Shareholder used company finances for personal expenditures – $1,029,655 Verdict

Defendant Amy Ross was a 50 percent shareholder of Design Works Interiors Inc. and the president of the company. The other fifty percent shareholder was Leslie Sargent. Ross and Sargent were close friends. Over a period of seven years, Ross began an ever increasing pattern of personal spending from Design Works Interiors Inc.’s bank accounts and credit cards. The evidence at trial showed that she used corporate funds to purchase a Range Rover for her daughter, a deck for her home, family vacations, clothing worth more than $85,000, groceries worth more than $65,000, etc.

Ross controlled the finances for the company and repeatedly rebuffed Sargent when Sargent inquired about increasing their salaries which were supposed to be equal. Sargent discovered the misuse of company funds in August 2016 when she reviewed a credit card statement showing that Ross had charged over $4,000 in personal expenditures the previous month. Such charges included charges related to several family vacations that month, personal shopping, groceries, etc.

Ross continued to stay at Design Works Interiors Inc. through September 2017, when she resigned. In her resignation letter Ross blamed Sargent for the destruction of the business and loss of their friendship. Ross tried to take a number of lucrative clients with her but was unsuccessful.

During the entire pre-trial discovery, Ross pleaded the Fifth Amendment and refused to answers questions regarding any expenditures. At trial Ross was called as an adverse witness and waived her Fifth Amendment privilege and admitted to the personal expenditures. Ross later testified that it was her understanding that her personal expenditures would be captured as a loan to a shareholder and that she would pay it back when the company was sold. Ross further testified that this was how her husband’s company handled personal expenditures by shareholders.

Ross’ primary defense related to a provision in the corporate by-laws which stated that no officer could be liable to the corporation except for willful misconduct or a violation of state or federal criminal law. Ross asserted that the dispute was a contractual dispute between herself and Sargent and that Design Works Interiors Inc. could not assert a claim of conversion in light of the by-laws and the circumstances. Ross further attempted to shift the blame to the company’s outside bookkeeper and accountant for not reporting the personal expenditures.

The jury returned a verdict for all of the compensatory damages sought of $779,665.00 and $250,000.00 in punitive damages. The court denied Ross’ motion to set aside jury verdict.

[17-T-196]

Type of action: Conversion

Injuries alleged: One 50 percent shareholder embezzled $779,665 in corporate funds for personal use

Name of case: Design Works Interiors Inc. v. Ross

Court: Fairfax County Circuit Court

Case no.: CL 2016-17485

Tried before: Jury

Name of judge or mediator: Judge Stephen C. Shannon

Date resolved: Nov. 16, 2017

Special damages: $779,665

Demand: $150,000 and conditions

Offer: $103,000 and limited conditions

Verdict or settlement: Verdict

Amount: $779,665.00 in compensatory damages and $250,000.00 in punitive damages

Attorneys for plaintiff: George O. Peterson, Tania M.L. Saylor, and Miriam R. Epstein, Fairfax

Attorneys for defendant: Rodney Leffler and Jennifer Leffler, Fairfax