Scott et al v. Slagle
Filing
68
MEMORANDUM OPINION. Signed by Judge Norman K. Moon on May 21, 2013. (sfc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
LYNCHBURG DIVISION
BELINDA SCOTT , ET AL.,
CIVIL ACTION NO . 6:12-CV -00013
Plaintiffs,
v.
MEMORANDUM OPINION
SAUNDRA SLAGLE,
Defendant.
JUDGE NORMAN K. MOON
Plaintiffs filed this matter alleging fraud in Bedford County Circuit Court, and Defendant
removed it here. The matter is before me now upon consideration of Defendant’s motion for
partial summary judgment, which I will grant.
I.
Plaintiffs’ amended complaint alleges that Defendant owed a duty of good faith to
Plaintiffs by virtue of a sales agreement1 between the parties regarding the “purchase of a
business owned by the defendant together with all business assets.” Plaintiffs purchased the
business from Defendant and “employed the defendant after the subject sale.” As an employee,
Defendant committed wrongful acts against Plaintiffs, and she was charged and convicted of
crimes relating to those acts in the Bedford County Circuit Court.2
1
2
A copy of the sales agreement was submitted in support of the amended complaint.
Although Defendant fully admits her wrongdoing, the exact scope and the amount of the taking is the subject
of a factual dispute. Plaintiffs allege that they “suffered the loss of $330,186.00 in property and $38,106.00 in
interest on business debt directly related to the loss of this business income,” but Defendant estimates that the
amount owed by virtue of her wrongdoing is $2,500. The sum of costs assessed against her in the criminal cases
was $1,605.
In Count I, subtitled “Embezzlement,” Plaintiffs assert that Defendant, in her role as an
employee, committed acts that incurred damages, and they allege bad faith in the performance of
the contract for the sale of the business. All the overt acts alleged in the complaint (and,
according to Defendant, explored in discovery) took place after the sale of the business, when
Defendant had become an employee.3 In Count II, subtitled “Fraud,” Plaintiffs allege that
Defendant’s intent to defraud them pre-dated the sale, and Defendant denies this.
Regarding Count III, subtitled “Bad Faith,” Defendant contends that all acts that form the
substance of that claim post-date the sale of the business. Defendant argues that Virginia law
does not allow recovery for bad faith in the performance of a contract for acts that take place
after the contract has been fully performed.
II.
The courts of Virginia recognize an implied duty of good faith and fair dealing in the
performance of contracts, and in the exercise of discretionary contract rights.
Virginia
Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d 535, 542 (4th Cir. 1998); Charles E. Brauer Co.
v. NationsBank of Virginia, N.A., 251 Va. 28, 33 (1996). However, regarding commercial
contracts, “the breach of the implied duty under the U.C.C. gives rise only to a cause of action
for breach of contract,” thereby precluding the tort damages Plaintiffs seek. Brauer, 251 Va. at
33 (citation omitted); see also Devnew v. Brown & Brown, Inc., 396 F. Supp. 2d 665, 672 (E.D.
Va. 2005) (discussing Brauer, and declining to extend into the employment context the covenant
3
In my order of February 19, 2013 (docket no. 58), denying as moot Plaintiff’s motion for summary judgment,
I noted that, as of that date, no party had “submitted any deposition transcript or excerpt from any transcript, even
though Defendant’s motion for partial summary judgment and Plaintiffs’ response thereto cite deposition
transcripts.” Defendant apparently erroneously omitted her exhibits, and subsequently corrected the omission.
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of good faith and fair dealing implied into commercial contracts by the U.C.C.).
Furthermore, “performance” is defined as “[t]he fulfillment or accomplishment of a
promise, contract, or other obligation according to its terms.” Black’s Law Dictionary 1024 (5th
ed.). The contract Plaintiffs submitted as an exhibit in support of their amended complaint is a
contract for the sale of a business. But Plaintiffs’ own account of events is that, before any of
the alleged events, the business was sold and the entire transaction contemplated by the contract
was completed. The amended complaint states that Plaintiffs “employed the defendant after the
subject sale.” (Emphasis added.) Defendant’s deposition testimony indicates that, before the
transaction was finalized, she expressed a desire to be employed by the business,4 and there is no
indication that she functioned as an employee until after Plaintiffs took possession of the
business.
Defendant took funds from Plaintiffs’ banking accounts by virtue of the fact that they
employed her after they acquired the ownership and took over the operation of the business.
They acquired the business pursuant to the sales agreement, a contract. Any duties under that
contract were active only during the performance period for that contract. The contract states,
“Seller agrees to sell and the Purchaser agrees to buy” the assets of the business, and there is no
factual dispute regarding the sale of the business. The sale was completed when Defendant came
to work for Plaintiffs.
To adopt Plaintiffs’ theory of bad faith, any party to a contract that had any later
grievance with the counter-party to that contract could sue the counter-party in perpetuity based
on a contract that had long-since been performed. Performance in this context means “[t]he
4
The sales agreement includes a covenant not to compete.
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fulfillment or accomplishment of a promise, contract, or other obligation according to its terms.”
Black’s Law Dictionary 1296 (4th ed.). If the contract had not been performed, Defendant
would still have been the owner of the business, and Plaintiffs would have no right to complain
about her actions. It is undisputed that Plaintiffs were the owners of the business, and thus it is
obvious that the contract for the sale of the business was no longer in the “performance” stage.
As a matter of law, the implied duty of good faith and fair dealing in the performance of
a contract is inapplicable to conduct that follows the completion of the contract. Subsequent
relations are not subject to the implied terms of a completed contract.
III.
For the stated reasons, the motion for partial summary judgment will be granted. An
appropriate order accompanies this memorandum opinion.
21st
Entered this _______ day of May, 2013.
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