Peter Farrell Supercars, Inc. v. Monsen , 82 F. App'x 293 ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
PETER FARRELL SUPERCARS, 
INCORPORATED; PETER FARRELL,
Plaintiffs-Appellants,
v.
GORDON MONSEN,
Defendant-Appellee,
 No. 02-2230
and
DAVID C. PENNER; JOHN ROBERT
DUFF, JR.; MALLOY WOODBRIDGE,
LLC; MALLOY LINCOLN MERCURY,
INCORPORATED,
Defendants.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
James C. Cacheris, Senior District Judge.
(CA-01-1073-A)
Argued: October 31, 2003
Decided: December 3, 2003
Before NIEMEYER, WILLIAMS, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
COUNSEL
ARGUED: Richard Steven Sternberg, Rockville, Maryland, for
Appellants. Francis Eugene Purcell, Jr., WILLIAMS MULLEN,
McLean, Virginia, for Appellee.
2 PETER FARRELL SUPERCARS v. MONSEN
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Peter Farrell Supercars and its owner, Peter Farrell, (collectively
Farrell) appeal from a jury verdict in favor of Gordon Monsen, a dis-
gruntled Farrell’s customer. Farrell’s original complaint stemmed
from negative statements that Monsen posted on the internet.1 It
included several state claims and a federal Lanham Act claim. In
response to Farrell’s complaint, Monsen filed several counterclaims
alleging breach of contract, fraud and violations of the Virginia Con-
sumer Practices Act. The jury found in favor of Monsen on all claims
and counterclaims. Farrell argues that the district court abused its dis-
cretion by retaining the action after it dismissed the federal claim
under the Lanham Act, erred by holding that Monsen’s counterclaims
were compulsory and were not time barred, and abused its discretion
by awarding attorney’s fees to Monsen. We affirm.
I.
The facts relevant to this appeal arise out of a souring of the busi-
ness relationship between Farrell and one of his customers, Gordon
Monsen. Although Farrell initially claimed that a conspiracy among
a former Farrell Supercars’ employee, John Duff, and some of Far-
rell’s business competitors had damaged Farrell’s reputation and busi-
ness, by the time the trial began the only parties remaining in the
action were Farrell and Monsen. Monsen owned a Mazda RX-7 that
he took to Farrell for improvements in December 1998. Specifically,
Monsen wanted Farrell to install a 500-horsepower single-engine
turbo kit, perform a race-ported engine exchange, and make other
minor adjustments. Monsen believed that the term "engine exchange"
meant that Farrell would remove and rebuild his own engine, not that
1
Farrell’s complaint named multiple defendants, but by the time trial
commenced only Monsen remained.
PETER FARRELL SUPERCARS v. MONSEN 3
Farrell would literally exchange his engine with that from another car.
An invoice dated December 21, 1998, listed the improvements Farrell
would make, including the "race-ported engine-exchange." (J.A. at
83.)
Monsen picked up the car on May 14, 1999, and drove it home to
Pennsylvania. Monsen experienced difficulties with the car’s drivea-
bility almost immediately, and, after the engine caught fire while
Monsen was out for a drive, Monsen took the car to KD Rotary, a
Pennsylvania mechanic. At that time, in May 1999, KD Rotary deter-
mined that the engine fire was caused by the proximity of the engine
wiring harness to the turbo charger and the absence of a heat shield.
KD Rotary also found faulty wiring and soldering that fell below
industry standards. Monsen continued to have difficulties with the car
and returned to KD Rotary in August 2000. KD Rotary removed the
turbo kit and sent it to a specialist, who replaced that turbo kit with
a new one because the kit that Farrell had installed was severely
worn.
Armed with a new turbo kit, Monsen began driving the Mazda RX-
7 again. One week later, in September 2000, the engine simply
stopped working. KD Rotary, for the first time, decided to remove the
entire engine for examination. Upon inspecting the engine, KD
Rotary found that the engine failed due to excessive wear. KD Rotary
noticed that the vehicle identification number (VIN) on the engine did
not match the VIN for Monsen’s car, and the name "Ed Taylor" was
found scratched on the engine. Ed Taylor had previously offered to
sell his car, also a Mazda RX-7, to Monsen, but Monsen had declined
because Taylor’s car had substantially more miles than Monsen’s.
Monsen thus believed that Farrell had switched Taylor’s engine,
which had over 100,000 miles on the odometer, for his, which had
only 25,000 miles.
In response to this perceived wrong, Monsen began posting mes-
sages regarding his business transactions with Farrell on an internet
bulletin board for RX-7 enthusiasts. For example, Monsen wrote on
June 1, 2001:
[I] strongly recommend that whoever is considering peter
feral talk to any of the many people that peter has mistreated
4 PETER FARRELL SUPERCARS v. MONSEN
and ripped off by selling them retitled out-of-state cars that
anything could have happened to and virginia still gives a
good clean title for, or charging for work not done as
expected.
(J.A. at 52.)
Farrell countered by bringing this action on July 9, 2001, in the
United States District Court for the Eastern District of Virginia, alleg-
ing violations of the Lanham Act, 15 U.S.C.A. § 1125 (West 1998 &
Supp. 2003), and seven state common law claims for defamation and
tortious interference with a business relationship.2 Monsen counter-
claimed for breach of contract, fraud and violations of the Virginia
Consumer Practices Act (VCPA), Va. Code Ann. § 59.1-200 et seq.
(Michie 2001). The district court dismissed Farrell’s Lanham Act
claim on April 25, 2002, principally because Monsen was not in com-
petition with Farrell and did not disseminate his statements as adver-
tisements. A jury trial commenced on June 11, 2002. On that date,
Farrell took a non-suit as to the former employee John Duff, leaving
only Monsen as a defendant. The jury found for Monsen on all of Far-
rell’s counts, and also found for Monsen on all of his counterclaims.
Accordingly, the jury awarded Monsen $10,000 for breach of con-
tract, $5,000 for fraud, $5,000 in punitive damages, and $5,000 for
the VCPA violations. The VCPA award was statutorily trebled to
$15,000. After denying Farrell’s motion for a new trial, the district
court awarded Monsen $55,823.50 in attorney’s fees, limiting the fee
award to those fees incurred on the VCPA claim. This timely appeal
followed. We possess jurisdiction to hear the appeal under 28
U.S.C.A. § 1291 (West 1993).
II.
On appeal, Farrell argues that the district court abused its discretion
by retaining the action after it dismissed the Lanham Act claim, erred
in ruling that Monsen’s counterclaims were compulsory and timely,
and abused its discretion in awarding Monsen attorney’s fees.3 We
address each of these arguments in turn.
2
Farrell’s complaint named other defendants who, by virtue of settle-
ments and non-suits, are not relevant to this appeal.
3
Farrell also complains of two errors regarding the jury instructions
and verdict form. We find both to be without merit and affirm the district
court’s findings and conclusions based on its reasoning.
PETER FARRELL SUPERCARS v. MONSEN 5
Supplemental Jurisdiction
Farrell first argues that the district court abused its discretion by
refusing to dismiss the remaining state law claims after it dismissed
the sole federal claim, the Lanham Act claim.4 We disagree. District
courts have supplemental jurisdiction over state law claims that "form
part of the same case or controversy" as the federal claim. 28
U.S.C.A. § 1367(a) (West 1993). A district court, however, "may
decline to exercise supplemental jurisdiction over a claim" when the
court "has dismissed all claims over which it has original jurisdic-
tion." 28 U.S.C.A. § 1367(b)(3) (West 1993). We review a district
court’s actions under § 1367 for abuse of discretion. Shanaghan v.
Cahill, 58 F.3d 106, 109 (4th Cir. 1995).
Farrell believes that, because the federal claim was dismissed
before trial, the district court abused its discretion by retaining the
numerous state law claims. The doctrine of supplemental jurisdiction
is one of flexibility, and there is no "mandatory rule" requiring dis-
missal when the federal claim is disposed of before trial. Carnegie
Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988). Likewise, in
Shanaghan, we noted that district courts enjoy "wide latitude" when
deciding whether to exercise supplemental jurisdiction in an action.
Shanaghan, 58 F.3d at 110. We instructed district courts to consider
the "convenience and fairness to the parties, the existence of any
4
In the alternative, Farrell argues that the district court never had juris-
diction over the action because the federal claim was a sham. In fact, at
argument Farrell’s appellate counsel made the somewhat unusual sugges-
tion, with his client’s blessing, that his client should be sanctioned for his
trial counsel having filed such a spurious claim. Although this strategy
may have been a clever attempt to fall within the purview of the safe-
harbor provision of Federal Rule of Civil Procedure 11 and thus relieve
Farrell of the adverse jury verdict, we must reject it because Farrell’s
complaint, on its face, stated a Lanham Act claim against the defendants
that provided federal question jurisdiction pursuant to 28 U.S.C.A.
§ 1331 (West 1993) and original jurisdiction pursuant to 28 U.S.C.A.
§ 1338 (West Supp. 2003). Because multiple defendants, some of whom
were competitors of Farrell, were dismissed before the Lanham Act
claim was disposed of by the district court, the fact that Farrell did not
state a claim under the Lanham Act against Monsen, standing alone, does
not dictate a finding that the Lanham Act claim was a sham when filed.
6 PETER FARRELL SUPERCARS v. MONSEN
underlying issues of federal policy, comity, and considerations of
judicial economy." Id. Applying those factors in Shanaghan, we held
that a district court was not required to dismiss a diversity action
where, after the action began, one of the claims was dismissed, leav-
ing the claimed damages below the amount in controversy require-
ments. We did caution, however, that a court must inquire into
"whether plaintiff was consciously relying on flimsy grounds to get
into federal court." Id. at 112.
In response to Farrell’s motion for a new trial, the district court
explained its decision to retain the remainder of the case, noting "the
parties had completed substantial pre-trial preparation,"5 and the court
"was already familiar with the facts and issues." (J.A. at 168.) There-
fore, the court continued, "dismissal at that late date therefore would
not have been fair to the parties, and also would not have been an effi-
cient use of judicial resources." (J.A. at 168.)
The district court’s decision to retain jurisdiction over the state law
claims was not an abuse of discretion. The district court followed the
procedure outlined in Shanaghan, taking into consideration the num-
ber of state law claims remaining as well as the length of time the par-
ties had already spent preparing for trial. The district court also
appropriately considered its familiarity with the parties and issues as
a factor favoring retention of the state law claims. The Lanham Act
claim was not disposed of until the eve of trial,6 almost eight months
after the complaint was filed, and the remaining state law claims,
although numerous, had been developed and refined throughout the
pretrial period. The district court deserves "wide latitude" in making
its determination under § 1367, see Shanaghan, 58 F.3d at 110, and
did not abuse that discretion by retaining jurisdiction.
5
For example, the parties had filed numerous motions, appeared four
times before the district court and numerous times before the magistrate
judge, completed discovery and filed witness lists with the court by the
time the Lanham Act claim was dismissed.
6
Although the trial did not commence until June 11, 2002, it was
scheduled to begin in April 2002, but was stayed so that Farrell could
attempt to serve notice on one of the co-defendants.
PETER FARRELL SUPERCARS v. MONSEN 7
Furthermore, we would be remiss if we failed to note the curious
procedural posture of this appeal. Typically in supplemental jurisdic-
tion cases, the plaintiff is complaining because the district court failed
to retain his supplemental state law claims. Here, Farrell, the plaintiff,
is complaining because the district court in which he filed his federal
and state law claims used its discretion to retain the state law claims
after dismissing the federal claim. Farrell now claims that he used the
Lanham Act claims as a "hook" with which to bring the state law
claims under federal jurisdiction. Under these circumstances, we can-
not help but view Farrell’s post-trial actions as those of a somewhat
sore loser who is upset that his chosen forum rendered an unfavorable
verdict.
Given the district court’s careful consideration of the factors listed
in Shanaghan, and the wide latitude the district court possesses when
acting under § 1367, we cannot say that the district court abused its
discretion in choosing to retain the state law claims after dismissing
the Lanham Act claim.7
The Counterclaims
Farrell’s next contention is that the district court erred in finding
that Monsen’s counterclaims were compulsory within the meaning of
Federal Rule of Civil Procedure 13(a). That rule requires a party to
state "as a counterclaim any claim which at the time of serving the
pleading the pleader has against any opposing party, if it arises out of
the transaction or occurrence that is the subject matter of the opposing
party’s claim." Fed. R. Civ. P. 13(a). If a counterclaim is compulsory,
a district court requires no independent jurisdictional basis to enter-
tain it. Farrell argues that Monsen’s counterclaims were not compul-
sory and, because there was no independent jurisdictional basis for
them, those claims should have been dismissed.
We review a district court’s finding that a counterclaim is compul-
sory de novo. Painter v. Harvey, 863 F.2d 329, 331 (4th Cir. 1988).
7
Because we find that the district court did not abuse its discretion in
retaining the state law claims, we offer no opinion as to whether the dis-
trict court also possessed diversity jurisdiction under 28 U.S.C.A. § 1332(West 1993 & Supp. 2003).
8 PETER FARRELL SUPERCARS v. MONSEN
In Sue & Sam Mfg. Co. v. B-L-S Const. Co., 538 F.2d 1048, 1051-
1053 (4th Cir. 1976), we identified four inquiries that help in deter-
mining whether a counterclaim is compulsory: (1) Are the issues of
fact and law raised in the claim and counterclaim largely the same?
(2) Would res judicata bar a subsequent suit on the party’s counter-
claim, absent the compulsory counterclaim rule? (3) Will substan-
tially the same evidence support or refute the claim as well as the
counterclaim? and (4) Is there any logical relationship between the
claim and counterclaim? "A court need not answer all these questions
in the affirmative for the counterclaim to be compulsory." Painter,
863 F.2d at 331. Instead, the test works "less like a litmus, more [like]
a guideline." Id. Of course, the "underlying thread" to each inquiry is
"evidentiary similarity," and "where . . . the same evidence will sup-
port or refute both the claim and counterclaim, the counterclaim will
almost always be compulsory." Id. at 331-332.
With this framework in mind, we turn to the instant case. The dis-
trict court, in reviewing Farrell’s motion to dismiss the counterclaims,
determined that each inquiry weighed in favor of finding that the
claims are compulsory. We agree. The key inquiry, as we made clear
in Painter, is the evidentiary similarity of the claims. Here, Monsen’s
counterclaims necessarily involve the same evidence as Farrell’s orig-
inal claims. Monsen is alleging that Farrell performed poor work on
his automobile. Farrell is suing Monsen for statements made in
response to that work. The evidence involving both claims would nec-
essarily center on the customization work performed by Farrell. Cf.
Albright v. Gates, 362 F.2d 928, 929 (9th Cir. 1966) (holding that a
counterclaim for fraud was compulsory to a claim for slander because
there was "sufficient identity or overlapping of the events of the fac-
tual background").
There is a logical relationship between the claims because they "es-
sentially ar[o]se from the souring of [the parties’] business relation-
ship." Banner Indus. of N.Y., Inc. v. Sansom, 830 F.Supp. 325, 328
(S.D. W. Va. 1993) (finding a counterclaim for breach of contract and
fraud to be compulsory to a claim of defamation). The issues of fact
and law are similar because "essentially the same burden" would exist
in the breach of contract and defamation claims. Sun Shipbuilding &
Dry Dock Co. v. Virginia Elec. & Power Co., 69 F.R.D. 395, 397
PETER FARRELL SUPERCARS v. MONSEN 9
(E.D. Pa. 1975) (seminal case finding that counterclaims for breach
of contract are compulsory to claims of defamation).
Because we have stated that evidentiary similarity is the most
important inquiry, and because there is both evidentiary similarity and
a logical relationship between Farrell’s original claims and Monsen’s
counterclaims, we find that the district court was correct in holding
that Monsen’s counterclaims were compulsory within the meaning of
Rule 13(a). Likewise, we find no error in the district court’s reasoned
analysis of the res judicata and overlap-of-facts-and-issues inquiries.
Farrell argues in the alternative that Monsen’s counterclaims are
time barred. It is undisputed that the invoice for Monsen’s RX-7 is
dated December 1998, and that the work was completed on Monsen’s
car by May of 1999. Farrell filed his complaint in July 2001, more
than two years after the alleged breach of contract and fraud. The dis-
trict court recognized that Monsen’s counterclaims were filed more
than two years after the claims accrued but submitted to the jury the
question of whether application of the discovery rule made Monsen’s
counterclaims timely.
We review the district court’s determination and application of
state law de novo. Salve Regina Coll. v. Russell, 499 U.S. 225 (1991).
The statute of limitations for fraud and violations of the VCPA is two
years.8 Va. Code Ann. § 59.1-204.1 (Michie 2001). Virginia law gen-
erally states that actions accrue at the time of injury, not the time of
discovery. Va. Code Ann. § 8.01-230 (Michie 2000). An exception
exists for actions in fraud;9 such claims accrue when the fraud is dis-
covered or when it should have been discovered by the exercise of
due diligence. Va. Code Ann. § 8.01-249.1 (Michie 2000). The ques-
tion of whether a party used due diligence to discover the fraud "must
be ascertained by an examination of the facts and circumstances
unique to each case." STB Mktg. Corp. v. Zolfaghari, 393 S.E.2d 394,
8
The breach of contract counterclaim was timely because Virginia’s
statute of limitations for breaches of contract is five years. Va. Code
Ann. § 8.01-246.2 (Michie 2000).
9
The VCPA claim is for fraudulent misrepresentation and thus also
covered by this narrow exception. Va. Code Ann. § 59.1-200(A)(2)
(Michie 2001).
10 PETER FARRELL SUPERCARS v. MONSEN
397 (Va. 1990). The district court did not err in allowing the jury to
determine whether Monsen had used due diligence to find that Farrell
literally had switched his engine for another. While it is true that
Monsen was displeased with Farrell’s work from the time he received
the car, Monsen had no reason to suspect that his engine had been
replaced. Monsen was diligent and continued to have the car
inspected by other mechanics. Monsen did not sit on his rights for two
years but kept searching for answers to his car problems until Septem-
ber 2000, when KD Rotary for the first time found that Monsen’s
engine had been replaced with Ed Taylor’s. The district court cor-
rectly ascertained Virginia law and did not err in applying the discov-
ery rule.
Attorney’s Fees
Farrell also disputes the district court’s award of attorney’s fees to
Monsen’s two attorneys,10 arguing both that Monsen failed to intro-
duce evidence that the fees charged were reasonable, and that the
award violated the Virginia Code. We review a district court’s award
of attorney’s fees for abuse of discretion. Am. Reliable Ins. Co. v.
Stillwell, 336 F.3d 311, 320 (4th Cir. 2003). Because the district court
granted fees pursuant to a Virginia statute,11 we look to Virginia’s
standards for determining if the fee award is reasonable.
In Virginia, counsel must "establish, as an element of the attorney’s
prima facie case, that the fees charged . . . are reasonable." Seyfarth,
Shaw, Fairweather & Geraldson v. Lake Fairfax Seven Ltd., 480
S.E.2d 471, 473 (Va. 1997). When determining if the party has met
that burden, "the fact finder should consider such circumstances as the
time consumed, the effort expended, the nature of the services ren-
dered, and other attending circumstances." Mullins v. Richlands Nat’l
Bank, 403 S.E.2d 334, 335 (Va. 1991). A court should "weigh the tes-
timony of attorneys as to the value of the services, by reference to
their nature, the time occupied in their performance, and other attend-
10
Monsen’s counsel was acting pro hac vice, and the district court rules
require local counsel be retained in those situations. E.D. Va. Local R.
83.1(D).
11
The VCPA authorizes an award of attorney’s fees to prevailing par-
ties. Va. Code Ann. § 59.1-204(B) (Michie 2001).
PETER FARRELL SUPERCARS v. MONSEN 11
ing circumstances, and by applying to it their own experience and
knowledge of the character of such services." Holmes v. LG Marion
Corp., 521 S.E.2d 528, 533 (Va. 1999) (quoting Beale v. King, 132
S.E.2d. 476, 478-79 (Va. 1963)). Expert testimony regarding the rea-
sonableness of the fees is not required in every case. See Tazewell Oil
Co. v. United Va. Bank, 413 S.E.2d 611 (Va. 1992) (holding affidavit
and billing records sufficient); Seyfarth, Shaw, 480 S.E.2d at 473
(holding testimony regarding complexity of the work sufficient).
Monsen’s counsel submitted detailed billing records and testified
as to both attorneys’ billing practices. The district court carefully
reviewed the records, and rejected almost one-third of the fees as
duplicative or unrelated to the VCPA claim. The district court also
relied on its own experience, noting Monsen’s chief counsel pos-
sessed "apparent trial experience." (J.A. at 185.) Regarding the rea-
sonableness of the rate charged by Monsen’s local counsel, the
district court found the rate well within "the rates charged for local
counsel services in the metropolitan District of Columbia area." (J.A.
at 185-186.) The district court did not abuse its discretion in deciding
to award attorney’s fees because it carefully followed the dictates of
the Virginia Supreme Court and conducted a detailed analysis of the
billing records before determining that the rates charged were reason-
able.
Farrell also argues that the award violates the Virginia Code
because the Code prohibits an award of fees to more than one attor-
ney. Section 17.1-625 states, "[a]lthough the party recovering may
have had more than one attorney, only the fees of one shall be taxed
in the same court." Va. Code Ann. § 17.1-625 (Michie 2003). Vir-
ginia courts have yet to rule on the meaning of this section, but we
believe that, assuming arguendo that the section prohibits more than
one attorney from receiving a fee award, the district court followed
the legislature’s intent in this action. The district court removed all of
the duplicative fees from the lodestar when calculating the award.
Thus, by its actions, the district court was, in fact, ensuring that only
one attorney’s worth of work was being credited in the fee award.
Because the district court followed the clear intent of the Virginia
Code, we do not find the award of attorney’s fees to be an abuse of
discretion.
12 PETER FARRELL SUPERCARS v. MONSEN
III.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.