Carnell Construction Corp. v. Danville Redevelopment & Housing Authority

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