Feddeman & Co., C.P.A., P.C. v. Langan Associates, P.C.

Present:    All the Justices

FEDDEMAN & COMPANY, C.P.A., P.C.

v.   Record No. 991996    OPINION BY JUSTICE ELIZABETH B. LACY
                                       June 9, 2000
LANGAN ASSOCIATES, P.C., ET AL.

        FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA
                    Alfred D. Swersky, Judge

      Feddeman & Company appeals a judgment setting aside a

$3,300,000 jury verdict in its favor against six of its former

employees and one of its competitors.   Feddeman & Company, the

plaintiff below, is a certified public accounting firm that,

in 1997, had 31 employees and over $3,000,000 in yearly

revenues.    W. Kent Feddeman was a 95% shareholder and the

president of the company.

      The defendants are Langan Associates, a rival accounting

firm, John P. Langan, its president, three former directors

and employees of Feddeman & Company, Joseph M. Kotwicki,

Cheryl L. Jordan, and J. Andrew Smith, and three former

employees of Feddeman & Company, Nathaniel T. Bartholomew,

Robert A. Casey, and John G. Wooldridge.

      The events giving rise to this litigation began in August

1996, when Kent Feddeman initiated discussions with John

Langan regarding a possible buyout or merger of the two

companies.   In early 1997, Feddeman asked Kotwicki to take

over the negotiations.
     In the summer of 1997, the American Express Company made

an offer to purchase both Langan Associates and Feddeman &

Company.   On August 31, 1997, Langan, Kotwicki, Bartholomew,

Smith, Casey, Wooldridge, and Jeffrey S. Tenenbaum, Langan

Associates' attorney, met in Tenenbaum's office.      At this

meeting, the attendees determined that they would refuse the

American Express offer, and Kotwicki, Smith, Bartholomew,

Casey, and Wooldridge would form a "Buying Group."      The Buying

Group planned to purchase Feddeman's 95% interest in Feddeman

& Company and then merge the company with Langan Associates.

The Buying Group also raised the possibility that they might

have to resign from Feddeman & Company if the buyout

negotiations were unsuccessful.       The members of the Buying

Group signed a retainer agreement with Tenenbaum authorizing

him to represent them.   At this meeting, or shortly

thereafter, Kotwicki gave sample Feddeman & Company engagement

letters and nonsolicitation agreements, along with other

corporate and employment documents, to Tenenbaum in

preparation for the merger.   Feddeman was aware of and did not

oppose this two-step merger process.

     On September 29, 1997, the Buying Group offered Feddeman

$2,000,000 for his interest in Feddeman & Company.      In making

the offer, Kotwicki reminded Feddeman that the corporate




                                  2
directors were not bound by noncompete agreements and that

they were free to leave Feddeman & Company if they wished.

     On November 4, 1997, Feddeman made a counteroffer to the

Buying Group.   Four days later, Kotwicki told Feddeman that

the counteroffer nullified the Buying Group's prior offer, and

that if the Buying Group were to make another offer, it would

be lower than the first.

     On November 10, 1997, a second meeting was held at the

offices of Langan Associates, again with Langan, Tenenbaum,

and the Buying Group.   Tenenbaum had been asked to do legal

research on any potential liability which could arise if the

Buying Group resigned and were subsequently employed by Langan

Associates.   Based on his research, Tenenbaum advised the

Buying Group that to avoid liability, if they ultimately chose

to resign, they should not solicit Feddeman & Company clients

or employees until after their resignation, not use company

resources in the preparation of their resignations, not make

negative or adverse statements about Feddeman & Company, and

not remove any company property.    The Buying Group agreed that

they would resign on December 1, 1997 if they "hadn't made a

deal" with Feddeman and that the resignations "would be a form

of leverage that could be used" in the negotiations.

     On November 12, 1997, at 7:00 a.m., Jordan, the members

of the Buying Group except Casey, and four other Feddeman &


                                3
Company senior employees met at Smith's house.   At this

meeting, the Buying Group reported on the status of the merger

negotiations, and indicated that if the negotiations did not

improve there was a possibility that the Buying Group would

resign on December 1, 1997.   The Buying Group indicated that

they believed Langan Associates would hire them if they

resigned.   They also told the senior employees present that

they "would take care of them."

     On November 19, 1997, Kotwicki again discussed the

resignation plan with Jordan.   She indicated that she would be

on vacation on December 1, so Kotwicki gave her a letter of

resignation drafted for her by Tenenbaum, which she signed and

gave to her own attorney.

     On November 24, Feddeman's attorney presented Kotwicki

with a $4,000,000 stock purchase proposal in which Feddeman

would be paid over the course of eight years.    Two days later,

the Buying Group made a counteroffer of $4,000,000 to be paid

over a ten year period, with no personal guarantees and a

covenant not to compete from Feddeman.

     Meanwhile, Feddeman learned of the proposed walkout and

contacted Johnson & Lambert, a national accounting firm, to

see if it could provide assistance if needed, and additionally

to discuss possible merger options.




                                  4
     On December 1, 1997, Feddeman announced to some of his

employees that Johnson & Lambert had expressed interest in

making a presentation to Feddeman & Company employees on

December 3.   The Buying Group met with Feddeman immediately

after this announcement.    Feddeman told them Johnson & Lambert

had an interest in acquiring the firm, and that there would be

positions for everyone.    The Buying Group met with Feddeman a

second time in his office, this time without Kotwicki.     They

questioned the potential merger with Johnson & Lambert and its

impact on the planned buyout and merger with Langan

Associates.   Feddeman told them he just wanted them to hear of

another opportunity and he advised them to talk to his lawyer.

     Following the meetings with Feddeman, members of the

Buying Group met at lunch and decided to resign.   They planned

to talk to the senior managers after work to inform them of

the resignation decision.   After lunch, Kotwicki called

Langan, informed him that the Buying Group was resigning, and

asked if Langan Associates would hire the Buying Group and any

others who might resign.    Langan agreed.

     Kotwicki had letters of resignation prepared for three

senior employees, Mary D. Komatsoulis, James B. Kanuch, and

Mike A. Benoudiz.   That evening, after attending an event with

Feddeman, Benoudiz and Kanuch met with Smith and were given

the prepared letters of resignation.   They were told of the


                                 5
Buying Group's decision to resign and to work for Langan

Associates, and that "they could come too."    Smith, Benoudiz,

and Kanuch returned to the office, and while Smith gathered

his personal effects, Benoudiz and Kanuch signed their letters

of resignation and gave them to Smith.    That evening

Komatsoulis, at Bartholomew's request, met with him.     After

the meeting, Komatsoulis returned to the office and signed her

letter of resignation.    A fourth employee was told to contact

Kotwicki because he had a letter of resignation for her to

sign.

        That evening, Kotwicki called Jordan, who contacted her

attorney and instructed him to release her letter of

resignation.     Kotwicki also obtained a letter of resignation

from his son, Michael Kotwicki, a Feddeman & Company employee.

        The next morning, December 2, prior to going to work,

Kotwicki went to Smith's house and collected the letters of

resignation obtained from various employees.    After leaving

Smith's house, Kotwicki delivered 11 letters of resignation to

Kent Feddeman.    Feddeman accepted the resignations.

        That evening, Langan Associates held a reception for the

Feddeman employees who had not yet resigned.    Eventually, 25

of the 31 Feddeman & Company employees resigned and began

working for Langan Associates.    By December 3, all the

Feddeman & Company clients had been contacted by employees of


                                  6
Langan Associates, and 50% of those clients eventually

transferred their business to Langan Associates.

     On April 9, 1998, Feddeman & Company filed an Amended

Motion for Judgment asserting inter alia the following causes

of action:   Count I - Breach of Fiduciary Duty by Director

Defendants, Count II - Usurpation of Corporate Business

Opportunity as to Director Defendants and Employee Defendants,

Count III - Breach of Fiduciary Duty of Employee Defendants,

Count IV - Intentional Interference with Contract and Business

Expectancies By All Defendants, and Count VI – Violation of

Va. Code §§ 18.2-499 and –500, Conspiracy to Injure Another in

Trade or Business, By All Defendants.      Count V was dismissed

by the trial court upon defendants' Plea in Bar.

     The defendants filed a counterclaim which alleged

intentional interference with contractual rights and

prospective economic advantage, unfair competition, and libel

and slander.

     Following a seven-day trial, the jury returned a verdict

in favor of Feddeman & Company and against the defendants on

all remaining counts in the Amended Motion for Judgment, with

one exception.   Cheryl Jordan was found not to have usurped a

corporate business opportunity.       The jury awarded damages in

the amount of $3,300,000.   The jury found in favor of the

plaintiff on defendants' counterclaim.


                                  7
     The defendants filed a Motion To Strike and To Set Aside

the Verdict and, following further briefing and argument, the

trial court granted that motion.    Feddeman & Company filed

this appeal, and the defendants assigned cross-error.

                               I.

     On appellate review of the trial court's action setting

aside the verdict, we consider whether there was sufficient

credible evidence to establish the claims against the

defendants, and we consider the evidence and reasonable

inferences therefrom in the light most favorable to the

plaintiff.   Nichols v. Kaiser Foundation Health Plan, 257 Va.

491, 494, 514 S.E.2d 608, 609 (1999); Carter v. Lambert, 246

Va. 309, 313-14, 435 S.E.2d 403, 405-06 (1993).

     In Counts I and III of the Motion for Judgment, the

plaintiff claimed that defendants Kotwicki, Smith, Jordan,

Casey, Bartholomew, and Wooldridge breached their fiduciary

duties to the corporation.   In setting aside the jury's

verdicts in favor of the plaintiff on Counts I and III, the

trial court concluded that these defendants did not breach

their fiduciary duties because they were entitled to engage in

"reasonable preparations to compete within certain

limitations."

     We agree that, prior to resignation, these defendants

were entitled to make arrangements to resign, including plans


                                8
to compete with their employer, and that such conduct would

not ordinarily result in liability for breach of fiduciary

duty.    However, the right to make such arrangements is not

absolute.    This right, based on a policy of free competition,

must be balanced with the importance of the integrity and

fairness attaching to the relationship between employer and

employee or corporation and corporate director.     Science

Accessories Corp. v. Summagraphics Corp., 425 A.2d 957, 962-63

(Del. 1980); Maryland Metals, Inc. v. Metzner, 382 A.2d 564,

568 (Md. 1978).    Under certain circumstances, the exercise of

the right may constitute a breach of fiduciary duty.

Restatement (Second) of Agency § 393 cmt. 1 (1957).

        Liability for breach of fiduciary duty has been imposed

when the employees or directors misappropriated trade secrets,

misused confidential information, and solicited an employer's

clients or other employees prior to termination of employment.

See, e.g., Maryland Metals, and cases cited therein.     Whether

specific conduct taken prior to resignation breaches a

fiduciary duty requires a case by case analysis.

        In Duane Jones Co. v. Burke, 117 N.E.2d 237 (N.Y. 1954),

certain officers, directors, and employees of an advertising

agency "met and agreed to take over the business" of their

employer "either by purchase of the controlling interest in

the corporation or by resignation en masse and the formation


                                  9
of a new agency."   Id. at 245.    The employees presented a

purchase offer for the controlling interest in the agency and

told the majority stockholder, who was also president of the

agency, that if the offer was not accepted, the employees

would resign.   The offer was rejected and shortly thereafter

the members of the group submitted resignations on the same

day in substantially identical form.    A new advertising agency

was formed and, within a month, the new agency had acquired 9

of the approximately 25 clients formerly serviced by the old

company, Duane Jones Co., and had acquired more than 50% of

that agency's personnel.   The evidence also showed that the

new agency acquired certain clients and employees through the

action of the defendants while those defendants were

completing their duties with their former employer, although

the defendants had already stated their intention to resign.

Id.

      In approving the jury verdict in favor of the plaintiff,

the Court of Appeals of New York concluded that each of the

defendants was required to " 'exercise the utmost good faith

and loyalty in the performance of his duties' " and that their

conduct " 'fell below [that] standard.' "     Id. at 245.

      Similarly in ABC Trans National Transport, Inc. v.

Aeronautics Forwarders, Inc., 413 N.E.2d 1299 (Ill. App.

1980), the court found that the coordinated resignation of key


                                  10
management employees pursuant to their organized plan

resulting in "the sudden, potentially crippling loss of half

of [the employer's] business and major customers, as well as

substantial numbers of its personnel" was an actionable breach

of fiduciary duty.   Id. at 1306.

     The evidence in the instant case is substantially similar

to that in the Duane Jones case.    Here, the employee and

director defendants met and formulated a plan to resign en

masse if Kent Feddeman rejected their buyout offer, knowing

that a resignation or walk out by all of them would "be

devastating to" the corporation.    The plan included

anticipation of future employment with Langan Associates, a

rival business, and such future employment included securing

plaintiff's clients and employees as clients and employees of

Langan Associates.   The record shows that these defendants

informed other employees of the plan to resign, supplied

resignation letters for use by other employees, and told

employees that they were "going to go join John Langan, and

they could come too."

     A total of 11 resignations were submitted on December 2

and, within four days, a total of 25 of the plaintiff's 31

employees resigned and joined Langan Associates.   By December

5, all of the plaintiff's clients had been solicited to join




                               11
Langan Associates and approximately half of those clients

eventually moved their accounts to Langan Associates.

        In considering this evidence, the jury was instructed

that employees and directors of a corporation are required to

"exercise the utmost good faith and loyalty" toward the

corporation and may not act "in a manner adverse to the

corporation's interest."    The jury was also told that

corporate directors, while employed by the corporation, could

inform other employees of their intent to leave the

corporation, but could not solicit such employees to join them

in a rival business and could not use confidential or

proprietary information.

        The evidence shows that these defendants did more than

prepare to leave their employment and advise others of their

plan.    As in Duane Jones, the totality of the defendants'

actions provided credible evidence to support a jury

determination that their conduct fell below the required

standard of good faith and loyalty and constituted a breach of

fiduciary duty.    Therefore, the judgment of the trial court

setting aside the jury verdict in favor of plaintiff on Counts

I and III was error.

                                   II.

        Count VI of the Motion for Judgment charged that the

employee and director defendants, along with Langan Associates


                                 12
and John P. Langan, individually, violated Code §§ 18.2-499

and –500 because these defendants, intentionally and without

legal justification, conspired to injure plaintiff's business

and, as a result of that conspiracy, plaintiff suffered

financial harm.   The jury was instructed that to prevail on

this count, the plaintiff had to prove by clear and convincing

evidence that these defendants combined for the purpose of

willfully and maliciously injuring plaintiff's business and

that the business was injured as a result of these actions.

The jury was further told that

      [t]he term 'malice' means that the defendants
      acted intentionally, purposefully and without
      legal justification. Without legal justification
      may include a breach of their fiduciary duty or
      assisting someone to breach their fiduciary duty.
      Should corporate officers or directors act in
      concert to breach their fiduciary duties and
      cause injury to the corporation, they may be
      liable for conspiracy. The term 'malice' does
      not require the plaintiff to prove that a
      conspirator was motivated by hatred, personal
      spite, ill will or a desire to injure the
      plaintiff.

     The jury returned a verdict finding that all corporate

director and employee defendants as well as John Langan and

Langan Associates violated §§ 18.2-499 and -500.   The trial

court set aside the jury verdict, finding that there was no

evidence that these defendants "combined with an intent to

injure" plaintiff and that there was no evidence of "unlawful

acts in furtherance of the combination."


                                 13
     The plaintiff contends that the jury's finding of

conspiracy was supported by evidence that John Langan and the

members of the Buying Group met on August 31, November 10, and

November 12 and formulated a plan to impose "leverage" on

Feddeman to accept the buyout offer.   The plan was that the

members of the Buying Group would resign en masse if Feddeman

refused the buyout offer and, with Langan's agreement, go to

work for Langan Associates.   Jordan, although not a member of

the Buying Group, was told of and agreed to participate in the

resignation plan.   The plan also included securing the

resignations of other senior employees, whom John Langan also

agreed to hire.

     The plaintiff maintains that Langan Associates'

participation in the conspiracy is shown by evidence that its

legal counsel represented the Buying Group, advised the Buying

Group regarding the resignation and solicitation of other

employees and clients of the plaintiff, drafted Jordan's

resignation letter, and was paid for these services by Langan

Associates.

     Establishing a conspiracy in violation of §§ 18.2-499 and

–500 does not require proof that the conspirators' "primary

and overriding purpose is to injure another."   Advanced Marine

Enterprises v. PRC Inc., 256 Va. 106, 117, 501 S.E.2d 148, 154

(1998).   As indicated in the instruction given to the jury in


                               14
this case, the plaintiff was only required to show that the

defendants acted "intentionally, purposefully, and without

lawful justification."   Id., 501 S.E.2d at 154-55.

     The trial court concluded that the defendants' actions

were undertaken for no other purpose than "to effectuate the

planned merger."   However, considering the evidence and all

reasonable inferences therefrom in the light most favorable to

the plaintiff, as we must, we find that this conclusion was

error.

     The evidence is clear that the plan to submit

resignations was initiated as a means of exerting leverage

against Feddeman to accept the Buying Group's offer and thus

facilitate a merger of plaintiff with Langan Associates.     This

plan was based on the principle that the departure of the

defendants and the other employees would so adversely impact

the plaintiff that Feddeman would not accept those

resignations and let the employees depart.   Injury to the

plaintiff was a known and intended result of the plan.   The

employee and director defendants cannot avoid responsibility

for their actions because their resignation plan was not their

first or preferred choice of action.   The evidence in this

case is clearly sufficient to support a jury determination,

not only that the defendants acted intentionally and




                               15
purposefully, but that they knew and intended that their

resignation plan, if implemented, would injure the plaintiff.

     This knowledge was not limited to the employee and

director defendants.   John Langan and Langan Associates were

aware that the resignation plan was considered "leverage" and

that, if implemented, would adversely affect the plaintiff.

Langan and Langan Associates facilitated development of the

plan by providing legal services and agreeing to hire

plaintiff's former employees.

     The evidence also supports a jury determination that the

defendants' actions were without legal justification.   The

jury was instructed that the failure of legal justification

"may include a breach of their fiduciary duty or assisting

someone to breach their fiduciary duty."   As discussed above,

the evidence was sufficient to support a jury finding that the

planned resignation en masse from Feddeman & Company was a

breach of the director and employee defendants' fiduciary

duties.   The evidence was also sufficient to show that the

conduct of John Langan and Langan Associates assisted the

director and employee defendants in the breach of their

fiduciary duties.   Applying the jury instruction to this

evidence, we find there was sufficient credible evidence for

the jury to conclude that the defendants' actions were without

legal justification.


                                16
     Accordingly, the trial court erred in setting aside the

jury verdict in favor of the plaintiff on Count VI.

                                  III.

     The plaintiff sought compensatory damages for a single

injury resulting from the various causes of action and the

jury awarded a single damage amount of $3,300,000.    In light

of our holding that the trial court erred in setting aside the

jury verdict in favor of the plaintiff on the breach of

fiduciary duty counts, and the statutory conspiracy count, it

is unnecessary to consider the plaintiff's assignments of

error regarding the trial court's action in setting aside the

jury's verdicts on the intentional interference with contract

and business expectancy and usurpation of corporate

opportunity. 1   However, the defendants argue that, even if the

trial court erred in setting aside the jury verdict, final

judgment should not be entered in favor of the plaintiff,

because the trial court erred in instructing the jury.

     In an assignment of cross-error, the defendants assert

that the trial court erred when it refused two jury

instructions offered by the defendants concerning breach of


     1
       We also note that usurpation of corporate business
opportunity is generally considered a breach of fiduciary duty
rather than conduct constituting a distinct cause of action.
Trayer v. Bristol Parking, Inc., 198 Va. 595, 603-04, 95
S.E.2d 224, 230 (1956); Meiselman v. Meiselman, 309 N.C. 279,
306-08, 307 S.E.2d 551, 567 (N.C. 1983).

                                17
fiduciary duty.   The trial court stated that it would not give

these two instructions because the matters they addressed were

covered in other instructions.    Additionally, the trial court

observed that other instructions adequately set out the

elements of the cause of action and that one of the

instructions "sounds like [defendants'] closing argument."

     We agree that the proposed instructions were cumulative

of other instructions given on this issue.   While a party is

entitled to jury instructions supporting his theory of the

case, if supported by adequate evidence, a trial judge is not

required to give proffered jury instructions which are

cumulative or repeat matters contained in other instructions.

Medlar v. Mohan, 242 Va. 162, 168-69, 409 S.E.2d 123, 127

(1991); Adams v. Plaza Theatre, Inc., 186 Va. 403, 409-10, 43

S.E.2d 47, 51 (1947).   Therefore, the trial court's refusal to

give the defendants' proffered instructions was not error.

                                 IV.

     In summary, for the reasons stated, we will reverse the

judgment of the trial court and reinstate the verdict of the

jury in favor of the plaintiff on Counts I, III, and VI.

Because the trial court did not consider entry of an award in




                                 18
accordance with the provisions of § 18.2-500, we will remand

the case for entry of a judgment consistent with this opinion. 2

                                         Reversed and remanded.




     2
       Section 18.2-500 provides that a person injured in his
business through violation of § 18.2-499 may recover "three-
fold the damages by him sustained" along with costs and
attorneys' fees.

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