Over the past two decades, Virginia's state and federal courts have issued a series of opinions that have molded the character of the Virginia Business Conspiracy Act. For years, the decided cases narrowed the scope of the broadly worded statute. Recently, however, the Virginia Supreme Court appears to have reversed the field, expanding the reach of the Act by embracing an expansive interpretation of the Act's purpose element. While that element had been narrowly construed in the past, that is no longer the case. The most recent example of this trend is the Supreme Court's June, 1998 decision in Advanced Marine Enterprises, Inc. v. PRC, Inc., in which the Court, in a case involving mixed motives, relaxed the plaintiff's burden of proof under the Act by requiring only proof of legal malice.
Judicial Interpretation of the Act
The statutory basis for business conspiracy actions is found in Sections 18.2-499 and -500 of the Virginia Code, enacted in 1964. The first statute, criminal in nature, provides that "[a]ny two or more persons who combine, associate, agree, mutually undertake or concert together for the purpose of . . . willfully and maliciously injuring another in his reputation, trade, business or profession by any means whatever . . . shall be guilty of a Class 1 misdemeanor." Section 18.2-500 provides a civil remedy for anyone who believes he or she has been "injured in his reputation, business or profession by reason of a violation of § 18.2-499." If such a lawsuit is successful, the plaintiff may recover treble damages plus the costs of the suit.
The starting point for any interpretation of the Business Conspiracy Act must be the definition of conspiracy itself. At common law, a conspiracy was "an unlawful combination of two or more persons to do that which is contrary to law, or to do that which is wrongful and harmful towards another person." In a criminal case, a conspiracy is simply an agreement to commit a crime. The object of the conspiracy must be unlawful, of course; it is impossible to conspire to do what the law allows.
The elements of a claim under the Business Conspiracy Act are relatively straightforward. According to the Virginia Supreme Court, the two elements are "(1) a combination of two or more persons for the purpose of willfully and maliciously injuring plaintiff in his business, and (2) resulting damage to plaintiff." Courts have considered certain aspects of these elements as follows.
1. "A combination of two or more persons"
In Virginia, the doctrine of intra-corporate immunity has had an important effect on the type and number of entities that can be accused of forming a conspiracy to harm a business. Both state and federal courts have repeatedly held that various legal entities are incapable of forming conspiracies in and of themselves. First, it is clear that "[b]y definition, a single entity cannot conspire with itself." Because of the intra-corporate immunity doctrine, employees acting within the scope of their employment are agents of the employer and cannot conspire. A limited exception to the intra-corporate immunity doctrine has been recognized in the Fourth Circuit when the agents have an independent, personal stake that is separate and apart from their involvement as agents of their employer. While this exception remains recognized, several decisions have limited it in order to assure that the exception does not swallow the rule.
A corporation cannot conspire with its wholly-owned subsidiary. Further, two wholly owned subsidiaries are incapable of conspiring with each other. However, if the corporate veil is pierced, a conspiracy can then be established between members of the corporation. Finally, the concept of intra corporate immunity has been applied to state agencies and their workers.
2. "For the purpose of willfully and maliciously injuring plaintiff"
Once an initial showing of a conspiracy between at least two entities has been made, the next test is whether the conspiracy existed for some unlawful purpose: a conspiracy must be formed "to accomplish some criminal or unlawful purpose, or to accomplish some purpose, not in itself criminal or unlawful, by criminal or unlawful means." It is not necessary that every conspirator have acted with legal malice; the statute "simply requires that one party, acting with legal malice, conspire with another party to injure the plaintiff." For many years, the purpose element was restrictively construed, and only recently has the Court liberalized the proof required to satisfy that element.
3. "In its business"
Courts have repeatedly held that the focus of the business conspiracy statutes is on injuries to business; other types of injuries are outside the scope of the Act. A right of action under Sections 18.2-499 and -500 arises only when malicious conduct is directed at a plaintiff's business, not against one's person. The conduct must be directly aimed at damaging the business, including injuries to one's property interest. The damages cannot be simply "the result or secondary effect of an action taken for mere personal gain." Virginia federal courts have consistently resisted attempts to apply the Act to conspiracies directed at one's employment. The existence of a business is an issue for trial.
4. "Resulting in damage to the plaintiff's business"
Virginia is one of a minority of states that does not require, in standard conspiracy cases, proof of an overt act in order to convict a defendant of conspiracy: "In law the offense is the combination for the purpose, and no overt act is necessary to constitute it." Under the Business Conspiracy Act, defendants can be guilty of either conspiracy or attempting to conspire, however, the agreement or even an attempted agreement is not sufficient to impose liability; there must be proof that some act was carried out that actually harmed plaintiff's business. "The gist of a civil action of conspiracy is the damage caused by the acts committed in pursuance of the formed conspiracy and not the mere combination of two or more persons to accomplish an unlawful purpose or use other unlawful means." This is important not only in terms of establishing a case for conspiring to damage a business, but for purposes of establishing when the cause of action accrues. The Virginia Supreme Court has stated that "[a] right of action accrues when any damage, however slight, is sustained."
Finally, although the Virginia Supreme Court has not directly addressed the issue, the Fourth Circuit has recently determined that if a conspiracy to harm a business has been alleged in a civil case, proof of the conspiracy must be shown by clear and convincing evidence.
Transformation of the purpose element
The element of a business conspiracy that has seen the greatest transformation in recent years is the purpose element -- requiring a plaintiff to show that the defendants acted with a certain level of malicious intent. The Virginia Supreme Court has considered the reaches of the purpose element in a series of cases.
First, in 1986, the Court held in Greenspan v. Osheroff that a plaintiff must show that the defendants' primary and overriding purpose was to injure plaintiff's business. In Greenspan, a physician, Dr. Osheroff, sued an associate, Dr. Greenspan, after Dr. Greenspan insisted that Dr. Osheroff seek hospitalization for a psychiatric illness. Dr. Greenspan assured Dr. Osheroff that he would take care of Dr. Osheroff's nephrology/kidney dialysis practice. However, while Dr. Osheroff was incapacitated, Dr. Greenspan doubled his own salary, opened competing medical practices, subverted Dr. Osheroff's relationship with his patients, and ultimately threatened Dr. Osheroff that he would "lose everything" unless he sold his practice to Dr. Greenspan. After being sued by Dr. Osheroff for a conspiracy to harm Dr. Osheroff's dialysis practice, Dr. Greenspan argued that the presence of benign motives for his actions, such as concern for the interests of patients who were undergoing dialysis at the clinics, weighed against his malicious motives of personal gain or animosity toward Dr. Osheroff, and therefore constituted a defense. The Court disagreed, and held that
when the fact-finder is satisfied from the evidence that the defendant's primary and overriding purpose is to injure his victim in his reputation, trade, business or profession, motivated by hatred, spite, or ill-will, the element of malice required by Code § 18.2-499 is established, notwithstanding any additional motives entertained by the defendant to benefit himself or persons other than the victim.
Although the primary and overriding purpose test was met in Greenspan, it was seldom satisfied throughout the ensuing decade. Indeed, the requirement that a plaintiff prove that a defendant acted with the primary and overriding purpose to injure the plaintiff served as an effective deterrent to litigation under the Act.
The Supreme Court followed this decision in 1992 with its opinion in Tazewell Oil Co. v. United Virginia Bank, where it was found that the defendant banks had undertaken a concerted campaign to eliminate the plaintiff's ability to continue operating or to file a bankruptcy reorganization plan by removing its access to cash flow, inventory or other financing. The banks pointed to benign motives, claiming that their actions were merely attempts protect their security interests. However, the Court found that these factors "ring hollow in light of the extensive and unusual actions [the defendants] undertook."
It is somewhat surprising that despite the "primary and overriding purpose" language of Greenspan, the Tazewell Oil Co. majority opinion did not cite that case in its discussion of the defendants' conflicting motivations. Justice Whiting's dissenting opinion, however, applied the "primary and overriding purpose" test from Greenspan and found the banks' motives insufficient to prove malice under the Act. The dissent found that though "the methods employed by UVB . . . were indefensible and exhibited a willful disregard of Tazewell's rights," it "[could not] agree that such a purpose constitutes a 'primary and overriding purpose' to destroy Tazewell, one motivated by 'hatred, spite, or ill-will.' . . . UVB's conduct shows only that its 'primary and overriding purpose' was to effect an immediate collection of Tazewell's indebtedness, not to destroy the debtor." The dissent's analysis was consistent with the test established by Greenspan; however, the majority's failure to cite Greenspan may have signaled the beginning of the erosion of the "primary and overriding purpose" standard.
The Supreme Court further clarified the motive inquiry in 1995 when it decided Commercial Business Systems, Inc. v. BellSouth Services, Inc. In that case, CBS, a computer equipment repair company, sued BellSouth Services and one of its managers (Waldrop) after its contract to repair BellSouth equipment was not renewed, but instead was awarded to CBS's competitor who had ties to Waldrop. Evidence revealed that the successful bidder paid bribes in the form of kickbacks to Waldrop; there was also clear proof that Waldrop had the power to break the plaintiff's contract and steer the replacement contract to the successful competitor. The trial court granted the defendants' motion for summary judgment on the grounds that CBS was unable to show any evidence of actual malice on the part of Waldrop; i.e., that Waldrop "harbored personal hatred or ill-will toward CBS." The Supreme Court reversed, holding that the conspiracy statute did not require a showing of actual malice, but rather only "proof of legal malice, i.e., that Waldrop acted intentionally, purposely, and without lawful justification." The court distinguished its holding in Greenspan that a plaintiff must show that the defendants' primary and overriding purpose was to injure the plaintiff's business on the basis that the "primary and overriding purpose" statement "was made in the context where the conspirator had both legitimate and illegitimate motives for his actions." In CBS, the court found all Waldrop's motives to be illegitimate; thus, a showing that the illegitimate motive was the primary and overriding purpose was unnecessary.
Thus, in Greenspan, when the conspirators' motivations were mixed, the Court required a showing that the primary purpose for the actions was hatred, spite or ill-will. In CBS, there were nothing but "bad" motivations; thus, there was no need to require proof of the primacy of the evil motivation.
In Advanced Marine Enterprises, Inc. v. PRC, Inc., however, the Court looked past its earlier distinction of the Greenspan primary purpose standard in CBS, effectively eliminating that requirement of proof. In Advanced Marine, PRC filed suit in equity against Advanced Marine Enterprises (AME) under the conspiracy statute when a number of PRC's marine engineering employees left PRC and moved to a competitor, AME. PRC had informed the employees that due to the loss of some of its marine engineering contracts, they should look for other employment. The chancellor, however, ruling in favor of PRC, focused on the fact that AME and the PRC engineering employees developed a covert plan to move to AME, without regard to the obvious permissible motivation of self-preservation for those faced with losing their jobs.
AME appealed the chancellor's finding on the ground that, in light of Greenspan, the chancellor was required to find, when evidence of mixed motivations existed, that AME and the employees acted with the primary purpose of injuring PRC. While the Supreme Court rejected this argument, it did not address the issue of mixed motives at all in its opinion. Rather, it relied on CBS simply for the proposition that "Code §§ 18.2-499 and -500 do not require a plaintiff to prove that a conspirator's primary and overriding purpose is to injure another in his trade or business." Whereas CBS seemingly recognized the continuing vitality of the primary and overriding purpose requirement of Greenspan--albeit limited to cases where the defendants had mixed motivations for their actions--the court in Advanced Marine made an end run around this distinction.
By ignoring the distinction of the Greenspan primary purpose requirement employed by the Court in CBS, the Advanced Marine Court effectively has blurred the line between acts undertaken with a benign motivation (such as self-preservation), which should not be actionable, with acts taken for the purpose of willfully and maliciously injuring another, giving rise to treble liability. One can only assume from Tazewell Oil, CBS, and Advanced Marine that the Court recognized the burden the Greenspan primary and overriding purpose standard placed on plaintiffs and has decided that the Act need not contain such a rigorous standard.
Whereas the Greenspan decision ushered in a decade of negligible litigation under the Act, the CBS and Advanced Marine opinions should provide the impetus for a marked increase in the use of this potentially far-reaching statute. At the very least, the elimination of the primary and overriding purpose element eases a plaintiff's burden under the Act. The purpose requirement has been watered down merely to require proof of legal malice: that the defendant acted intentionally, purposefully, and without lawful justification. While the Court previously engaged in a rather strict scrutiny of the motivations behind the alleged conspirators' conduct, it now limits its examination to the conspirators' methods. Indeed, the Court's opinion in Advanced Marine makes no effort to examine the motivation for the alleged conspirators' conduct, but rather focuses exclusively on the methods they employed. In that regard, Advanced Marine completes what Tazewell Oil and CBS began--the collapse of the Act's purpose element from a test involving motivation to a test focusing exclusively on methods. As is evident from Justice Whiting's dissenting opinion in Tazewell Oil, while the former is difficult to prove, the latter presents a much less daunting proposition. It is yet to be seen whether this relaxed evidentiary burden will yield more litigation--and more treble damage verdicts--under the Act.
Advanced Marine and treble damages
Another noteworthy aspect of the Supreme Court's decision in Advanced Marine was its determination that the chancellor properly awarded both punitive and treble damages. AME argued that "because any award of damages in equity is limited to compensating an injured party to make it 'whole,'" the chancellor exceeded his authority when he awarded punitive damages to PRC. The Court rejected this argument on the basis of the principle that "when a court of equity acquires jurisdiction of a cause for any purpose, the court may retain the entire cause to accomplish complete justice between the parties. Thus, the chancellor may hear legal claims and enforce legal rights by applying remedies available only at law." The Court determined that since AME chose not to transfer the legal claims to the law side, it was bound by the chancellor's award of legal relief.
AME made similar arguments as to the chancellor's award of treble damages. The Court rejected these as well, holding that the language of § 18.2-500 clearly contemplates that a party recovering under the statute may "recover three-fold the damages by him sustained." The Court further rejected the argument that the language of § 18.2-500(b), which delineates the equitable relief available for violations of the statute, does not list treble damages, thus precluding their recovery in equity. The Court held that § 18.2-500(b) merely adds injunctive relief to the remedies available elsewhere, and is not intended to limit the relief available in chancery.
Third, AME argued that an award of both punitive and treble damages was duplicative, as the same conduct formed the basis for both damage awards. The Court held that the conduct upon which the punitive damage award was based--breach of fiduciary duties, intentional interference with contractual relations, and intentional interference with prospective business and contractual relations--was sufficiently distinguishable from the claims and legal injuries underlying the Act. Thus, the Court held that both punitive and treble damages were properly awarded.
Finally, the Court was able to reconcile the treble damage award of more than $1 million with Virginia's statutory punitive damages cap of $350,000. Because the language of § 8.01-38.1 only limited "punitive" damages, and did not mention "treble" damages, the Court determined that the punitive damages cap was inapplicable. In so doing, however, the Court implicitly rejected several state and federal decisions which had expressly equated treble and punitive damage awards.
Counsel should be wary of the impact that this decision is likely to have on suits filed on the equity side, as Advanced Marine has further blurred an already murky line between law and equity. Whether or not a defendant would fare better before a jury on the law side than before a chancellor is certainly debatable, but at least as to the potential award of damages, the determination to transfer has become a more important strategic decision than ever before. Those with cases on either side of the court also should be aware that the punitive damage cap no longer applies to treble damage awards, perhaps providing the principal reason why litigation under the Act should increase in years to come.