Commerce Funding Corp. v. Worldwide Security Services Corp. , 78 F. App'x 905 ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
COMMERCE FUNDING CORPORATION, 
Plaintiff,
v.
WORLDWIDE SECURITY SERVICES
CORPORATION,
Defendant-Appellant,
v.  No. 02-1977
SOUTHERN FINANCIAL BANK,
Defendant-Appellee,
and
BANK OF ASHEVILLE,
Defendant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Claude M. Hilton, Chief District Judge.
(CA-99-201-A)
Argued: May 9, 2003
Decided: October 28, 2003
Before TRAXLER, KING, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: William Michael Holm, WOMBLE, CARLYLE, SAND-
RIDGE & RICE, P.L.L.C., McLean, Virginia, for Appellant. Thomas
2 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
Patrick Gorman, TYLER, BARTL, GORMAN & RAMSDELL,
P.L.C., Alexandria, Virginia, for Appellee. ON BRIEF: Jerry W.
Boykin, WOMBLE, CARLYLE, SANDRIDGE & RICE, P.L.L.C.,
McLean, Virginia, for Appellant. Steven B. Ramsdell, TYLER,
BARTL, GORMAN & RAMSDELL, P.L.C., Alexandria, Virginia,
for Appellee.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
In a previous appeal, we concluded that Worldwide Security Ser-
vices Corporation ("Worldwide Security") had presented sufficient
evidence to survive a motion for summary judgment filed by Southern
Financial Bank ("Southern Financial") on Worldwide Security’s
claim for tortious interference with contractual relations, and we
remanded so that Worldwide Security could continue to pursue its
claim. See Commerce Funding Corp. v. Worldwide Sec. Servs. Corp.,
249 F.3d 204, 214-15 (4th Cir. 2001). On remand, the district court
conducted a bench trial and entered judgment for Southern Financial
on that claim. Worldwide Security appeals. For the reasons stated
below, we affirm.
I.
Although Commerce Funding contains a thorough recitation of the
underlying facts, we must consider Worldwide Security’s appeal in
light of the evidence developed at trial rather than the summary judg-
ment record that was previously before us. See Distaff, Inc. v. Spring-
field Contracting Corp., 984 F.2d 108, 111 n.1 (4th Cir. 1993)
("[S]ummary judgment is usually made before trial and decided on
documentary evidence, while directed verdicts are made at trial and
decided on the evidence that has been admitted." (internal quotation
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 3
marks omitted)); cf. Thorpe v. Mutual of Omaha Ins. Co., 984 F.2d
541, 545 (1st Cir. 1993) ("Evidence adduced at trial will almost
always differ in degree, force, and quantity from that submitted on a
motion for summary judgment."). Of course, in the present appeal, we
need only review the facts relating to Worldwide Security’s single
claim of tortious interference with contractual relations.
Between 1996 and 1997, the United States Department of Labor
and the Federal Bureau of Investigation ("FBI") awarded Denmark
Security, Inc. ("Denmark") several contracts to provide security guard
services (the "government contracts"). Denmark was in need of work-
ing capital and Southern Financial agreed to extend a Small Business
Administration ("SBA") loan of $80,000 to Denmark in return for a
security interest in various assets held by Denmark, including the
accounts receivable generated by its government contracts. Southern
Financial did not, however, take a security interest in Denmark’s
"contract rights." J.A. 605, 612. Southern Financial properly perfected
its security interest.
By March 1998, Denmark was struggling financially and began
discussing the possibility of the acquisition of Denmark by World-
wide Security. On March 21, 1998, Vincent Venegoni, Worldwide
Security’s principal, signed a "Stock Purchase Agreement" with Den-
nis and Lisa Haas, Denmark’s sole shareholders, whereby Venegoni
agreed to pay $100,000 in exchange for all outstanding shares of Den-
mark stock. On April 10, 1998, Dennis Haas and Venegoni informed
Michelle Douglas, a loan officer for Southern Financial, that they
were contemplating the potential purchase of Denmark by Worldwide
Security. Douglas informed Venegoni that Southern Financial would
be willing to allow Worldwide Security to assume Denmark’s loan if
it submitted, and Southern Financial approved, an application for the
loan.
Ultimately, Venegoni and Worldwide Security decided not to close
on the stock purchase agreement after reviewing Denmark’s financial
information, which included Southern Financial’s security interest in
the accounts receivable generated from Denmark’s government con-
tracts. On April 20, 1998, Venegoni sent written notice to Worldwide
Security’s own lender, the Bank of Asheville, that there would be no
stock purchase. However, until May 28, 1998, Worldwide Security
4 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
continued to represent to Denmark that it was willing to complete the
stock purchase.
On April 21, 1998, still in need of working capital to meet payroll
and other obligations, Denmark entered into a factoring agreement
with Commerce Funding Corporation ("Commerce"). Under this fac-
toring agreement, Commerce contracted to advance funds on the
receivables from Denmark’s government contracts in exchange for a
security interest in and the assignment of Denmark’s accounts receiv-
able. Venegoni signed the factoring agreement on behalf of Denmark
even though the stock purchase was never consummated.
On May 5, 1998, Commerce and Southern Financial entered into
an "Intercreditor Agreement" under which Southern Financial agreed
to subordinate its security interest to Commerce’s security interest in
the receivables from Denmark’s government contracts. Denmark, as
the debtor, was also party to the Intercreditor Agreement; Venegoni
signed on behalf of Denmark as Chairman of the Board of Directors.
On May 28, 1998, well after Southern Financial had agreed to sub-
ordinate its security interest to Commerce, Venegoni notified Den-
mark that he no longer intended to finalize the purchase of Denmark
stock as a result of what he believed were financial misrepresentations
by Denmark. Instead, on July 4, 1998, Worldwide Security entered an
agreement with Dennis and Linda Haas to purchase the corporate
assets of Denmark, including "all contracts" and "all receivable[s] and
any other moneys . . . due to" Denmark. J.A. 342-43. The asset pur-
chase agreement indicated that Denmark’s assets were "free and clear
of all pledges, liens, security interests, or other encumbrances of any
kind whatsoever." J.A. 343.
The asset purchase agreement included an addendum clarifying
that the receivables generated from Denmark’s government contracts
had been "pledged" to Commerce "for a period of one year under a
factoring agreement dated April 1998." J.A. 350. Thus, except as
specified in the addendum, Denmark "represent[ed] and warrant[ed]
that [it had] not pledged any of [the] Assets being conveyed and [had]
not executed any instruments evidencing or relating to indebtedness
for borrowing money pursuant to which the business assets are obli-
gated." J.A. 344. As part of its consideration, Worldwide Security
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 5
promised to employ Haas. Venegoni signed on behalf of Worldwide
Security as its president even though he was clearly aware that South-
ern Financial had extended an SBA loan to Denmark and held an
interest in the receivables to the government contracts, given that he
had signed the Intercreditor Agreement on behalf of Denmark.
Although the parties closed on the asset purchase agreement on
June 12, 1998, Worldwide Security later issued invoices seeking to
collect for services rendered by Denmark prior to the closing date.
Southern Financial received notice that Worldwide Security had
acquired Denmark’s assets rather than full ownership of the company,
but Worldwide Security nevertheless continued to represent that it
intended to satisfy Denmark’s debt obligation to Southern Financial,
which still held a security interest in Denmark’s receivables.
Worldwide Security, meanwhile, obtained financing of its own.
First, on May 4, 1998, Worldwide Security obtained a loan from the
Bank of Asheville, which took a security interest in Worldwide
Security’s "contract rights." Second, on June 30, 1998, after having
acquired and begun servicing Denmark’s government contracts,
Worldwide Security entered into a factoring agreement with Com-
merce, as had Denmark. Commerce agreed to finance Worldwide
Security’s receivables, easing cash flow so that Worldwide Security
could meet payroll. In exchange, Commerce took and perfected a
security interest "in all of [Worldwide Security’s] assets either now
owned or hereafter acquired . . . including . . . accounts receivable . . .
[and] contract rights." J.A. 356. Venegoni signed on behalf of World-
wide Security, just as he signed on behalf of Denmark in its factoring
agreement with Commerce, but he did not inform Southern Financial
of the contract.
By the end of July 1998, Southern Financial’s loan to Denmark
was in default. Southern Financial sent a notice of default to Dennis
Haas, accelerated the outstanding loan balance of $72,337.33, and
demanded immediate payment from Denmark. When the loan
remained in default, Southern Financial began efforts to recoup its
money through Denmark’s assets in which Southern Financial held a
security interest, including Denmark’s accounts receivable. On July
21, 1998, pursuant to the Intercreditor Agreement it had entered with
Commerce and Denmark, Southern Financial notified Commerce that
6 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
"[a]s the secondary lien holder . . . we are requesting at this time that
any excess paid funds from the receivables assigned to you be sent
directly to . . . Southern Financial." J.A. 362. A few days later, coun-
sel for Southern Financial notified Commerce that Southern Financial
had learned about Worldwide Security’s purported purchase of Den-
mark’s assets and that it had not approved the transfer of Denmark’s
collateral, as was Southern Financial’s right to do under the terms of
its security agreement with Denmark. Southern Financial asserted that
it was entitled to any funds collected on the government contracts in
excess of those due Commerce, as provided by the Intercreditor
Agreement.
Worldwide Security responded that, pursuant to the asset purchase
agreement with Denmark, it owned Denmark’s contract rights, includ-
ing the government contracts, and, necessarily, the receivables flow-
ing from the government contracts then being serviced by Worldwide
Security. Worldwide Security based its position on the fact that
Southern Financial held its security interest only in Denmark’s
accounts receivable, not its contract rights. Thus, Worldwide Security
took the position that Southern Financial was attempting to collect
Worldwide’s receivables, in which it held no security interest.
As a result of this dispute, Commerce placed a hold on any
advances of funds it collected from the government contracts over and
above that which Commerce was entitled to under its factoring agree-
ment with Worldwide Security. Although Commerce, Southern
Financial, and Worldwide Security agreed to the disbursement of
some funds in mid-August 1998 so that Worldwide Security could
meet payroll obligations, Commerce retained the remainder of the
receivables until the dispute could be resolved. Despite the disburse-
ment of funds, Worldwide Security failed to meet payroll and its
employees walked off of the job on August 21. Worldwide Security
subsequently lost the government contracts.
In February 1999, Worldwide Security filed a bankruptcy petition
seeking to reorganize under Chapter 11 of the Bankruptcy Code. Its
attempt at reorganization ultimately failed, and the petition was con-
verted to a Chapter 7 liquidation.
Commerce filed this interpleader action under 28 U.S.C. § 1335against Worldwide Security, Southern Financial, and the Bank of
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 7
Asheville as claimants to the receivables held by Commerce. World-
wide Security asserted cross-claims against Southern Financial for
tortious interference with contractual relations and tortious interfer-
ence with prospective economic advantage. On the claim for tortious
interference with contractual relations, Worldwide Security alleged
that Southern Financial’s demand for the receivables generated by the
government contracts caused Commerce to breach its factoring agree-
ment with Worldwide Security by freezing disbursements of funds
collected under the government contracts.
All of the parties moved for summary judgment as to the receiv-
ables; the district court determined that the Bank of Asheville was
entitled to the receivables being held by Commerce and granted sum-
mary judgment in its favor. The district court also granted summary
judgment to Southern Financial on both of Worldwide Security’s
cross-claims. On the tortious interference with contractual relations
claim, the district court concluded that Southern Financial "was privi-
leged or justified to assert claims on the disputed funds in which it
had a legitimate financial interest." Commerce Funding, 249 F.3d at
209 (internal quotation marks omitted).
On appeal, we vacated the district court’s ruling. See id. at 214-15.
We held that "a reasonable jury could find that Southern [Financial]
failed to prove that its actions were justified or privileged on the basis
of the financial interest [affirmative] defense." Id. at 212. This hold-
ing rested on our conclusion that, under Virginia law, in order to
establish the affirmative defense of justification, the party that is
interfering "must actually possess a financial interest" in the matter,
not merely have a "good faith belief" that it has a financial interest
in need of protection. Id. at 211-12. We also concluded that World-
wide Financial presented sufficient evidence on each element of the
tortious interference claim to survive summary judgment. See id. at
212-13.
On remand, after conducting a bench trial, the district court entered
judgment in favor of Southern Financial. The court explained that
"[w]hile the Fourth Circuit held that Worldwide provided sufficient
evidence to create a triable issue of fact with respect to the four ele-
ments of its prima facie case, Worldwide failed to do so at trial." J.A.
733. Specifically, the court found that "Worldwide failed to prove that
8 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
[Southern Financial] had knowledge of Worldwide’s factoring agree-
ment with Commerce Funding, that [Southern Financial] intentionally
interfered in such contract causing its breach, or that [Southern Finan-
cial] attempted to interfere with the agreement." J.A. 733. Also, the
district court concluded that Worldwide Security failed to offer suffi-
cient proof of any damages relating to Southern Financial’s conduct.
Worldwide Security appeals for a second time, raising essentially
two challenges to the district court’s decision. First, Worldwide
Security argues that the court erroneously applied Virginia law to the
evidence at trial in concluding that Worldwide Security failed to
establish the elements of its claim. Second, Worldwide Security
argues that the district court applied the wrong legal standard in
rejecting its claim for lost profits and other damages, and then ignored
its damages evidence which was sufficient to support an award of
damages, including lost profits.
II.
In an appeal following a bench trial, our review of the district
court’s legal conclusions is de novo, but we will not disturb the
court’s factual findings unless they are clearly erroneous. See Wil-
liams v. Sandman, 187 F.3d 379, 381 (4th Cir. 1999). A district
court’s factual finding is clearly erroneous "when although there is
evidence to support it, the reviewing court on the entire evidence is
left with the definite and firm conviction that a mistake has been com-
mitted." Scrimgeour v. I.R.S., 149 F.3d 318, 324 (4th Cir. 1998)
(internal quotation marks omitted). "Where there are two permissible
views of the evidence, the factfinder’s choice between them cannot
be clearly erroneous." Id. (internal quotation marks and alteration
omitted).
A.
To prevail on its cause of action arising under Virginia law, World-
wide Security was required to prove: "(1) the existence of a valid con-
tractual relationship . . . ; (2) knowledge of the relationship . . . on the
part of the interferor; (3) intentional interference inducing or causing
a breach or termination of the relationship . . . ; and (4) resultant dam-
age to the party whose relationship . . . has been disrupted." Chaves
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 9
v. Johnson, 335 S.E.2d 97, 102 (Va. 1985). Worldwide Security bore
the burden of convincing the district judge, sitting as the trier of fact,
that each element was present. It is undisputed that, as required by the
first element, a valid contract existed between Worldwide Security
and Commerce in the form of the factoring agreement. Therefore, we
turn to the other elements.
First, Worldwide Security was required to demonstrate "knowledge
of the relationship . . . on the part of the interferor." Id. at 102. The
interferor "must have knowledge of the contract with which he is
interfering and of the fact that he is interfering with the performance
of the contract." Restatement (Second) of Torts § 766, comment i.
The district court concluded, based on its view of the evidence, that
Worldwide Security failed to carry its burden of "prov[ing] that
[Southern Financial] had knowledge of Worldwide’s factoring agree-
ment with Commerce Funding." J.A. 733. The district court explained
that "[n]o evidence was presented that Worldwide ever informed
[Southern Financial] of the factoring agreement it entered into with
Commerce Funding" and that "when [Southern Financial] wrote
Commerce Funding in late July 1998 demanding Denmark’s receiv-
ables in excess of the amounts Denmark owed to Commerce Funding,
[Southern Financial] was acting pursuant to . . . its own Inter-creditor
Agreement with Commerce Funding and without knowledge of the
factoring agreement." J.A. 733.
Worldwide Security argues that the district court erred in conclud-
ing that Southern Financial did not have knowledge of the contractual
relationship because the Southern Financial loan officer responsible
for the loan to Denmark, Michelle Douglas, testified that she was
aware of a contractual arrangement between Commerce and World-
wide Security by the end of July 1998. Worldwide Security also
points to a letter, dated August 6, from its attorney to Southern Finan-
cial’s attorney, in which a reference is made to "Worldwide [having]
granted a security interest to [Commerce] in its receivables." J.A. 369.
Although Worldwide Security is correct that this evidence is suffi-
cient to permit the trier of fact to conclude that the knowledge
requirement has been satisfied, it does not require such a conclusion.
Worldwide Security, in effect, is advancing a summary judgment
argument — indeed, we previously concluded that there was suffi-
10 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
cient evidence, when viewed in the light most favorable to Worldwide
Security, to permit a trier of fact to find in its favor on the elements
of a tortious interference claim. See Commerce Funding, 249 F.3d at
212-13. On remand, however, the issue was no longer whether
Worldwide Security could offer sufficient evidence to establish each
element; rather, the question was whether it could prove its claim by
a preponderance of the evidence to the district court.
Worldwide Security’s only argument in this regard is that the dis-
trict court should have been persuaded that Southern Financial knew
about the contract by Douglas’s testimony and the letter to Southern
Financial’s attorney, which is really nothing more than a challenge to
the district court’s contrary factual determination. The district court’s
conclusion that Southern Financial was not aware of the factoring
agreement between Worldwide Security and Commerce is supported
by the evidence. As noted by the court, there was no evidence that
either Worldwide Security or Venegoni informed Southern Financial
of the factoring agreement or its terms or provided a copy of it. John
Geraerdts, who served as counsel for Commerce, testified that South-
ern Financial was not a party to the arrangement between Worldwide
Security and Commerce and that there was "no reason for them to
even know about that loan." J.A. 165. This testimony was consistent
with Worldwide Security’s position before and throughout the litiga-
tion that unlike the factoring agreement between Denmark and Com-
merce, which required Southern Financial’s participation because of
its interest in Denmark’s receivables, the factoring agreement
between Worldwide Security and Commerce asserted a lien in receiv-
ables ostensibly generated from contracts owned by Worldwide
Security. Moreover, as noted by the court, Southern Financial made
its demands for the receivables generated from Denmark’s govern-
ment contracts pursuant to its contract with Commerce under the
Intercreditor Agreement, without referring to any arrangement Com-
merce had with Worldwide Security.
Although Douglas testified that she knew of a contractual arrange-
ment between Worldwide Security and Commerce, she indicated that
her knowledge resulted from an exchange of letters at the end of July.
Specifically, Douglas was referring to a July 21 letter to Commerce
in which she made a demand under the terms of the Intercreditor
Agreement and a July 24 letter drafted by Southern Financial’s attor-
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 11
ney also seeking to recoup receivables under the Intercreditor Agree-
ment. Neither letter made any reference whatsoever to a contractual
arrangement between Worldwide Security and Commerce; in fact, the
only "new" information that "ha[d] come to [Southern Financial’s]
attention [was] that Mr. Haas has sold the assets of his business . . .
to Worldwide Security." J.A. 363. Therefore, Douglas’s testimony
was far from conclusive regarding Southern Financial’s knowledge of
the contract. Since there was other evidence suggesting that Southern
Financial was unaware of the contract, the district court’s conclusion
did not amount to clear error. See Scrimgeour, 149 F.3d at 324("[T]he fact-finder’s choice . . . cannot be clearly erroneous" if "there
are two permissible views of the evidence." (internal quotation marks
omitted)).
B.
Next, Worldwide Security challenges the district court’s conclusion
that it failed to prove the third element of the tort — "intentional
interference inducing or causing a breach or termination" of the con-
tract. Commerce Funding, 249 F.3d at 210 (internal quotation marks
omitted). The intent requirement may be satisfied not only when the
defendant "acts for the primary purpose of interfering with the perfor-
mance of the contract," but also when the defendant "knows that the
interference is certain or substantially certain to occur as a result of
his [or her] actions." Restatement (Second) of Torts § 766 cmt. j; see
Commerce Funding, 249 F.3d at 212-13. The district court concluded
that the evidence showed only that Southern Financial was "attempt-
ing to enforce its own rights under its various agreements, including
the Intercreditor Agreement when it attempted to take hold of the
funds," rather than attempting to interfere with the contract between
Worldwide Security and Commerce. J.A. 734. Moreover, given the
court’s finding that Worldwide Security failed to prove the knowl-
edge requirement, the evidence would necessarily fail to show that
Southern Financial knew that interference was certain or substantially
certain to occur as a result of its attempt to exercise its rights under
the Intercreditor Agreement.
Worldwide Security argues that the district court’s conclusion con-
travenes our holding in the previous appeal that rejected Southern
Financial’s affirmative defense that any interference was justified by
12 COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK
its "financial interest" because "Southern had absolutely no legal
interest whatsoever to protect." Commerce Funding, 249 F.3d at 212.
We explained that in the absence of an actual financial interest, the
defendant may not assert an affirmative defense arguing that interfer-
ence was justified or privileged. Thus, even if the actor possesses a
good faith belief that he has such an interest in the matter, it is no
defense if he does not actually possess such an interest. See id. at 212.
Worldwide Security contends that the district court ignored our deci-
sion to the extent that the court relied on evidence that Southern
Financial was protecting its own financial interest under the Inter-
creditor Agreement. Thus, Worldwide Security argues that the only
factual question for trial was whether Southern Financial’s actions in
fact interfered with the contract.
Worldwide Security misconstrues our prior decision. In Commerce
Funding we held that good faith, or lack thereof, is not relevant for
purposes of the "financial interest" affirmative defense. An affirmative
defense serves as a "bar to the right of recovery even if the general
complaint were more or less admitted to." Emergency One, Inc. v.
American Fire Eagle Engine Co., 332 F.3d 264, 271 (4th Cir. 2003)
(internal quotation marks omitted). Therefore, the financial interest
affirmative defense can shield from liability a defendant who is other-
wise guilty of intentional interference with a contract. Commerce
Funding simply established that a defendant may not intentionally
interfere with a contract and then justify his actions by proving that
he reasonably, albeit mistakenly, believed he was protecting a legal
interest to which he was entitled. See 249 F.3d at 210-12. Such a
defense, of course, assumes that the defendant has otherwise tor-
tiously interfered with the contract — i.e., that the defendant knew
about the contract and knew that his actions were "certain or substan-
tially certain" to interfere with the contract. Id. at 212-13 (internal
quotation marks omitted). By contrast, the decision of the district
court focused not on an affirmative defense but on Worldwide Securi-
ty’s proof of the elements of its claim. Southern Financial’s pursuit
of Denmark’s receivables under the Intercreditor Agreement was rele-
vant to knowledge of the contract as well as intent and purpose —
elements that Worldwide Security was required to prove in order for
COMMERCE FUNDING v. SOUTHERN FINANCIAL BANK 13
the district court to find that Southern Financial was "otherwise
guilty" of tortious interference.*
III.
Because we affirm the district court’s conclusion that Worldwide
Security failed to prove Southern Financial’s knowledge of or inten-
tional interference with the contract, we need not consider whether
Worldwide Security offered sufficient evidence to support its claim
for lost profits or other damages. Accordingly, we affirm the judg-
ment of the district court.
AFFIRMED
*In making this argument, Worldwide Security again fails to distin-
guish between summary judgment and a bench trial. In Commerce Fund-
ing, we were reviewing the district court’s disposition of a summary
judgment motion. We concluded that, construing the facts in favor of
Worldwide Security, Southern Financial was not entitled to summary
judgment based on a financial interest affirmative defense because "a
reasonable jury could find that Southern failed to prove that its actions
were justified or privileged on the basis of [its] financial interest." Com-
merce Funding, 249 F.3d at 212 (emphasis added). The earlier denial of
a summary judgment motion, of course, does not preclude the ultimate
entry of judgment in favor of the party to whom summary judgment was
denied. See Thorpe, 984 F.2d at 545.