UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


LABOVITZ, PETER C.

v.

WA TIMES CORP


97-7203a

D.C. Cir. 1999


*	*	*


Rogers, Circuit Judge: Peter and Sharon Labovitz, share- holders,
directors, and officers of DCI Publishing, Inc., appeal  the dismissal
of several counts of their complaint alleging that  the Washington
Times,1 a daily metropolitan newspaper,  attempted to acquire DCI at a
"distressed price." The  Labovitzes alleged that the Times' dealings
with them and  DCI substantially reduced the value of their interests
in DCI,  triggered their personal guarantees of loans to DCI, and 
resulted in the seizure of personal property that they had  pledged as
collateral for DCI's obligations. Because, in their  view, these
injuries represent individual claims, the Labo- vitzes contend that
the district court erred in dismissing them  under Delaware and
Virginia law on the ground that they  were derivative of losses
suffered by DCI. On cross appeal,  the Times contends that the
district court erred in excluding  evidence relevant to its setoff
defense that any injury Mr.  Labovitz suffered from the alleged breach
of the Times'  contract with him was "set off" by his failure to make
certain  payments on behalf of DCI to a third-party bank.


Because a personal guarantor is sufficiently similar to a  creditor of
a corporation, and because the Labovitzes' com- plaint does not allege
facts showing a special injury to them- selves, we affirm the
dismissal of their claims for breach of  fiduciary duty, fraud, and
negligent misrepresentation as  derivative under Delaware law.
Because, further, the Labo- vitzes are not the real parties in
interest to pursue claims of  damage to their property interests in
DCI under the Virginia  Conspiracy Act, we affirm the dismissal of
their claim under  that statute. Finding no abuse of discretion by the
district  court in excluding evidence proffered as part of the Times'




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n 1 We will refer to both appellees, the Washington Times and its 
parent company, News World Communications, as "the Times."


setoff defense, we affirm the orders and judgment of the  district
court.


I.


In reviewing the order dismissing seven counts of the  Labovitzes'
complaint, this court views the allegations in the  complaint as true,
although it need not accept "purely legal  conclusions masquerading as
factual allegations." Maljack  Prods., Inc. v. Motion Picture Ass'n of
America, Inc., 52 F.3d  373, 375 (D.C. Cir. 1995). DCI, incorporated
in Delaware,  operated several suburban community newspapers in Mary-
land and Virginia. The Labovitzes and another individual,  John Hanes,
apparently each owned one-half of DCI prior to  1991.2 According to
the complaint, in January 1991, the  Times began discussions with the
Labovitzes and Hanes  about acquiring DCI. During the course of their
negotia- tions, the Times provided cash and printing services to DCI 
worth over $2 million. After several months, the Times  decreased its
financial contributions to DCI but told the  Labovitzes that it would
fully fund DCI after they executed  several loan agreements. Under
these agreements, which the  parties signed in August 1991, the Times
acquired a fifty- percent ownership interest in DCI in exchange for
providing  several million dollars in cash and services to allow DCI
to  continue operating. The Times also had the option of acquir- ing
total control of DCI and its assets at fair market value  after two
and one-half years. To avoid public scrutiny of the  Times' ownership
interest in DCI,3 the parties structured the  deal in the form of a
loan from the Times to DCI. Peter 




__________

n 2 Specifically, the complaint alleges that the Labovitzes owned  "no
less than one-half of the controlling interest" of DCI, while  John
Hanes and companies affiliated with him owned "approximate- ly
one-half." The complaint's wording suggests that the Labovitzes  and
Hanes were the only shareholders in DCI; the Labovitzes'  brief,
however, suggests that several of the companies under DCI's  control
had minority shareholders.


3 The Labovitzes allege that the Times wished to keep its  involvement
in DCI secret because of the newspaper's ties to the  Unification
Church and its leader Reverend Sun Myung Moon. 


Labovitz retained his management positions as president and  chief
executive officer of DCI.


Shortly thereafter, however, the Times began secret nego- tiations with
John Hanes with the idea of committing DCI to  purchase accounting and
consulting services from the Times  that it could not afford. In
addition, the Times' agents,  Richard Jones and Michael Webb, proposed
to Peter Labovitz  that he relinquish day-to-day control of DCI in
exchange for  payments of $20,000 monthly for six months and a promise
 that the Times would provide further financial support to  DCI.
Within a few months after Peter Labovitz agreed to  those terms, he
was barred from access to DCI financial  records, and the Times
transferred DCI assets and personnel  to the Times and elsewhere
without his knowledge, instruct- ing DCI employees to refrain from
communicating with him.  The Times also refused to pay him $20,000
monthly and  demanded that he and Sharon Labovitz surrender their
inter- ests and involvement in DCI, which they declined to do. The 
Times then withdrew its financial support from DCI and  demanded that
DCI pay $2 million in deferred printing,  composing, accounting, and
consulting service costs. Accord- ing to the complaint:


[t]he Times knew that its actions in withdrawing support  from DCI
would cause substantial injury to plaintiffs by  (a) substantially
reducing the value of plaintiffs' interests  in DCI; (b) triggering
plaintiffs' personal guarantees of  DCI's corporate debts, and (c)
leading to the seizure of  plaintiffs' property, which had been
pledged as collateral  for DCI's obligations.


In January 1993, DCI filed for bankruptcy,4 and in 1995, the 
Labovitzes filed suit against the Times.


In their complaint the Labovitzes allege that the Times  owed them a
fiduciary duty (count one) because of its "de  


__________

n The Times allegedly feared that publicity of its ownership interest 
in DCI would adversely affect DCI's revenues due to negative  public
attitudes about the Unification Church.


4 In July 1996, the bankruptcy court approved a settlement  between
NationsBank (one of DCI's creditors) and the Times. The 


facto control" over DCI, and that it breached this duty by (1) 
operating DCI for its own benefit, rather than DCI's; (2)  attempting
to force Peter Labovitz to turn over his shares in  DCI to the Times
at a distressed price and to surrender his  management role; and (3)
refusing to pay Peter Labovitz the  agreed-upon compensation of
$20,000 monthly for six months.  They further allege that the Times
committed fraud (counts  two and three) and negligent
misrepresentation (count four)  by making false statements about its
commitment to the  financial success of DCI to induce them to sign
loan docu- ments in August 1991, and to surrender day-to-day control
of  DCI. They also allege that the Times violated the Virginia 
Conspiracy Act (counts five and six), s 18.2-499(A) & (B), by 
conspiring with the Times' agents and John Hanes to injure  the
Labovitzes' business and property interests in DCI. Fi- nally, they
allege breach of contract (count seven) and prom- issory estoppel
(count eight) based on the Times' failure to  pay Peter Labovitz


The district court granted the Times' motion to dismiss the  complaint
except for count seven (breach of contract). The  court ruled that the
dismissed counts involved claims for  injuries that derived from
losses suffered by DCI, and that  under Delaware and Virginia law,5
the Labovitzes could not  pursue their claims as individuals. Labovitz
v. Washington  Times Corp., 900 F. Supp. 500, 504 (D.D.C. 1995).
Specifical-




__________

n settlement required that NationsBank, acting on behalf of DCI,  agree
to dismiss with prejudice its claims against the Times for  breach of
contract, breach of fiduciary duty, fraud, negligent mis-
representation, and equitable subordination, but it preserved the 
Labovitzes' right to pursue any personal claims they might have 
against the Times. The Labovitzes agreed to the terms of the 
settlement. Although the Times contends that the Labovitzes  violated
this agreement by pursuing their claims, the court must  first
determine whether the Labovitzes' claims are individual or 
derivative, before it can address the impact of the settlement. In 
view of our disposition, however, we do not reach this issue.


5 The district court applied Delaware law to counts one through  four
and Virginia law to counts five and six. The Labovitzes do not 


ly, the court found that the injuries alleged by the Labo- vitzes--such
as loss in stock value and losses associated with  their status as
guarantors--were derivative in nature. Id. at  504-05. On the
remaining claim for breach of contract, a jury  awarded Peter Labovitz
$120,000.


On appeal, both sides contend that the district court erred,  the
Labovitzes maintaining that the dismissed counts involved  claims for
individual injuries separate and apart from those  suffered by DCI,
and the Times maintaining that the exclu- sion of evidence that Peter
Labovitz failed to make certain  mortgage payments on behalf of DCI to
an outside lender  was relevant as a setoff defense. We address three
primary  issues, the first two de novo, Maljack, 52 F.3d at 375, and
the  third for abuse of discretion, see Chedick v. Nash, 151 F.3d 
1077, 1084 (D.C. Cir. 1998): (1) whether under Delaware law  the
Labovitzes were the real parties in interest to pursue  claims for
breach of fiduciary duty, fraud, and negligent  misrepresentation,6
(2) whether Virginia law permits the La- bovitzes to bring claims
under the Virginia Conspiracy Act,  ss 18.2-499 & -500, and (3)
whether the district court abused  its discretion by excluding as
irrelevant evidence related to  the Times' setoff defense.


II.


A.


Under Delaware law, shareholders can bring an individual  claim if they
suffer injuries "directly or independently of the 




__________

n appeal the dismissal of count eight for promissory estoppel; it 
became moot when the district court allowed Peter Labovitz to  pursue
his breach of contract claim under count seven.


6 Although the Times characterizes this as a standing question,  the
issue here is who is the real party in interest, see Fed. R. Civ.  P.
17(a), to bring a lawsuit "under the governing substantive law to 
enforce the asserted right." Whelan v. Abell, 953 F.2d 663, 672  (D.C.
Cir. 1992). In the shareholder context, the question is  "whether the
corporation should be entitled to bring an action, at  least in the
first instance, without the distraction of stockholders'  suits."


corporation."7 Kramer v. Western Pacific Indus., Inc., 546  A.2d 348,
351 (Del. 1988). Claims based on injury to the  corporation, however,
are derivative in nature and any dam- ages suffered are owed to the
corporation. Id. To determine  whether claims are individual or
derivative, courts "must look  to the nature of the wrongs alleged in
the body of the  complaint, not to the plaintiffs' designation or
stated inten- tion." Id. (quoting Lipton v. News Int'l, Plc, 514 A.2d
1075,  1078 (Del. 1986)). Plaintiffs must allege a "special injury" to
 themselves, apart from that suffered by the corporation.  Cowin v.
Bresler, 741 F.2d 410, 414-15 (D.C. Cir. 1984). This  injury can arise
in two situations: first, "where the allegedly  wrongful conduct
violates a duty to the complaining share- holder independent of the
fiduciary duties owed that party  along with all other shareholders,"
such as a duty that arises  out of an employment relationship, or
second, "where the  conduct causes an injury to the shareholders
distinct from  any injury to the corporation itself," such as losses
resulting  from a company wrongfully withholding dividends. Id.; see 
also Williams v. Mordkofsky, 901 F.2d 158, 164 (D.C. Cir.  1990). The
Delaware Supreme Court observed in Lipton that  "[a] shareholder who
suffers an injury peculiar to itself should  be able to maintain an
individual action, even though the 




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n 7 The district court noted in its order that neither party ad-
dressed which state law governed claims one through four of the 
complaint. Conducting its own choice-of-law analysis, the district 
court concluded that Delaware law governed the Labovitzes' share-
holder claims of breach of fiduciary duty, fraud, and negligent 
misrepresentation because DCI was incorporated in that state--a 
conclusion the parties do not contest on appeal. See also Cowin v. 
Bresler, 741 F.2d 410, 414 n.4 (D.C. Cir. 1984).


The Labovitzes' complaint intermingles injuries that are clearly 
derivative under Delaware law, such as a loss in the value of stock 
affecting all shareholders, see Kramer v. Western Pacific Indus., 
Inc., 546 A.2d 348, 353 (Del. 1988), with other injuries that may or 
may not be so. To some extent the failure to address the choice-of-
law issue would explain the difficulty now confronting the Labo-
vitzes in attempting to fit the language of the complaint into legal 
theories recognized under Delaware law.


corporation also suffers an injury from the same wrong." 514  A.2d at
1079.


The Labovitzes allege in their complaint that the Times'  "de facto
control over DCI's operations" created a fiduciary  relationship
"between the Times, on the one hand, and DCI  and the [Labovitzes], on
the other." On appeal, the Labo- vitzes contend that because of this
relationship the Times  owed the Labovitzes a "special duty." The
Labovitzes, how- ever, merely assert that such a duty exists without
explaining  its exact nature or citing any relevant authority.
Although  the Labovitzes contend that they suffered injuries in roles 
other than shareholder, see Cowin, 741 F.2d at 415, they fail  to
describe in any detail the fiduciary duty owed to them in  those
roles. See Taha v. Engstrand, 987 F.2d 505, 507 (8th  Cir. 1993). But
see Barger v. McCoy Hillard & Parks, 488  S.E.2d 215, 222 (N.C. 1997).
But, assuming that the Times  owed the Labovitzes a duty in their
non-shareholder roles,  the Labovitzes fail to identify how their
injuries are unique to  themselves and independent of the harm


The Labovitzes' major contention on appeal focuses on  their role as
guarantors of DCI's loan obligations. Specifical- ly, they allege that
the Times' failure to fund DCI fully as  promised prevented DCI from
making payments on its debt  obligations, thereby triggering the
Labovitzes' personal guar- antees. In effect, the Times allegedly set
into motion a series  of events that first injured DCI and then the
Labovitzes.  While acknowledging that Delaware courts had not yet ad-
dressed whether a stockholder-guarantor could bring suit for  injuries
suffered as a result of wrongdoing inflicted on a  corporation, the
district court relied on the analysis of the  Seventh Circuit Court of
Appeals in Mid-State Fertilizer Co.  v. Exchange Nat'l Bank of
Chicago, 877 F.2d 1333, 1336-37  (7th Cir. 1989), in concluding that
the Labovitzes' injuries as  guarantors were directly tied to the fate
of the corporation  and therefore were derivative losses.


In Mid-State, the sole shareholders of Mid-State (Lasley  and Maxine
Kimmel) guaranteed their company's financial 


obligations when it obtained revolving credit from a bank.  When the
bank discovered that Mid-State was operating at a  loss, it placed
restrictions on new credit, pushing Mid-State  into default. Both
Mid-State and the Kimmels sued the bank  for violations of the
Racketeer Influenced and Corrupt Orga- nizations Act, 18 U.S.C. ss
1962(a) and 1964(c), and the Bank  Holding Company Act, 12 U.S.C. ss
1972 and 1975. Id. at  1333-35. Applying general principles of
corporate law, id. at  1335, the Seventh Circuit held that the
Kimmels' injuries  were derivative of Mid-State's because guarantors
were no  different from "shareholders, creditors, managers, lessors, 
suppliers, and the like [who] cannot recover on account of  injury
done the corporation," in part because allowing such  suits
"restrict[s] recoveries to the directly-injured party."8  Id. at 1336.
The court explained, persuasively in our view,  that:


[t]he participants most directly affected by injury inflict- ed on the
firm are the stockholders--for their investment  is first to be wiped
out. Creditors come next. Guaran- tors are contingent creditors. If
the firm stiffs a credi- tor, that creditor can collect from the
guarantor; the  guarantor succeeds to the original creditor's claim 
against the firm. We know that creditors cannot recover  directly from
injury inflicted on a firm, so guarantors as  potential creditors
likewise cannot recover.


Id. In their various roles in the corporation, including as 
guarantors, the Kimmels "gained and lost with Mid-State. A  blow
costing Mid-State $1 could not cost the Kimmels more  than $1, [and]
[a]n award putting the $1 back in Mid-State's  treasury would restore
the Kimmels to their former position."  Id. at 1335. The court
concluded that guarantors "must take  their place in line as creditors
in the bankruptcy action (or  outside of it), dependent now as before
on the success of the 




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n 8 Likewise, in Taha v. Engstrand, the Eighth Circuit Court of 
Appeals observed that "[s]hareholders, creditors or guarantors of 
corporations generally may not bring individual actions to recover 
what they consider their share of the damages suffered by the 
corporation." 987 F.2d at 507.


firm in which they invested." Id. at 1336-37. Only "[w]hen  they
suffer direct injury--injury independent of the firm's  fate-- ... may
[they] pursue their own remedies."9 Id. at  1336. Weissman v. Weener,
12 F.3d 84, 86 (7th Cir. 1993)  reaffirmed Mid-State's analysis,
holding that even when a  third party injures a corporation, forcing
it into bankruptcy  and triggering its guarantors' obligations on
loans, the  shareholder-guarantors' claims are generally derivative
rath- er than direct, and therefore they are not "the real party in 
interest." Id. at 87.


The Labovitzes attempt to distinguish Mid-State and its  progeny on
three grounds. They first contend that the  Times owed them a special
duty, but, as discussed earlier,  they fail to describe the exact
nature or origin of such a  purported duty. See supra p. 8. Assuming
such a duty  existed, however, an injury flowing from the triggering
of the  guarantees is a collateral consequence of the Times' direct 
injuries to DCI. As in Weissman, a shareholder-guarantor is  not a
"real party in interest" where he or she "is suing not  the bank
[collecting on the guarantee] but rather the third  party whose
alleged wrongdoing is said to have driven the  corporation into
bankruptcy." 12 F.3d at 87. Second, the  Labovitzes allege that the
Times intended to harm them, but  they fail to explain how this factor
changes the derivative  nature of their injury: to the extent the
Times never intend- ed to "provide necessary future financial support"
for DCI,  DCI and not the Labovitzes suffered a direct injury.


Finally, the Labovitzes attempt to distinguish Mid-State,  where the
plaintiffs failed to "establish a nexus between the  bank's wrongdoing
and their agreement to enter into the  guarantees," Appellants' Br. at
26, by relying on Judge  Ripple's concurring opinion cautioning
parties not to read  Mid-State to mean that guarantors can never bring
a claim  for injury because "there are situations--especially in the 
case of a closely held corporation--where the relationship 




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n 9 The court specifically observed that "[t]he Kimmels do not  contend
that [the bank] broke the contracts by which the Kimmels  guaranteed
Mid-State's borrowings." Id. at 1336.


between the corporation and the guarantor, combined with  the
conditions directly imposed by the bank on the guarantor,  may require
that the guarantor have standing to bring such  actions." Mid-State,
877 F.2d at 1340 (Ripple, J., concur- ring).10 To the extent the
Labovitzes suffered injury in their  role as guarantors on debts owed
to parties other than the  Times, Mid-State and Weissman clearly
identify such losses  as derivative. The more difficult question
arises for guaran- tees made on loans owed directly to the Times; if
the Times'  conduct forces DCI into bankruptcy, it will also trigger
the  Labovitzes' loan obligations to the Times. The Labovitzes 
maintain that they personally guaranteed $2 million advanced  to DCI
by the Times.11 Taking the allegation as true, see  EEOC v. St.
Francis Xavier Parochial Sch., 117 F.3d 621, 625  (D.C. Cir. 1997),
still does not demonstrate how the Labo- vitzes have suffered a
special injury apart from other credi- tors and guarantors. The fact
that the Times may have  required the Labovitzes to make good on their
guarantees  when DCI defaulted on its loan obligations is a duty
imposed  on every guarantor. Weissman, 12 F.3d at 87. John Hanes 
stands in no different position than the Labovitzes. See  supra n.11;
see also DLB Collection Trust v. Harris, 893  P.2d 593, 597 (Utah Ct.
App. 1995). Finally, to the extent the  Times may have breached the
loan agreements that estab- lished these guarantees, the Labovitzes'
breach of contract  claim relates only to the Times' failure to pay
Peter Labovitz  agreed-upon compensation, a claim he pursued before a
jury,  and its failure to fund DCI fully, a direct injury to the 




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n 10 The court in Weissman, however, noted that Judge Ripple's  view
remained an open question in the Seventh Circuit Court of  Appeals. 12
F.3d at 87.


11 Although this allegation appears in the Labovitzes' brief and  not
in the complaint, an exhibit attached to the complaint suggests  that
the Times may have sought "personal guarantees" from Peter  Labovitz
and John Hanes.


12 Buschmann v. Professional Men's Assoc., 405 F.2d 659 (7th  Cir.
1969), on which the Labovitzes rely, is distinguishable. Busch-


contingent creditors, the Labovitzes fail to explain why their  injury
places them in a different position than every other  creditor and
guarantor owed money when DCI entered bank- ruptcy, nor do they plead
a breach of contract claim related to  the guarantees.13


We can quickly dispose of the Labovitzes' remaining claims  of injury.
Although they concede on appeal that the loss they  suffered in share
value is a derivative harm, see Kramer, 546  A.2d at 353, they contend
that they suffered individual inju- ries to the extent that the Times
fraudulently induced Peter  Labovitz to leave his management position.
This injury was  part and parcel of Peter Labovitz's breach of
contract claim.  Furthermore, the failure to keep DCI financially
afloat is an  injury suffered directly by the corporation and only
indirectly  experienced by the Labovitzes as shareholders or




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n mann entered into a contract to establish a new corporation, 
transfer assets to it in exchange for stock, and guarantee the 
corporation's debts to a third-party bank. In exchange, the Associ-
ation promised to manage the new corporation, an obligation it 
allegedly violated by diverting the corporation's assets for its own 
use. Id. at 662. The court held that, even though the corporation  had
a claim for mismanagement, Buschmann, the stockholder- guarantor, also
had an individual cause of action for breach of  contract against the
Association "even though the corporate cause  of action and
Buschmann's cause of action result from the same  wrongful acts." Id.
at 662, 663. Peter Labovitz's breach of con- tract claim does not


13 During oral argument, counsel for the Labovitzes argued  that, as to
several of the corporation's loans, they were co-obligors,  rather
than "contingent lenders" as in the case of Mid-State. We  need not
explore the rights of co-obligors to sue in these circum- stances,
however, because the Labovitzes failed to raise this conten- tion in
their initial brief, and to the extent they mention in their  reply
brief that they were "co-obligors, guarantors, and pledgors,"  they
failed to make an argument as to how the different labels  represent
different harms; the discussion in their briefs of the  injury they
suffered relates to their role as guarantors. Under the 
circumstances, we decline to consider this contention. See Natural 
Resources Defense Council, Inc. v. EPA, 25 F.3d 1063, 1071 n.4  (D.C.


See id. Likewise, to the extent the Labovitzes relied on the  Times'
promises to keep DCI afloat in exchange for their  signing the loan
agreements, DCI suffered the direct injury,  not the Labovitzes.


Consequently, the district court properly dismissed counts  one through
four of the complaint because the Labovitzes'  alleged injuries derive
from harm directly inflicted on DCI  and are not any different from
those suffered by other  individuals (such as shareholders or
creditors) in a similar  position to the Labovitzes. As the Seventh
Circuit in Mid- State observed, to allow recovery by individual
shareholders  for derivative claims


is a form of double counting. "Corporation" is but a  collective noun
for real people--investors, employees,  suppliers with contract
rights, and others. A blow that  costs "the firm" $100 injures one or
more of those  persons. If, however, we allow the corporation to
litigate  in its own name and collect the whole sum (as we do), we 
must exclude attempts by the participants in the venture  to recover
for their individual injuries.... Divvying up  the recovery [to the
participants individually] would be a  nightmare.... Why undertake
such a heroic task when  recovery by the firm handles everything
automatically?-- for investors, workers, lessors, and others share any
 recovery according to the same rules that govern all  receipts.


877 F.2d at 1335-36. Indeed, "a suit by an indirectly injured  victim
could be an attempt to circumvent the relative priority  its claim
would have in the directly injured victim's liquidation  proceedings."
Holmes v. Securities Investor Protection  Corp., 503 U.S. 258, 274
(1992) (citing Mid-State, 877 F.2d at  1336). The remedy for the
Labovitzes, therefore, was in the  bankruptcy court because any
recovery by DCI could be  redistributed to its creditors, including
the Labovitzes. To  the extent that DCI was not made whole, the proper
place to  object was at the time of the bankruptcy settlement agree-
ment, to which the Labovitzes consented.


B.


The Labovitzes also contend that the district court erred in  viewing
their claims under the Virginia Conspiracy Act as  alleging only
derivative injuries.14 In counts five and six, the  Labovitzes allege
that the Times "wilfully and maliciously"  conspired with John Hanes
and a consultant, hired by the  Times to examine DCI's management, to
"injure the business  and property interests of plaintiffs Peter
Labovitz and Sharon  Labovitz in DCI." These counts, as the district
court found,  "clearly reveal that [the Labovitzes] are alleging
injury to  their interests in the DCI corporation only," and that
these  losses were also derivative in nature. Labovitz, 900 F. Supp. 


Under ss 18.2-499 and -500 of the Virginia Conspiracy  Act, a right of
action exists "only when malicious conduct is  directed at one's
business, not one's person"; claims relating  to one's employment and
employment reputation are not  covered by the statute. Buschi v.
Kirven, 775 F.2d 1240,  1259 (4th Cir. 1985); see also Picture Lake
Campground, Inc.  v. Holiday Inns, Inc., 497 F. Supp. 858, 863-64
(E.D. Va.  1980). In Picture Lake, the district court ruled that a 
business ("First Management") renting property to a second  business
("Picture Lake") could not pursue claims under  either ss 18.2-499 &
18.2-500 or common law tort for injuries  suffered by the second
business. The district court reasoned  that


just as a stockholder of a corporation has no standing to  sue third
parties for wrongs inflicted by those third  parties upon the business
and property interest of the  corporation, it is evident that First
Management has no  standing to sue [defendant] Holiday Inns for wrongs




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n 14 Va Code Ann. s 18.2-499(A)(i) (Michie 1996) prohibits con-
spiracies "for the purpose of ... willfully and maliciously injuring 
another in his reputation, trade, business or profession by any  means
whatever...." Section 18.2-499(B) forbids attempts to  procure the
participation of another person to enter a conspiracy  under s
18.2-499(A). Section 18.2-500 authorizes treble damages  for
violations of s 18.2-499.


allegedly inflicted by Holiday Inns on the business or  property
interests of Picture Lake.


497 F. Supp. at 863. Likewise, DCI rather than the Labo- vitzes has the
authority under the Virginia statute to pursue  conspiracy claims
against the Times. Neither the Labovitzes'  complaint nor their briefs
on appeal shed much light on the  specific property interests the
Times' alleged conspiracy in- jured, other than their interests in
DCI. Before the district  court, the Labovitzes claimed as injury
harms that are not  personal to themselves, such as the decline in
value of their  stock, cf. Kramer, 546 A.2d at 353, and the losses
suffered in  their role as guarantors, cf. Mid-State, 877 F.2d at
1336-37.  To the extent the Labovitzes allege loss of management as an
 injury, the Fourth Circuit has made clear that "[t]he employ- ment
relation [is to] be characterized as a personal right as  opposed to a
business interest and is without the ambit" of  the Virginia
Conspiracy Act. Buschi, 775 F.2d at 1259  (internal quotation marks


The Virginia Supreme Court's subsequent decision in Luck- ett v.
Jennings, 435 S.E.2d 400 (Va. 1993), is consistent with  this outcome.
In Luckett, the court held that a shareholder- officer in the
corporation "Quantum" had sufficiently alleged  an injury to his
business as a result of the conduct of several  third parties. The
plaintiff had not specifically alleged the  nature of the injury to
his business in the complaint, although  elsewhere the complaint
described him as a real estate devel- oper. Id. at 402. The court
concluded that "[w]hether  Luckett has a business that is separate and
distinct from  Quantum, and whether he has sustained injury to that
busi- ness distinguishable from injury to Quantum, are issues of  fact
to be resolved at trial."15 Id. Unlike Luckett, the  Labovitzes'
complaint identifies their injuries by reference to  their property
interests "in DCI," rather than in other busi- nesses. The district




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n 15 The Luckett court did not reach the defendants' argument  that
other cases barred the plaintiff's claim because he suffered an 
investor- or employee-related injury rather than a business-related 
injury. Id. at 306.


Labovitzes cannot pursue their claims under the Virginia  conspiracy
statute.


C.


On cross-appeal, the Times contends that the district court  improperly
excluded evidence relating to Peter Labovitz's  failure to make
mortgage payments owed to an outside  lender, Burke & Herbert Bank, on
behalf of DCI. The  Times sought to introduce this evidence on the
theory that  any debt owed by the Times to Peter Labovitz should be
"set  off" in part by the amount of these payments. The district 
court rejected the evidence as irrelevant under Fed. R. Evid.  401,
noting that the doctrine of mutuality barred the Times'  theory, as
the Times and DCI were "separate legal entities"  and the Times could
not rely on a debt Labovitz owed to DCI  to set off a debt the Times
might owe to him. Labovitz v.  Washington Times Corp., No. 95-138, at
5 (D.D.C. Sept. 30,  1997). We find no abuse of discretion, Chedick,
151 F.3d at  1084, nor legal error, FTC v. Texaco, Inc., 555 F.2d 862,
876  n.29 (D.C. Cir. 1977).


The Times contends on appeal that Peter Labovitz's failure  to pay the
outside lender forced DCI to make these payments  in his stead,
thereby creating a setoff against any injury he  suffered from the
Times' alleged failure to pay him $120,000  for relinquishing control
of DCI. To demonstrate mutuality,  the Times points to evidence such
as a memorandum sent by  John Hanes claiming that DCI paid Peter
Labovitz certain  mortgage payments that he failed to pass on to the
Burke &  Herbert Bank. At most, however, this evidence as well as  the
other documents and testimony identified by the Times  only shows
mutuality between DCI and Peter Labovitz, not  between the Times and
Labovitz. Attempting to link DCI  with the Times by pointing to
language in the complaint  alleging that the Times acquired a
fifty-percent ownership  interest in DCI, the Times cites no authority
for the proposi- tion that a debt owed to a company is also owed
individually  to a shareholder. Indeed, the Times' contention is
inconsis- tent with its position that only DCI, and not its


can pursue claims against third parties for injuries that DCI 
suffered directly.


For the first time on appeal, the Times makes two addition- al
contentions, first, that mutuality is not required for equita- ble
setoffs where courts forgo the strict requirement of  mutuality "for a
clear equity or to prevent irremediable  injustice," and second, that
the excluded evidence would show  that Peter Labovitz "knew that he
was dealing with DCI  when he made the alleged arrangement to receive"
$120,000  in exchange "for withdrawing from DCI leadership
activities,"  and that therefore the contract to surrender control of
DCI  was between Labovitz and DCI, not Labovitz and the  Times.16
Having failed to raise either contention in the  district court, the
Times is barred from doing so now. See  United States v. Baucum, 66
F.3d 362, 363 (D.C. Cir. 1995);  Kattan by Thomas, v. District of
Columbia, 995 F.2d 274, 278  (D.C. Cir. 1993).


Accordingly, because counts one through four are deriva- tive claims,
and the Labovitzes do not have a cause of action  under the Virginia
conspiracy statute, and because exclusion  of the mortgage payment
evidence proffered by the Times  was not an abuse of discretion, we
affirm the district court's  orders and the judgment.




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n 16 The Times concedes that it "did not use the words 'impeach- ment
evidence' in its proffer and opposition to the motion in limine"  to
exclude the setoff evidence, but maintains that the evidence, by  its
very nature, was impeachment evidence. We disagree that the  Times'
impeachment contention clearly flows from the mutuality  arguments it
made in the district court, or that the district court  necessarily
would have understood its proffer as such.