United States District Court, E.D. Virginia, Richmond Division
MARSHALL E. DOWELL, Plaintiff,
G & G MOTORCYCLES, INC., et al., Defendants.
JOHN A. GIBNEY, Jr., District Judge.
This matter came before the Court for a bench trial on October 16, 2014. The case presents two issues: 1) does the doctrine of recoupment entitle the defendants to a reduction of the amount they owe the plaintiff, and 2) if so, how much? The Court finds that the defendants are entitled to a reduction in the purchase amount, but still owe the plaintiff $97, 751.69.
I. FINDINGS OF FACT
In 2003,  Marshall Dowell and his partner, Greg Stoneman, agreed to sell their Harley Davidson dealership to George Wills for $12, 000, 000. Apparently, Wills paid $7, 000, 000 of the purchase price at closing. To complete the purchase, Wills signed promissory notes totaling $5, 000, 000 payable to Dowell and Stoneman. Because Dowell owned 51% of the dealership, the note to him was slightly more than half the amount due-$2, 764, 200.
Dowell and Stoneman sold the dealership as an on-going business, including assets, such as inventory and down payments, that change daily as customers do business with the dealership. In recognition that the precise value of the assets would change between the date of the agreement to purchase and the date of closing, the Asset Purchase Agreement ("Agreement") provided for an adjustment of the purchase price after the parties conducted an inventory of the assets conveyed. To the extent the value of those was greater or less than $1, 500, 000, the parties would adjust the price up or down by the difference between $1, 500, 000 and the actual value of the assets. The parties also agreed to adjust the promissory notes to reflect the final purchase price.
To ascertain the value of the assets, the parties agreed to conduct a joint audit no later than 45 days from the date of closing. They never did so. Instead, on March 30, 2004, the day before closing, Dowell conducted his own audit and determined the assets' value as $1, 337, 700-$162, 300 less than the original payment allocated to the assets. With this adjustment downward, the note to Dowell was reduced to $2, 681, 427.
The note provided for interest at the rate of 6% per year, and a charge of 5% of any installment payment not received by Dowell within 7 days of the due date. (Pl.'s Trial Ex. 4.) The note also provides that Wills must pay the amount due "without offset."
When the final payment became due, Wills refused to pay it, claiming that the assets he purchased had a lower value even than Dowell's inventory, and that he therefore owed nothing.
The main question before the Court is whether Wills may assert the defense of recoupment.
I. Recoupment is not barred by the terms of the note.
The note expressly excludes "offset" in paying off the loan. But offset does not mean the same thing as recoupment, so the exclusion of offset from the contract does not preclude Wills' right of recoupment. Offset means "a defendant's counter demand against the plaintiff, arising out of a transaction independent of the plaintiff's claim, " or "a debtor's right to reduce the amount of a debt by any sum the creditor owes the debtor." Black's Law Dictionary (9th ed. 2009). In contrast, recoupment is "the getting back or regaining of something, especially expenses" and "the withholding, for equitable reasons, of all or part of something that is due." Id.
The Supreme Court of Virginia defines recoupment similarly: "[r]ecoupment, therefore is the right of the defendant to cut down or diminish the claim of the plaintiff in consequence of his failure to comply with some provision of the contract sought to be enforced, or because he has violated some duty imposed upon him by law in the making or performance of the contract." Nat'l Bank & Trust Co. v. Castle, 196 Va. 686, 695, 85 S.E.2d 228, 234 (1955); see Rosenbloom, 2007 WL 2408452, at *1. In addition to common law recoupment, Virginia has a statutory provision allowing recoupment, with, for purposes of this case, the same elements. ...