Revisiting clawback case, judge OKs exceptions

A Fairfax County judge has revisited his February ruling that an employer cannot claw back salary paid to an alleged unfaithful employee.

In a May 6 decision, Circuit Judge David A. Oblon acknowledged he misapplied his own test. He allowed certain claims that, he said, fit within an exception to his no clawback rule. But Oblon otherwise affirmed his conclusion that an employer generally cannot force forfeiture of compensation based on employee misconduct.

Oblon’s rule appeared to clash with the approach of another Fairfax County judge who allowed a salary recoupment bid to move forward in a related case.

Oblon’s new review of the matter came in a five-page order in the case of Geneva Enterprises LLC v. Bavely.

Specific ‘bad acts’

The order is the latest development to surface in a round of litigation involving Washington-area automobile dealerships once controlled by the late Robert M. Rosenthal. Various lawsuits contend former Rosenthal Automotive Organization president Donald Bavely lined his pockets at the expense of the companies he worked for.

Fairfax County Circuit Judge Thomas P. Mann allowed salary reimbursement claims to advance in a case involving Bavely’s daughter, another Rosenthal employee. But, in February, Oblon said Virginia law does not allow salary recoupment. An employer’s remedies are limited to termination and recovery of damages directly related to an employee’s wrongdoing, he ruled.

Oblon sustained Bavely’s demurrer with leave to amend. Plaintiff Geneva Enterprises, represented by Timothy C. Bass of McLean, filed a 25-page objection to the ruling which Oblon treated as a motion to reconsider.

As to four counts of the complaint, Oblon said “the Court is persuaded by Geneva that the Court misapplied its own test governing forfeiture of compensation paid by an employer to an employee due to employee misconduct.”

Oblon said his test requires the employer to “tie specific bad acts with a specific loss to recover damages, transaction by transaction.”

Oblon acknowledged Geneva “did allege limited, specific bad acts by Bavely with specific losses.” One example was Bavely getting reimbursed for a $1,643 bill for dining at “Michel’s Steakhouse” in Hawaii. That one example was sufficient for Geneva to survive demurrer on the four counts at issue, Oblon said. The judge said he would address the sufficiency of other allegations at trial.

“The Court does not hold whether or not Geneva must plead a specific amount of damages for each alleged bad act,” Oblon wrote in a footnote.

Double recovery barred

Oblon also amplified his reasoning for tossing four other counts of the Geneva complaint. The gravamen of the allegations is that Geneva was defrauded into making an unauthorized $1 million loan to Bavely, which Bavely then used to obtain an interest in AV Automotive LLC, another Rosenthal entity, the judge explained.

Geneva sought return of both the loan money and the value of Bavely’s investment with the ill-gotten loan, Oblon said. Permitting both would give Geneva a double recovery, the judge concluded.

“Geneva’s injury is the loan. The damages are the loan proceeds plus interest. Geneva has no right to the proceeds of Geneva’s investment in AV using the loan money,” Oblon wrote. He affirmed his ruling that sustained Bavely’s demurrer to the loan allegations.

Bass was not available for comment. Bavely counsel Mihir Elchuri of Tysons declined to comment on the record.