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La Bella Dona Skin Care, Inc. v. Belle Femme Enterprises, LLC

Supreme Court of Virginia

October 26, 2017





         In this appeal of a civil action, we consider whether the Circuit Court of Chesterfield County ("circuit court") erred when it held, as a matter of law: 1) that a fraudulent conveyance under Code § 55-80 cannot serve as the predicate unlawful act needed to support a claim for statutory or common law conspiracy; 2) that a prima facie case of fraudulent conveyance cannot be established when the recipient is a third party creditor with a higher security interest; and 3) that successor liability claims must be proven by "clear and convincing" evidence. In addition, we consider whether the circuit court erred by concluding that the evidence was insufficient to impose successor liability.

         I. Facts and Proceedings

         On May 20, 2015, La Bella Dona Skin Care, Inc. ("LBD") filed a third amended complaint against eleven defendants, including three former LBD employees, as well as those former employees' counsel, certain of their family members, and two competing spa businesses. The complaint sought damages and injunctive relief from the defendants as a result of their involvement in a series of allegedly fraudulent conveyances designed to avoid an outstanding judgment in favor of LBD.

         The Complaint

         According to the complaint, on September 28, 2012, LBD obtained a judgment against three of its former employees, Brooke Miller ("Mrs. Miller"), Molly Smoot ("Mrs. Smoot"), and Betty Gail Boyd ("Ms. Boyd"), and their competing business, Bon Air Med Spa, LLC ("BAM") (collectively, the "Judgment Debtors"), for misappropriation of trade secrets.[*] The Judgment Debtors were represented in the trade secret litigation by Mark Schmidt ("Schmidt"), an attorney with the law firm of Ayers & Stolte, P.C. ("Ayers & Stolte"). While the lawsuit was pending, the Judgment Debtors executed a $85, 000 promissory note ("Note") in favor of Ayers & Stolte for past and future legal expenses. The Note was secured, in part, by an assignment of rights to BAM's assets. According to LBD's complaint, Ayers & Stolte demanded payment on the Note shortly after final judgment was entered against the Judgment Debtors, and then "declared the Note in default" a week later.

         On October 17, 2012, Ms. Boyd's adult son, Anthony Boyd ("Anthony"), formed Belle Femme Enterprises, LLC ("Belle Femme"). Schmidt assisted with the creation and incorporation of the new business, and BAM paid him $350 for his services. Mrs. Miller's husband, Jason Miller ("Mr. Miller"), and Mrs. Smoot's husband, Dan Smoot ("Mr. Smoot"), subsequently acquired ownership interests in Belle Femme.

         According to the complaint, BAM "apparently ceased doing business" upon the formation of Belle Femme, but "the public face of [BAM] did not change." Both businesses operated from the same location, under the same lease, and with the same employees, including Ms. Boyd, Mrs. Miller, and Mrs. Smoot. Belle Femme also operated under BAM's tradename, "Bon Air Med Spa, " using the same telephone number, domain name, and internet blog. LBD's complaint alleged that, in essence, Belle Femme "was and is the same business" as BAM.

         The complaint further alleged that beginning on October 18, 2012, "the individuals running [BAM] and Belle Femme made no effort to separate the assets belonging to [BAM] versus Belle Femme." The businesses' assets were instead "comingled and lumped together, " and some of BAM's assets were fraudulently conveyed directly to Belle Femme without compensation. These fraudulently conveyed assets included "the customer appointments, relationships, and products used to serve those appointments that [BAM] misappropriated from [LBD]."

         On December 5, 2012, Ayers & Stolte conducted an auction to sell BAM's remaining assets. The auction notice specified that only cash bids would be considered and that an immediate deposit would be required from successful bidders. Moreover, the auction schedule did not list "the customer appointments, relationships, and products used to serve those appointments." No representatives from BAM or Belle Femme attended the auction; "Ayers & Stolte itself was the buyer." According to the complaint, Ayers & Stolte's winning bid "was a credit bid against the Note, not the required cash bid."

         Following the auction, Ayers & Stolte's "President or Manager, " Charles E. Ayers, Jr., signed a Bill of Sale, which "seemingly shows a December 10, 2012 sale of the [BAM] Assets to Belle Femme." At that time, the price of the sale "was an unknown" and "apparently was not even discussed until . . . more than three months after the auction."

         In March 2013, the individual Judgment Debtors, along with Anthony, Mr. Miller, and Mr. Smoot met at Ayers & Stolte's law offices, where a $40, 000 promissory note payable to Ayers & Stolte was executed. Anthony, Mr. Miller, and Mr. Smoot signed the promissory note individually, and Anthony also signed the note on behalf of Belle Femme.

         The complaint further alleged that, as of its filing, LBD had been "unable to collect more than a de minim[is] amount of the 2012 judgments entered against the [Judgment Debtors]." As a result, LBD filed this civil action in the circuit court against the Judgment Debtors, Belle Femme, Anthony, Mr. Miller, and Mr. Smoot (collectively, the "Belle Femme Defendants") as well as Ayers & Stolte and Charles Ayers, Jr. (collectively, "Ayers & Stolte"). LBD advanced eight counts, four of which are relevant to this appeal:

• Count I: Successor Liability;
• Count II: Fraudulent Conveyance under Code § 55-80;
• Count VII: Common Law Civil Conspiracy; and
• Count VIII: Statutory Conspiracy under Code §§ 18.2-499 and -500.

         Pre-Trial Proceedings

         The Belle Femme Defendants and Ayers & Stolte demurred to counts II, VII, and VIII, and subsequently moved for summary judgment as to count II. The circuit court sustained the demurrers to counts VII and VIII, and granted summary judgment as to count II.

         The circuit court sustained the demurrers to counts VII and VIII on the basis that the complaint failed to state a cause of action for common law or statutory conspiracy to fraudulently convey assets under Code § 55-80. The court stated that the fraudulent conveyance statute only provides for "sanctions, " which are fundamentally distinct from damages. Therefore, because tort damages were not available for the predicate unlawful act of fraudulent conveyance, the circuit court concluded that tort damages could not be obtained through a claim of conspiracy to commit that predicate unlawful act.

         The circuit court dismissed count II on summary judgment because there was no "genuine issue of material fact" that Ayers & Stolte "held a senior lien on [BAM's] assets and were thus entitled to have the proceeds of the public auction." The court explained that LBD conceded this fact in responses to the following pre-trial requests for admission:

• Admit that, since on or about May 21, 2012, Ayers & Stolte has had a lien against [BAM's] personal ...

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