BNX Systems Corporation v. John Nardolilli

Filing 920100301

UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 08-1569 BNX SYSTEMS CORPORATION, Debtor - Appellee, v. JOHN NARDOLILLI, Defendant - Appellant.

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Liam OGrady, District Judge. (1:07-cv-01308-LO-TRJ) Argued: January 28, 2010 Chief Judge, and KING Decided: and March 1, 2010 Circuit

Before TRAXLER, Judges.

GREGORY,

Vacated and remanded by unpublished per curiam opinion. ARGUED: Steven Ellison, BROAD & CASSEL, West Palm Beach, Florida, for Appellant. Kevin M. ODonnell, HENRY & ODONNELL, PC, Alexandria, Virginia, for Appellee. ON BRIEF: Drewry B. Hutcheson, Jr., MCGINLEY ELSBERG & HUTCHESON, PLC, Alexandria, Virginia, for Appellant. Unpublished opinions are not binding precedent in this circuit.

PER CURIAM: John Nardolilli appeals a bankruptcy court judgment against him and in favor of BNX Systems Corporation ("BNX") concerning BNXs claims of abuse of process and intentional interference with business expectancy. Finding the evidence insufficient to

sustain BNXs claims, we vacate the judgment and remand for entry of judgment in Nardolillis favor.

I. Worldwide Investigations & Research, Inc. ("Worldwide") and BNX are both corporations that provide computer security

solutions for businesses. and principal. After

Nardolilli is Worldwides president Worldwide and BNX entered into an

agreement to sell certain technologies to Citibank, a dispute arose between Worldwide and BNX resulting in litigation pending in the Southern District of Florida. Part of that dispute

concerned intellectual property rights to software BNX developed under a contract with Worldwide. While the Florida action was

pending, BNX filed for Chapter 11 bankruptcy protection. In the months preceding the bankruptcy filing, BNX hired a company to market BNX in the hopes of either obtaining

additional capital or identifying a partner for a merger with, or acquisition of, BNX. bankruptcy protection and Eventually, BNX decided to file for found 2 a company, Aladdin Knowledge

Systems, that agreed to make a bid of $750,000 in a proposed auction of BNXs assets in bankruptcy. In an effort to expedite

the process, BNX requested that the bankruptcy court approve the proposed bidding procedures, set a deadline of noon on January 23, 2006, for third parties to submit qualified bids, and set January 30, 2006, as the date for the sale of BNXs assets. Worldwide objected on the basis that some of the assets that BNX proposed to sell were the subject of Worldwides claims in the Florida litigation. The bankruptcy court ultimately overruled

Worldwides objections. Shortly thereafter, Worldwide filed a complaint in the

bankruptcy court seeking a determination of ownership rights to certain of BNXs assets, including some of BNXs core

technology. motion to

Worldwide also filed a separate objection to BNXs sell its assets. The objection alleged that BNX

sought to sell intellectual property that belonged to Worldwide. Additionally, Nardolilli asserted in a letter to the United

States Department of Commerce that the sale of BNXs assets would violate export restrictions. followed resulted in a The government inquiry that delay of the intended

several-week

January 30, 2006, sale date. Between bankruptcy February 24, 2006, an and March trial 2, on 2006, the

court

conducted

expedited

Worldwides

complaint and objection.

On March 2, 2006, upon the completion 3

of

the

trial,

the

court

reopened

the

bidding

process. Aladdin

Subsequently, Citibank made a bid for the first time.1

and Citibank then made several additional bids and eventually a substantial portion of BNXs assets were sold to Citibank for $2.2 million. The remaining assets were sold to a third party

for an additional $38,000. Thereafter, BNX filed an adversary proceeding in the

bankruptcy court, objecting to certain proofs of claims filed by Worldwide and asserting counterclaims. The counterclaims

alleged under Virginia law that Worldwide and Nardolilli had abused the process of the bankruptcy court and had intentionally interfered in BNXs legitimate business expectancies regarding the sale of its assets by filing false claims in the bankruptcy court asserting ownership of BNXs intellectual property. counterclaims further asserted that Worldwide and The

Nardolilli

filed false claims in order to delay the sale process and create a cloud on title so that Worldwide and Nardolilli would

eventually be able to purchase BNX assets at a reduced price. Worldwide ultimately filed a Chapter 7 bankruptcy petition in Citibank was the only qualified bidder other than Aladdin. During the trial, Worldwide had itself purportedly submitted a qualified bid but was later forced to rescind it because Worldwide never received the financing commitment necessary to bid on BNXs assets.
1

4

the Southern District of Florida, and the case was stayed as to it. After a trial, the bankruptcy court found BNX had proven its claims for abuse of process and interference with business expectancy against Nardolilli. The court awarded judgment to

BNX against Nardolilli in the amount of $223,957.00 in actual damages and $100,000.00 in punitive damages.2 subsequently affirmed the judgment on appeal. The district court

II. Nardolilli argues that the bankruptcy court erred in

awarding judgment to BNX, contending that BNX failed to produce evidence sufficient to establish the elements of either of its claims. We We agree.3 review the district in its courts to of decision consider law by de novo, the

"effectively findings of

standing fact and

shoes

directly

conclusions

the

bankruptcy

court." Cypher Chiropractic Ctr. v. Runski (In re Runski), 102

The actual damages were for "attorneys fees incurred to resist Nardolillis false claims and the costs of operating BNX for the additional weeks while the claims were being resolved and the auction finally held." J.A. 476. Because we conclude that Nardolilli was entitled to judgment in his favor on this ground, we do not address his remaining arguments.
3

2

5

F.3d 744, 745 (4th Cir. 1996).

"[W]e review legal conclusions

by the bankruptcy court de novo and may overturn its factual determinations only upon a showing of clear error." parties agree that Virginia law governs BNXs claims. A. Nardolilli first argues that BNX failed to present evidence sufficient to sustain its abuse-of-process claim. Abuse of process is "the wrongful use of process after it has been issued." Triangle Auto Auction, Inc. v. Cash, 380 The elements of an abuse-of-process Id. The

S.E.2d 649, 650 (Va. 1989). claim are:

"(1) the existence of an ulterior purpose; and (2)

an act in the use of the process not proper in the regular prosecution of the proceedings." Donohoe Constr. Co. v. Mt.

Vernon Assoc., 369 S.E.2d 857, 862 (Va. 1988).

In light of the

presence of the second element, "[a] legitimate use of process to its authorized conclusion, even when carried out with bad intention," does not constitute abuse of process. Id.; see Ross

v. Peck Iron & Metal Co., 264 F.2d 262, 268 (4th Cir. 1959). Rather, "[t]he gravamen of the tort lies in the abuse or the perversion of the process after it has been issued."4 Donohoe

The Donohoe court explained that, in this way, abuse of process is different from the "kindred, but distinctly different" tort of malicious prosecution, which involves "maliciously causing process to issue." Donohoe Constr. Co. v. (Continued) 6

4

Constr. Co., 369 S.E.2d at 862 (emphasis added); see Restatement (Second) of Torts § 682 cmt. a (1977) (explaining that it is "[t]he subsequent misuse of . . . process, [even if] properly obtained," that constitutes the tort of abuse of process

(emphasis added)).

An example of such an act would be suing a

person, obtaining a judgment against him, and then, after he is aware that the debt has been paid, taking out execution on the judgment. See id. cmt. a, illus. 2. Other examples would

include using the process that has already been issued to force the payment of a debt, see Mullins v. Sanders, 54 S.E.2d 116, 122 (Va. 1949), or "as a means of extortion," Donohoe Constr. Co., 369 S.E.2d at 862. It is evidence concerning the second element that

Nardolilli contends is lacking.

In response, BNX argues only

that it established that Nardolilli filed his claims in order to attempt to buy BNX for less than market value. But while BNXs

evidence on this point certainly tends to show that Nardolillis filing of his claims was improperly motivated, it does not show that he committed any improper act to unfairly use those claims once they were filed. tort was complete as In the view of BNX, the abuse-of-process soon as the claims were filed. As

Mt. Vernon Assocs., 369 S.E.2d 857, 862 (Va. 1988) (internal quotation marks omitted).

7

explained

previously,

this

simply

cannot

be

because

of

the See to

necessity of an improper use of the process after filing. id. at 862-63 (holding that evidence was insufficient

establish abuse-of-process when although it supported the jurys finding that defendant "filed [a] mechanics lien with the

ulterior purpose of avoiding imposition of liquidated damages for delay [of performance of a construction contract] or of

forcing a settlement" of claims relating to the contract, it failed to establish that the defendant "committed any ,,act in the use of the process not proper in the regular prosecution of the proceeding"). In Virginia, even the issuance of a baseless

process will not alone be sufficient to support a claim for abuse of process. See Glidewell v. Murray-Lacy & Co., 98 S.E. the process is of process).

665, 668 (Va. 1919) (explaining that whether baseless is immaterial in an action for

abuse

There must be a subsequent perversion of that process, and that is what is lacking here. B. Nardolilli next contends that BNX failed to present

evidence to sustain its claim for interference with business expectancy. To establish such a cause of action under Virginia law, a plaintiff must or show "(1) the with 8 existence a of a of business future

relationship

expectancy,

probability

economic benefit to plaintiff; (2) defendants knowledge of the relationship or expectancy; (3) a reasonable certainty that

absent defendants intentional misconduct, plaintiff would have continued in the relationship or realized the expectancy; and (4) damage to plaintiff." Commercial Bus. Sys., Inc. v. Halifax To prove the first

Corp., 484 S.E.2d 892, 896 (Va. 1997).

element, the evidence "must establish expectancy by and between two parties at least, based upon something that is a concrete move in that direction." Moore v. United Intl Investigative

Servs., Inc., 209 F. Supp. 2d 611, 619-20 (E.D. Va. 2002). Here, BNX failed to prove such an expectancy, having

presented no evidence that, at the time of Nardolillis filings, it expected any buyer, And, let even its alone a particular that sale BNX to buyer, would a

outbid

Aladdin.

assuming expected

established Aladdin,

business

expectancy

with

BNX

suffered no loss from any interference with that sale, as it resulted in BNX receiving a much larger bid from Citibank. BNX maintains that it showed it had a business expectancy in having an auction and free BNX from the effects it of Nardolillis all the

improper

filings,

argues

established

necessary elements with regard to that expectancy. us to no authority supporting this novel theory.

BNX points

An expectancy

in such a process is simply not the sort of expectancy that the tort of interference with business expectancy protects. 9 See,

e.g., Westside Ctr. Assocs. v. Safeway Stores 23, Inc., 49 Cal. Rptr. 2d 793, 804 (Cal. Ct. App. 1996) (holding that

"interference with the market" theory of liability could not be employed to prove the tort, which "applies to interference with existing noncontractual relations which hold the promise of

future economic advantage"); cf. DurretteBradshaw, P.C. v. MRC Consulting, L.C., 670 S.E.2d 704, 707 (Va. 2009) (explaining that the commission of the tort of interference with an existing contract specific requires person" an "inten[t] to affect marks the contract of a

(internal

quotation

omitted)).

BNXs

evidence was therefore insufficient on this claim as well.

III. Because elements of we conclude of that BNX failed we to establish the the

either

its

claims,

vacate

bankruptcy

courts judgment and remand for entry of judgment against BNX.

VACATED AND REMANDED

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