Construction Law Insights

Cove v. Wallen, 2020 Va. Cir. LEXIS 31 (Fairfax Cnty. Cir. Ct. Mar. 11, 2020)

Plaintiffs Edward and Pamela Cover, along with Defendants Millard Wallen, III and Dianna Wallen and Jeff and Cathy Black formed LLCs for the purpose of purchasing and developing the Stonecroft Business Park (“Stonecroft Project”) in Chantilly, Virginia. Their combined business entity, Stonecroft Business Park, LLC borrowed $13,700,000 from La Jolla Bank to finance the Stonecroft Project. The loan was personally guaranteed by the Coves, Wallens, and Blacks, individually. In September 2010, the venture defaulted on the loan, and the successor bank to La Jolla filed suit in the Eastern District of Virginia seeking over $13.8 million. After the Blacks declared bankruptcy, the Coves and Wallens settled the lawsuit with the bank in late 2011. In return for releasing the Coves

and Wallens from all liability, the bank accepted the foreclosure of the Stonecroft Property and the Cedar Lane Property, which was owned by a pass-through entity controlled by the Coves, and a cash payment of $2 million, which was made entirely by the Coves. Although the Wallens did not contribute any money to the settlement, they obtained under the settlement dismissal of all claims by the bank against them.

After the settlement, the Coves and Wallens met on several occasions and discussed the Wallens’ obligations to the Coves, and both Mr. Cove and Mr. Wallen testified at trial that Wallen agreed that he owed Cove a portion of the settlement funds that Cove paid to the bank. By 2018, however, Wallen refused to continue his in-kind repayment to Cove, and the Coves sued the Wallens for breach of oral contract and unjust enrichment. After a bench trial, the court found that the breach of contract claims failed for lack of a reasonably certain amount of repayment. However, the court found that the Coves had proven the elements of unjust enrichment against both Mr. and Mrs. Wallen.

A cause of action for unjust enrichment requires a plaintiff to show a benefit conferred on the defendant, which the defendant knew about and should reasonably have expected to repay, and that the defendant accepted or retained the benefit without paying for its value. Schmidt v. Household Fin. Corp., II, 276 Va. 108, 116 (2008). Here, the Coves conferred the benefit of obtaining dismissal of the bank’s $13.8 million lawsuit against the Wallens without any payment of funds by the Wallens. The record clearly showed that the Wallens knew of the benefit, as the couple signed the settlement agreement with the bank and the Coves. On these facts, the court found that the someone in the Wallens’ position should have reasonably expected to repay the Coves.

In fact, evidence at trial showed that the Wallens did in fact, expect to repay the Coves. Mr. Wallens offered to sign the deed to a condominium in the Shenandoah over to the Coves and discussed taking out a life insurance policy with Mr. Coves as the beneficiary – although neither were actually acted on. Mr. Wallen’s company, Trinity Group Construction, Inc., reached an agreement with Mr. Cove’s company, EFC Glass Systems, Inc., where Trinity Group would pay EFC Glass above-market prices on subcontract work, although this, too, never happened. In 2015, Mr. Wallen and Mr. Cove agreed that Trinity Group would complete tenant build-out work at no charge on space that EFC Glass leased in the same business complex. These actions “are consistent with someone who has a belief they are indebted to another.” Therefore, the court awarded the Coves $1.797 million in damages – an amount that included half of their cash settlement payment, half of the appraised value of the Cedar Lane Property, less the amount of uncharged rent provided by Trinity Group to Cove and EFC Glass.

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