Lay-Opinion Market-Rate Testimony Rejected and Pro Rata Setoff Allowed in Corporate Wind-Up: Fourth Circuit Affirms in All American Black Car Service, Inc. v. Gondal

Court: United States Court of Appeals for the Fourth Circuit (Unpublished)

Date: October 15, 2025

Docket Nos.: 24-1981; 24-1982

Panel: Judges Wilkinson, Thacker, and Heytens

Disposition: Affirmed

Introduction

This appeal and cross-appeal arise from a Chapter 11 adversary proceeding that followed the attempted dissolution of a closely held limousine company, All American Black Car Service, Inc. The case presents a tight cluster of questions often seen when small, founder-operated corporations wind up operations and later attempt to resume business: whether minority shareholder-employees may prove unpaid wages through lay testimony derived from online compensation sources; whether the corporation “ratified” the minority owners’ unilateral taking of liquidation proceeds; whether lost-profit damages were sufficiently preserved and proven; and whether minority shareholders who converted funds may nonetheless obtain a setoff reflecting their equity stake during an agreed wind-up.

The bankruptcy court excluded lay opinion testimony on market wages, rejected a ratification defense, denied lost-profit damages, and permitted a setoff equal to the minority shareholders’ 49% equity interest, resulting in a net judgment of $116,504.76 against them. The district court affirmed. On further review, the Fourth Circuit affirms in full, clarifying the evidentiary limits of Federal Rule of Evidence 701 and recognizing the propriety of a pro rata equity setoff in the context of a corporate wind-up, while reinforcing briefing and preservation standards under the Federal Rules of Appellate Procedure.

Although unpublished and therefore not binding precedent in the Fourth Circuit, the opinion offers practical guidance for closely held corporations, bankruptcy practitioners, and trial lawyers navigating evidentiary foundations, affirmative defenses, and equitable relief in dissolution scenarios.

Summary of the Opinion

Lay vs. Expert Testimony on Market Wages: The court upholds exclusion of lay opinion testimony where the witness sought to testify about appropriate hourly wage rates by relying on third-party websites (e.g., ZipRecruiter). Such testimony did not arise from personal knowledge and therefore fell outside Rule 701. No abuse of discretion.
Ratification Defense Rejected: The corporation did not ratify the minority shareholders’ retention of $228,000 in liquidation proceeds. The company promptly filed suit to claw back funds upon discovery, and testimony about tax reporting did not establish corporate acquiescence or benefit. No clear error in the bankruptcy court’s factfinding.
Lost Profits Cross-Appeal Waived: The company’s challenge to the denial of lost profits was waived for failure to adequately brief the issue under Rule 28(a)(8)(A). The Fourth Circuit therefore did not reach the merits.
Setoff Upheld: The minority shareholders were entitled to a setoff equal to their combined 49% equity interest in the remaining funds, given the parties’ prior agreement to wind up and Virginia law governing post-debt distributions in dissolution. The challenge to setoff was either waived or meritless.
Result: The Fourth Circuit affirms the district court, which had affirmed the bankruptcy court’s rulings across the board.

Factual and Procedural Background

All American Black Car Service, Inc., a Virginia limousine company, had three shareholders: majority owner Sohail Cheema (51%) and minority owners/employees Jamshaid Gondal and Mohammad Sheiryar (together 49%, split evenly). After COVID-19 severely impacted operations and eliminated distributions in 2020–2021, the shareholders agreed in September 2022 to dissolve: liquidate vehicles, pay debts, and place any remaining proceeds in escrow pending a final agreement to wrap up the company.

Gondal and Sheiryar sold most of the fleet, netting approximately $317,000 in sales, paid debts of $88,559.31, and then diverted the remaining approximately $228,000 to themselves rather than placing it in escrow. Cheema later sought to revive the business, and the corporation entered Chapter 11. The debtor commenced an adversary proceeding to recover the $228,000 and to obtain lost-profit damages.

After a bench trial, the bankruptcy court:

Excluded Sheiryar’s testimony about an “appropriate” hourly rate based on online compensation data;
Rejected the ratification defense tied to the corporation’s tax reporting; and
Denied the company’s claim for lost profits for lack of reasonable certainty,
but granted the minority owners a setoff for their 49% equity share, reducing the conversion judgment to $116,504.76.

Both sides appealed to the district court, which affirmed. The minority shareholders then appealed, and the corporation cross-appealed, to the Fourth Circuit.

Standards of Review

Applying the same standards as the district court when reviewing a bankruptcy court decision, the Fourth Circuit reviewed:

Legal conclusions de novo;
Factual findings for clear error; and
Discretionary decisions (including evidentiary rulings) for abuse of discretion.

See Smith v. Devine, 126 F.4th 331, 341 (4th Cir. 2025) (quoting Copley v. United States, 959 F.3d 118, 121 (4th Cir. 2020)).

Analysis

A. Precedents and Authorities Cited

Lord & Taylor, LLC v. White Flint, L.P., 849 F.3d 567, 575 (4th Cir. 2017): Clarifies that lay opinion under Rule 701 must be grounded in the witness’s personal knowledge or firsthand perception. The case anchors the court’s view that a witness cannot present summaries of what others say the market is.
Smith v. Devine, 126 F.4th 331 (4th Cir. 2025), and Copley v. United States, 959 F.3d 118 (4th Cir. 2020): Articulate standards for reviewing bankruptcy court decisions—legal, factual, and discretionary determinations.
Eriline Co. S.A. v. Johnson, 440 F.3d 648, 653 n.7 (4th Cir. 2006): Establishes that perfunctory or conclusory briefing fails to preserve issues for appellate review.
Patten Grading & Paving, Inc. v. Skanska USA Building, Inc., 380 F.3d 200, 205 n.3 (4th Cir. 2004): Affirms that affirmative defenses are not waived where tried by consent and absent unfair surprise or prejudice.
Va. Code Ann. § 13.1-745(A) (2019): Authorizes distributions to shareholders according to their interests after corporate debts are settled during winding up.
Dexter-Portland Cement Co. v. Acme Supply Co., 147 Va. 758 (1926): Referenced by the corporation on appeal for a limitation on setoff in certain circumstances, but the argument was deemed unpreserved and not considered by the Fourth Circuit.

B. The Court’s Legal Reasoning

1) Evidentiary Ruling: Lay Opinion vs. Expert Testimony on Market Wages

The minority shareholders argued that Sheiryar’s proposed testimony—offering an hourly wage rate for his services drawn from online sources—was admissible lay opinion under Federal Rule of Evidence 701. The Fourth Circuit disagreed. Citing Lord & Taylor, the court emphasized that lay opinions must be rooted in the witness’s personal knowledge or firsthand perceptions. Here, the witness aimed to relay third-party market assessments (e.g., ZipRecruiter, pay scale websites), not his own valuation from his lived experience in the limousine business. That is the realm of specialized, market-based analysis typically requiring expert qualification and proper foundation.

Outcome: The exclusion was well within the bankruptcy court’s discretion. Without admissible proof of an hourly rate, the unpaid wages defense failed on the record presented.

2) Ratification Defense: No Corporate Acquiescence

The minority shareholders contended the corporation ratified their taking of $228,000 by reporting the amounts as distributions on its 2022 tax return. The court upheld the bankruptcy court’s finding that the company did not ratify the act. Crucially, the corporation swiftly repudiated the conduct by filing suit “within weeks” of learning the funds had been kept. The bankruptcy court also found that Cheema’s testimony about “ratifying” vehicle sales on the return, coupled with his non-lawyer usage of the term “ratify,” did not amount to a knowing approval of the minority owners’ unilateral distribution to themselves. The corporation received no benefit from their retention of the funds.

Outcome: No clear error in rejecting ratification. The prompt repudiation via litigation was the opposite of acquiescence.

3) Lost Profits: Cross-Appeal Waived Under FRAP 28

The corporation cross-appealed the denial of lost-profit damages. But its opening brief offered only two conclusory sentences, without record citations or legal authority, in contravention of Federal Rule of Appellate Procedure 28(a)(8)(A). Citing Eriline, the Fourth Circuit deemed the challenge waived. Although the district court had noted independent reasons that lost profits were unavailable on the merits, the court of appeals did not reach those merits because of the waiver.

Outcome: Denial of lost profits stands on waiver grounds.

4) Setoff: Minority Equity Applied Against Conversion Liability

Even though the minority shareholders converted funds by diverting the escrowed proceeds, the bankruptcy court allowed a setoff equal to their 49% equity share, given the parties’ prior agreement to wind up and distribute remaining assets after debts. The Fourth Circuit affirmed. Under Virginia Code § 13.1-745(A), upon satisfying corporate debts, remaining assets are distributed to shareholders “according to their interests.” Because liquidation and debt payment had already occurred, the minority shareholders were legally entitled to their 49% share of the remainder. Allowing that setoff avoided an inequitable overrecovery by the corporation.

The court also rejected the corporation’s procedural and substantive challenges:

Pleading/Preservation: The setoff issue was tried without objection; therefore, no unfair surprise or prejudice existed, and the defense was not waived. See Patten Grading & Paving.
Substantive Objection (Dexter-Portland Cement): The corporation’s argument relying on Dexter was raised for the first time on appeal and was declined.

Outcome: Setoff was appropriate and equitable under Virginia law and the case’s dissolution posture.

C. Impact and Practical Significance

The opinion carries several practical implications, particularly for closely held corporations undergoing dissolution and later entangled in bankruptcy:

Evidentiary Discipline for Wage Claims: Parties seeking to prove unpaid wages above nominal W-2 amounts must lay an admissible foundation for rate-of-pay evidence. Reliance on internet compensation sites through lay testimony risks exclusion. Consider qualified expert testimony or alternative admissible bases tied to firsthand knowledge.
Corporate Formalities in Dissolution: Minority shareholders who unilaterally divert liquidation proceeds expose themselves to conversion liability. Yet, where a genuine dissolution plan existed and debts were paid, courts may still credit their pro rata equity through setoff to prevent windfalls.
Ratification Requires Real Assent and Benefit: Tax reporting choices, standing alone, do not necessarily ratify an adverse internal distribution. Prompt repudiation through litigation typically defeats ratification.
Appellate Preservation: The decision underscores that perfunctory appellate briefing forfeits review. FRAP 28’s requirements are enforced; even potentially meritorious arguments can be lost through inadequate presentation.
Bankruptcy-Litigation Interface: In Chapter 11 adversary proceedings, equitable remedies like setoff can harmonize corporate law rights with bankruptcy’s remedial goals, especially in orderly wind-ups where asset and debt steps have already been taken.

Complex Concepts Simplified

Lay Opinion (Rule 701) vs. Expert Testimony (Rule 702): Lay opinion must be based on the witness’s personal experience or firsthand observations. When a witness summarizes market data or applies specialized methodologies, that crosses into expert territory and requires qualification and reliability showings.
Ratification: A principal (here, the corporation) “ratifies” an agent’s unauthorized act by knowingly accepting its benefits or otherwise affirming it. Timely repudiation—such as filing suit—cuts against ratification. Benefit to the principal is usually necessary.
Setoff vs. Recoupment: Both reduce a net recovery. Setoff often involves a countervailing entitlement arising from a separate transaction, while recoupment arises from the same transaction. Here, the court used “setoff” to capture the equitable adjustment reflecting the minority shareholders’ pro rata equity in the wind-up pool after debts were paid.
Conversion: A wrongful exercise of dominion over another’s property. Appellants committed conversion by diverting funds contrary to the escrow agreement, even though they later received a setoff for their equity.
Lost Profits—Reasonable Certainty: To recover lost profits, a plaintiff must present non-speculative proof enabling a court to quantify losses with reasonable certainty. The bankruptcy court found that standard unmet here; the cross-appeal was waived before the Fourth Circuit could review it.
Standards of Review: Appellate courts defer to trial courts on factual findings (clear error) and discretionary calls (abuse of discretion), but review legal questions anew (de novo). Evidentiary exclusions are typically reviewed for abuse of discretion.
FRAP 28(a)(8)(A): Appellants must meaningfully develop arguments with record citations and legal authority. Conclusory statements can forfeit appellate review.
Virginia Dissolution Distributions (Va. Code § 13.1-745(A)): After paying debts, remaining assets are distributed to shareholders according to their ownership interests. That rule supported the setoff here.

Conclusion

The Fourth Circuit’s unpublished affirmance in All American Black Car Service, Inc. v. Gondal is a practical roadmap for disputes arising from the winding up of closely held corporations, especially where shareholder-employees wear multiple hats and corporate formalities slip during crisis periods. The court:

Clarifies that lay testimony under Rule 701 cannot serve as a vehicle for introducing market-based wage valuations built on third-party online data;
Reaffirms that prompt repudiation defeats ratification and that tax-report characterizations do not, without more, establish corporate approval;
Insists on rigorous appellate briefing under FRAP 28, treating perfunctory presentations as waivers; and
Endorses a pro rata equity setoff for minority shareholders in a wind-up after debts are paid, even where those shareholders committed conversion by diverting funds from escrow.

The case underscores a balanced approach: courts will enforce corporate governance and evidentiary rules while preventing unjust enrichment when dissolution steps are substantially completed. For practitioners, the message is equally clear—prepare admissible evidentiary foundations, preserve and develop arguments on appeal, observe wind-up formalities, and expect equitable adjustments that align with substantive state corporate law.