Present: Kinser, C.J., Lemons, Millette, Mims, McClanahan, and Powell, JJ., and Lacy, S.J.
ONLINE RESOURCES CORP.
v. Record No. 120208 OPINION BY JUSTICE DONALD W. LEMONS January 10, 2013 MATTHEW P. LAWLOR
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY Michael F. Devine, Judge
In this appeal, we consider whether the Circuit Court of
Fairfax County ("trial court") erred in a complex civil matter
arising from termination of a corporation's chief executive
officer from employment when it (1) refused to hold, as a matter
of law, that no change in control occurred that would entitle
Matthew P. Lawlor ("Lawlor") to mandatory severance benefits
from Online Resources Corporation ("ORC"); (2) instructed the
jury to construe any ambiguities in the contracts against the
drafter; (3) submitted Lawlor's alternative theory of mandatory
severance benefits to the jury; and (4) submitted Lawlor's claim
for unjust enrichment to the jury.
We also consider whether the trial court abused its
discretion when it (1) admitted the testimony of James Reda,
Lawlor's damages expert; (2) permitted Lawlor to amend his
complaint to plead the basis for recovering attorneys' fees; and
(3) awarded Lawlor attorneys' fees and expenses.
1 I. Facts and Proceedings
In Lawlor's second amended complaint against ORC, he sought
damages for breach of contract, unjust enrichment, and wrongful
termination, as well as declarative and injunctive relief 1 in
connection with ORC's termination of Lawlor's employment as
Chief Executive Officer ("CEO"), his position as Chair of the
Board of Directors, and his employment with ORC. Lawlor
contended that he resigned under duress after reporting insider
trading by Tennenbaum Capital Partners ("TCP"), ORC's largest
voting shareholder. He also claimed that he was denied payments
under the 2005 Stock Plan, as amended ("2005 Plan"), 1999 Stock
Option Plan ("1999 Plan"), and 2009 Change in Control Severance
Agreement ("Severance Agreement") that provided certain payments
in the event of a "change in control" in the company.
Additionally, Lawlor claimed that he was entitled to
compensation to offset a pay reduction he took in 2009 with the
understanding that he would be made whole in the future.
Additionally, he demanded attorneys' fees and expenses. 2
On March 24, 2011, Lawlor moved the court to defer the
issue of attorneys' fees and expenses until after the trial.
1 Lawlor's claims for declarative and injunctive relief were dismissed and are not before us on appeal. 2 Although the parties use the term "costs," the Severance Agreement upon which the claim is based provides for "expenses." Therefore, we will use the term "expenses" throughout this opinion.
2 The trial court granted the unopposed motion, and both parties
endorsed the order as "agreed."
An eleven-day jury trial took place in April 2011. The
jury found for Lawlor on all counts except Count VI for wrongful
termination, and awarded Lawlor $2,325,000 on Count I for breach
of the 2005 Plan, $494,266 on Count II for breach of the 1999
Plan, $4,935,619 on Count III for breach of the Severance
Agreement, and $360,000 on Count V for unjust enrichment, for a
total of $5,295,619 in compensatory damages. 3 In the bifurcated
proceeding, the trial court awarded attorneys' fees of
$2,131,034.75 to Lawlor.
Change In Control
Lawlor founded ORC in 1989 to provide on-line banking
services. ORC went public in 1999, and Lawlor continued to
serve as its CEO and the Chairman of its Board of Directors. In
2006, TCP invested $75 million in ORC and became a Class A-1
preferred shareholder with the right to designate a director to
the Board. In 2007, Michael Leitner ("Leitner") became TCP's
designee to the Board of Directors. Evidence presented revealed
that Leitner and Lawlor had a contentious relationship.
ORC's stock price dropped significantly in 2008 and 2009.
In 2009, TCP announced that it was running three of its own
3 The damages in Count III overlapped with the damages in Counts I and II.
3 nominees for the Board of Directors. A proxy contest ensued,
and the TCP nominees were elected in May 2009. In May 2009, the
Board also approved the Severance Agreement. Lawlor signed the
Severance Agreement on May 13, 2009.
Shortly after the proxy contest, Leitner wrote in an email
to the other TCP nominees, who were now directors, that Lawlor
"doesn't fully appreciate the significant governance change that
has taken place, and that he is no longer in control. It just
doesn't seep in for him." He added that Lawlor was resistant to
"any process that requires him to seek our direction on issues"
and "just doesnt [sic] get he is one election away from losing
his job."
On December 9, 2009, the Board of Directors met in closed
session without Lawlor and agreed that it was time for him to
step down as CEO. On December 14, 2009, the Board voted to
remove Lawlor immediately as CEO, but agreed to retain him as
Chairman of the Board and as an employee until February 19,
2010.
On January 20, 2010, Lawlor resigned from the Board. That
same day, one of the incumbent directors, 4 Joe Spalluto, also
4 The "Incumbent Board" is defined in the Severance Agreement as the individuals who constituted the Board as of May 13, 2009, the date the Severance Agreement was executed. An "incumbent director" is a person who was a director as of May
4 resigned from the Board. The Board, which had ten seats, was
then composed of four incumbent directors, the three new TCP
directors, Leitner (the TCP designee), and two empty seats.
ORC offered Lawlor a severance package that Lawlor rejected
because "it would have taken away any rights to claim for a
change in control." Lawlor maintained that a change in control
had occurred, and that he was entitled to mandatory severance
benefits under the 1999 Plan, the 2005 Plan, and the Severance
Agreement. All three of these plans defined "change in
control," but with slight variations. The 2005 Plan defined
"change in control" in relevant part as:
(i) When any "person" as defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof (including a "group" as defined in Section 13(d) of the Exchange Act, but excluding the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of such plan acting as trustee)), directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, as amended from time to time), of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities.
(ii) The individuals who, as of January 1, 2005, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided however, that any individual becoming a director subsequent to such date, whose election, or nomination for election
13, 2009, or who was elected after May 13, 2009 by at least three-quarters of the directors comprising the Incumbent Board.
5 by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall, for purposes of this section, be counted as a member of the Incumbent Board in determining whether the Incumbent Board constitutes a majority of the Board.
The 1999 Plan defined "change in control" as:
(e) "Change in Control" means a change in control of the Company of a nature that; (i) would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act; or (ii) without limitation such a Change in Control shall be deemed to have occurred at such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the Company's outstanding securities except for any securities of the Company purchased by any tax qualified employee benefit plan of the Company; or (B) individuals who constitute the Board of Directors of the Company on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by a Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (B), considered as though he were a member of the Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of all or substantially all of the assets of the Company or similar transaction occurs in which the Company is not the resulting entity.
The Severance Agreement defined "change in control" as:
6 (e) A "Change in Control" shall mean any change in control of the Company of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 10-K, 5 as in effect on the Effective Date, pursuant to Section 13 or 15(d) of the Act; provided that, without limitation, such a "Change in Control" shall be deemed to have occurred if: (i) a third person, including a "group" as such term is used in Section 13(d)(3) of the Act, becomes the beneficial owner, directly or indirectly, of 50% or more of the combined voting power of the Company's outstanding voting securities ordinarily having the right to vote for the election of directors of the Company, unless such acquisition of beneficial ownership is approved by a majority of the Incumbent Board (as such term is defined in clause (ii) below); or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Act) shall be, for purposes of this provision, considered as though such person were a member of the Incumbent Board.
ORC moved for summary judgment prior to trial, arguing
that, as a matter of law, the Incumbent Board never ceased to be
a majority and there was no change in control. The trial court
5 This document reads "10-K," but the parties agreed below that this was a typographical error and should have been "8-K."
7 denied the motion, holding that the contract provisions were
ambiguous.
At trial, ORC moved to strike Lawlor's evidence of a change
in control, arguing that Lawlor failed to present sufficient
evidence to demonstrate that a change in control occurred. The
trial court denied the motion, holding that in the light most
favorable to Lawlor there was sufficient evidence that a change
in control had occurred to submit the matter to the jury. The
trial court noted there was evidence that the composition of the
Board changed and that TCP wrested control of ORC from the
people who were originally running the company. ORC renewed its
motion to strike at the close of evidence, and the trial court
denied it.
Alternate Theory of Severance Benefits
At trial, Lawlor proposed an alternate theory to the jury
for awarding severance benefits if the jury found there was no
change in control. Lawlor argued that Paragraph 1 of the
Severance Agreement made payment of severance benefits mandatory
for a termination prior to a change in control. Paragraph 1 of
the Severance Agreement stated:
1. Purpose and Scope of Company Obligations. The purpose of this Agreement is to document the severance benefits payable to the Participant in the event the Participant's employment with the Company (as defined below) is terminated as described herein. For terminations prior to the Protected Period, the severance benefits that are
8 payable to the Participant are as set forth in the Company's Severance Pay Policy in effect on the date of execution of this Agreement.
(Emphasis added.) An email from the CFO, Cathy Graham, was
admitted to show she recommended changing the words "may be
payable" to "are payable" because the benefits were intended to
be "contractually guaranteed" and not discretionary.
Expert Testimony on Damages
ORC moved to exclude the testimony of Lawlor's damages
expert, James Reda. ORC argued that Reda admitted he was not an
expert in stock valuation and that he did not conduct his own
independent evaluation of ORC's stock value; consequently, ORC
argued his testimony as to the value of ORC stock should be
excluded. The trial court denied the motion.
Reda qualified as an executive compensation consultant,
with an expertise in advising companies on how much to pay
executives, including salary, bonus, long-term incentives,
severance requirements, and extra benefits. He testified that
he was asked to calculate the severance amounts Lawlor was
entitled to receive in the event of a change in control of ORC,
as well as the severance amounts to which Lawlor would be
entitled if a determination were made that there had not been a
change in control.
Reda explained that as part of determining the value of
Lawlor's damages, he considered the value of Lawlor's stock
9 options. Reda used two different stock prices when performing
his calculations. For the first set of calculations, Reda used
the stock price of $7.01 per share, which was the highest price
actually achieved between the date of Lawlor's termination and
the date of trial. Reda testified that under a change in
control scenario, using the stock price of $7.01 per share,
Lawlor was entitled to a severance payment of $4,935,619. Reda
testified that if no change in control occurred, using the stock
price of $7.01 per share, Lawlor was entitled to a severance
payment of $3,269,893.
Reda testified that Lawlor's damages could be even higher
if the value of ORC stock were to increase. For the second set
of calculations, Reda used the stock price of $10.53 per share,
which was a number he obtained from a Raymond James Investment
Report that projected what the ORC stock price might be over a
period including 2010 and 2011. Using that stock price, Reda
determined that Lawlor's damages under a change in control
scenario would be $6,686,992.
Unjust Enrichment
At trial, Lawlor testified that he voluntarily accepted a
5% pay reduction in 2009; however, he had a clear understanding
with the compensation committee and the Board that he was
underpaid relative to the performance of the company, and he
took the pay cut "with the understanding that it was going to
10 pay off down the road with the company coming back, rectifying
that kind of a thing." He admitted that there was no written
agreement, but he had "the understanding from the Board that
they were going to correct my compensation, and I ha[d] every
right to expect that at least the 30 percent that I took option
on, that they would make me whole." Lawlor testified that Erv
Shames ("Shames"), the chairman of the compensation committee,
told Lawlor his compensation would be corrected.
Shames testified that the pay reductions in 2009 were
Lawlor's idea in order to improve the company's earnings and
cash position. Shames testified that Lawlor was not promised
anything in exchange for his agreement to accept the pay
reduction.
The court instructed the jury to find for Lawlor on Count
V, the claim for unjust enrichment, if the jury found that
Lawlor
[H]as proved by the greater weight of the evidence that (1) the Plaintiff conferred a benefit on the Defendant; and (2) the Defendant knew that the Plaintiff was conferring the benefit; and (3) the Defendant accepted or retained the benefit under circumstances which would make it inequitable for the Defendant to retain the benefit without paying for its value.
Jury Instruction N
Jury Instruction N was given at trial, which read: "In
interpreting a contract, you should resolve any doubts about the
11 meaning of a word or phrase against the party who
[drafted/prepared] the contract." ORC objected to that
instruction being given on the grounds that Lawlor participated
in the drafting of the agreements at issue in this case. Lawlor
argued that ORC's general counsel was the drafter. The trial
judge determined that the jury should decide who the drafter was
and who should get the benefit of any ambiguities.
Attorneys' Fees
On May 23, 2011, Lawlor moved for over $2 million in
attorneys' fees. Lawlor argued that under the plain language of
the Severance Agreement he was entitled to all reasonable fees
incurred in the entire action, not merely the claim for breach
of the Severance Agreement. Paragraph 13 of the Severance
Agreement states as follows:
If a Participant commences a legal action to enforce any of the obligations of the Company under this Agreement and it is ultimately determined that the Participant is entitled to any payments or benefits under this Agreement, the Company shall pay the Participant the amount necessary to reimburse the participant in full for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by the Participant with respect to such action.
ORC argued that Lawlor's claim for attorneys' fees was waived
pursuant to Rule 3:25, because Lawlor failed to specifically
state the basis for the request in his complaint.
12 The court denied Lawlor's motion for attorneys' fees,
finding the basis for the demand was not sufficiently pled
pursuant to Rule 3:25. Lawlor filed a motion for
reconsideration, which the court denied.
On July 8, 2011, Lawlor filed a motion for leave to amend
his complaint pursuant to Rule 1:8 in order to set forth with
more specificity the basis for his demand for attorneys' fees.
ORC claimed prejudice, arguing that it did not know Lawlor was
going to request attorneys' fees for all of his claims. ORC
argued that if Lawlor was entitled to attorneys' fees, it was
only for Count III because that was the only count related to
the Severance Agreement. A hearing on Lawlor's motion was held,
after which the trial court granted the motion to amend, finding
the posture of the case was still "pre-trial" as it concerned
attorneys' fees, so the amendment was appropriate in accordance
with Rule 1:8. The trial court also held that under Delaware
law, Lawlor was entitled to all of his attorneys' fees and
expenses, not just the ones directly attributable to Lawlor's
enforcement of the Severance Agreement. The trial court then
granted Lawlor's previously filed motion for award of fees and
expenses and awarded him $2,131,034.75.
ORC filed its notice of appeal, and we granted an appeal on
the following assignments of error:
13 1. The trial court erred by refusing to hold, as a matter of law, that the Company underwent no "change in control" that would entitle Lawlor to the mandatory severance benefits that he claimed.
2. The trial court erred by instructing the jury to construe any ambiguity in the contracts against the drafter; that rule of last resort was unnecessary to interpret the contract language and did not apply because Lawlor, the CEO and Chairman of the Board, directed and oversaw the drafting of the very documents he sought to enforce against the Company.
3. The trial court erred by failing to reject Lawlor's alternative theory that he was entitled to mandatory severance benefits, even absent a change in control, because the plain language of the Severance Agreement did not alter the discretionary terms of the Company's severance policy.
4. The trial court erred by failing to exclude the testimony of Lawlor's damages expert when he admitted he was unqualified to determine the value of the Company's stock, yet proceeded to choose speculative, high-end stock valuations to compute Lawlor's damages.
5. The trial court erred in ruling the evidence sufficient to support Lawlor's unjust enrichment claim because there was no evidence ORC should reasonably have understood it was obligated to compensate Lawlor for the company-wide pay cut Lawlor instituted when he was Chairman and CEO.
6. Because Lawlor should not have recovered for breach of the Severance Agreement in Count III – the only Count involving a fee-shifting provision – the trial court erred by awarding him attorney's fees and expenses.
7. The trial court erred in holding that the Severance Agreement at issue in Count III entitled Lawlor to recover his legal fees for the entire case, including unsuccessful and unrelated counts.
8. The trial court erred in permitting Lawlor to amend his complaint, post-verdict, to plead the basis for recovering attorneys' fees under Rule 3:25.
14 II. Analysis
A. Change in Control
i. Standard of Review
"Whether the language of a contract is ambiguous is a
question of law that we review de novo." Preferred Sys.
Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 391, 732
S.E.2d 676, 680 (2012). We have said that "[c]ontract language
is ambiguous when 'it may be understood in more than one way or
when it refers to two or more things at the same time.'" Id.
(quoting Eure v. Norfolk Shipbuilding & Drydock Corp., 263 Va.
624, 632, 561 S.E.2d 663, 668 (2002)). Ordinarily, it is the
duty of the court to construe a written contract when it is
clear and unambiguous on its face, but when a contract is
ambiguous it is necessary to resort to parol evidence to
ascertain the intention of the parties. In such cases, if
reasonable people could draw different conclusions, the meaning
of the contract upon the evidence presented should be submitted
to the jury. See Greater Richmond Civic Recreation, Inc. v.
A.H. Ewing's Sons, Inc., 200 Va. 593, 596, 106 S.E.2d 595, 597
(1959).
ii. Choice of Law
The 1999 and 2005 Plans as well as the Severance Agreement
contain provisions requiring that these instruments be
interpreted under Delaware law. However, at trial the parties
15 offered a potpourri of citations from Virginia and Delaware and
elsewhere making it difficult to ascertain what law the parties
thought controlled a particular issue. Additionally, on appeal
ORC cites Delaware law on matters which at trial it did not
advance. Throughout this opinion such discrepancies will be
noted.
iii. Analysis
Lawlor advances two primary grounds for his assertion that
there was a change in control sufficient to support the jury's
award:
(1) The 1999 Plan and the Severance Agreement include a
change of a nature that would be required to be reported
in response to section 1 of SEC Form 8-K, 6 and
(2) The 1999 and 2005 Plans and the Severance Agreement each
provided that a change in control would occur when the
"Incumbent Board" members ceased to have a majority.
ORC maintains that, as a matter of law, there was no change
in control and the question never should have been submitted to
the jury. Much of ORC's argument involves interpretation of
Delaware corporate law. However, this case is fundamentally a
contract dispute. Predominantly, in this case, whether there
6 It is unnecessary to address this basis for change of control because we resolve this question upon the second basis advanced.
16 was a change in control is a factual determination.
Additionally, to the extent that the contractual provisions are
ambiguous, it is proper to submit the question to the jury for
consideration. See Greater Richmond Civic Recreation, 200 Va.
at 596, 106 S.E.2d at 597.
A threshold question is presented: For determination of the
number of directors required, does the term "Board" in these
contract provisions unambiguously mean only the directors then
sitting, or does it mean the total number of seats irrespective
of whether the seat is filled? Lawlor's argument on this
question is two-fold:
(1) the plain meaning of the contractual provisions provide
that "Board" refers to the total number of directorships,
and
(2) at best, the provisions are ambiguous and the jury was
permitted to resolve the matter.
Considering the Severance Agreement, Lawlor notes that the
term "Incumbent Board" refers to individuals who are defined and
that a change in control occurs when the Incumbent Board ceases
for any reason to be a majority of the Board. He further argues
that after he and Spalluto resigned, at most only five Incumbent
Board members remained on the ten seat Board of Directors.
Arguing that six seats are required for a majority under the
17 contract provisions, Lawlor asserts that a change of control
took place.
Additionally, Lawlor points to the testimony of Michael
Bisignano, ORC's General Counsel and the principal drafter of
the language in question. He testified that unlike the term
"Incumbent Board," the term "Board" did not refer to
individuals, although he could have drafted the agreement in
such a manner to so provide. Also, Lawlor introduced into
evidence the ORC Board of Directors Manual ("Manual") and argued
that the Manual repeatedly used the term "Board of Directors" to
refer to all seats.
ORC seeks to incorporate Delaware corporate law into the
Severance Agreement by asserting that "majority of the Board"
has a "default" meaning that excludes vacant seats. The record
does not show that anyone intended such a meaning and the
testimony of ORC's general counsel is contrary to such an
interpretation of the contractual provisions.
The resolution of the change in control question in this
contractual dispute based upon Board membership is not a matter
of Delaware corporate law. Rather, it is a matter of contract
interpretation. 7 The trial court determined that the term
7 ORC states in its brief that the Delaware standards of contract interpretation are the same as Virginia standards, which may account for the citation of no Delaware cases on the subject.
18 "Board" was ambiguous, and that he could not decide "as a matter
of law that incumbent Board members did or did not cease to
constitute a majority of the Board." Counsel for ORC conceded
in his argument on the motion to strike that the "issue of is it
seats or is it people," "I think reasonable people can disagree
on that." On the evidence presented, we cannot say that the
trial court erred in submitting the question to the jury, and we
cannot say that the jury verdict was plainly wrong or without
evidence to support it. See Code § 8.01-680.
B. Jury Instruction N
When reviewing the substance of jury instructions given by
a trial court, this Court's responsibility is to see that the
law has been clearly stated and the instructions cover all
issues which the evidence fairly raises. Bennett v. Sage
Payment Solutions, Inc., 282 Va. 49, 55, 710 S.E.2d 736, 740
(2011). A litigant is entitled to jury instructions supporting
their theory of the case if there is sufficient evidence to
support that theory and if the instructions correctly state the
law. Id. There must be more than a scintilla of evidence
introduced in support of a requested instruction. Id. The
determination whether a jury instruction accurately states the
relevant law is a question of law that we review de novo.
19 Orthopedic & Sports Physical Therapy Assocs. v. Summit Group
Props., LLC, 283 Va. 777, 782, 724 S.E.2d 718, 721 (2012).
ii. Analysis
Jury Instruction N directed the jury to construe any
ambiguities in the contracts against the drafter. On appeal,
ORC argues that under Delaware law the doctrine of contra
proferentem is a rule of last resort and thus an instruction on
this doctrine should not have been given in this case. ORC
cites numerous Delaware cases in support of its position on
appeal. At trial, however, ORC never raised any arguments under
Delaware law or referred the trial court to any Delaware case
law that would prohibit this instruction from being given. The
trial judge informed the parties that he was going to use a
Virginia Model Jury Instruction instead of the federal model
instructions or Delaware instructions the parties originally
submitted. The parties did not object to this decision by the
trial court and have not assigned error to it on appeal.
The only objection to the instruction offered by ORC was
that Lawlor was not entitled to it because he participated in
the drafting of the various contracts at issue. That was the
only argument made to the trial court against this instruction,
and therefore that is the only argument we will consider on
appeal. Rule 5:25. Accordingly, we will not consider the
argument ORC makes on appeal based upon Delaware law.
20 At trial, Bisignano testified that he was the principal
drafter and that Lawlor merely gave him several copies of form
contracts. The trial court judge found that both parties were
involved in the drafting, and determined that he would grant
Instruction N and leave it to the jury to decide who the drafter
was as a matter of fact, and then apply the principle of contra
proferentem.
While it appears from the record that Lawlor did present
"more than a scintilla" of evidence to support the proposition
that he was not the drafter of the terms in question, a jury
verdict based on an erroneous instruction need not be set aside
if it is clear that the jury was not misled. Riverside Hosp.,
Inc. v. Johnson, 272 Va. 518, 536-37, 636 S.E.2d 416, 426
(2006). Applying this principle, we conclude that even if
Instruction N was improperly given, such error would not require
the jury verdict to be set aside in this case. The instruction
did not dictate to the jury who the drafter was; rather, it left
the contested issue to their resolution.
C. Alternative Theory of Severance Benefits
As noted at the outset of Part II above, whether the
language of a contract is ambiguous is a question of law that is
reviewed de novo. Preferred Sys. Solutions, 284 Va. at 391, 732
S.E.2d 676. We have also held that contract language is
21 ambiguous when it may be understood in more than one way or when
it refers to two or more things at the same time. Id.
The language of paragraph 1 of the Severance Agreement
states that "[f]or terminations prior to the Protected Period,
the severance benefits that are payable to the participant are
as set forth in the Company's Severance Pay Policy in effect on 8 the date of execution of this Agreement." The phrase "are
payable" has a mandatory connotation. The benefits referenced
in the Severance Pay Policy ("Severance Policy") are
discretionary, as the Severance Policy states, "[s]everance pay
and benefits are available for eligible employees in the event
of an involuntary separation, not cause-related, to provide
salary and benefit continuation to ease the employee's
transition. Severance eligibility is determined by Executive
Management." The Severance Policy also stated that all of its
components were "subject to change without prior notice and as
appropriate to reflect the current business and financial
conditions of the company."
ORC argues that the Severance Agreement does not supersede
the Severance Policy, but merely references the Severance Policy
as a secondary means of requesting severance if a change of
8 The Severance Agreement and the Severance Pay Policy are two different documents.
22 control has not occurred. Lawlor asserts that the language "the
severance benefits that are payable" clearly renders severance
under the Severance Pay Policy mandatory rather than
discretionary.
It appears that both of these possible interpretations of
the Severance Agreement are reasonable. Because there is more
than one reasonable way to understand this language, the
language is ambiguous. Accordingly, the circuit court did not
err in holding that it was ambiguous and in permitting Lawlor to
introduce extrinsic evidence to support his position.
D. Expert Testimony
"Whether a witness is qualified to testify as an expert is
a matter within the sound discretion of the trial court and the
trial court's decision will not be set aside on appeal unless
the record clearly shows that the witness is unqualified."
Lockheed Info. Mgmt. Sys. Co. v. Maximus, Inc., 259 Va. 92, 111,
524 S.E.2d 420, 430 (2000). The Court applies an "abuse of
discretion standard when reviewing a trial court's decision to
admit expert opinion testimony." CNH America LLC v. Smith, 281
Va. 60, 66, 704 S.E.2d 372, 375 (2011). Expert testimony is
admissible not only when scientific knowledge is required, but
when experience and observation in a special calling give the
23 expert knowledge of a subject beyond that of persons of common
knowledge and ordinary experience. Id.
ORC argues that the trial court erred in permitting Reda to
testify after he admitted that he was not an expert in stock
valuation. In CNH America, we held that the trial court abused
its discretion in permitting the plaintiff's hydraulics expert
to testify after admitting that he was not an expert in the
specifics of disc mower hydraulics. Id. at 69, 704 S.E.2d at
376. In that case, the expert was only qualified to testify
regarding hydraulic systems generally, but he nonetheless
testified about the hydraulic system of the specific disc mower
at issue. Id. at 65, 704 S.E.2d at 374.
Reda was not offered as an expert in stock valuation; he
was offered as an expert in executive compensation. In reaching
his determination of Lawlor's damages, Reda used two different
stock prices in his calculations. For the first calculation, he
used the stock price of $7.01 per share, which was the actual
price that ORC stock reached in February 2011. For the second
calculation, he used the stock price of $10.53 per share, a
number obtained from a Raymond James Investment Report that was
prepared for ORC. We previously affirmed a trial court's
determination that the use of calculations by others "went to
the weight of [the expert]'s testimony, not to his qualification
24 as an expert witness." Lockheed, 259 Va. at 111, 524 S.E.2d at
430.
The jury awarded Lawlor the amount of damages that Reda
calculated using the $7.01 per share stock price. Because this
stock price was the actual publicly traded stock price, it was
reasonable for Reda to use that number in his calculations, and
an independent valuation of the stock was not required to make
his testimony admissible. The fact that the stock price had
dropped significantly since Reda performed his calculations
using the $7.01 price per share was information that ORC could
use on cross-examination and that the jury could consider when
determining an award for damages; however, it did not affect the
admissibility of Reda's testimony. As in Lockheed, we cannot
say that this expert was unqualified to offer the subject
testimony. Id.
Unlike the expert in CNH America, Reda did not take general
knowledge and apply it to specific unknowns in this case.
Instead, Reda took reliable stock valuations that he did not
calculate and used those valuations to create the specific
calculation that he was well-qualified to compute. Accordingly,
the trial court did not abuse its discretion when it admitted
Reda's expert opinion testimony.
E. Unjust Enrichment
25 A judgment should be reversed for insufficient evidence
only if it is "plainly wrong or without evidence to support it."
Atrium Unit Owners Ass'n v. King, 266 Va. 288, 293, 585 S.E.2d
545, 548 (2003) (internal quotation marks omitted).
ORC argues that the trial court erred in ruling that the
evidence was sufficient to support Lawlor's unjust enrichment
claim, because there was no evidence that "ORC should reasonably
have understood it was obligated to compensate Lawlor for the
company-wide pay cut Lawlor instituted when he was Chairman and
CEO." Lawlor contends the evidence was sufficient to prove that
he worked for a substantially reduced salary and performed well,
and that there was an understanding that he would be made whole
in the future. Although ORC moved to strike the unjust
enrichment count, thereby preserving its claim regarding the
sufficiency of the evidence, ORC did not object to the specific
wording of the jury instruction on this issue. It is well
settled that instructions given without objection become the law
of the case and thereby bind the parties in the trial court and
this Court on review. Owens-Illinois, Inc. v. Thomas Baker Real
Estate, Ltd., 237 Va. 649, 652, 379 S.E.2d 344, 346 (1989).
The instruction did not direct the jury to determine that
ORC "should reasonably have understood it was obligated to
compensate Lawlor." Instead, the instruction first required a
26 finding that Lawlor conferred a benefit on ORC, which he did
when he took the voluntary pay reduction. Second, the
instruction required a finding that ORC knew Lawlor was
conferring a benefit. There is no dispute that ORC knew Lawlor
was taking a voluntary pay reduction. Lastly, the instruction
required a finding that ORC "accepted or retained the benefit
under circumstances which would make it inequitable for [ORC] to
retain the benefit without paying for its value." Lawlor
presented evidence that he took this pay cut with the
understanding that in the future, when the company was doing
better financially, he would be made whole.
We cannot say that, viewed in the light most favorable to
Lawlor, the jury's award on the unjust enrichment claim, based
upon the instruction it was given, was plainly wrong or without
evidence to support it.
F. Attorneys' Fees
The decision of the trial court to allow an amendment to
the complaint for attorneys' fees is a determination within the
sound discretion of the trial court. On appeal, we review the
trial court's decision for abuse of discretion. See Peterson v.
Castano, 260 Va. 299, 302-03, 534 S.E.2d 736, 738 (2000).
Whether the Severance Agreement entitled Lawlor to recover his
legal fees for all claims in the entire case is a question of
27 law, which this Court reviews de novo. Cappo Management V, Inc.
v. Britt, 282 Va. 33, 37, 711 S.E.2d 209, 210-11 (2011).
ii. Post-Verdict Amendment
Rule 1:8 provides in pertinent part that "[n]o amendments
shall be made to any pleading after it is filed save by leave of
court" and that "[l]eave to amend shall be liberally granted in
furtherance of the ends of justice."
Rule 3:25 provides in pertinent part that "[a] party
seeking to recover attorney's fees shall include a demand
therefor" and that "[t]he failure of a party to file a demand as
required by this rule constitutes a waiver by the party of the
claim for attorney's fees, unless leave to file an amended
pleading seeking attorney's fees is granted under Rule 1:8."
Lawlor attached the Severance Agreement to his Second
Amended Complaint. Rule 1:4(i) provides: "The mention in a
pleading of an accompanying exhibit shall, of itself and without
more, make such exhibit a part of the pleading." In his
complaint, Lawlor alleged a breach of the Severance Agreement in
Count III, and in his prayer for relief, he requested attorneys'
fees.
It is undisputed that both parties agreed to wait until
after trial on the merits to litigate the issue of attorneys'
fees. ORC contends that the trial court abused its discretion
by allowing Lawlor to amend his complaint to include a more
28 specific reference to the Severance Agreement, which was the
basis for Lawlor's fee request. ORC argues that under this
Court's holding in Powell v. Sears, Roebuck & Co., 231 Va. 464,
344 S.E.2d 916 (1986), post-verdict amendments are not
permitted.
The trial court in this case determined that Powell's
restriction on post-verdict amendments did not apply because the
parties were "not post-verdict on attorney fees." While we
disagree with the trial court's determination that the
attorneys' fee issue was "not post-verdict," we hold that in the
context of this case, it was not an abuse of discretion to
permit recovery of attorneys' fees.
A review of ORC's brief illuminates the real issue. ORC
states, "[f]or while Lawlor's counsel had disclosed before trial
that he planned to seek fees under Count 3, he failed to
disclose that he would seek fees for all of the other counts,
even if he lost them." ORC's admission reveals that an
amendment on this issue was unnecessary regarding claims for
attorneys' fees under Count III, but may have been necessary to
cover additional fees under an expanded theory under Delaware
law characterized by Lawlor as an "all or nothing" recovery.
Because we reject Lawlor's theory regarding expanded recovery of
legal fees, he is left with recovery only under Count III, a
29 claim that ORC admits was properly identified at trial. See
Part II.F.iii., infra.
iii. Amount of Fees
Paragraph 13 of the Severance Agreement states:
If a Participant commences a legal action to enforce any of the obligations of the Company under this Agreement and it is ultimately determined that the Participant is entitled to any payments or benefits under this Agreement, the Company shall pay the Participant the amount necessary to reimburse the participant in full for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by the Participant with respect to such action.
(Emphasis added.) A plain reading of this paragraph makes it
clear that a participant is only entitled to attorneys' fees and
legal expenses for legal actions brought to enforce obligations
of ORC "under this Agreement."
Curiously, ORC contends that our holding in Ulloa v. QSP,
Inc., 271 Va. 72, 624 S.E.2d 43 (2006), is controlling and bars
Lawlor's recovery of attorneys' fees for anything beyond Count
III, and that the trial court mistakenly ruled that Delaware law
entitled Lawlor to fees on all counts on an "all or nothing"
basis. We note that the Severance Agreement is governed by
Delaware law, and our holding in Ulloa is therefore
inapplicable. We must, therefore, examine Delaware law and the
cases relied upon by the trial court.
30 In reaching its determination that Lawlor was entitled to
all of his attorneys' fees and expenses, the trial court relied
upon West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC,
2009 Del. Ch. LEXIS 23 (Del. Ct. Ch. 2009), Comrie v. Enterasys
Networks, Inc., 2004 Del. Ch. LEXIS 53 (Del. Ct. Ch. 2004), and
Brandin v. Gottlieb, 2000 Del. Ch. LEXIS 97 (Del. Ct. Ch. 2000),
to reach its conclusion that Delaware law espouses an "all or
nothing" approach to attorneys' fees. However, all of those
cases involved situations distinguishable from the facts in this
case.
In all three of the cited cases, the issue before the court
was whether the party seeking attorneys' fees was a "prevailing
party" since they had not been successful on all the claims they
brought. Additionally, in each of these cases, the court
interpreted provisions of a particular agreement. The court in
all three cases determined that under the "all or nothing"
approach, the party who prevailed on any of their claims was the
"prevailing party" and they were entitled to all their fees,
even fees for the claims they lost. See West-Willow Bay Court,
2009 Del. Ch. LEXIS 23 at *31-34 & n.58 (holding that the
plaintiff was entitled to all of its fees for the breach of
contract action, even though the plaintiff was denied specific
performance); Comrie, 2004 Del. Ch. LEXIS 53 at *7-11 (holding
that the court's decision rested solely on a breach of contract
31 theory and the plaintiffs were the prevailing party even though
they only received 28% of the remedy sought); Brandin, 2000 Del.
Ch. LEXIS 97 at *86-92 and n.76 (holding that plaintiff was the
prevailing party and entitled to all of her litigation expenses
even though she was unsuccessful on some of her claims). All of
the claims in these cases were related to breach of the same
underlying agreement or contract. In the present case, by
contrast, Lawlor's claims for unjust enrichment, wrongful
termination, breach of 2005 Plan and breach of 1999 Plan were
separate from the claim to enforce ORC's obligations under the
Severance Agreement.
Because, as noted above, we affirm the jury's verdict for
breach of the Severance Agreement in Count III, we hold that the
trial court would be correct in awarding Lawlor attorneys' fees
and expenses with respect to that count. However, the trial
court erred in awarding Lawlor his attorneys' fees and expenses
for the claims outside of Count III. We note that Lawlor did
not prevail on his claim for wrongful termination, but the
attorneys' fees calculation was apparently included this claim.
We reverse the trial court's award of $2,131,034.75 in
attorneys' fees and remand this matter to the trial court for a
determination of the amount of attorneys' fees and expenses
Lawlor incurred as a result of enforcing ORC's obligations under
the Severance Agreement. We are mindful that such a
32 determination will require careful consideration of overlapping
issues.
III. Conclusion
We hold that the trial court did not err when it:
(1) refused to hold, as a matter of law, that no change in
control occurred; held that the language regarding change
in control was ambiguous; submitted the question to the
jury; and held that the evidence was sufficient to support
and affirm the jury's award;
(2) gave Jury Instruction N;
(3) submitted Lawlor's alternative theory of severance benefits
to the jury; and
(4) held the evidence was sufficient to support Lawlor's unjust
enrichment claim.
Additionally, we hold that the trial court did not abuse
its discretion when it:
(1) permitted James Reda to testify as Lawlor's damages expert;
(2) awarded attorneys' fees and expenses for breach of the
However, we hold that the trial court erred in determining
the Severance Agreement entitled Lawlor to recover his legal
fees for claims that were not related to breach of the Severance
Agreement.
33 Accordingly, we will affirm the judgment of the trial court
in part, reverse in part and remand for further proceedings
consistent with this opinion.
Affirmed in part, reversed in part, and remanded.
JUSTICE McCLANAHAN, with whom JUSTICE MIMS joins, concurring in part and dissenting in part.
The majority's disposition of the change in control issue
in this case ignores the language of the contracts and
disregards fundamental principles of corporate governance. In
every contract at issue here, the parties agreed that the
contract was to be controlled by Delaware law. Virginia
respects such choice of law clauses. Paul Business Sys., Inc.
v. Canon U.S.A., Inc., 240 Va. 337, 342, 397 S.E.2d 804, 807
(1990) ("[W]here parties to a contract have expressly declared
that the agreement shall be construed as made with reference to
the law of particular jurisdiction, we will recognize such
agreement and enforce it, applying the law of the stipulated
jurisdiction."). Delaware law thus applies to this case.
"One of the most basic tenets of Delaware corporate law is
that the board of directors has the ultimate responsibility for
managing the business and affairs of a corporation." Quickturn
Design Sys., Inc. v Shapiro, 721 A.2d 1281, 1291 (Del. 1998).
34 Thus, the Board of Directors controls the company, not the CEO.
See Del. Code Ann. tit. 8, § 141(a) ("The business and affairs
of every corporation . . . shall be managed by or under the
direction of a board of directors."). In fact, the CEO only has
powers such as may be granted by the board of directors. See
Del. Code Ann. tit. 8, § 142(a). Simply put, for a change of
control to occur, the body with the control must change; a
change in the control, power, or influence of the CEO is
irrelevant.
It is with these core concepts in mind that we must analyze
whether there has been a "change in control" under the 2005
Plan, the 1999 Plan, and the Severance Agreement (the
contracts). And, the context of the contracts cannot be
ignored. "In Delaware, contract interpretation is a matter of
law. The intent of the parties is ascertained from the language
of the contract in its context." Fujisawa Pharm. Co., Ltd. v.
Kapoor, 655 A.2d 307 (Del. 1995) (citations omitted). The
majority opines that the majority of the board could be
reasonably interpreted as a majority of the total number of
seats on the board, rather than the majority of the occupied
seats. However, in the context of control by the incumbent
members and any change therefrom, empty seats cannot be
considered; empty seats on the board are irrelevant to a
controlling majority. Unoccupied seats hold no power of control
35 and the number of unoccupied seats cannot diminish the majority
voting power. Regardless of the number of unoccupied seats, as
long as the incumbent board retains a majority of the voting
power, it retains the power of the board and control over the
company. All three contracts state that there is a change of
control if the incumbent board "cease[s] for any reason to
constitute at least a majority of the Board." To conclude that
there was a change in control in this board, one must reject the
reality that incumbent members of the board held a majority
voting power of the board of directors – the body of control –
throughout the events of this controversy.
The 1999 Plan and the Severance Agreement mandate that a
change of control also occurs when there is a change in control
"of a nature that . . . would be required to be reported . . .
pursuant to . . . the [Securities] Exchange Act." The SEC
definition of control focuses on the power to direct the
management and policies of a company – that is the board's
function. 1 Del. Code Ann. tit. 8, § 141(a). Consistent
therewith, under general corporate law principles, the power to
direct a company lies in the board of directors, not any single 1 SEC regulations define "control" as "the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise." 17 C.F.R. § 240.12b-2 (2011). The term "person" includes a company under 15 U.S.C. § 78c(a)(9).
36 individual. Del. Code Ann. tit. 8, § 142(a). Although Lawlor
saw the company as his own, control rested with the board of
directors. Id. And, the mere waning of a single director's
power is not enough to constitute a change in control that then
must be reported to the SEC. To hold otherwise would be a
breathtakingly radical application of the law of corporate
governance.
Additionally, Lawlor's alternative theory of severance
benefits should not have been submitted to the jury because the
language of the contract was not ambiguous. As the majority
notes, the Severance Agreement stated that, in the event there
was no change in control, "severance benefits that are payable
to the participant are as set forth in the Company's Severance
Pay Policy in effect at the date of the execution of this
Agreement." The referenced Severance Pay Policy states that
payments under this plan are under the discretion of executive
management. The incorporation by reference of the Severance Pay
Policy in the Severance Agreement does not transform the nature
of the payments under the Severance Pay Policy from a
discretionary matter to a mandatory one, particularly in light
37 of sections 2 and 3 of the Severance Pay Policy granting
executive management power over such payments. 2
In sum, because I believe there was no change in control as
a matter of law, I would hold the trial court erred in
submitting Lawlor's claims for mandatory severance benefits to
the jury and would reverse the trial court's judgment awarding
damages on those claims. Since I do not believe the issue of
change of control should have been submitted to the jury for
consideration, I would not reach the issues related to the
admission of the expert testimony and award of attorneys' fees
and expenses. However, I agree that, based on the jury
instruction submitted without objection, the evidence was
sufficient to submit the claim for unjust enrichment and would
affirm the trial court's judgment awarding damages on that
claim.
2 Section 2 states that "Severance pay and benefits are typically provided . . . as deemed appropriate by Executive Management." Section 3 states that "Severance pay and benefits are available for eligible employees [as] determined by Executive Management."