
3
On February 1, 2001, PGI filed a motion for judgment in the
Circuit Court of Arlington County. Subsequent to PGI filing its
motion for judgment, OSA filed a separate suit in the Circuit
Court of Arlington County on March 1, 2001 against PGI and Rathe
seeking to recover $50,000 in compensatory damages from PGI
and/or Rathe for breach of contract. By Order dated May 25,
2001, OSA’s suit was consolidated with PGI’s suit. Count One of
PGI’s motion for judgment alleged conversion and sought $125,000
in compensatory damages and $125,000 in punitive damages. In
the alternative, Count Two of the motion for judgment alleged
assumpsit and sought $125,000 in compensatory damages plus
interest and costs, including attorney’s fees. Prior to jury
selection, Rathe submitted a motion in limine requesting the
trial court to order PGI to choose between its tort theory of
conversion and its contract theory of assumpsit. The trial
court granted Rathe’s motion. Forced to choose, PGI chose to
proceed to trial on its conversion claim.
Upon completion of PGI’s presentation of evidence, the
trial court sustained Rathe’s motion to strike the claim for
punitive damages. At the conclusion of PGI’s case-in-chief and
after Rathe’s motion to strike was argued, OSA presented its
evidence on its claim of breach of contract for the
subcontracting work it performed for PGI/Rathe. Thereafter,
Rathe presented its evidence. At the conclusion of Rathe’s
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presentation of evidence, Rathe again moved to strike PGI’s
evidence. The trial court refused the motion and allowed the
case to be presented to the jury. The trial court instructed
the jury that it should return a verdict for PGI if it found
that PGI proved by clear and convincing evidence 2 that Rathe had
converted PGI’s property. The jury returned a verdict in favor
of PGI against Rathe in the amount of $100,000, and a verdict of
$50,000 in favor of OSA against Rathe.
Rathe’s post-trial motions included a renewed motion to
strike PGI’s evidence and a motion to set aside the verdict.
The trial court granted Rathe’s motion to strike, set aside the
verdict, and entered judgment in favor of Rathe. PGI appeals
the adverse judgment of the trial court.
II. Analysis
On appeal, PGI maintains that the trial court erred by
ordering it to elect between its cause of action based in
contract and its cause of action based in tort. PGI further
maintains that the trial court erred in striking PGI’s claim for
punitive damages, and in setting aside the jury’s verdict and
entering final judgment for Rathe. Rathe did not file briefs in
the case on appeal and did not participate. We agree with PGI
that the trial court erred in striking its claim for punitive
2
There is no issue before us concerning the evidentiary
standard to be applied.
5
damages before it was submitted to the jury, and in striking its
evidence entirely, setting aside the jury’s verdict, and
entering final judgment for Rathe.
The final judgment order in this matter recites that the
jury’s verdict is set aside and final judgment is ordered in
favor of Rathe “for the reasons stated in the Court’s letter
opinion.” A review of the trial court’s letter opinion reveals
three reasons for the trial court’s action:
(1) PGI did not present evidence at trial to
establish that a partnership existed between the
parties or that the parties had common law duties
to each other.
(2) PGI’s claims are solely based on a breach of
contract theory, therefore, an action in tort is
not appropriate.
(3) PGI did not present credible evidence to
support its claim for conversion.
The trial court erred in each of these holdings.
A. The Joint Venture
We have previously stated that “[a] joint venture exists
where two or more parties enter into a special combination for
the purpose of a specific business undertaking, jointly seeking
a profit, gain, or other benefit, without any actual partnership
or corporate designation.” Roark v. Hicks, 234 Va. 470, 475,
362 S.E.2d 711, 714 (1987).
A joint adventure exists when two or more persons
combine a joint business enterprise for their
mutual benefit, with an express or implied
understanding or agreement that they are to share
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in the profits or losses of the enterprise, and
that each is to have a voice in its control and
management.
Smith v. Grenadier, 203 Va. 740, 744, 127 S.E.2d 107, 110 (1962)
(quoting 10 Michie’s Jurisprudence, Joint Adventures § 2,
p. 695).
The trial court properly instructed the jury concerning the
evidence necessary to find a joint venture between PGI and
Rathe. On the theory of conversion, the jury had to find that a
joint venture existed in order to reach its verdict in favor of
PGI. As we have recently stated,
the trial court’s authority to set aside a jury
verdict “can only be exercised where the verdict
is plainly wrong or without credible evidence to
support it. If there is a conflict in the
testimony on a material point, or if reasonable
[persons] may differ in their conclusions of fact
to be drawn from the evidence, or if the
conclusion is dependent on the weight to be given
the testimony, the trial judge cannot substitute
his conclusion for that of the jury merely
because he would have voted for a different
verdict if he had been on the jury.”
Shalimar Dev., Inc. v. Federal Deposit Ins. Corp., 257 Va. 565,
569-70, 515 S.E.2d 120, 123 (1999) (quoting Lane v. Scott, 220
Va. 578, 581, 260 S.E.2d 238, 240 (1979)).
The record is more than adequate to support the jury’s
finding, and the trial court erred by substituting its own view
of the evidence. In a letter from the Smithsonian dated May 12,
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1997 to PGI and Rathe, referred to as a “Notice to Proceed,” the
following “understandings” are evident:
[T]he Smithsonian is confident that Rathe/PGI,
together with its proposed team, will provide the
management and production expertise needed to
bring new levels of success to [America’s
Smithsonian Exposition] and to launch a similar
and even more successful international
exhibition.
This letter serves to formally notify
Rathe/PGI that it has been chosen as the
exclusive contractor of the [Smithsonian] for
management and production of the remainder of
[the America’s Smithsonian Exposition] . . . .
This letter also authorizes Rathe/PGI . . . as
the exclusive producer of a similar international
tour . . . .
The “Notice to Proceed” letter is replete with references
to PGI and Rathe in a joint capacity, namely “PGI/Rathe,” for a
limited purpose. The letter is signed “ACCEPTED AND AGREED” by
representatives of PGI and Rathe. The exhibits introduced at
trial include a “Proposed International Tour Feasibility Study”
submitted to the Smithsonian as “A Joint Venture Report by
Rathe/PGI.” Finally, the testimony overwhelmingly supports the
finding of a joint venture and includes the testimony of Cynthia
Engel, President and Chief Operating Officer of PGI, that the
relationship with Rathe was “a joint venture and that all
expenses would be paid and if there was a profit, it would be
split.” The evidence reveals that Rathe and PGI created a joint
venture with shared management responsibilities and the
8
expectation of shared profits. The trial court erred in holding
otherwise.
B. Basis for PGI’s Cause of Action
The trial court held that “PGI’s claims are solely based on
a breach of contract theory[;] therefore, an action in tort is
not appropriate.” The trial court’s ruling misapprehends the
nature of the relationship created between PGI and Rathe and the
law that applies. In Legum Furniture Corp. v. Levine, 217 Va.
782, 787, 232 S.E.2d 782, 786 (1977), we cited 46 Am. Jur. 2d
Joint Ventures §§ 36, 37 with approval as follows:
The rights, duties, and obligations of joint
venturers and of members of syndicates, as
between themselves, depend primarily upon the
terms of the contract by which they assumed that
relationship. They are also affected, however,
by certain general principles which operate in
the absence of specific provisions in the
contract, or sometimes in conjunction with such
provisions. These principles . . . are much the
same as, or at least are clearly analogous to,
those which govern the relations of partners.
In Roark, 234 Va. at 475, 362 S.E.2d at 714, we restated the
principle at stake with greater emphasis: “the rules of law
governing the rights, duties, and liabilities of joint venturers
are substantially the same as those which govern partnerships.”
There is no express contract between PGI and Rathe which
establishes this joint venture. As previously stated, the
evidence more than amply establishes an implied contract for a
joint venture. To the extent that this implied agreement does
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not address an issue, the law of partnership is applied. The
Virginia Uniform Partnership Act (the “Act”), Code §§ 50-73.79
to -73.149, “governs relations among the partners and between
the partners and the partnership” except as provided in a
partnership agreement and to the extent that the agreement does
not violate certain specific statutory requirements. Code § 50-
73.81. If the issue in question is not addressed by the
partnership agreement or the Act, “the principles of law and
equity” apply. Code § 50-73.82. 3
At common law, ordinarily one partner was not permitted to
sue another partner before settlement of all partnership
business occurred. See, e.g., Dulles Corner Props. II Ltd.
P’ship v. Smith, 246 Va. 153, 155, 431 S.E.2d 309, 311 (1993).
But even at common law, an exception to the general rule was
made for circumstances such as those presented in this case. In
Pugh v. Newbern, 136 S.E. 707, 708-09 (N.C. 1927) (citations
omitted), the Supreme Court of North Carolina stated such an
exception:
The general rule is that one partner cannot
sue another partner at law until there has been a
complete settlement of the partnership affairs
and a balance struck.
. . . .
3
There is no dispute that the law of Virginia applies to
this controversy. See Code § 50-73.84.
10
There are, however, well established
exceptions to the general rule. A partner may
maintain an action at law against his copartner
upon claims growing out of the following state of
facts:
. . . .
6. Where the partnership is for a single
venture or special purpose which has been
accomplished, and nothing remains to be done
except to pay over the claimant’s share.
See also Johnson v. Jackson, 82 F. Supp. 915, 917 (E.D. Pa.
1949); L.H. Heiselt, Inc. v. Brown, 120 P.2d 644, 646 (Colo.
1941); Ruschoff v. Wachsmuth, 242 N.W. 296, 297 (Minn. 1932);
Warren v. Warren, 784 S.W.2d 247, 252 (Mo. Ct. App. 1989); Davis
v. Johnson, 689 S.W.2d 297, 300 (Tex. Ct. App. 1985); 59A Am.
Jur. 2d Partnership § 552 (2002).
Nothing in the Act abridges this common law exception.
Rather, the Act expands the exception by providing the
following:
§ 50-73.103 Actions by partnership and partners.
. . . .
B. A partner may maintain an action against the
partnership or another partner for legal or
equitable relief, with or without an
accounting as to partnership business, to:
1. Enforce that partner’s rights under the
partnership agreement;
2. Enforce that partner’s rights under this
chapter, . . . [; or]
3. Enforce the rights and otherwise protect the
interests of that partner, . . . .
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A cause of action for conversion lies independent of an
action in contract and may provide a separate basis, distinct
from the contract, upon which one partner may sue another. The
trial court erred in holding to the contrary.
C. Conversion
In United Leasing Corp. v. Thrift Ins. Corp., 247 Va. 299,
305, 440 S.E.2d 902, 905 (1994) (quoting Universal C.I.T. Credit
Corp. v. Kaplan, 198 Va. 67, 75, 92 S.E.2d 359, 365 (1956)), we
stated that the tort of conversion “encompasses ‘any wrongful
exercise or assumption of authority . . . over another’s goods,
depriving him of their possession; [and any] act of dominion
wrongfully exerted over property in denial of the owner’s right,
or inconsistent with it.’ ” The trial court erred in holding
that PGI did not prove the elements of conversion.
As previously noted, PGI proved the creation of a joint
venture with Rathe with the expectation of “split” profits.
Upon completion of the objective of the joint venture, all that
remained was the collection of accounts receivable from the
Smithsonian and payment of OSA. When difficulties arose in the
collection of sums due to the joint venture from the
Smithsonian, a further agreement was reached between the joint
venturers to authorize Rathe to negotiate and settle the claim.
Thereafter, Rathe wrote the Smithsonian indicating that a
compromised settlement figure “will allow PGI, [Rathe] and [OSA]
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to receive a reduced final payment.” A settlement was reached
with Rathe executing the settlement agreement on behalf of its
co-venturer, PGI. Rathe received $250,000 from the Smithsonian
but refused to pay any of the proceeds to PGI or pay the
outstanding billing of OSA, contrary to its express agreement to
do so.
Upon the evidence presented, the jury was entitled to find
that Rathe without justification wrongfully withheld settlement
proceeds from PGI. None of the elements to sustain a cause of
action for conversion are missing.
D. Punitive Damages
Citing insufficient evidence, the trial court struck PGI’s
claim for punitive damages without submission of the issue to
the jury. In Baker v. Marcus, 201 Va. 905, 909-10, 114 S.E.2d
617, 620-21 (1960) (internal citations omitted), we summarized
our prior cases concerning the award of punitive or “exemplary”
damages.
Compensatory damages are awarded as
compensation for the pecuniary loss – as amends
or recompense for the injury inflicted.
Exemplary damages are something in addition to
full compensation, and something not given as
plaintiff’s due, but for the protection of the
public, as a punishment to defendant, and as a
warning and example to deter him and others from
committing like offenses.
. . . .
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The theory upon which exemplary, punitive,
or vindictive damages, sometimes called “smart
money,” are allowed is not so much as
compensation for the plaintiff’s loss as to warn
others, and to punish the wrongdoer if he has
acted wantonly, oppressively, recklessly, or with
such malice as implies a spirit of mischief, or
criminal indifference to civil obligations.
. . . .
Exemplary damages are allowable only where
there is misconduct or malice, or such
recklessness or negligence as evinces a conscious
disregard of the rights of others. But where the
act or omission complained of is free from fraud,
malice, oppression, or other special motives of
aggravation, damages by way of punishment cannot
be awarded, and compensatory damages only are
permissible . . . .
Wilful or wanton conduct imports knowledge
and consciousness that injury will result from
the act done. The act done must be intended or
it must involve a reckless disregard for the
rights of another and will probably result in an
injury. Ill will is not a necessary element
. . . .
Proof of actual malice is not necessary.
Malice may be inferred from circumstances.
No evil intent can be presumed from a mere
mistake, or misadventure. “An absence of evil
purpose is an absence of malice. No mere
inadvertence, mistake, or accidental occurrence
can be malicious, although negligent. . . .”
Viewing the evidence in the light most favorable to PGI, as
we must, PGI and Rathe were joint venturers for a particular
purpose. They agreed to split revenues equally. Upon
completion of the venture, billing problems arose. Empowered
with the authority to settle, Rathe accepted $250,000 from the
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Smithsonian in full satisfaction of outstanding claims of the
joint venture on July 25, 2000. In breach of its duty of
loyalty, duty of care, and obligation of good faith and fair
dealing (Code § 50-73.102), Rathe did not inform PGI that it had
received the $250,000 in settlement from the Smithsonian.
Approximately six months later in late January 2001, PGI
discovered through a telephone conversation with an OSA
representative that Rathe had received the settlement funds.
That same day, PGI telephoned Rathe and made a demand for its
and OSA’s portion of the proceeds. Rathe refused. Thereafter,
PGI filed suit.
If reasonable persons, upon the facts presented, could
differ regarding whether the conduct in question was so willful
and wanton as to show a conscious disregard for the rights of
others, “the trial court may not remove the issue of punitive
damages from the jury’s consideration.” Huffman v. Love, 245
Va. 311, 315, 427 S.E.2d 357, 360 (1993). The trial court erred
in doing so in this case.
E. Election
PGI assigns error to the trial court’s order that it elect
between theories of tort and contract. Our resolution of other
issues in this appeal renders it unnecessary to address this
assignment of error.
F. Conclusion
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For the reasons stated, the trial court erred in refusing
to submit the issue of punitive damages to the jury and in
setting aside the verdict of $100,000 in favor of PGI and
entering judgment for Rathe. We will reinstate the jury’s
verdict and remand to the trial court with directions to enter
judgment on the verdict and empanel a jury to hear evidence and
decide PGI’s claim for punitive damages.
Reversed and remanded.
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