Johnson v. Bella Gravida, LLC
Jason Wilson and Christa Evans (“Defendants”) cofounded a clothing company, Bella Gravida, LLC, of which Evans was also the CEO and manager. Bella Gravida was marketed as a monthly subscription service for maternity clothing. In 2015, Stephen and Ann Johnson (“Plaintiffs”) signed a Membership Unit Purchase Agreement (“Agreement”), exchanging $30,000 for membership interests in Bella Gravida. Following the execution of the Agreement, the Johnsons claimed Wilson and Evans failed to properly manage the company, which resulted in its financial ruin. On December 30, 2019, the Johnsons filed a complaint against Wilson and Evans, as well as Bella Gravida, alleging fraud, statutory business conspiracy, common law conspiracy, breach of fiduciary duties, conversion, unjust enrichment, and breach of contract.
Statutory Business Conspiracy and Common Law Conspiracy
In Virginia, statutory business conspiracy consists of “(1) a combination of two or more persons for the purpose of willfully and maliciously injuring plaintiffs in his business; and (2) resulting damage to the plaintiff.” The court found that the Johnsons lacked standing to bring a statutory busines claim, because a member of an LLC “is not a proper party to a proceeding by or against” an LLC, unless the purpose is to enforce a member’s right against or liability to the LLC or in a derivative action asserted on behalf of the LLC. The Johnsons argued that they were injured as members of the LLC through a tort, but they weren’t attempting to enforce a right against the LLC or other members. The court held that to bring such a claim, the Johnsons would need to instead bring a derivative suit on behalf of the LLC.
In addition to the lack of standing, Defendants argued the statutory business conspiracy must also fail because of the intracorporate immunity doctrine, which holds that “a conspiracy between a corporation and agents of that corporation who are acting in the scope of their employment is a legal impossibility.” While Virginia circuit courts and federal district courts have recognized a “personal stake exception” to this rule, neither Virginia appellate court has recognized the exception and the court here declined to, as well. Here, the court found that Wilson and Evans were decision makers for Bella Gravida and were acting on behalf of Bella Gravida when they made the alleged initial misrepresentations to the Johnsons. Thus, they couldn’t have conspired with each other under the intracorporate immunity doctrine. Lastly, the claim also failed because the harm alleged was against the Johnson’s share of Bella Gravida, and not in their trade or business, as the claim requires. The court similarly found that the Plaintiffs’ common law conspiracy claim failed under the same standing and intracorporate immunity doctrine arguments.
Breach of Fiduciary Duties
A Virginia claim of breach of fiduciary duty requires that a plaintiff establish “(1) the existence of a fiduciary duty, (2) the breach of that duty, and (3) resulting damages.” The court here noted that the Supreme Court of Virginia has concluded that a member of an LLC cannot bring a claim of breach of fiduciary duty against another member or manager of the LLC. Since the Johnsons, as members of an LLC, are attempting to sue other members of the LLC, the claim must fail. The Plaintiffs also argued the Defendants breached duties created under the Agreement. However, the Supreme Court of Virginia has held that for claims of breach of fiduciary duty, the duty breached must be a common law duty, not one created solely by a contract.
Conversion is “the wrongful assumption or exercise of the right of ownership over goods or chattels belonging to another in denial of or inconsistent with the owner’s rights.” A claim of conversion can only succeed if the individual has a property interest in the allegedly converted item and is entitled to the immediate possession of that item. Here, the Johnsons argued that defendants converted the $30,000 and used it for personal expenses. However, the court held that the $30,000 did not belong to them at the alleged time of the conversion, since after they entered into the Agreement, they exchanged the funds for membership interests in the LLC. At that time, Bella Gravida had the property interest in the $30,000, not the Johnsons.
The remaining claims also failed, because the court found the complaint “contains serious factual deficiencies and improperly identifies the parties or their status.” The Johnsons sued defendants directly, when the claims were required to be sued derivatively, and they sued defendants individually instead of as agents and members of Bella Gravida. The complaint filed by plaintiffs had fatal standing issues, which could have been avoided if the claims had been brought properly by and against the correct parties.
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