Carnell Construction Corp. v. Danville Redevelopment & Housing Authority , 745 F.3d 703 ( 2014 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1143
CARNELL CONSTRUCTION CORPORATION,
Plaintiff - Appellant,
v.
DANVILLE REDEVELOPMENT & HOUSING AUTHORITY; BLAINE SQUARE,
LLC,
Defendants - Appellees.
No. 13-1229
CARNELL CONSTRUCTION CORPORATION
Plaintiff – Appellee,
v.
DANVILLE REDEVELOPMENT & HOUSING AUTHORITY
Defendant – Appellant,
and
BLAINE SQUARE, LLC
Defendant.
No. 13-1239
CARNELL CONSTRUCTION CORPORATION
Plaintiff – Appellee,
v.
BLAINE SQUARE, LLC
Defendant – Appellant,
and
DANVILLE REDEVELOPMENT & HOUSING AUTHORITY
Defendant.
Appeal from the United States District Court for the Western
District of Virginia, at Danville. Glen E. Conrad, Chief
District Judge. (4:10-cv-00007-GEC)
Argued: December 11, 2013 Decided: March 6, 2014
Before AGEE, KEENAN, and FLOYD, Circuit Judges.
Affirmed in part, vacated in part and remanded, vacated in part
and final judgment by published opinion. Judge Keenan wrote the
opinion, in which Judge Agee joined. Judge Floyd wrote a
separate opinion concurring in part and dissenting in part.
ARGUED: Rhonda M. Harmon, THE HARMON FIRM LLC, Manakin-Sabot,
Virginia, for Appellant/Cross-Appellee. John Dickens Eure,
JOHNSON, AYERS & MATTHEWS, PLC, Roanoke, Virginia; Joseph Ray
Pope, WILLIAMS MULLEN, Richmond, Virginia, for Appellees/Cross-
Appellants. ON BRIEF: Lori J. Bentley, Joshua D. Goad, JOHNSON,
AYERS & MATTHEWS, PLC, Roanoke, Virginia, for Blaine Square,
LLC. J. Nelson Wilkinson, James V. Meath, WILLIAMS MULLEN,
Richmond, Virginia, for Danville Redevelopment & Housing
Authority.
2
BARBARA MILANO KEENAN, Circuit Judge:
In this appeal, we review a judgment entered after a jury
trial on certain claims of race discrimination, retaliation, and
breach of contract brought by a “minority-owned” corporation.
We primarily consider: (1) whether a minority-owned corporation
has standing to sue for race discrimination under Title VI of
the Civil Rights Act of 1964 (Title VI); (2) whether the
district court erred in holding at the summary judgment stage
that one of the defendants could not be held liable on the
alleged race discrimination and retaliation (collectively, race
discrimination) claims; (3) whether the court abused its
discretion by permitting the use of certain impeachment evidence
at trial; (4) whether the court erred in deciding certain
contract issues arising under the Virginia Public Procurement
Act, Virginia Code §§ 2.2-4300 through 4377; and (5) whether the
court erred in modifying the jury’s award of contract damages.
Upon our review, we hold that a corporation can acquire a
racial identity and establish standing to seek a remedy for
alleged race discrimination under Title VI, but that the
district court properly dismissed one of the defendants from
liability on the plaintiff’s race discrimination claims. We
further conclude that the district court abused its discretion
in permitting the use of particular impeachment evidence, which
should have been excluded as unfairly prejudicial under Federal
3
Rule of Evidence 403. Finally, we agree that the district court
properly reduced certain damages awarded to the plaintiff on its
contract claims, but decide that the strict notice requirements
of the Virginia Public Procurement Act required the court to
narrow further the scope of recoverable contract damages.
Accordingly, we affirm the district court’s judgment in part.
We also vacate the court’s judgment on both the race
discrimination claims and certain contract damages awarded, and
remand those aspects of the case for further proceedings.
I.
A.
This appeal involves work performed by a contractor in
Danville, Virginia, on the Blaine Square Project (the project),
a large public housing venture intended to provide subsidized
rental units to low-income residents of Danville. The project
was funded in part by a $20 million grant to the Danville
Redevelopment and Housing Authority (the Housing Authority) from
the Hope VI Program, an initiative of the United States
Department of Housing and Urban Development (HUD), which allows
private investors to contribute capital to public housing
projects in exchange for tax credits.
In March 2008, the Housing Authority solicited bids for
site preparation work (site preparation work, or the work),
4
which included clearing the construction site for the project,
grading the land, and installing proper drainage and erosion
controls. Carnell Construction Corporation (Carnell) submitted
a bid for the work, proposing a price of $793,541 and
representing that Carnell was certified as a minority business
enterprise because its owner is African-American.
After determining that Carnell was the lowest bidder, the
Housing Authority entered into a contract with Carnell to
complete the site preparation work (the contract). The contract
specified a June 2009 completion date, stipulated a total price
of $793,541, and included a set of enumerated contract
documents.
Shortly after executing the contract with Carnell, the
Housing Authority leased the project site and assigned its
interest in the contract to Blaine Square, LLC (Blaine) based on
tax considerations. Blaine is a limited liability company
managed by a non-profit instrumentality of the Housing
Authority. Blaine was created to obtain and distribute tax
credits to private investors. The Housing Authority agreed to
provide funds from the Hope VI Program to Blaine and, under a
Development Services Agreement (DSA), Blaine agreed that the
Housing Authority would continue to provide actual supervision
of the construction, including the site preparation work.
5
Carnell began the work on the project in June 2008.
However, the relationship between Carnell and the Housing
Authority steadily deteriorated as each party became
dissatisfied with the other’s performance. The Housing
Authority attributed expensive delays to Carnell’s allegedly
unacceptable work, particularly regarding the grading of the
project site and Carnell’s failure to conduct due diligence
concerning the contract’s requirements. Carnell, however,
maintained that its work was satisfactory and that delays
chiefly were attributable to poor planning by the Housing
Authority, especially with respect to a strategy for completing
grading work and controlling erosion at the project site.
Additionally, in December 2008, Carnell’s president,
Michael Scales, complained about race discrimination to the
Housing Authority’s Executive Director, Gary Wasson. Scales
explained his perception that Carnell was “being singled out as
a minority contractor,” and was “expected . . . to work for
free” on “excessive” project modifications. At Carnell’s
request, the parties attempted to mediate their grievances, but
were unsuccessful in their efforts.
In May 2009, the Housing Authority advised Carnell that it
would not extend Carnell’s contract beyond the stipulated
completion date, and that Carnell would be required to remove
its equipment and personnel from the project site the following
6
month regardless whether the work had been completed. Carnell
left the project site more than two weeks before the June 2009
completion date, and requested reimbursement for numerous
instances of unpaid work. The Housing Authority rejected
Carnell’s request and declared a default under Carnell’s
performance bond.
Carnell filed a lawsuit against the Housing Authority and
Blaine (the defendants) based on claims of race discrimination
and breach of contract. 1 The race discrimination claims were
based on the defendants’ alleged violations of Title VI and 42
U.S.C. § 1981. As ultimately developed in the litigation,
Carnell’s race discrimination claims centered on certain
statements made by the Housing Authority’s Hope VI Program
Director and Contracting Officer, Cedric Ulbing, as well as
alleged disparate treatment with respect to contracting
practices such as “prepayment” for materials, “retainage” of
progress payments, and approval of change order requests.
Carnell’s contract claims focused on allegations that Carnell
was directed to perform work for which it was never paid, and
1
Carnell’s original and first amended complaints named only
the Housing Authority as a defendant. A second amended
complaint listed Blaine as a defendant, but only with respect to
Carnell’s breach of contract claims. After the first jury trial
in this case, Carnell filed a third amended complaint alleging
race discrimination and breach of contract claims against both
the Housing Authority and Blaine.
7
that Carnell improperly was removed from the project and
declared in default of its contract obligations. The Housing
Authority and Blaine filed a counterclaim for breach of contract
and, at trial, framed Carnell’s lawsuit as an example of
“occasions when false claims of race discrimination are made in
order to cover up poor performance, [to] excuse poor
performance, or to gain an advantage in a contractual
situation.”
After a two-week trial, a jury awarded Carnell more than
$3.1 million in damages on the race discrimination claims. The
jury found in favor of both Carnell and the defendants on their
respective breach of contract claims, but did not award damages
on any of the contract claims. However, based on a post-trial
ruling that certain testimony admitted on behalf of Carnell was
false, the district court ordered a new trial. 2
Before the second trial began, the district court awarded
summary judgment to Blaine on Carnell’s race discrimination
claims, holding that Blaine could not be held liable for the
allegedly discriminatory conduct because there was no evidence
that Blaine directly participated in the conduct alleged or
controlled the activities of a discriminating party. Following
2
Carnell does not argue on appeal that the district court
erred in vacating the jury award in the first trial and in
ordering a new trial.
8
the trial, after the jury was unable to agree on a verdict on
either the remaining race discrimination claims or the contract
claims, the district court declared a mistrial and scheduled the
case for a third trial.
A recurring issue in the litigation that resurfaced during
the third trial involved certain impeachment evidence regarding
the fact that Scales had hired McGuireWoods Consulting LLC
(McGuireWoods) to “assist Carnell in reputation management and
media outreach” with respect to Carnell’s race discrimination
claims against the Housing Authority. The controversy centered
on an unsigned McGuireWoods document entitled “Assessment and
Proposal” (the proposal, or the McGuireWoods proposal), which
set forth goals to “[s]hape the initial story so that it is
sympathetic to Carnell and critical of [the Housing Authority]”
and to “[e]xpand on the initial story in Danville to garner
broader interest in the case in neighboring counties, and
potentially statewide interest . . . .” Carnell repeatedly
objected to use of this evidence on the grounds that it was
irrelevant and unfairly prejudicial.
During cross-examination of Scales in the third trial,
counsel for the Housing Authority asked whether Scales had
“worked to shape and tone the content of this evidence” to “make
out a race claim” to the jury. Scales denied these suggestions,
and stated that he had hired McGuireWoods “to tell who we are.”
9
After much discussion, and over Carnell’s repeated
objections that the proposed impeachment evidence was unfairly
prejudicial and irrelevant, the district court allowed counsel
for the Housing Authority to recite the language from the
proposal quoted above, in an attempt to impeach Scales with the
allegedly inconsistent statements. However, Scales testified
that he was unfamiliar with the unsigned document and only
recalled reviewing a two-page consulting agreement in which he
agreed to hire McGuireWoods on Carnell’s behalf. Nevertheless,
during closing argument, counsel for the Housing Authority
displayed the challenged language from the proposal on a poster
board that was shown to the jury, and referred to that language
multiple times in the context of impugning Scales’s credibility
and the motives underlying Carnell’s lawsuit.
Ultimately, Carnell did not prevail at the third trial on
its race discrimination claims. However, the jury found in
favor of Carnell both on its breach of contract claims and on
the Housing Authority’s counterclaim for breach of contract.
The jury awarded Carnell a total of $915,000 on its contract
claims, allocating $515,000 for the defendants’ failure to pay
Carnell for extra work and $400,000 for the defendants’ removal
of Carnell from the project without just cause. The district
court later issued a post-trial ruling that significantly
limited the jury’s award of contract damages to a reduced total
10
of about $215,000, based on the court’s determination that
Carnell had failed to plead special contract damages, and that
the Virginia Public Procurement Act, Virginia Code §§ 2.2-4300
through 4377, restricted the amount by which the parties’ fixed-
price, public contract lawfully could be increased. 3 The parties
timely filed cross-appeals.
II.
We first address several issues related to Carnell’s race
discrimination claims. Those issues concern: (1) whether
Carnell, as a corporate entity, had standing to assert race
discrimination claims under Title VI; (2) whether the district
court properly dismissed Blaine at the summary judgment stage
from liability for the allegedly discriminatory conduct; and (3)
whether the district court abused its discretion in allowing
certain impeachment of Scales based on the contents of the
McGuireWoods proposal.
A.
3
This amount reflects a reduced award that includes
$142,557.57 for contract claims relating to unpaid work, after
the district court implemented the Virginia Public Procurement
Act’s statutory cap, and $72,490.00 for contract claims relating
to removal from the project without just cause, based on the
court’s determination that Carnell failed to prove the full
extent of the general damages that it was awarded on those
claims. On appeal, Carnell does not challenge the court’s
reduction of general damages on its unjust removal claims.
11
We begin by considering whether Carnell, as a corporate
entity, had standing to assert claims of race discrimination and
retaliation under Title VI. We review this question of law de
novo. Frank Krasner Enters., Ltd. v. Montgomery Cnty., 401 F.3d
230, 234 (4th Cir. 2005).
The standing doctrine, which requires us to consider
whether a plaintiff is entitled to a decision on the merits of a
dispute, has both constitutional and prudential dimensions.
Allen v. Wright, 468 U.S. 737, 751 (1984). The defendants do
not dispute that Carnell meets the constitutional test of
standing, namely, that Carnell has alleged that (1) it has
suffered an actual or threatened injury that is concrete,
particularized, and not conjectural; (2) the injury is fairly
traceable to the challenged conduct; and (3) the injury is
likely to be redressed by a favorable decision. See Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); Miller v.
Brown, 462 F.3d 312, 316 (4th Cir. 2006).
Instead, the defendants assert that Carnell’s Title VI
claims run afoul of one of the standing doctrine’s judicially
imposed, prudential limits on federal jurisdiction, which
requires that “a plaintiff’s grievance must arguably fall within
the zone of interests protected or regulated by the statutory
provision . . . invoked in the suit.” Bennett v. Spear, 520
U.S. 154, 162 (1997). Thus, the relevant standing inquiry
12
before us is whether Carnell’s claims arguably fall within the
zone of interests protected by Title VI. See id.Carnell’s race discrimination claims are based on 42 U.S.C.
§ 2000d, which provides that “[n]o person in the United States
shall, on the ground of race, color, or national origin, be
excluded from participation in, be denied the benefits of, or be
subjected to discrimination under any program or activity
receiving Federal financial assistance.” The defendants argue
that Carnell lacks standing to bring race discrimination claims
under Title VI because Carnell is not a “person” within the
meaning of the statute. The defendants maintain that Carnell, a
corporate entity, lacks a “race, color, or national origin.”
See id. In support of their position, the defendants primarily
rely on dictum from the Supreme Court’s decision in Village of
Arlington Heights v. Metropolitan Housing Development Corp., 429
U.S. 252, 263 (1977) (Arlington Heights), in which the Court
stated that a corporation “has no racial identity and cannot be
the direct target” of race discrimination.
Our Circuit has not addressed this standing issue in any
published opinion. However, we observe that several other
federal appellate courts have considered this question, and have
declined to bar on prudential grounds race discrimination claims
brought by minority-owned corporations that meet constitutional
standing requirements. Cf. Domino’s Pizza, Inc. v. McDonald,
13
546 U.S. 470, 473 n.1 (2006) (recognizing that “the Courts of
Appeals to have considered the issue have concluded that
corporations may raise [42 U.S.C.] § 1981 claims” for injuries
due to race discrimination) (citation omitted). Indeed, in
various statutory contexts, several of our sister circuits have
concluded that corporations have standing to assert race
discrimination claims, including claims brought under Title VI.
See, e.g., Thinket Ink Info. Res., Inc. v. Sun Microsystems,
Inc., 368 F.3d 1053, 1060 (9th Cir. 2004) (Section 1981 claim);
Oti Kaga, Inc. v. S.D. Hous. Dev. Auth., 342 F.3d 871, 882 (8th
Cir. 2003) (Fair Housing Act claims); Guides, Ltd. v. Yarmouth
Grp. Prop. Mgmt., Inc., 295 F.3d 1065, 1072 (10th Cir. 2002)
(Sections 1981 and 1982 claims); Gersman v. Group Health Ass’n,
931 F.2d 1565, 1568 (D.C. Cir. 1991) (Section 1981 claim),
vacated on other grounds, 502 U.S. 1068 (1992); Triad Assocs.,
Inc. v. Chi. Hous. Auth., 892 F.2d 583, 591 (7th Cir. 1989)
(Section 1983 claim), abrogated on other grounds, Bd. of Cnty.
Comm’rs v. Umbehr, 518 U.S. 668 (1996); Hudson Valley Freedom
Theater, Inc. v. Heimbach, 671 F.2d 702, 706 (2d Cir. 1982)
(Title VI claim); Des Vergnes v. Seekonk Water Dist., 601 F.2d
9, 13-14 (1st Cir. 1979) (Section 1981 claim). 4
4
We further observe that the plain language of the statute
may allow a corporation to have Title VI standing. Title VI
does not specifically define “person,” but the Dictionary Act
(Continued)
14
Notably, in the context of a plaintiff asserting a claim
under Title VI, the Second Circuit observed that it is
hard to believe that the Supreme Court would deny
standing to the corporation because it “has no racial
identity and cannot be the direct target” of the
discrimination, while at the same time it would be
obliged to deny standing to the stockholders on the
sound ground that the injury was suffered by the
corporation and not by them.
Hudson Valley, 671 F.2d at 706 (quoting Arlington Heights, 429
U.S. at 263). The Second Circuit thus held that when a
corporation satisfies constitutional requirements for standing,
prudential considerations should not prohibit that corporation
from alleging that a defendant, on racial grounds, has acted to
obstruct purposes that the corporation was created to
accomplish. Id.We are persuaded by the Second Circuit’s reasoning, and
conclude that the dictum in Arlington Heights does not impede
our application of the Second Circuit’s analysis. In Arlington
Heights, the Supreme Court was not required to consider whether
does: “In determining the meaning of any Act of Congress, unless
the context indicates otherwise,” the word person “include[s]
corporations.” 1 U.S.C. § 1. Moreover, § 2000d prohibits a
“person” from being discriminated against “on the ground of
race, color, or national origin,” not “on the ground of his or
her race, color, or national origin.” See Hudson Valley, 671
F.2d at 705 (observing the same); see also Mohamad v.
Palestinian Auth., 132 S. Ct. 1702, 1707-08 (2012) (observing
that Congress often uses the word “individual” to mean something
different from its use of the word “person”).
15
a corporation had standing to assert that it suffered injury
based on racial discrimination in violation of federal law,
because one of the other plaintiffs in the case was an African-
American individual who plainly had demonstrated standing to
bring the action. 5 429 U.S. at 263. Thus, the quoted language
from Arlington Heights was surplusage unrelated to the Court’s
determination of the standing issue presented.
We agree with the Ninth Circuit that a minority-owned
corporation may establish an “imputed racial identity” for
purposes of demonstrating standing to bring a claim of race
discrimination under federal law. Thinket Ink, 368 F.3d at
1059. We hold that a corporation that is minority-owned and has
been properly certified as such under applicable law can be the
direct object of discriminatory action and establish standing to
bring an action based on such discrimination. Accordingly, we
agree with the conclusions reached by our sister circuits that
5
In Arlington Heights, a non-profit real estate developer
agreed to purchase land in order to build racially-integrated
housing for residents with low and moderate incomes. 429 U.S.
at 255-56. When local authorities withheld the necessary
clearance to rezone the land from a single-family to a multiple-
family housing classification, the developer and several
African-American individuals filed a lawsuit alleging that their
refusal to change the classification of the land was racially
discriminatory. Id. at 258-59. The Supreme Court ultimately
held that the developer and an individual plaintiff had standing
to bring the action, but failed to carry their burden of proving
that discriminatory intent was a motivating factor in the
rezoning decision. Id. at 263-64, 270.
16
prudential considerations should not bar review of a claim of
race discrimination suffered by such a corporation during its
participation in a program that has received federal funding
assistance.
Examining the present record, we conclude that Carnell has
standing to bring its race discrimination claims under Title VI.
It is undisputed that Carnell properly was certified by the
Commonwealth of Virginia as a “Small, Women- and Minority-Owned
Business” because its president and sole shareholder is African-
American. Carnell publicly represented that it was eligible for
consideration as a minority business enterprise when it
contracted to work for the Housing Authority on a public project
receiving federal funding assistance. Carnell alleged that the
defendants discriminated against Carnell during its performance
on the contract based on the minority status of its owner, and
that Carnell suffered direct injury as a result of that racial
discrimination. Therefore, we hold that under the facts before
us, Carnell sufficiently has shown an imputed racial identity
permitting us to conclude that Carnell’s corporate status does
not prevent its race discrimination claims from falling within
the zone of interests protected by Title VI. See Bennett, 520
U.S. at 162.
Our conclusion is not altered by the defendants’
alternative contention that Carnell lacked standing because it
17
was not an intended beneficiary of Hope VI Program funding.
Title VI does not require that an injured party be the intended
beneficiary of federal funds. Instead, Title VI provides that
no person shall “be excluded from participation in, be denied
the benefits of, or be subjected to discrimination under any
program or activity receiving Federal financial assistance” on
the basis of race. 42 U.S.C. § 2000d. Thus, the determinative
inquiry in this regard is whether Carnell alleged that it
suffered injury based on race discrimination and was either
participating or seeking to participate in a federally funded
activity, or was the intended beneficiary of those federal
funds. Cf. Guardians Ass’n v. Civil Serv. Comm’n of N.Y., 463
U.S. 582, 633 (1983) (“Because Title VI is intended to ensure
that ‘no person’ is subject to discrimination in federally
assisted programs, private parties function as third-party
beneficiaries to these contracts.”); United States v. Harris
Methodist Fort Worth, 970 F.2d 94, 97 (5th Cir. 1992)
(concluding that Title VI protects physician staff in hospitals
that receive federal funding); Soberal-Perez v. Heckler, 717
F.2d 36, 38 (2d Cir. 1983) (interpreting Title VI to cover
“situations where federal funding is given to a non-federal
entity which, in turn, provides financial assistance to the
ultimate beneficiary”).
18
Carnell plainly has met this test. It is undisputed that
Carnell submitted a successful bid proposal, entered into a
federally funded contract with the Housing Authority, and
performed services under that contract for nearly a year.
Carnell therefore undoubtedly has participated in the Hope VI
Program, “a program or activity receiving Federal financial
assistance.” 42 U.S.C. § 2000d. Accordingly, we hold that
Carnell’s Title VI claim meets the requirements for prudential
standing, and we proceed to consider the merits of Carnell’s
appeal.
B.
Carnell argues that the district court erred in awarding
summary judgment to Blaine on Carnell’s race discrimination
claims. The district court held that there was no evidence that
Blaine engaged in the alleged discriminatory conduct during
construction of the Project, either by participating directly in
that conduct or by controlling the conduct of Housing Authority
representatives under an agency relationship with the Housing
Authority.
Carnell contests both these findings on appeal. We review
the district court’s award of summary judgment de novo, and
consider the evidence and all inferences fairly drawn from the
evidence in the light most favorable to Carnell. See Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-
19
88 (1986); Felty v. Graves-Humphreys Co., 818 F.2d 1126, 1127
(4th Cir. 1987).
We first address the district court’s determination that
the record lacked evidence supporting a claim that Blaine
participated directly in the allegedly discriminatory behavior.
According to Carnell, the district court’s conclusion was
erroneous because Blaine “solely . . . controlled” the financing
for the project and directed that various contested payments be
withheld from Carnell.
Carnell’s argument, however, misrepresents the record
before us. The deposition testimony of Blaine’s corporate
designee, Owen McCormick, plainly states that Blaine “did not do
anything directly in furtherance of its obligations under the
contract,” but was “a passive entity [that] would ensure that
the checks would be written to [the Housing Authority] for
purposes of paying the contractors.” Written correspondence in
the record corroborated that the allegedly discriminatory
denials of Carnell’s requests for certain payments were made by
Housing Authority personnel, not by Blaine.
Additionally, as the district court observed, Blaine is a
limited liability company with “no individual officers or
employees” acting on its behalf. According to the relevant
version of Blaine’s “Operating Agreement,” Blaine’s three
shareholders are corporate entities, including an investor
20
member, a special member, and the managing member, which is a
non-profit company led by Housing Authority Executive Director
Gary Wasson. Moreover, the record fails to establish that Gary
Wasson acted in any respect on Blaine’s behalf when he engaged
in allegedly discriminatory acts against Carnell. 6
Carnell argues, nevertheless, that Blaine was vicariously
liable for the discriminatory conduct of Housing Authority
representatives. Carnell asserts that the DSA designated Blaine
as the “Owner” of the project with full control over the Housing
Authority, which merely was an agent obligated to assist Blaine
in performing Blaine’s contractual obligations. We disagree
with Carnell’s position.
Both parties agree that Virginia law governs the
relationship between Blaine and the Housing Authority under the
DSA. Under Virginia law, control is a necessary component of a
principal-agent relationship. Cf. Acordia of Va. Ins. Agency,
Inc. v. Genito Glenn, L.P., 560 S.E.2d 246, 249 (Va. 2002)
(defining agency as “a fiduciary relationship” based on the
6
Carnell argues that Wasson was listed as Blaine’s
“President” on two documents he signed on Blaine’s behalf, and
therefore, that Wasson acted on Blaine’s behalf when he
participated in allegedly discriminatory conduct. However, as
the district court correctly observed, those documents should
not be given significant weight because they predated the
clarification of Blaine’s management structure in the revised
version of its Operating Agreement.
21
parties’ consent that one party “shall act on [the other’s]
behalf and subject to [the other’s] control”).
Even if we assume, without deciding, that vicarious
liability may be asserted in the context of a Section 1981
claim, 7 Carnell’s argument fails. The plain language of the DSA
grants the Housing Authority sole responsibility for managing
construction of the project as an independent contractor. The
DSA also explicitly forecloses any ability to construe the
relationship of Blaine and the Housing Authority as that of
principal and agent, by specifying that the Housing Authority
was not an agent or employee of Blaine.
The DSA provides, in relevant part, that “[n]othing herein
contained shall be construed to constitute any party as the
agent of another party,” and that “[the Housing Authority] shall
not at any time be deemed an employee of [Blaine].” Such clear
expressions of intent in the governing contract persuade us that
an agency relationship was not established between Blaine and
the Housing Authority. See, e.g., Causey v. Sewell Cadillac-
7
Contrary to Carnell’s characterization of the holding in
General Building Contractors Ass’n v. Pennsylvania, 458 U.S.
375, 395 (1982), the Supreme Court did not decide in that case
that the doctrine of respondeat superior applied to Section 1981
lawsuits. However, a concurring opinion suggested that a
defendant could be held vicariously liable for the
discriminatory conduct of another party if the record contained
evidence that the defendant “maintain[ed] some control over
[that party’s] activities.” Id. at 404 (O’Connor, J.,
concurring).
22
Chevrolet, Inc., 394 F.3d 285, 290 (5th Cir. 2004) (affirming
dismissal of a car dealership’s § 1981 claim against an
automobile manufacturer because relevant documents show that the
dealership is an independent business); Arguello v. Conoco,
Inc., 207 F.3d 803, 807-08 (5th Cir. 2000) (reasoning that the
“plain language” of contracts between an energy company and its
individual gas stations specified that each station was an
“independent business” and therefore foreclosed an agency
relationship). Indeed, we discern no evidence in the record to
suggest that Blaine actually controlled any of the regular
operations of the Housing Authority.
Accordingly, we conclude that the district court correctly
determined that Blaine could not be held liable on Carnell’s
race discrimination claims on either a direct or a vicarious
basis. We therefore affirm the court’s award of summary
judgment to Blaine with respect to those claims.
C.
We turn now to consider one of Carnell’s principal
arguments on appeal, namely, that the district court committed
reversible error by allowing defense counsel to use certain
impeachment material in cross-examining Carnell’s president,
Michael Scales. We review for abuse of discretion the district
court’s decision to permit counsel to impeach Scales with
portions of a document that Carnell contends should not have
23
been allowed for any purpose under the Federal Rules of
Evidence. See United States v. Grimmond, 137 F.3d 823, 831 (4th
Cir. 1998).
The document at issue is the unsigned proposal prepared by
McGuireWoods. As stated above, Scales testified that he did not
recall viewing the document, which delineated objectives to
“[s]hape the initial story so that it is sympathetic to Carnell
and critical of [the Housing Authority],” and to “[e]xpand on
the initial story in Danville to garner broader interest in the
case in neighboring counties, and potentially statewide
interest.” Before questioning Scales concerning this content,
defense counsel asked Scales whether he was trying to “shape”
the evidence to “make out a race claim.” Scales denied these
accusations and later explained that he had sought the
assistance of media relations consultants from McGuireWoods “to
tell who we are.”
Carnell argues that defense counsel’s use of the
McGuireWoods proposal was unfairly prejudicial under Federal
Rule of Evidence 403, because the defendants improperly used the
proposal to attack Scales’s credibility when there was no
evidence showing that Scales had adopted, or even had read, the
proposal’s contents. Carnell also asserts that the proposal
should have been excluded under Federal Rule of Evidence 613(b),
which limits the admissibility of a witness’s prior inconsistent
24
statement. In response, the defendants fail to address the Rule
403 question, and solely argue that their use of the proposal
constituted proper impeachment by a prior inconsistent
statement.
We find no merit in the defendants’ argument. Rule 613(b)
provides that “[e]xtrinsic evidence of a witness’ prior
inconsistent statement is admissible only if the witness is
given an opportunity to explain or deny the statement and an
adverse party is given an opportunity to examine the witness
about it, or if justice so requires.” The defendants’ argument
fails at the outset, because even if counsel’s cross-examination
of Scales about a statement in the proposal constituted
“[e]xtrinsic evidence” within the meaning of Rule 613(b), the
defendants did not establish that the contents of the proposal
qualified as a prior statement of Scales.
For a statement to qualify as a witness’ prior inconsistent
statement under Rule 613(b), the statement must be one that the
witness has made or adopted, or to which the witness otherwise
has subscribed. See United States v. Barile, 286 F.3d 749, 757-
58 (4th Cir. 2002) (indicating that a third party’s statement
only is admissible under Rule 613(b) if the statement was
adopted by the witness or otherwise is “reasonably attributable”
to the witness); see also United States v. Saget, 991 F.2d 702,
710 (11th Cir. 1993) (“[W]e conclude that a witness may not be
25
impeached with a third party’s characterization or
interpretation of a prior oral statement unless the witness has
subscribed to or otherwise adopted the statement as his own.”).
The record before us does not contain evidence that the
substance of the proposal reasonably was attributable to Scales.
Instead, the record shows that Scales denied any recollection of
the proposal and stated that he did not sign the document.
Moreover, the proposal, which was dated February 22, 2010, had
not been incorporated or referenced in the February 24, 2010
consulting agreement executed by Scales. Also, when Scales
signed and returned the consulting agreement to McGuireWoods, he
did not refer to any proposal in his cover letter. Given these
undisputed facts, the record lacked any foundation for treating
the proposal as a prior inconsistent statement attributable to
Scales.
We further observe that Rule 613(b) “speaks only to when
extrinsic proof of a prior inconsistent statement is
inadmissible; it says nothing about the admissibility of such
evidence.” United States v. Young, 248 F.3d 260, 268 (4th Cir.
2001). Because the district court ruled that evidence of the
proposal could be used for impeachment purposes during cross-
examination, we turn to consider Carnell’s argument that the
district court abused its discretion by failing to exercise its
gatekeeping authority to exclude the evidence under Rule 403.
26
See id. (stating that “even if all the foundational elements of
Rule 613 are met” a district court “may still exercise its
discretion to exclude” evidence of a prior inconsistent
statement under Rule 403). In support of its position, Carnell
contends that the evidence lacked probative value and was
unfairly prejudicial, particularly in view of the types of
claims being litigated. We agree with Carnell’s argument.
Among other things, Rule 403 provides for the exclusion of
otherwise relevant evidence if the “probative value” of the
evidence is “substantially outweighed” by “unfair prejudice”
that will result from its admission. Fed. R. Evid. 403. An
assessment of probative value under Rule 403 requires more than
a determination that the evidence is “relevant” to a material
fact in the case. Rather, the trial court must assess the
proponent’s need for admission of the evidence in the full
evidentiary context of the case. Old Chief v. United States,
519 U.S. 172, 184-85 (1997).
After evaluating the marginal probative value of the
proposed evidence, the trial court then must balance the value
of the evidence against the harmful consequences that may result
from its admission. See United States v. Ham, 998 F.2d 1247,
1252 (4th Cir. 1993). Foremost among those dangers is the risk
of “unfair prejudice,” which refers to an undue tendency of
evidence to influence a jury to make a decision for reasons
27
unrelated to the probative value of the evidence. United States
v. Mohr, 318 F.3d 613, 620 (4th Cir. 2003) (internal quotation
marks and emphasis omitted); Mullen v. Princess Anne Volunteer
Fire Co., Inc., 853 F.2d 1130, 1134 (4th Cir. 1988); see Old
Chief, 519 U.S. at 180. Rule 403 provides for the exclusion of
unfairly prejudicial evidence only when the risk of unfair
prejudice “substantially” outweighs the probative value. See
Mohr, 318 F.3d at 620.
In applying the Rule 403 analysis to the district court’s
decision in this case, we consider the evidence in the “light
most favorable to [the] proponent, maximizing its probative
value and minimizing its prejudicial effect.” Mullen, 853 F.2d
at 1135 (citation and internal quotation marks omitted). We
first examine the probative value of the evidence at issue.
Notwithstanding the deferential standard of review, we conclude
that any impeachment value of the quoted statements from the
McGuireWoods proposal was negligible given the lack of
foundation for those statements.
As we have stated above, no evidence was adduced to show
that Scales had read, let alone endorsed, the proposal. Indeed,
after counsel quoted the proposal’s language, Scales protested
that he was unfamiliar with the proposal and did not subscribe
to its contents. Moreover, Scales already had testified that he
had hired McGuireWoods in connection with the litigation to help
28
tell Carnell’s story to the public. Because the proposal was an
internal document prepared by McGuireWoods that contained only
“propose[d]” goals for McGuireWoods’s relationship with Carnell,
the proposal’s negligible probative value was diminishingly
small absent any evidence that Scales approved or otherwise
adopted its contents.
On the other hand, the danger that unfair prejudice would
result from allowing counsel to quote from the proposal was
exceedingly high. In allowing the impeachment, the district
court lent legitimacy to an unfounded attack on Scales’s
credibility based on a statement that was not his own. Although
the court earlier had excluded evidence of the proposal from the
defendants’ case-in-chief, the well-recognized problem remained
that juries find it difficult to distinguish between impeachment
and substantive evidence, and that, consequently, “there is a
significant danger of prejudice where evidence is adduced for
impeachment purposes that could not be presented directly on the
merits of the case.” United States v. MacDonald, 688 F.2d 224,
234 (4th Cir. 1982) (citing United States v. Morlang, 531 F.2d
183, 190 (4th Cir. 1975)). Under the present circumstances,
because the impeachment evidence had little or no probative
value and the danger of unfair prejudice was very great, we
conclude that the court’s decision to allow the use of this
impeachment evidence against Scales was an abuse of discretion.
29
Moreover, we are not persuaded by defendants’ argument that
any error was harmless because use of this impeachment material
was merely a “minor episode” in a lengthy trial. See Taylor v.
Va. Union Univ., 193 F.3d 219, 235 (4th Cir. 1999) (holding that
the harmless error test “appropriately focuses upon ‘whether the
error itself had substantial influence’” on the judgment)
(quoting Kotteakos v. United States, 328 U.S. 750, 765 (1946)),
abrogated on other grounds, Desert Palace Inc. v. Costa, 539
U.S. 90 (2003). On the contrary, the defendants’ entire theory
of the case was that Scales and his subordinates fabricated race
discrimination claims to conceal poor contractual performance.
To the extent that the defendants could attribute the contested
language in the proposal to Scales, the defendants’ theory of
the case would be significantly bolstered because the document
revealed a plan to “shape” the credibility of Carnell’s
discrimination claims.
Defense counsel ultimately was allowed to impeach Scales
with the proposal as if it were his own prior inconsistent
statement. The defendants took full advantage of this windfall
during closing argument, when counsel referred the jury to a
poster exhibit displaying the proposal’s language to illustrate
the defense theory that Carnell’s discrimination claims were
manufactured, despite the fact that the proposal was never
formally admitted into evidence.
30
We find it difficult to envision circumstances more
unfairly prejudicial and damaging to Carnell’s race
discrimination claims. We express no opinion, however, whether
the error so pervaded the proceedings to require remand of
Carnell’s contract claims, because Carnell represented at oral
argument in this appeal that Carnell is only asking for a new
trial on its race discrimination claims based on this
evidentiary error. Therefore, we vacate the district court’s
judgment with respect to Carnell’s race discrimination and
retaliation claims, and proceed to review the remaining issues
on appeal involving Carnell’s contract claims.
III.
Carnell presents several arguments related to the damages
awarded on its breach of contract claims. We first consider
Carnell’s arguments concerning its claims for unpaid work.
A.
In addressing the amount of damages that could be recovered
under Carnell’s unpaid work claims, we review certain provisions
of the Virginia Public Procurement Act (VPPA), Virginia Code
§§ 2.2-4300 through 4377. The VPPA governs public contracts in
Virginia and was enacted, among other reasons, to ensure “that
public bodies in the Commonwealth obtain high quality goods and
services at reasonable cost,” and “that all procurement
31
procedures be conducted in a fair and impartial manner.” Id.
§ 2.2-4300(C). Here, we consider: (1) whether the record
contains evidence that Carnell provided sufficient notice of its
unpaid work claims under the VPPA’s notice requirement; and (2)
whether the VPPA’s monetary cap on modifications to public
contracts limits Carnell’s recovery on its contract claims.
1.
The defendants argue that Carnell’s unpaid work claims are
barred by Carnell’s failure to offer evidence at the third trial
that Carnell complied with the VPPA’s notice requirement. Under
the statute, “written notice of the contractor’s intention to
file a claim shall be given at the time of the occurrence or
beginning of the work upon which the claim is based.” Id.
§ 2.2-4363(A). At the third trial, unlike in the first two
trials, Carnell did not offer into evidence a November 2009
letter notifying the Housing Authority of “claims arising from
Carnell’s work on the [project].” Instead, Carnell offered into
evidence an October 2008 letter, which sought reimbursement for
two particular instances of uncompensated work. 8 Carnell argues
8
Carnell briefly argues that the Housing Authority’s actual
knowledge of the unpaid work claims substantially satisfied the
VPPA’s notice requirement. However, because the Supreme Court
of Virginia has rejected this position with respect to a similar
statutory notice requirement, we do not discuss further that
argument. See Commonwealth v. AMEC Civil, LLC, 699 S.E.2d 499,
506 (Va. 2010) (“We hold that actual notice cannot satisfy the
(Continued)
32
that the October 2008 letter independently supplied adequate
proof of notice under the VPPA. We disagree.
The VPPA’s written notice requirement is a “mandatory,
procedural requirement[]” that must be met before a court can
reach the merits of a claim. Dr. William E.S. Flory Small Bus.
Dev. Ctr., Inc. v. Commonwealth, 541 S.E.2d 915, 919 (Va. 2001).
Any notice submitted for purposes of satisfying this statutory
requirement must identify specifically each claim for damages
and “conspicuously declar[e] that, at least in the contractor’s
view, a serious legal threshold has been crossed,” and that the
contractor intends to claim reimbursement for the particular
damages. Commonwealth v. AMEC Civil, LLC, 677 S.E.2d 633, 641
(Va. Ct. App. 2009), rev’d in part on other grounds, 699 S.E.2d
499 (Va. 2010). Although the notice need not exhibit “the
sophistication of a legal pleading,” the notice must “clearly
and timely state[] the contractor’s intention to later file an
administrative claim.” Id.In its pleadings, Carnell alleged numerous claims for
unpaid work. In the relevant section of its third amended
complaint, Carnell requested, among other things, damages for
cleaning out a sediment pond, removing excess dirt from
written notice requirement in [Virginia] Code § 33.1-386(A), and
that written notice is required.”) (citation omitted).
33
foundation work and materials left by another contractor,
performing additional seeding, relocating a fire hydrant,
implementing various plan revisions, correcting environmental
deficiencies, incurring additional surveying costs, and
performing work on sidewalks, ramps, and driveway entrances.
By contrast, the October 2008 correspondence, on which
Carnell relies, refers to a very limited class of grievances.
In the letter, Michael Scales protested that Carnell was not
compensated for work required “to clean out the sediment pond #3
located on the north side of the Seeland Road construction site
for the second time,” and “to enter, remove siltation material,
and leave the property of Ms. Juanita Edwards.” As “redress,”
Scales requested reimbursement in the October 2008 letter for
the referenced work, which he defined as the “efforts of the
Contractor to get an approved stabilization plan for the north
side of Seeland Road and the associated removal of the sediment
from the area located on the north side of [the] Seeland Road
construction site.” No mention was made in the October 2008
letter of the litany of other unpaid work claims described in
Carnell’s third amended complaint.
Under Virginia law, Carnell satisfied its notice
requirements under the VPPA only with respect to the claims for
which Carnell specifically requested reimbursement and signified
an intent to file a claim. See AMEC Civil, 677 S.E.2d at 641.
34
Therefore, we conclude that Carnell’s October 2008 letter
supplied the required notice only with respect to expenses
associated with cleaning out the sediment pond and removing
sediment from the north side of the specified construction site. 9
Further, with regard to those two aspects of the project, we are
unable to discern from the record the particular amounts that
the jury awarded as compensation for that work. Accordingly, we
vacate the district court’s judgment with respect to Carnell’s
contract claims for unpaid work, and remand the two contract
claims referenced in the October 2008 letter to the district
court for a new trial on those claims on damages only.
2.
We next consider the district court’s decision to reduce
the amount of damages awarded on the unpaid work claims based on
the VPPA’s limitation of the amount by which public contracts
lawfully can be increased. Under the VPPA,
9
The defendants claim that these issues were addressed by
the Housing Authority’s approval of two change orders that
authorized additional expenditures to rectify the underlying
problems with the construction site. On the record before us,
we are unable to ascertain with certainty the amounts and nature
of the work reimbursed and how they correspond to the amounts
sought in the October 2008 letter. Nor are we in a position to
make factual findings on that point. Accordingly, we express no
opinion on that issue and leave it to the parties to present
their arguments on partial or full payment for these two
surviving unpaid work claims to the district court upon remand.
35
[a] public contract may include provisions for
modification of the contract during performance, but
no fixed-price contract may be increased by more than
twenty-five percent of the amount of the contract or
$50,000, whichever is greater, without the advance
written approval of . . . the governing body, in the
case of political subdivisions. In no event may the
amount of any contract, without adequate
consideration, be increased for any purpose,
including, but not limited to, relief of an offeror
from the consequences of an error in its bid or offer.
Virginia Code § 2.2-4309. Carnell raises three challenges to
the applicability and constitutionality of the statute, all of
which lack merit.
First, Carnell asserts that the VPPA does not cap all
recoveries on contract claims, but solely those in which a
contractor has increased the contract price excessively without
providing additional work. Seizing on the part of the statute
that prohibits any increases to contracts “without adequate
consideration,” id., Carnell argues that the VPPA should not
limit increases to Carnell’s contract, which were justified by
the valuable consideration of additional work performed by
Carnell.
We disagree with Carnell’s argument. We conclude that on
its face, the statutory cap plainly applies to all fixed-price
public contracts and forbids an increase to any such contract
that exceeds a proportion of the contract’s price. A contrary
conclusion would permit the absurd result of allowing Carnell to
36
recover, through a lawsuit, an amount that Carnell could not
lawfully have obtained through a mutually-agreed modification of
the contract terms. Cf. Scofield Eng’g Co. v. Danville, 126
F.2d 942, 947 (4th Cir. 1942) (denying quantum meruit recovery
on a contract when the contract was forbidden by statute, and
citing “the absurdity of implying an obligation to do that which
[the law] forbids”) (citation omitted).
Carnell separately asserts, however, that even if the VPPA
limits all fixed-price public contracts, Carnell’s contract with
the Housing Authority was a unit-price contract to which the
VPPA does not apply. Under the parties’ contract, the Housing
Authority agreed to pay Carnell “for the performance of the
Contract, in current funds, subject to additions and deductions
as provided in the Contract Documents, the sum of $793,541.00.”
Carnell argues that because the total contract price was
“subject to additions and deductions,” and because Carnell
agreed to perform the site preparation work “for the above lump
sum and unit prices,” this contract language demonstrates that
the contract was negotiated on a unit-price basis. We disagree.
The district court’s determination that the parties entered
into a fixed-price contract is well supported by the record.
Michael Scales represented in the signed, notarized bid form,
which was incorporated into the contract, that Carnell sought to
perform the site preparation work “for the firm, fixed price”
37
specified. Although the contract contained some conditional
language allowing modifications to the final contract price,
such a mechanism for negotiating modifications did not transform
a contract that proposed a “lump sum” payment into a unit-price
contract. Therefore, we conclude that the parties’ contract was
a fixed-price contract subject to the modification limits
imposed by the VPPA.
Finally, Carnell argues that the VPPA’s statutory cap
unconstitutionally abrogates the common law in the Commonwealth
of Virginia, and constitutes an unlawful taking and a due
process violation under both the Federal and Virginia
Constitutions. See U.S. Const. amend. V; U.S. Const. amend.
XIV, § 1; Va. Const. art. I, § 11. In essence, Carnell contends
that the VPPA is unconstitutional because it permits the
government to obtain the benefit of a contractor’s additional
labor pursuant to contract modifications without being required
to pay fully for that additional work. Again, we disagree.
We adopt the district court’s reasons for rejecting
Carnell’s constitutional challenges under state and federal law.
In doing so, we agree with the district court that the VPPA only
affects the remedy available for certain breach of contract
actions under the common law, not the validity of the underlying
contractual obligations. See Etheridge v. Med. Ctr. Hosps., 376
S.E.2d 525, 532 (Va. 1989) (stating that “[o]ne area in which
38
the General Assembly’s authority has not been forbidden or
restricted is the common law,” and that “the legislature has the
power to provide, modify, or repeal a remedy”). Carnell was
presumed to be aware of statutory limitations on the Housing
Authority’s power to modify contracts. See American-La France &
Foamite Indus., Inc. v. Arlington Cnty., 178 S.E. 783, 784 (Va.
1935) (“All persons dealing with a municipal corporation are
charged with notice of the limitations upon its power. Those
limitations may not be exceeded, defeated, evaded, or nullified
under guise of implying a contract.”) (citation and internal
quotation marks omitted). Moreover, Carnell had no fundamental
right, nor “property, in the constitutional sense,” to a
particular remedy in contract. See Gibbes v. Zimmerman, 290
U.S. 326, 332 (1993); Etheridge, 376 S.E.2d at 531 (citing Duke
Power Co. v. Carolina Envt’l Study Grp., 438 U.S. 59, 83-84
(1978)). Thus, the VPPA provisions at issue are constitutional
because they reasonably are related to the legitimate government
purpose of promoting fair procurement procedures by which public
bodies in Virginia obtain goods and services at a reasonable
cost. Virginia Code § 2.2-4300(C); see Etheridge, 376 S.E.2d at
531; see also Duke Power Co., 438 U.S. at 83-84 (holding that
economic regulations generally are presumed constitutional
unless the legislature’s judgment is “demonstrably arbitrary or
irrational”).
39
Accordingly, we affirm the district court’s application of
the VPPA in reducing Carnell’s damages on its claims for unpaid
work. On remand, therefore, when the district court considers
the proper measure of damages for the two items for which
Carnell proved it had provided the requisite VPPA notice, the
court must also ensure that any damages Carnell may be awarded
do not exceed the VPPA’s statutory cap.
B.
We next address Carnell’s argument that the district court
erred in limiting the types of damages that Carnell could
recover on its breach of contract claims for being removed
unjustly from the construction project. After the jury returned
a verdict awarding Carnell $400,000 on its claims alleging
unjust removal, the district court allowed Carnell to recover
certain of those damages, including $12,000 in lost profits from
not being able to complete the site preparation work and $60,490
in “retainage” withheld by the defendants, but ruled that
Carnell insufficiently had pleaded “consequential or special
damages” accounting for the remainder of the damages award.
According to the court, such consequential damages included the
alleged destruction of Carnell’s business, loss of good will,
and attorneys’ fees and other expenses related to third-party
claims. On appeal, Carnell argues that the foregoing items were
not consequential damages under Virginia law, but that, even if
40
those claimed damages were consequential or special in nature,
they were pleaded sufficiently in the third amended complaint.
In Virginia, the issue whether the contested damages are
direct or consequential damages presents a question of law. See
Roanoke Hosp. Ass’n v. Doyle & Russell, Inc., 214 S.E.2d 155,
160 (Va. 1975). Under Virginia law, direct damages are those
that “flow ‘naturally’ from a breach of contract; i.e., those
that, in the ordinary course of human experience, can be
expected to result from the breach, and are compensable.” R.K.
Chevrolet, Inc. v. Hayden, 480 S.E.2d 477, 481 (Va. 1997); see
also Long v. Abbruzzetti, 487 S.E.2d 217, 220 (Va. 1997)
(analyzing whether damages were a “direct and necessary
consequence” of the breach).
By contrast, consequential damages “arise from the
intervention of ‘special circumstances’ not ordinarily
predictable and are compensable only if it is determined that
the special circumstances were within the contemplation of the
parties to the contract.” R.K. Chevrolet, 480 S.E.2d at 481
(citation omitted). We agree with the district court that
because the damages sought by Carnell did not flow directly from
the defendants’ decision to remove Carnell from the project,
they were consequential in nature. See, e.g., Atl. Purchasers,
Inc. v. Aircraft Sales, Inc., 705 F.2d 712, 716 n.4 (4th Cir.
1983) (barring a claim for attorney’s fees because the party
41
“failed to state specifically the claim for fees in the
complaint”).
Although state law governs our determination of the nature
of damages sought, the procedural requirements for pleading
damages are governed by the Federal Rules of Civil Procedure.
See Hogan v. Wal-Mart Stores, Inc., 167 F.3d 781, 783 (2d Cir.
1999) (observing that state substantive law applies in
determining whether the elements of special damages are met, but
that “[t]he form in which claims for special damages must be
stated is a procedural question governed by Fed. R. Civ. P.
9(g)”); see also 5A Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure: Civil 3d § 1311, at 361-62 (2004).
Federal Rule of Civil Procedure 9(g) requires that “special”
damages, namely, those that are not the “ordinary result” of the
conduct alleged, “shall be specifically stated.” Weyerhaeuser
Co. v. Brantley, 510 F.3d 1256, 1266 (10th Cir. 2007); see also
Avitia v. Metro. Club of Chi., Inc., 49 F.3d 1219, 1226 (7th
Cir. 1995) (defining special damages as “damages that are
unusual for the type of claim in question—that are not the
natural damages associated with such a claim”). The primary
purpose of Rule 9(g) is one of notice, both to “inform defending
parties as to the nature of the damages claimed in order to
avoid surprise; and to inform the court of the substance of the
complaint.” Great Am. Indem. Co. v. Brown, 307 F.2d 306, 308
42
(5th Cir. 1962). Our conclusion that the damages cited above
were consequential in that they were “not ordinarily
predictable,” R.K. Chevrolet, 480 S.E.2d at 481, compels the
further conclusion that those damages were “unusual for the type
of claim in question” and, therefore, were special damages
subject to the heightened pleading requirement of Rule 9(g).
Avitia, 49 F.3d at 1226.
We agree with the district court that under these
circumstances, Carnell’s third amended complaint failed to plead
special damages in connection with its breach of contract
claims. In particular, we note the contrasting level of detail
between the relief requested for the alleged breaches of
contract and that requested for the alleged racial
discrimination and retaliation. In each of the race
discrimination and retaliation counts, Carnell specifically
recited damages for, among other things, “harm to its name and
reputation, the loss of integrity and good will, . . . , the
time and expense of defending Carnell’s name and
reputation, . . . , and other compensatory damages to be proven
at trial.” By contrast, Carnell’s breach of contract count
merely prayed for aggregate damages “in an amount to be proven
at trial but not less than $419,575, plus interest.”
Carnell argues, nevertheless, that the breach of contract
count in its third amended complaint incorporated certain
43
paragraphs from the complaint’s introductory section that
sufficiently alleged Carnell’s special damages. In the relevant
sections, Carnell stated that it was damaged by the
“[d]efendants’ conduct,” by the costs relating to “investigating
and defending [the defendants’] claims and causes of action,”
and by “the harm to its name and reputation.” However,
Carnell’s declaration that it was injured failed to convey
clearly that Carnell sought special damages with respect to
those injuries as part of its contract claims. In particular,
we credit the district court’s statement at the damages hearing
that “it is beyond dispute that notice for these sums, for these
costs, for these expenditures, was not given.” Accordingly, we
affirm the district court’s judgment with respect to Carnell’s
failure to plead special damages on its claims that it was
unjustly removed from the project.
IV.
In summary, we conclude that the district court correctly
held that Carnell had standing to assert race discrimination
claims against the Housing Authority, and that Blaine could not
be held liable for the misconduct alleged in those claims. We
further hold that the court’s decision to allow defense counsel
to use the McGuireWoods proposal to impeach Scales was
reversible error. Therefore, with respect to Carnell’s race
discrimination and retaliation claims against the Housing
44
Authority, we vacate the district court’s judgment and remand
the case for a new trial.
We additionally hold that the district court properly
restricted Carnell’s recovery on its contract claims by
concluding that the VPPA limited damages on the claims for
unpaid work, and that Carnell had failed to plead special
damages on its claims that it was unjustly removed from the
project. However, we conclude that the VPPA further limited the
scope of relief available on Carnell’s claims for unpaid work to
the two claims raised in Carnell’s October 2008 letter.
Accordingly, with regard to Carnell’s contract claims for unpaid
work, we vacate the district court’s judgment and remand the
case for a new trial on damages limited to the two claims raised
in the October 2008 letter.
AFFIRMED IN PART,
VACATED IN PART AND REMANDED,
VACATED IN PART AND FINAL JUDGMENT.
45
FLOYD, Circuit Judge, concurring in part and dissenting in part:
I join the majority’s well-reasoned opinion in its entirety
except as to the three paragraphs of Part II.B pertaining to
Blaine’s potential liability as a direct discriminatory actor.
For the reasons that follow, I respectfully dissent on this
issue and would remand the case for trial, or at a minimum, for
additional briefing at the summary judgment stage.
As best I can glean from the record, Wasson is an
individual who wears multiple hats: he is both the President of
Danville Housing Corporation (DHC), Blaine’s managing member,
and Executive Director of the Housing Authority. Despite these
separate corporate designations, Wasson works out of the same
office (e.g., same physical address, same telephone number,
etc.) when he acts on behalf of both DHC and the Housing
Authority. As Blaine’s managing member, DHC—and thus impliedly
Wasson, in his role as DHC’s President—“ha[s] full, exclusive
and complete charge of the management of the business of
[Blaine]” pursuant to Blaine’s amended 2008 Operating Agreement.
(J.A. 2445.) Additionally, it is undisputed that the Housing
Authority’s Board of Commissioners is identical to DHC’s Board
of Directors. In sum, the upper-level management personnel who
wield decision-making power for both the Housing Authority and
Blaine (by way of DHC) appear to be concentric, or at a minimum
exhibit a substantial overlap.
46
As the majority opinion correctly notes, Blaine provides
funding to the Housing Authority for the Project, and the
Housing Authority, in turn, distributes those funds to the
project contractors, including Carnell. Accordingly, pursuant
to Blaine’s organizational structure and DHC’s ability to act
unilaterally on Blaine’s behalf, 1 distribution of funds to the
Housing Authority is essentially controlled by DHC. Thus, even
discounting in their entireties the letters that Wasson
(allegedly erroneously) signed as Blaine’s President, see ante
at 21 n.6, Wasson appears to nevertheless control Blaine’s (and
thus the Housing Authority’s, and thus Carnell’s) purse strings
in a back-door fashion. To wit, in his dual roles as Executive
Director of the Housing Authority and as President of DHC,
Wasson is both puppet and puppeteer of the funding operation for
the project.
Based on the aforementioned relationships, Blaine may be
liable pursuant to a theory similar to (although perhaps not
1
Blaine’s amended Operating Agreement provides as follows:
[T]he Managing Member [DHC] is fully authorized,
without the requirement of any act or signature of the
other Members, to take any action of any type and to
do anything and everything which a managing member of
a limited liability company organized under the
Uniform [Limited Liability Company] Act may be
authorized to take or do thereunder . . . .”
(J.A. 2449 (emphasis added).)
47
exactly the same as) “cat’s paw” (or “rubber-stamp”) liability,
which “impos[es] liability upon an employer for the
discriminatory motivations of a supervisor, even though the
supervisor did not formally take the adverse employment action.”
Hill v. Lockheed Martin Logistics Mgmt., Inc., 354 F.3d 277, 288
(4th Cir. 2004); see Smith v. Bray, 681 F.3d 888, 897 n.3 (7th
Cir. 2012) (“In the law of employment discrimination, the ‘cat’s
paw’ theory can apply when a biased subordinate who lacks
decision-making power uses the formal decision-maker as a dupe
in a deliberate scheme to trigger a discriminatory employment
action.” (citation omitted) (internal quotation marks omitted)).
Here, the cast of characters is as follows: Blaine (via DHC, and
ultimately, Wasson) as the biased shell entity that lacks
decision-making power to distribute funds to the project
contractors, and the Housing Authority as the duped formal
decision-maker that took the adverse employment actions (at
least on paper) at Blaine’s behest. Although Carnell did not
advance this precise theory relating to Blaine’s liability for
direct discrimination, Carnell did put all of the pieces in
place to connect these dots—namely, the massive overlap between
Housing Authority personnel and DHC personnel and the fact that
Wasson holds positions of authority within each entity. For
example, in arguing that Blaine should be held directly liable,
Carnell asserted that “money [for the project] was funneled
48
through [the Housing Authority], but the funds originated with
Blaine.” (Carnell Reply Br. at 29.)
In my view, we do not know from the record exactly which
entity—the Housing Authority or Blaine (by way of DHC)—Wasson
was acting on behalf of when he took certain actions adverse to
Carnell, and it is simply too easy for Blaine to look the other
direction and to rely exclusively upon Wasson’s self-serving
deposition testimony that he was acting on behalf of the Housing
Authority “at all times.” 2 (E.g., Appellees’ Opening Br. at 32.)
As the nonmovant in the summary judgment proceedings, it is not
Carnell’s burden to show that Blaine acted in a discriminatory
manner and, based on the foregoing relationships, I do not think
that Blaine has met its own burden of “showing that there is an
2
Appellees, in their recitation of the facts in their
Opening/Response brief, state the following:
Under Section 14.2 of the Operating Agreement,
Blaine’s members granted a limited power of attorney
to the president of its managing member, DHC, to sign
the Operating Agreement and certain other legal
documents. Pursuant to the limited authority granted
by the power of attorney, DHC’s president, Garry [sic]
Wasson signed the Operating Agreement. The Operating
Agreement also contemplated [the Housing Authority]’s
involvement in the Project as the developer, and so
Wasson signed on behalf of [the Housing Authority] as
its Executive Director.
(Appellees’ Opening Br. at 7 (emphasis added).) These actions
by Wasson, although facially insignificant, are exemplary of
Wasson taking off his DHC (i.e., Blaine) hat and putting on his
Housing Authority hat with little to no appreciation for the
distinction between his dual roles at each entity.
49
absence of evidence to support [Carnell]’s case.” Kitchen v.
Upshaw, 286 F.3d 179, 181 (4th Cir. 2002) (explaining the
burden-shifting framework at summary judgment). To the same
extent that we hold in this opinion that Carnell has an imputed
racial identity (and thus standing to sue) based upon its
president and members, it follows that a defendant company can
likewise maintain an imputed racial bias based upon its
membership. Although this analysis requires us to peel back an
additional layer off of the Blaine onion than off of the Carnell
onion—i.e., because Blaine has no individual employees or
officers, we must instead look to the individual employees of
Blaine’s managing member—all roads ultimately lead back to the
same individuals, and particularly Gary Wasson.
Although I do not think that there is sufficient evidence
before us to reverse the district court’s grant of summary
judgment to Blaine, I do think that the blurriness of Wasson’s
multiple roles (and the overlap of other individuals, as well,
namely the members of DHC’s Board and the Housing Authority’s
Board, respectively) is an issue for a jury to consider at
trial, or an issue that, at the least, warrants additional
briefing and consideration at the summary judgment stage.
Accordingly, I would vacate the district court’s grant of
summary judgment to Blaine on Carnell’s theory of direct
50
liability and respectfully dissent from the majority’s holding
pertaining to the same.
51