TRAXLER, Chief Judge.
Petr Bocek brought this action against business consultant Joseph Amato and two companies associated with Amato after the defendants purchased a medical practice for themselves rather than for Bocek. Following a bench trial, the district court granted judgment in favor of the defendants, and Bocek appeals. We reverse and remand for a new trial.
Plaintiff Petr Bocek is a medical doctor specializing in the treatment of allergies. Defendant Joseph Amato is the manager and sole member of defendant JGA Associates, LLC, a business consulting firm.
Bocek contacted Amato seeking assistance with the formation and financing of a new allergy care medical practice. On November 10, 2010, the parties entered into a contract (the "Consulting Agreement") through which JGA agreed "to review and report on the feasibility of the proposed allergy medicine practice and prepare a business proposal for funding a start-up medical practice" and "render such other services as may be agreed upon by [Bocek] and [JGA]." J.A. 221. The agreement provided that JGA would have "the right to act [as] an agent representing [Bocek] to Interested Parties during the term of this Agreement." J.A. 221. (Amato clarified that "Interested Parties" in that context referred to prospective lenders.) The agreement also provided that JGA would be compensated through "development fees" (hourly billing for consulting services) and a "completion fee" of two percent of the face amount of any business loan that JGA arranged.
On November 15, five days after signing the Consulting Agreement, Bocek asked Amato about the feasibility of buying an existing medical practice rather than starting a new practice. Bocek told Amato that Allergy Care Centers ("ACC"), where Bocek had previously worked, was being offered for sale by the administrator of the estate of ACC's owner, who had died two years earlier. Bocek noted that the Estate was burdened with taxes and that the practice was profitable, and he suggested that reductions in offices and staff could make it even more so. Amato responded positively, explaining that "[t]he acquisition of an existing operating practice is always more attractive if the price and the historic financial performance make sense." J.A. 225.
Bocek informed Amato in an email on December 1 that ACC was currently owned by the estate of Charles M. Valentine (the "Estate") and that Peter Klenk was the lawyer handling the Estate. The email stated that Bocek was unsure how to confirm that ACC was for sale and, if it was, what price the estate was asking, but that Bocek would want an independent appraisal regardless. Bocek also told Amato that his acquisition of ACC might be complicated because he had been fired from ACC and was in the process of negotiating a severance package, and Bocek asked Amato to pursue the purchase of ACC without revealing Bocek's identity as the buyer.
By that afternoon, Amato had communicated with Klenk and informed Bocek that ACC was in fact on the market. Amato told Bocek that he would assemble a checklist of information that he would need to review and he would include any special requests from Bocek when he communicated again with Klenk. Amato also told Bocek that the purchase would "be considered an asset-only transaction." J.A. 237. On December 15, JGA sent Bocek an email containing a historical financial analysis, a preliminary business valuation report, as well as an excel document he had created regarding ACC's accounting summaries. Bocek spoke to Amato the next day regarding these documents.
The evidence regarding the conversations between Bocek and Amato is somewhat in dispute. Nevertheless, it appears that Bocek was concerned that he might not have the cash available to make a sufficient down payment. Amato testified that for that reason, and because Bocek wanted to keep his name out of the transaction with the Estate, he was exploring a number of different ways to structure the deal, including a mezzanine lending structure. Under that structure, a lender would have some rights to convert its loan to an ownership or equity interest in the practice if the loan were not timely repaid in full.
On December 23, Amato sent Bocek an email informing him that JGA had "put in a closed bid to purchase ACC on Monday . . . to attempt to secure a position in the possible acquisition of ACC," that the law firm Klenk had hired was considering the offer, and that they "could begin a formal due diligence process with ACC." J.A. 265. Amato added that "there are still many questions both our firm and you may have regarding the transaction." J.A. 265. For that reason, Amato stated that he "intend[ed] to move forward based on a few specific parameters." J.A. 265. As is relevant here, Amato stated that "[JGA] (or an alternate holding company) intends to initially purchase the practice with the direct intention of selling the practice (or the holding company) to" Bocek. J.A. 265.
In response, on December 27 Bocek sent Amato an email confirming that he understood that he would "be the owner of ACC from the day of purchase." J.A. 267. However, he expressed uncertainty regarding how the purchase would be structured and who would provide the down payment. The next day Amato emailed Bocek, once again confirming that JGA's goal was to make Bocek the owner of ACC from the day of purchase. In the end, however, although Amato and Bocek discussed several options regarding how the deal would be structured, they never resolved that issue.
On January 22, 2011, Amato sent Bocek an invoice for his services. The invoice reflected Bocek's prior payment of $3,800.00 and sought an additional $4,574.40 "for expanded hours and third-party costs associated with the project development and acquisition negotiations for the purchase of the Allergy Care Center business operation on behalf of JGA Associates and Dr. Petr Bocek." J.A. 291. On January 31, Bocek sent an email to JGA indicating that his lawyers would be in contact with JGA to put in place a new written contract since the Consulting Agreement was created under the assumption that Bocek would be developing and obtaining financing for a new practice rather than acquiring an existing one.
On February 3, Amato sent the Estate a Letter of Intent ("LOI") through which "JGA Associates, LLC, or its assigns" offered to purchase ACC's assets for $1,000,000. J.A. 301. The LOI obligated the parties to negotiate in good faith, but it was otherwise not binding; until the execution of a mutually agreeable asset purchase agreement, either side could walk away from the transaction without penalty. The Estate accepted the offer and returned an executed copy of the LOI to Amato late in the afternoon on February 8.
Earlier that same day (February 8), Amato had visited one of the ACC offices to meet with Terri Crook, ACC's practice manager. During the meeting, Crook told Amato that Bocek had been fired after he sexually harassed employees and used another doctor's prescription pad to forge prescriptions for himself. This was the first Amato had heard of these issues; although Bocek had told Amato that he had been fired, he had never provided any details about what happened, and Amato had never asked. After meeting with Crook, Amato stalled and put off Bocek's various inquiries until he could verify what he had learned.
On February 15, the Estate filed a petition in a Pennsylvania "Orphan's Court" seeking approval for the sale of ACC. Bocek was then unaware that the sale was moving forward — Amato had not informed Bocek that he submitted the LOI to the Estate on February 3 or that the LOI had been accepted.
On February 17, after reviewing documents that confirmed Crook's information, Amato sent a letter notifying Bocek of his intent to terminate their contractual relationship in 10 days, in accordance with the terms of the Consulting Agreement. Amato explained the termination in general terms, stating that during the due-diligence process, "it became apparent . . . that your involvement in any potential transaction would . . . sour the deal. It also became evident that we could not move forward with your participation in any potential transaction without the possibility of serious repercussions thereafter." J.A. 317.
Counsel for Bocek responded on February 22. Among other things, counsel noted that Amato, as Bocek's agent, had a continuing duty of loyalty to Bocek and that Amato would be breaching his contractual and fiduciary duties "if [he] were to turn the acquisition of ACC into a deal which is of benefit to [him]." J.A. 629. Nevertheless, on March 2, Amato incorporated a new company, A2 Medical Group, Inc. ("A2"), to serve as the purchaser of ACC's assets. Brian August, Jeffrey Renzulli, and Amato were named as directors of A2, with Amato and Brian August each owning 49 percent of A2's shares and Carolyn August owning two percent. JGA at some point assigned its interests in the transaction to A2, and the Estate and A2 executed an asset purchase agreement on May 13. Ten days later, the Orphan's Court approved the sale, and the sale closed on June 22.
Bocek testified that after Amato terminated the agreement, Bocek simply wanted Amato to give Bocek the due diligence documents and analysis that Amato had developed for him, and that Bocek was prepared to purchase ACC himself. Bocek never made an offer, however.
After unsuccessfully seeking an injunction to prohibit Amato and JGA from buying ACC, Bocek filed an Amended Complaint asserting four causes of action against Amato, JGA, and A2: (1) fraudulent conveyance and constructive trust; (2) breach of fiduciary duties; (3) breach of contract; and (4) breach of fiduciary duties as joint venturers. The district court granted summary judgment in favor of the defendants and dismissed the case.
It is the breach-of-fiduciary-duties claim that is at issue in this appeal. In his Amended Complaint, Bocek alleged that Amato and JGA, as his agents, owed him various fiduciary duties, including a duty of loyalty. Bocek alleged that he brought the ACC business opportunity to JGA during the existence of the agency relation, and that JGA was acting on behalf of Bocek when it began negotiating with the Estate and conducting due diligence. Bocek alleged that the defendants breached their fiduciary duties by,
Regarding this claim, the district court held that because the fiduciary duties at issue arose from the Consulting Agreement, not independently of it, Bocek was precluded as a matter of law from recovering in tort for the breach.
On appeal, we affirmed regarding the breach-of-contract, fraudulent-conveyance, and joint-venture claims.
Chief Judge Traxler observed that
In a separate opinion, Judge Niemeyer explained that the actions Bocek alleged, if proven at trial, would "give rise to a classic claim for breach of the duty of loyalty inherent in the agency agreement that existed between Bocek and JGA."
On remand, following a bench trial, the district court granted judgment to the defendants. For reasons that we will discuss, the district court ruled that Bocek did not prove that the defendants had an agency relationship with him such that fiduciary obligations would arise and that, even if they had breached fiduciary duties owed to Bocek, Bocek failed to prove damages from any breach.
On appeal, Bocek challenges both the ruling that Amato was not acting as Bocek's agent with regard to the possible purchase of ACC and the ruling that Bocek failed to prove any damages even if he did prove that the defendants breached fiduciary duties they owed to him. We consider these rulings seriatim.
We begin by addressing the district court's analysis of the agency issue. The district court stated that "[i]n seeking to demonstrate an agency relationship, Bocek seemingly attempts to implicate two different `agreements': (1) the written Consulting Agreement; and (2) an oral straw-purchase agreement for the purchase of Allergy Care Centers." J.A. 654. The court determined that the written agreement did not demonstrate that the defendants agreed to act as Bocek's agent to purchase the ACC because that agreement provided for JGA's services in conjunction with a new, not an existing, medical practice. And, regarding a possible
On appeal, Bocek does not specifically challenge either premise of the district court's conclusion that he failed to establish the agency relationship. Rather, Bocek's position is that the district court erred in concluding that, in attempting to demonstrate the agency relationship, he relied only on the existence of the written agreement and on a binding oral contract for Amato to purchase ACC on Bocek's behalf. Bocek maintains that the parties' conduct
On consideration of an appeal following a bench trial, we review the district court's factual findings for clear error and its legal conclusions de novo.
In Virginia, "[a]gency is a fiduciary relationship resulting from one person's manifestation of consent to another person that the other shall act on his behalf and subject to his control, and the other person's manifestation of consent so to act."
There can be no doubt as to the existence of an agency relationship after the point that the parties entered into the Consulting Agreement. At that point, Bocek was paying JGA for Amato's services. Amato himself conceded that he understood that, at least initially, "what [he was] to be doing, [he would be] doing it for Dr. Bocek" and "acting subject to his instructions and his directions." J.A. 88. And, the agreement plainly established JGA's authority to act as his agent with regard to the lenders from whom Bocek sought financing.
It is certainly true, as the district court observed, that the parties entered into the Consulting Agreement with the intention that JGA would provide services relating to the formation of a
Indeed, Amato himself testified that, at least initially, he was "doing the due diligence work regarding ACC at Dr. Bocek's request" pursuant to their agreement "to help [Bocek] with the medical practice." J.A. 104-05.
When the defendants shifted toward actually negotiating for the purchase of ACC, the parties' communications and conduct continued to point unmistakably toward the conclusion that Amato's actions with regard to that purchase were made in the context of the parties' established plan for Amato to act on Bocek's behalf to obtain the practice for Bocek. Although possible issues regarding Bocek's ability to come up with sufficient capital complicated the question of how the deal would be structured, the parties' communications and conduct unmistakably demonstrated that their work, including Amato's placing of a closed bid to purchase ACC, continued to be part of the defendants' efforts on Bocek's behalf to obtain the practice for Bocek, as the parties' emails of December 23, 27, and 28, 2010, plainly reflect.
The only reasonable inference that can be drawn from all of these facts, none of which are in dispute, is that Amato and Bocek, by their conduct and communications with each other, both assented to Amato's acting on Bocek's behalf and subject to his control in helping Bocek evaluate the feasibility of purchasing ACC and in working toward actually obtaining the practice for Bocek. And this fact, in turn, establishes the legal conclusion that Amato was acting as Bocek's agent.
The district court's analysis notwithstanding, there was no reason that Bocek was required to show that an agency relationship was established by a separate contract in order to show that the parties both assented by their conduct to Amato's acting as Bocek's agent regarding Bocek's possible purchase.
Moreover, the undisputed facts proven at trial clearly demonstrate that this situation is one in which "special confidence has been reposed in one who in equity and good conscience is bound to act in good faith and with due regard for the interests of the one reposing the confidence."
The defendants take the position that at some point after their initial work regarding the ACC purchase, they ceased acting on Bocek's behalf. However, as we explained in our prior opinion, once the defendants' duty of loyalty toward Bocek arose, they could not extinguish it simply by terminating the agency relationship.
For all of these reasons, we hold as a matter of law that Bocek proved that the defendants breached their fiduciary obligations to Bocek by appropriating the ACC opportunity for themselves.
Bocek also argues that the district court erred in concluding that even assuming that the defendants' appropriation for themselves of the ACC opportunity constituted a breach of their fiduciary obligations to Bocek, Bocek failed to prove any damages from the breach. We agree.
In Bocek's Amended Complaint regarding this cause of action he requested, among other remedies, money damages in the amounts of "the difference between the purchase amount set forth in the Asset Purchase Agreement and the true value of ACC's assets on [the] date of the Asset Purchase Agreement or, in the alternative, at the time that JGA transferred or assigned its rights in the Asset Purchase Agreement to A2." Verified Amended Complaint 33, Docket No. 66, Civil Action No. 1:11-cv-00546 (E.D. Va. July 22, 2011). He also requested the "profits that Bocek would have derived as the owner of ACC's assets . . . for such period of time in the future as can be calculated to a reasonable degree of probability."
To recover damages for lost profits, a plaintiff "ha[s] the burden of proving with reasonable certainty the amount of damages and the cause from which they resulted; speculation and conjecture cannot form the basis of the recovery."
Bocek testified that when he left ACC, he was earning a salary of $450,000 per year and that the practice would have paid him at least that amount in annual salary had he returned as an owner. He also testified that that salary was within the range that a doctor with Bocek's research experience and years of practice would be expected to earn. He testified that having started a new medical practice in 2011 when he was not able to purchase ACC's assets, he had not yet been able to turn a profit, but that he hoped to break even with the new business by 2015 and proceed from there.
Bocek also presented the report of Certified Public Accountant Joseph S. Estabrook, who serves as a consultant in the areas of business valuation, litigation, and dispute resolution. Examining ACC's financial documents through May 2011, Estabrook conducted a detailed analysis and projected the practice's net income would steadily increase from $478,271 in 2012 to $559,509 in 2016. Based on this and other factors, Estabrook determined that ACC's fair market value as of June 22, 2011, was $2,232,000.
On the other hand, Amato testified that although ACC had been profitable in the past, under A2's ownership, the practice was not profitable in the tax years 2011 and 2012. He testified that on A2's 2011 tax return, "after taking into consideration. . . interest, taxes, depreciation, and amortization," A2 reported a loss of about $2,000. J.A. 67. Amato also testified that near the end of 2011 an insurance audit revealed that the billing practices of the prior management were inconsistent with what the insurance companies required. He testified that "there was going to be a drop of as much as 40 percent of top-line revenue because [A2] sought to bring in proper billing as opposed to what was done previously." J.A. 68. And, he testified that A2 reported a loss of about $152,000 on its 2012 tax return.
Addressing the damages issue, the district court concluded (1) that the direct and proximate cause of Bocek's failure to collect an income or prospective profits was Bocek's termination from ACC and the conduct that precipitated it, and (2) that A2 had not earned any profits since purchasing ACC that Bocek would have earned had he purchased the business. Regarding the second point, the district court referenced the tax losses A2 reported for 2011 and 2012.
We conclude that neither of these reasons supported the conclusion that Bocek had failed to prove damages. First of all, whether Bocek was to blame for being terminated from his position at ACC simply has no bearing whatsoever on his entitlement to damages. Regardless of whether he harmed himself financially by taking actions that brought about his termination at ACC, any such conduct occurred prior to his dealings with JGA. Bocek sought to prove that purchasing ACC's assets was an opportunity for him to turn his financial fortunes around and that the defendants harmed him by appropriating that opportunity for themselves.
Additionally, the fact that A2 reported losses on its 2011 and 2012 tax returns also does not show that Bocek would not have profited in those years from his purchase of ACC's assets. First, even assuming
In light of these problems with the district court's analysis, we conclude that its finding that Bocek failed to prove damages from the defendants' alleged breach of their fiduciary obligations was clearly erroneous and cannot serve as a basis for affirming the judgment in the defendants' favor.
For the foregoing reasons, we reverse the judgment in favor of the defendants and remand for entry of judgment in favor of Bocek on the issue of liability and for a new trial on the issue of what, if any, remedies Bocek is entitled to in light of the defendants' breach of their fiduciary obligations to him.
WILKINSON, Circuit Judge, concurring:
The reasoning in my earlier dissent,
We note that Bocek requests that this case be assigned to a different district court judge on remand. We have previously reviewed such requests by employing a three-factor test:
