Fourth Circuit Asks Virginia Supreme Court to Clarify Business Conspiracy Statute

Sometimes a court must decide a matter that turns on the law of another jurisdiction. If the other jurisdiction’s law is unclear, the deciding court can make a formal request to its sister court asking that court to clarify an issue. The Fourth Circuit recently invoked this procedure and certified two questions to the Virginia Supreme Court: one involving application of Virginia’s business conspiracy statute and another regarding the statute of limitations applicable to tortious interference claims.

James Dunlap operated two AAMCO Transmission franchises for over thirty years. When an asset-management company that owned a large share of AAMCO competitor Cottman Transmission Systems purchased AAMCO, Dunlap found his franchises on the chopping block as part of a plan to eliminate overlap among the businesses by converting Cottman franchises to AAMCOs and closing some franchises. Dunlap claimed that AAMCO attempted to terminate his franchises for minor violations as a pretext to force him out of business. Dunlap settled his dispute with AAMCO and was allowed to continue operations. Dunlap then brought an action against Cottman and new AAMCO principal Todd Leff alleging a conspiracy to force him out of business. The complaint, filed in Chesapeake Circuit Court and later removed to federal court, raised claims for violation of Virginia’s business conspiracy statute, tortious interference with contract, and tortious interference with business expectancy.

At one time, established case law indicated that conspiring to procure a breach of contract was actionable under Virginia’s business conspiracy statute. However, the Virginia Supreme Court shifted away from that approach in Station #2 v. Lynch, 280 Va. 166 (2010) where it held that an independent duty arising outside the contract is required to establish a conspiracy claim. question.jpgRelying on Station #2, the district court dismissed Dunlap’s conspiracy claim because he did not allege a valid “unlawful act” as a predicate for the conspiracy. Rather, all of the allegedly breached duties and damages involved arose out of contractual obligations.

The district court also dismissed Dunlap’s tortious interference claims, holding that Virginia’s two-year statute of limitations for personal injury barred his claims. The court reasoned that the longer five-year statute of limitations for injuries to property rights did not apply as disappointed economic expectation did not amount to an injury to property. Dunlap appealed, and the Fourth Circuit certified two questions to the Virginia Supreme Court: (1) May a plaintiff use tortious interference with contract or with business expectancy as the predicate unlawful act for a claim under Virginia’s business conspiracy statute; and (2) Does a two-year or five-year statute of limitations apply to claims of tortious interference with contract and with business expectancy?

The court certified the first question because although Station #2 indicated that the Virginia Supreme Court was skeptical about business conspiracy claims based on contract disputes, the case did not make clear how far the skepticism extended. The Virginia Supreme Court clearly did not want every breach of contract claim to be transformed into a conspiracy claim so it required that a plaintiff allege an independent duty arising outside of the contract. The Fourth Circuit agreed that garden-variety tortious interference with contract claims and interference with business expectancy claims might not meet the Station #2 standard, but it pointed out that some tortious interferences with contract or business expectancy might be distinguishable.

As Dunlap argued, the duty not to interfere with a contract cannot arise from the contract itself because the duty is one that falls upon third parties who are not involved in the agreement. However, the ultimate duty breached is contractual and the damages flow entirely from the contract. Station #2 raises the question of how to characterize tortious interference for the purpose of the conspiracy statute’s unlawful-act requirement. Additionally, the conduct leading to tortious interference claims typically involve negotiations between one contracting party and third party business partners about the possibility of breaching the contract and starting a new relationship. If such negotiations are viewed as conspiratorial, the sanctity of the contract is elevated but efficient business decisions may be deterred. Accordingly, important issues of state policy are involved such that certification to the Virginia Supreme Court was appropriate.

The question of which statute of limitations applies to tortious interference claims is a purely legal question that the Virginia Supreme Court has not settled. Virginia applies a two year statute to claims regarding personal injuries and a five year statute to those involving property, but that distinction is sometimes hard to draw and has been dealt with ambiguously. In one case, the Virginia Supreme Court found that conduct directed at another’s property was an injury to property for purposes of the limitation period, but it also held that disappointed economic expectations do not amount to a property injury because contract law provides the sole remedy for such a loss. Dunlap points out that the conduct here was directed at his property, but the district court plausibly viewed the injuries as flowing from his disappointed expectations about his property’s profitability. Accordingly, tortious interference could be characterized as a protection for business expectations provided by the law of contracts or as a protection for contractually secured property rights that sound in tort. Because Virginia law is unsettled in this area, the court asked the Virginia Supreme Court to clarify the issue.

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