4th Cir.: All American Black Car Service, Inc. v. Gondal — Setoff, Ratification, and the Limits of Lay Testimony in Bankruptcy Litigation

Summary:

In this unpublished October 15, 2025, decision, the Fourth Circuit affirmed the rulings of the Bankruptcy Court and the Eastern District of Virginia in a messy dispute arising from the dissolution of a small limousine company, All American Black Car Service, Inc. (“AABCS”). The case reads like a familiar tale of closely-held corporate dissolution gone awry—complete with COVID-era losses, unwritten understandings, and shareholder distrust—transposed into the bankruptcy context.

Facts and Procedural History:

AABCS had three shareholders: Cheema (51%) and two minority shareholders, Gondal and Sheiryar (each 24.5%), who also worked for the company. When the pandemic gutted revenue and the business ceased paying wages or distributions, the trio agreed to dissolve the corporation, liquidate assets, pay debts, and escrow the remainder for division.

Between 2022 and 2023, Gondal and Sheiryar sold ten vehicles for $317,000, paid debts of $88,559.31, and then—contrary to the dissolution agreement—pocketed the remaining $228,000 instead of placing it in escrow. When Cheema revived the corporation in Chapter 11, AABCS filed an adversary proceeding demanding return of the funds and lost profits.

At trial, the bankruptcy court (Judge Mayer, E.D. Va.) found Gondal and Sheiryar liable for conversion but granted them a setoff equal to their 49% ownership, reducing judgment to $116,504.76. The court also rejected their defenses of (1) unpaid wages and (2) corporate ratification, and denied AABCS’s request for speculative lost profits.

Fourth Circuit’s Holding:

The Fourth Circuit (Judges Wilkinson, Thacker, and Heytens) affirmed in full, finding “no reversible error” across four disputed issues:

1. Exclusion of Wage Testimony:
   Sheiryar attempted to introduce a chart of “market wage rates” from ZipRecruiter and similar websites to justify unpaid compensation exceeding $228,000. The bankruptcy court properly excluded this as impermissible expert testimony, not a lay opinion under Rule 701, because it was based on third-party data—not personal experience. Without that evidence, his claim for unpaid wages failed.

2. Rejection of Ratification Defense:
   The defendants argued that because the corporation’s 2022 tax return reported the $228,000 as “shareholder distributions,” AABCS had ratified their taking. The court disagreed, noting that the return merely confirmed that sales occurred and that Cheema, a non-lawyer and non-native English speaker, did not understand the legal implications of “ratification.” More importantly, the corporation immediately repudiated the act by suing within weeks.

3. Denial of Lost Profit Damages:
   AABCS’s appeal on this point was deemed waived for failure to brief it adequately under Rule 28(a)(8)(A). The court noted that two conclusory sentences, without legal or factual citation, do not preserve an issue.

4. Allowance of Setoff:
   The bankruptcy court’s decision to credit the defendants with their 49% ownership interest was equitable and consistent with Va. Code § 13.1-745(A), which allows distribution of remaining corporate assets after debts are settled. AABCS’s belated argument that Dexter-Portland Cement Co. v. Acme Supply Co., 147 Va. 758 (1926), barred such a setoff was both unpreserved and inapposite.

Commentary:

Though a relatively small dispute, All American Black Car Service underscores several recurring bankruptcy practice lessons:

• Lay vs. Expert Testimony:
  Debtors and insiders often try to shoehorn “market” or “customary” valuations or compensation estimates into lay testimony. The Fourth Circuit continues to enforce Rule 701 strictly—personal experience counts, but quoting internet averages does not. (Practitioners should note similar reasoning in Lord & Taylor, LLC v. White Flint, L.P., 849 F.3d 567 (4th Cir. 2017).)

• Ratification Requires Intent and Benefit:
  The decision usefully clarifies that mere bookkeeping or tax reporting—especially in closely held entities—does not establish ratification absent evidence that the corporation intended to approve or benefited from the unauthorized act.

• Setoff as Equity:
  Even where insiders misappropriate funds, bankruptcy courts retain equitable discretion to account for ownership interests. This serves as a reminder that bankruptcy courts are courts of equity—but also of accounting, where the math still matters.

• Appellate Waiver:
  The Fourth Circuit remains unforgiving toward poorly briefed issues. Two sentences without citations? Waived.

While this case originates from Virginia, its reasoning resonates for North Carolina practitioners navigating disputes among small business owners who treat their corporations like joint checking accounts. The equitable setoff here—essentially forgiving nearly half of an admitted conversion—illustrates how bankruptcy courts temper legal rights with pragmatic fairness. For debtor’s counsel, the takeaway is that “what’s fair” may still include a reduction for equity, even when fiduciary misconduct is proven. For creditors or majority owners, it’s another reason to escrow first and trust last.

Practice Pointer:

For bankruptcy litigators dealing with dissolved entities or partner disputes:

• Document dissolution and winding-up agreements carefully—preferably with court approval if bankruptcy looms.

• Distinguish clearly between shareholder distributions, wages, and loan repayments in corporate records to avoid later “setoff” surprises.

• If asserting unpaid wages or insider compensation, support it with contemporaneous records or testimony grounded in firsthand experience, not online data.

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