Jatinder Sharma v. USA International, LLC
2017 U.S. App. LEXIS 4765
| 4th Cir. | 2017Background
- In 2013 Sharma purchased two restaurant franchises (Checkers and Auntie Anne’s) from Ahmad and Butt for $600,000; the price was negotiated based on reported gross sales multiples.
- Sellers provided financial statements and tax returns showing monthly sales in the $60k–$75k range; earlier preliminary agreement had a sales contingency and a $720,000 price that was later reduced to $600,000.
- After closing, Sharma’s actual sales were about 60% of the reported figures; investigation revealed suspicious register entries, employee reports of rung-up no-sale transactions, and bank deposits materially lower than reported sales.
- Sharma sued for fraud and conspiracy alleging misrepresented sales induced the $600,000 purchase; defendants moved for summary judgment arguing plaintiffs could not prove damages with reasonable certainty and challenged reliance and materiality.
- The district court found sufficient evidence of false, material misrepresentations and reasonable reliance but granted summary judgment for defendants because plaintiffs failed to prove actual value/damages with reasonable certainty.
- The Fourth Circuit vacated and remanded, holding plaintiffs presented sufficient evidence using an income-capitalization approach (weekly sales × 36) to create a material dispute of fact on damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs proved damages with reasonable certainty for fraud under Virginia law | Sharma: actual value can be estimated using industry multiplier—weekly sales ×36 or monthly EBITDA ×48, yielding ~ $353k–$360k (difference from $600k is damages) | Defendants: plaintiffs’ methods are speculative and not one of the three accepted valuation approaches (income, market, asset); evidence insufficient to permit reasonable estimation | Court: plaintiffs’ income-capitalization evidence (weekly sales ×36) is a recognized method and creates a factual dispute; summary judgment on damages was improper |
| Whether the $600,000 sales price constitutes the bargained-for value | Sharma: negotiation history and sales-focused bargaining support treating the $600k price as bargained-for value | Defendants: implied challenge but did not prevail on this point | Court: $600k is a permissible factual proxy for bargained-for value given arm’s-length negotiations |
| Admissibility/appropriateness of 36 multiplier as capitalization rate | Sharma: multiplier was represented by Ahmad as industry standard and was used in negotiations | Defendants: 36 is contestable and unsupported, making valuation unreliable | Court: multiplier can be challenged at trial but is not so unsupported as to fail as a matter of law; factfinder may resolve it |
| Sufficiency of conspiracy claim evidence | Plaintiffs: alleged concerted scheme by partners to inflate sales | Defendants: no evidence of a meeting of the minds | Court: district court found insufficient evidence of conspiracy; appeal focused only on damages and fraud element |
Key Cases Cited
- Evaluation Research Corp. v. Alequin, 439 S.E.2d 387 (Va. 1994) (elements of fraud under Virginia law)
- Holz v. Coates Motor Co., 147 S.E.2d 152 (Va. 1966) (plaintiff must provide sufficient evidence for an intelligent and probable estimate of damages)
- Prospect Dev. Co. v. Bershader, 515 S.E.2d 291 (Va. 1999) (measure of damages for misrepresentation: difference between actual value and bargained-for value)
- Patel v. Anand, L.L.C., 564 S.E.2d 140 (Va. 2002) (insufficient evidence of actual value defeats fraud damages award)
- Gertler v. Bowling, 116 S.E.2d 268 (Va. 1960) (sales price may establish value in certain disputes)
- Wharton, Aldhizer & Weaver v. Savin Corp., 350 S.E.2d 635 (Va. 1986) (seller’s conclusory testimony that an item had no value is insufficient to prove actual value)