Attorney fee award must be recalculated

Where appellants were sanctioned for filing frivolous claims against an employee, most of the trial court’s sanctions were correct. The attorney fees award, however, must be recalculated. The court awarded attorney fees on the whole of appellants’ claims instead of segregating the sanctionable claim from the rest.

Background

Gebreyessus worked as a vehicle salesperson for appellants A V Automotive and Geneva, which manages A V and several other dealerships (the Rosenthal Group).

The appellants had agreements with Audi of America that bonuses would be based on customer satisfaction surveys. Appellants alleged that Gebreyessus manipulated surveys to receive unearned bonuses.

Appellant’s complaint alleged that it was required to repay Audi $700,000 in bonuses (the Audi penalty). However, Audi advised A V’s counsel “that Audi USA ‘has not financially penalized, and does not intend to financially penalize, [AV Automotive] in connection with the alleged submission to [Audi USA] of manipulated customer surveys.’

“On April 9, 2019, the Appellants communicated by letter to Gebreyessus’ counsel that they would withdraw the allegations regarding the Audi Penalty and the claim of damages in the amount of $700,000. On August 16, 2019, four months after sending the letter to counsel, the Appellants filed a praecipe with the circuit court withdrawing the allegations relating to the Audi Penalty.

“AV Automotive designated Domenico Conti, an in-house accountant serving as the Rosenthal Group’s Corporate Controller, as an expert witness to testify about Gebreyessus’ compensation, bonuses, and benefits; bonuses paid and terms for bonuses to AV Automotive[,] …

“Conti testified that he was made aware of his expert designation three to four weeks prior to his deposition. In his deposition, Conti indicated he had no opinion on damages suffered by the Appellants, but he confirmed the accuracy of a document summarizing Gebreyessus’ commissions.

“After the Appellants’ withdrawal of the Audi Penalty claim and the taking of Conti’s deposition, on September 13, 2019, Gebreyessus filed a motion for sanctions against the Appellants and their counsel pursuant to Code § 8.01-271.1 for the ‘bad faith filing and prosecution’ of the lawsuit against her. …

“Though the circuit court could not find most of the claims to be frivolous or sanctionable, the court awarded sanctions of $213,196.95 – Gebreyessus’ total attorney’s fees – against the Appellants, but not against counsel.

“The award was based on the Appellants’ ‘(1) repeated misrepresentations of actual penalties from Audi USA in the amount of approximately $700,000.00; (2) the designation of Mr. Conti as an expert without his knowledge; and (3) actions related to court ordered deposition dates.’”

Audi penalty

“The Appellants contend that their claims for damages associated with the Audi Penalty were ‘well-grounded in fact at the time they were made,’ and therefore, the circuit court abused its discretion in imposing sanctions.” But the complaint alleged that A V “has been penalized by Audi USA,” and asserted that the bonuses at issue must be repaid. A V alleged it “has been damaged” in the amount of $700,000.

“It later became apparent that at the time of the filings, Audi USA had not financially penalized AV Automotive. Audi USA unquestionably advised AV Automotive’s counsel that Audi USA had not, and did not intend to, financially penalize AV Automotive in reference to the submission of the falsified customer surveys.

“Thus, when the Appellants filed their pleadings, neither party could have had an objectively reasonable belief that the Audi Penalty damage claims were grounded in fact[.]”

Discovery issues

“The Appellants contend on appeal that the circuit court erred in awarding sanctions against them and not their attorneys for issues related to discovery. …

“When ‘sanctioned parties desire to seek allocation of fault or the apportionment of such sanctions [between attorney and client], they carry the burden of providing the trial court with evidence sufficient to do so.’ …The record is devoid of any indication that the Appellants met their burden of providing the circuit court with evidence sufficient to allow the apportionment of sanctions.”

Expert witness

“In awarding sanctions, the court took issue with the Appellants’ lack of consultation with their expert prior to designation, finding it particularly ‘egregious’ where that expert was their own employee. …

“The expert witness designation stated that Conti, an employee of the Rosenthal Group, was expected to testify concerning the damages incurred by the Appellants because of Gebreyessus’ conduct. … Conti was not a hired expert, and he testified in his deposition that he was not compensated for his expert testimony. …

“Because Conti was an employee of the Appellants, and thus not a true ‘expert witness,’ we agree with the Appellants that Conti’s delayed notification of his expert designation is not sanctionable conduct[.]”

Depositions

“While we agree with the circuit court that the actions of the Appellants in delaying depositions may have been sanctionable, the circuit court failed to cite to any offending pleadings, motions, or papers surrounding these delays that support the award of sanctions under Code § 8.01-271.1.

“However, because the court could have awarded sanctions ‘for actions related to court ordered deposition dates’ by relying on Rule 4:12(b) and (d), it appears the court nonetheless reached the right result for a different reason.”

Attorney fees

“The Appellants contend on appeal that the circuit court abused its discretion in awarding attorney’s fees as a sanction under Code § 8.01-271.1 because Gebreyessus did not ‘incur’ any attorney’s fees in this case. …

“Because Bavely paid Gebreyessus’ fees, there were no fees for Gebreyessus to recover. This Court has not addressed whether a represented party who is not personally paying his or her own attorney’s fees has incurred reasonable expenses that may subsequently be awarded as sanctions pursuant to Code § 8.01-271.1. …

“The General Assembly allows sanctions for fees that have been ‘incurred.’ Here, the lawyers were not working for free. Their fees were incurred. Even if their fees are ultimately paid for by Bavely rather than by Gebreyessus, that does not make them any less ‘incurred.’

“It is not unusual for counsel fees to be covered by a non-party, such as a corporation, an insurance company, a parent, legal aid, or a civil rights group.”

The trial court, however, must recalculate the attorney fee awarded. The award should have been based on the costs of defending the Audi penalty claim.

Affirmed in part, reversed in part and remanded.

A V Automotive, et al. v. Gebreyessus, Record No. 210320; (McCullough) (Chafin, concurring in part and dissenting in part, joined by Kelsey) Sept. 15, 2022. From the Circuit Court of Fairfax County (Bugg) Monica T. Monday for appellants. George O. Peterson for appellee. VLW 022-6-044, 20 pp.