November 12, 2015
Confidentiality Terms in Litigation Settlement
When parties to lawsuits finally agree in principle to resolve dispute, sometimes one side will request insertion of confidentiality terms in litigation settlement. These “gag orders” typically forbid the parties from disclosing the terms of the settlements. These requests can come as a surprise because requests for confidentiality may have not come up yet in the case. Litigation is mostly a public activity. Usually anyone can read the court file or observe motions or trials.
Some defendants fear that the dollar amount of settlement in one case may create a “benchmark” or market value for settlements in a similar, future cases brought against them. The facts and dollar amount may be embarrassing. Even if the settlement agreement denies admission of any wrongdoing, the act of payment may be interpreted by some as a sign of the merit of the claim. A plaintiff may have a short period of time to consider a proposal of a confidentiality clause. What do these confidentiality clauses mean to parties bound by them? Most confidential settlements are “successful”. The cases never end up back in court, the news or social media because the parties “move on” with their lives and business. However, in a 2008 North Carolina case, a HOA and its former property manager failed to achieve a clean resolution. Selwyn Village Homeowners Association vs. Cline & Company illustrates potential pitfalls surrounding confidential settlements. This case has many lessons on “closing the deal” in litigation settlement.
Selwyn Village is a condominium association near Myers Park in Charlotte. Surrounding Myers Park is an affluent, “southern charm” neighborhood with 100-year-old oak trees. Cline & Company 
was Selwyn Village’s property manager. In 2003, Selwyn Village suffered flood damage. When the board of directors made a claim on their insurance policy, they discovered that Cline had cut costs by drastically underinsuring the property. Selwyn Village sued Cline and the insurance broker. The owners must have been outraged by the devastation unrepaired by inadequate insurance. The board and its law firm may have struggled to hold Cline responsible. The manager may have had access to more information about their conduct than their client. Perhaps the manager pointed fingers back at the board as the responsible party? In between the lines of the court opinions one can imagine messy litigation.
During the middle of the 2006 trial, Cline agreed to pay the association $26,000 in settlement. The parties also agreed to “work out” confidentiality and non-disparagement provisions in a consent order to be entered later. The court opinion does not discuss any estimates for the full amount of repairs. Even if insurance covered part of the costs, $26,000 seems like a low number to repair condominium flood damage in Myers Park.
While going back and forth with Cline about the terms of the confidentiality order, the HOA board requested that its own lawyers explain the settlement at an owners meeting. Little did they know that Kelly Ann Cline, daughter-in-law of the owner of Cline & Co., owned a unit in Selwyn Village. Ms. Cline attended the attorney’s presentation at the owner’s meeting. Kelly secretly tape recorded the disclosure of the terms of the settlement and provided it to Cline & Co.’s lawyers. Cline then used this “disclosure” as an excuse not to pay. The lawyers for the condo association moved the court to enforce the $26,000.00 settlement. The judge agreed with Selwyn Village. Cline appealed. The Court of Appeals and Supreme Court of North Carolina affirmed the trial court’s enforcement of the settlement against the property manager. This case illustrates several pitfalls to watch out for in a settlement.
- Settling on the Courthouse Steps. While it is often best to settle cases as soon as possible, many settle right before or during trial because one side wants to see if their opponent is really serious. Other parties want to check out how the judge and jury receive some of the evidence before agreeing to settle. Parties must be prepared to continue to engage in settlement negotiations before, during and even after trial.
- Piecemeal Settlements. Selwyn Village and Cline agreed to a settlement “in principle” to end the pending trial, with a plan to hash out the confidentiality terms later. The parties had to live in the short-term with undefined confidentiality provisions. This may have contributed to the blow-up over the owners meeting. In legal proceedings it’s just as important to understand what hasn’t been resolved as what has.
- Scope of Confidentiality Obligations. In any representation, a lawyer needs to know who his client is so that he can counsel them regarding any settlement proposal so that they can make informed decisions. The Selwyn Village case had the issue of whether it was proper to talk about the terms of the settlement in the owners’ meeting. The courts did not appear to have a problem with what the lawyers did. The court’s decision does not outline what details the lawyers shared at the owners’ meeting. In other states or organizations the attorney client privilege may be waived by sharing something with the shareholders or members. In other cases, lawyers may not be able to discuss all the details of a settlement negotiation at a members meeting. Consult with qualified legal counsel to determine whether communicating something to someone.
- “Loose Lips Sink Ships.” The “espionage” adds a juicy element. An owner does not lose their rights to participate in owners meetings because the HOA sued her in-laws. The opinion does not say whether the board was aware that the daughter-in-law attended the meeting. It is common for industry people to have ownership connections in HOA’s they work for. This is what sign-in sheets can be used for. Each state has different laws about whether someone can tape record people without their knowledge.
- Sharp Litigation Practices. The N.C. courts did not seem pleased with Mrs. Cline’s secret tape recording of the owner’s meeting and then using it as a pretext for paying nothing. Parties in litigation should be prepared to deal with an opponent who may succumb to the stress and burden of litigation and try just about anything to get what they want.
Streisand Effect. According to Wikipedia.org, the “Streisand Effect” is,
[T]he phenomenon whereby an attempt to hide, remove, or censor a piece of information has the unintended consequence of publicizing the information more widely, usually facilitated by the
Internet.
It is named after American entertainer Barbra Streisand [who] unsuccessfully sued photographer Kenneth Adelman and Pictopia.com for violation of privacy. The US$50 million lawsuit endeavored to remove an aerial photograph of Streisand’s mansion from the publicly available collection of 12,000 California coastline photographs. Adelman photographed the beachfront property to document coastal erosion as part of the California Coastal Records Project, which was intended to influence government policymakers. Before Streisand filed her lawsuit, “Image 3850” had been downloaded from Adelman’s website only six times; two of those downloads were by Streisand’s attorneys. As a result of the case, public knowledge of the picture increased substantially; more than 420,000 people visited the site over the following month.
Cline & Co. wanted the confidentiality provisions to avoid negative publicity about the settlement. What happened after the trial in this case is an example of the “Streisand Effect.” Ironically, many details ended up in publically available appeals court opinions.
The Selwyn Village HOA exchanged the risk of an unpredictable trial verdict for a settlement sum that may have been lower than what some may have wanted. After getting the threat of a jury verdict to go away, Cline Co. attempted to derail the settlement by refusing to pay and continuing the case through multiple appeals. The case illustrates the value and challenges of “closing the deal” in settling a case. Lawyers have varying professional acumen for settling cases depending upon their personality, experience and knowledge. When litigation seems inevitable, most parties are best served by lawyers who can fight for their clients or make peace in settlement depending on the facts and circumstances of the case and client’s needs. The “Streisand Effect” can be avoided by being selective about which things to fight over. In some situations, “Who cares?” may be the best response.
Case Citation:
Selwyn Vill. Homeowners Ass’n v. Cline & Co., No COA07-116-2 (Ct. App. N.C. Nov. 4, 2008)
Photo Credits:
Charlotte, NC at night via photopin (license)
June 9, 2015
Can a Buyer Sue a Sellers Real Estate Agent?
This past month, I experienced wonderful changes in my life which drew me temporarily away from my passion for blogging about property rights. On May 1st, I started my own solo law practice, Cowherd PLC. The new law firm continues my professional focus on the types of legal matters discussed in “Words of Conveyance.” On May 27th, my lovely wife and I welcomed our beautiful newborn daughter into the world. I would like to thank my friends and family for their love and support, including those who follow this blog. As a parent, I want the best home environment for my child to grow up in. As a trial attorney, I want to advocate for rights that are precious to clients.
When smart prospective buyers search the market for a home, they need to investigate the property. Typically, buyers use home inspectors to help them. Unfortunately, some defects cannot be easily discovered during the home inspection. For example, a structural defect may be concealed by drywall or other obstructions. With other houses, flooding problems may only be apparent after heavy rains.
Often, buyers will ask the seller’s agent whether there is a history of flooding or other problems. Agents know that if potential buyers learn negative information about the property they may move on to another listing. After a buyer completes a sale, the property may turn out to have defects that were concealed or contrary to representations made in the sales process. Who is legally responsible in those situations? Can a buyer sue a sellers real estate agent? Virginia courts considering this question draw varying conclusions.
“Great Party Room:”
The Circuit Court of the City of Norfolk recently considered whether a buyer can sue a sellers real estate agent under the Virginia Real Estate Broker’s Act. Megan Winesett is an active duty servicemember who bought her first home in 2010. The property listing described the basement as a “great party room.” During the walk-through, Ms. Winesett asked her own agent about basement flooding. The buyer’s agent told her that the seller’s agent explained that flooding was not a problem. A few years later, Winesett renovated the property and discovered rotting and termite damage in vertical support beams in the basement under her kitchen. She also found cracks in her foundation.
Buyer’s Relationship with the Seller’s Agent:
Winesett sued the seller, seller’s agent, her own agent and the real estate brokerages for $75,000 for repairs plus $350,000 in punitive damages. She sued the seller for fraud and the realtors for violation of the Real Estate Broker’s Act (“REBA”). The seller’s agents sought to dismiss the lawsuit on the grounds that the statute does not create a private cause of action against the agents. They argued that the REBA only allows for professional discipline by the Real Estate Board and not lawsuits by individuals. In a 1989 decision, Allen v. Lindstrom, the Supreme Court of Virginia observed that:
The [seller’s agents]’ primary and paramount duty, as broker and broker’s agent, was to the sellers, with whom they had an exclusive contract. While there may be some type of general duty to the public owed by every realtor, it is not the type of duty that converts into a liability against a seller’s agent for improper conduct to one in the adversary position of prospective purchaser, where there is no foreseeable reliance by the prospect on the agent’s actions.
In that case, the Court rejected the buyer’s attempt to sue the listing agent for violation of a duty arising out real estate agent regulations.
Ms. Winesett brought her case against the agents on the Virginia Real Estate Broker’s Act, which also governs the practices of real estate agents. That statute creates duties for agents (licensees) to their own clients and also the opposite parties in the transaction:
Licensees shall treat all prospective buyers honestly and shall not knowingly give them false information. A licensee engaged by a seller shall disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. Va. Code Sect. 54.1-2131(B).
The Act requires such disclosures to be in writing. The realtor doesn’t need to be an expert in every issue. An agent is entitled to pass on information provided by the seller, the government, or a licensed professional. However, the agent may not rely upon information provided by others if he has actual knowledge of falsity or act in reckless disregard for the truth. Va. Code Sect. 54.1-2142.1.
On May 21, 2015, Judge Mary Jane Hall denied the seller’s agent’s motion, finding that the REBA does create a private cause of action for buyers against seller’s agents for violations. Judge Hall focused her analysis on language in the statute providing that, “This includes any regulatory action brought under this chapter and any civil action filed.” This case is currently set for trial in August. While the Court allowed this claim to move forward, Ms. Winesett bears the burden of proving it at trial.
Judge Hall’s legal conclusion is not consistently reached by all courts in Virginia. Unlike other consumer protection statutes, the REBA does not contain specific provisions about how a civil action may be brought and what remedies are allowed.
In 2004, the Circuit Court of Loudoun County entertained the same issue and concluded that a buyer is not entitled to a private cause of action against a seller’s agent for violation of the REBA. In Monica v. Hottel, Judge Thomas Horne decided instead that a buyer may allege a negligence per se claim against the seller’s agent for violation of the duty of ordinary care set forth in REBA.
I have a few observations about what these recent decisions mean to current and prospective real estate owners in Virginia:
- Discipline vs. Liability: In these cases, the sellers argued that the General Assembly contemplated that the statute would only be enforced by professional discipline, not private lawsuits. To a professional, the prospect of having one’s license suspended or revoked is a different type of threat than a jury award of a large money judgment. To the buyer saddled with a house requiring more repairs than they can afford, money is much more of a consolation than the knowledge that an agent is no longer selling real estate.
- Virginia Consumer Protection Act: Unlike auto dealers, construction contractors and many other types of businesses, licensed real estate agents are excepted from liability under the Consumer Protection Act. To the extent seller’s agents have responsibilities to buyers, liability would have to arise out of some other legal theory, such as the REBA, negligence or fraud.
- Challenges and Advantages of Suing for Fraud: Trial attorneys know that it is much easier to prove negligence or breach of contract than claims based on misrepresentation. In fraud, the standard tends to be higher and there are many recognized defenses. For example, expressions of opinion may not normally serve as the basis for a fraud suit. It is unclear what the standard of proof is for a civil action under the REBA and whether the usual defenses permitted in fraud cases apply. Buyers aren’t normally privy to the private conversations of the seller and his agent. Proof of “actual knowledge” may be hard to come by in many cases. However, there are advantages for suing for fraud. The plaintiff may be entitled to attorney’s fees and punitive damages. Fraud is a flexible legal theory which may provide a remedy in situations that statutes don’t cover.
- REBA Standard for Agents: Normally, a buyer must follow the traditional principle of Caveat Emptor (“Buyer Beware”). The REBA imposes a higher standard of professionalism on seller’s agents by requiring them to affirmatively disclose material adverse facts under many situations. Broad legal enforcement of REBA may change the way that real estate is sold in Virginia.
Although they construe the REBA in different ways, these recent court decisions demonstrate a trend towards greater consumer protection against predatory conduct in the real estate industry. In my experience litigating cases under common law fraud, consumer protection statutes, breach of contract and warranty law, I have learned that there is usually a legal theory that provides a consumer with a remedy. However, claims have a defined time period in which they may be brought. If you fell victim to dishonest conduct in your real estate purchase, discovered that a defect was concealed during your property inspection or your requests for relief under a warranty are being stonewalled, contact a qualified real estate litigation attorney before the passage of time may prejudice your rights. As an owner, you make a tremendous commitment and personal sacrifice to acquire and keep real estate. You are entitled to the legal protections owed by others.
Authorities:
Virginia Real Estate Broker’s Act, Va. Code Sect. 54.1-2100, et seq.
P. Fletcher, “Homeowner Can Sue Agents Under Brokers’ Act,” Va. Lawyers Weekly, (Jun. 5, 2015)
Winesett v. Edwards-Soblotne, No. CL14-6964 (Norfolk Cir. Ct. May 21, 2015)(Hall, J.)
Monica v. Hottel, 64 Va. Cir. 439 (Loudoun Co. May 24, 2004)(Horne, J.)
Allen v. Lindstrom, 237 Va. 489 (Va. 1989)
Photo Credit: Fixer upper via photopin (license)(Used to illustrate themes of post. Does not depict any properties described herein. To my knowledge, this property does not suffer any defects)
February 20, 2015
The Basics of Civil Litigation Discovery
At some point after the filing of a lawsuit in Virginia Circuit Court, initial disputes over the sufficiency of the complaint are resolved. The parties are now on notice of their opponents’ claims and defenses. The process of getting to this point was the focus of my previous blog post. Contrary to what one sees on T.V. or movies, parties do not immediately proceed to going to trial. Instead, lawyers and their clients begin to prepare for trial in a period called “discovery.” Discovery involves finding out more facts about the case. This post provides an overview of the basics of civil litigation discovery, with a focus on its purposes and tools in real estate cases. Why is there such a lengthy process for this? Consider three purposes of discovery:
- Hoarding. Preventing one side or another from “hoarding” documents and information about the case to the unfair detriment of others. For example, in a case between different homeowners’ association factions over control of the board of directors, whoever happens to have access to the minutes, resolutions, notices, amendments, etc., kept by the association must provide them to the other.
- Surprises. Lawyers, as a lot, are attracted to springing surprises on their opponents at trial. However, it may be contrary to the principles of justice for one side to hand the other a large stack of documents they have never seen before during the trial and expect the witness questioning to be meaningful. Discovery can mitigate unfair surprise.
- Effectiveness of Trial. The public places greater confidence in trial results that are based on documents and facts rather than the decisions made in the absence of existing evidence.
The methods of discovery are more formal than the fact gathering conducted outside of litigation. Informal investigation includes researching the documents and information within one’s control, talking to friendly witnesses, checking what is publicly available or that one’s bank can provide. Usually this doesn’t answer all questions. So what are the available forms of civil discovery? There are quite a few. The most useful in real estate and construction cases in Virginia circuit court are:
- Document Requests. The rules allow a party to request in writing an opponent’s documents. A party seeking production of documents must send a written request. The responding party then has 21 days in which to respond as to documents within their possession, custody or control. In large cases it usually takes significantly longer than 21 days to resolve a document request. Reviewing the relevant documents of one’s opponent is a central element of trial preparation. Contracts and other documents created before the dispute cannot, absent forgery, be changed to adapt to someone’s current story. When the judge or jury goes to make determinations of facts, the credibility of the parties and the key documents carry great weight. If a party fails to produce a document requested in discovery, they are not normally allowed to use it as an exhibit at trial. The documents of a third-party can be requested by serving them with a subpoena duces tecum.
- Interrogatories. Information sought may not necessarily be reflected in a document. In discovery, a party may submit written interrogatories to another party, seeking answers to specific questions. For example, a party may inquire into the factual support for their opponent’s claims or defenses. Parties usually ask for disclosure of all persons having knowledge about the facts of the case. Interrogatories are also a good tool for finding out about expert testimony that one’s opponent may present at trial. The answering party must respond within 21 days. The answers must be signed by a party under oath or affirmation.
- Requests for Admissions. Last August, I posted an article about the role of a party’s admissions in a federal trial in Maryland. In that case, a lawyer made an oral admission in a closing argument. His opponent did not make a motion to have the admission deemed binding before the jury went to deliberate. The jury made a decision contrary to the admission. The jury verdict ignoring the admission survived post-trial motions and appeal. Party admissions can be requested in discovery before they come out at trial. Parties are entitled to submit to the opponent formal, written requests for admission. The 21 day deadline applies here as well. Admitted responses are binding. These can be useful for resolving uncontested matters so that the trial can focus on what’s disputed.
- Depositions. How will a party or witness react to a line of questions at trial? Does a party or witness know something that can be useful to preparing one’s own case? In discovery, a party may take oral depositions of parties, experts or other witnesses. The deposition usually occurs at a law office. The parties, the lawyers and the witness meet in a conference room with a court reporter. The court reporter places the witness under oath, and then records all of the lawyers’ questions, objections and witness answers. Depositions of parties and experts are an important part of pretrial discovery in large cases.
- View of Real Estate. In many real estate or construction cases, the most significant piece of evidence is the building or land itself. If ordered, the jury travels to the property to view it as evidence. More commonly, the appearance of property is put into evidence by photographs or video. A party not in possession or control of the real estate is entitled to view it. This can be an effective way of expanding one’s knowledge about the case.
Not all of these tools will need to be employed in every case. In addition to these forms of discovery, there are common areas where parties dispute over whether the discovery has been properly sought or provided. These are usually the subject of objections and motions:
- Relevance. Discovery cannot be used to explore any and every topic. The requests must explore relevant, admissible evidence or information that is reasonably calculated to lead to admissible evidence. Although not unlimited, the scope of discovery is broad.
- Confidentiality. A party may have confidentiality concerns about turning over documents or information. These concerns can be addressed by a protective order regulating the use and disposition of confidential documents or other information.
- Privileges to Withhold. Frequently attorneys will interpose objections to discovery requests. One justification for withholding documents is the attorney-client privilege. Communications between an attorney and his client are not subject to discovery. Despite the apparent simplicity of this concept, disputes over assertion of the attorney-client privilege are a frequent source of discovery disputes. There are other privilege and objections that are applicable in certain situations.
- Spoliation. In the age of computers, e-mails, text messages, computer files and other electronic data are easily created and easily deleted. Once litigation is threatened or pending, parties and witnesses should take action to preserve evidence, including electronically stored information for potential use in the lawsuit.
- Motions to Compel. Lawyers must make reasonable efforts to resolve disputes over the legitimacy of objections, the sufficiency of responses and other discovery disputes without putting it before a judge. When disputes cannot be resolved, typically one party will bring a motion to compel discovery against the other.
- Sanctions. The failure to obey discovery orders can subject a party to a variety of sanctions, including awards of attorney’s fees, dismissal of claims or defenses, exclusion of witnesses and other punishments.
By better understanding the basics of civil litigation discovery, one can adopt strategies that make better use of time, energy and resources pre-trial. Implementing discovery strategies proper to the needs and circumstances of the case pave the way towards a favorable result.
February 12, 2015
The Beginning of a Virginia Circuit Court Case
Many people will never be party to a lawsuit that goes to trial. For those that do, the first time may be the only time. Being a party to a Virginia circuit court civil case requires significant time, focus and resources for what may be several months or longer. What should a party expect from the beginning of a Virginia circuit court case? Because of the commitment required, parties to a lawsuit should familiarize themselves with the basics. This article is the first installment in a series providing a basic overview of Virginia circuit court civil cases. While the circumstances and details of each case are unique, the rules of court provide a basic outline of what to expect.
Pre-Lawsuit Negotiations: Before a lawsuit is filed, the parties and their attorneys usually communicate in efforts to achieve desired results without the necessity of a lawsuit. They exchange emails, demand letters, settlement offers and other correspondence articulating their interests, position and requirements. Why engage in this process if there already are grounds for a lawsuit? In the facts of many cases, there is a reasonable likelihood that the case can be settled without the necessity of filing suit. Not every case that ought to settle in fact resolves without filing suit. However, once suit is filed, the parties will be required to conduct the case in addition to engaging in any desired settlement negotiations. Often it is worthwhile to first see if things can be negotiated.
Filing the Complaint: If settlement negotiations don’t work, a party’s first step towards obtaining a judgment may be to file a complaint at the circuit court clerk’s office. In real estate and construction cases, this is usually done at the courthouse for the city or county where the property is located. Most real estate or construction cases are brought in Circuit Court. However, if the amount in controversy is $25,000.00 or less, the case will probably be brought in General District Court. Alternatively, some cases are brought in federal court.
To begin the case properly, the plaintiff’s best interests are served by investigating and analyzing the case with the lawyer. The complaint should include the proper parties with their correct names. The claims (e.g., breach of contract, breach of warranty, fraud, etc.) should be carefully considered and supported by sufficient factual allegations. The remedies (e.g., money judgment, declaration of rights, etc.) requested to the Court should be clear and supported by the claims. The parties defending the lawsuit can be expected to attack the complaint in whatever way they can. Making the complaint as strong as reasonably possible positions the plaintiff to have a greater likelihood of obtaining a favorable result in court or settlement. The plaintiff normally bears the burden of proof for the claims in the complaint. Parties should avoid simply putting some allegations together that merely forces the other side to respond. Time and focus spent on the complaint may prevent more time unnecessarily being spent strengthening or disputing over a claim later.
Service of Process: A lawsuit cannot proceed unless the defendants are formally put on notice. Normally this consists of having a sheriff’s deputy or private process server going out to each defendant’s house to serve them. There are several alternatives to direct hand delivery of the complaint on the defendant that may apply. Usually it takes a few days for the court personnel to process the paperwork. If the lawyers for the parties are already introduced, often the attorney will provide the defendants with a courtesy copy of the complaint before it is served.
Defendant’s Initial Response: Once the defendant is served, he normally has 21 days in which to respond. Failure to respond in a timely manner or obtain an extension can result in that party falling into default. Falling into default can result in significant waiver of rights to defend the lawsuit and possible entry of default judgment. Usually, defendants respond initially to complaints by filing a “demurrer” or some other motion designed to have the lawsuit dismissed. In the Virginia circuit courts, defendants often make substantial efforts in these early demurrers and motions. Unlike some other states, the defendant’s ability to get a case dismissed on a later pre-trial motion is limited in Virginia state courts. Since the plaintiff bears the burden of proving the allegations and generally upholding the legitimacy of the lawsuit, there are many possible grounds for a defendant to seek dismissal. What is a demurrer? At this stage the defendant usually cannot successfully challenge the truth of the facts asserted in the complaint. Instead, the demurrers typically argue that, for whatever reason, the complaint is not legally sufficient and must be revised or abandoned. For example, a plaintiff may allege various forms of wrongdoing and damages suffered. However, if a claim fails to properly articulate a causal connection between the wrongful conduct and the damages suffered, the defendant will probably argue that it is not legally sufficient. The demurrer or motion to dismiss may require a court hearing where the attorneys will argue before a judge over the sufficiency of the lawsuit. The parties themselves are usually not required to attend these hearings but may do so if they wish.
Defendant’s Answer and Affirmative Defenses: At the end of this initial motions practice phase, the defendants are usually left with claims that have survived and must be responded to directly. This is done by filing an answer containing numbered paragraphs responding directly to those in the complaint as admitted, denied or whatever other response is appropriate. In the same document, the defendants will also identify their affirmative defenses. For example, the defendant may assert fraud, that the plaintiff waived her rights by taking too long to file suit, or other defenses. Some affirmative defenses must be put with the answer to avoid being waived.
Additional Claims: A defendant may have a claim against the plaintiff, another defendant or a third party that may be related to the facts of the case. This initial response phase is the normal time for such claims to be asserted. A counter-claim, cross-claim or claim against a third party is in many respects treated like a separate lawsuit that will go to trial with the initial lawsuit because of the common factual issues.
Scheduling Orders and Trial Dates: Around this time the court will set the trial date. A party should provide her attorney with dates to avoid (vacation, travel, etc.) for trial. Additionally the attorney and client will discuss whether a trial by or without a jury should be requested. When the attorneys set the case for trial, the court may enter a scheduling order setting certain deadlines for the progress of the case. Once the trial date is set, the attorneys, parties and witnesses should reserve the trial dates on their calendars.
There is a lot of activity that goes on in a Virginia circuit court case before the parties give their own personal testimony. In the next installment in this series, I will provide an overview for the discovery process, where each side requests testimony, property viewings, documents and information from their opponents and third parties. The facts and circumstances of each case are different and may require additional procedures or other variations from the outline provided above. If you have a real estate or construction claim against another party, discuss the matter with a qualified attorney to avoid unnecessary waiver of any rights. If you have been made a defendant to a lawsuit, consult with an attorney admitted to practice before the court where the suit is filed to avoid falling into default or other waiver of rights.
January 29, 2015
New Book Review: The Articulate Witness
One of the duties of a litigator is to prepare the client to testify at a deposition, mediation, hearing or trial. Clear, credible and cogent testimony puts the party in the best position to prevail. While judges, arbitrators and juries want to see the contracts and key documents, they also want to hear directly from the parties whose dispute is before the court.
Experienced trial attorneys know what to expect of themselves and their witnesses from the facts of the case. When it comes to public speaking, witness preparation typically includes discussion of the disputed facts and legal arguments in the case. While an attorney may not tell the client or witness what to say, he may ask practice examination questions. Witnesses quickly learn that courtroom or deposition testimony differs from ordinary conversation or interviews. A witness may have little or no public speaking training or experience. There may not be time for a witness to gain valuable experience in Toastmasters International or other activities to practice speaking skills. So how can a witness prepare herself to give effective testimony in her own case?
This month, Brian K. Johnson and Marsha Hunter published a new book, “The Articulate Witness: An Illustrated Guide to Testifying Confidently Under Oath.” This edition is available in print or e-book format. Johnson & Hunter are consultants who train attorneys for a variety of public speaking settings. I have read one of their other books and attended one of their seminars. “The Articulate Witness” is useful to parties and witnesses seeking an overview of the legal testimonial process. It is a valuable resource for attorneys and law students seeking insights in how to better prepare their clients to testify. Professional experts evaluating their own habits and skills would benefit as well. The book is a breezy 50 pages with copious illustrations. I finished it riding on the D.C. Metro between the Judiciary Square & West Falls Church stations. The book focuses on the mechanics of speaking confidently in litigation situations, including cross-examination. The book would be useful to a witness when they first know that a deposition, hearing, trial, etc. will occur. It is not a good book to read the evening before the big day. The reader may desire to practice some of the exercises or discuss them with the attorney beforehand. The book is not a proper substitute for trial preparation with one’s attorney.
A common mistaken belief is that public speaking involves only expressing one’s thoughts using one’s voice. Johnson & Hunter do a great job of showing how it is also a “physical” activity, involving posture, gestures, handling exhibit documents, facial expression and eye contact.
“The Articulate Witness” is an excellent reference for witnesses,attorneys, experts or any other person whose profession or circumstances require him to speak in a legal proceeding. Mastery of the facts and laws is not sufficient. One must be prepared to cogently communicate one’s position to others.
photo credit: Extraordinary Chambers in the Courts of Cambodia via photopin cc
January 8, 2015
Attempt to Relitigate Foreclosure in Bankruptcy Sanctioned by Judge
In Virginia, borrowers have several options of where to bring a legal challenge to a foreclosure trustee’s sale. The shortest commute is usually the Virginia circuit court for the city or county where the property is located. Alternatively, the facts may allow suit to be brought in a federal district courthouses. Another common venue is federal bankruptcy court.
On June 18, 2014, I posted an article about a borrower, Rachel Ulrey, who managed to keep her foreclosed real estate because the lender, SunTrust Bank, failed to object to the plan in time. Ulrey’s case is a cautionary tale to lenders. Other cases show why borrowers cannot rely on lender inattention as a legal strategy. On November 12, 2014, U.S. Bankruptcy Judge Kevin Huennenkens issued an opinion illustrating why parties and their attorneys may not bring the same claim in bankruptcy court after they fail to achieve their desired result in a Virginia state court. The borrower and his attorney found their attempt to relitigate foreclosure in bankruptcy sanctioned by the judge.
Michael Pintz owned property in Sussex County, Virginia, in the name of Michael’s Enterprises of Virginia, Inc. In June 2008, he took out a $200,000 mortgage from Branch Banking & Trust. After he defaulted on payment, BB&T obtained a money judgment in Hanover Circuit Court. When BB&T sent Michael’s Enterprises a Notice of Foreclosure, he filed a request in Sussex Circuit Court to block the threatened sale. That court denied the motion. BB&T later purchased the property at a November 2013 Trustee’s Sale. In February 2014, Michael’s Enterprises filed for Chapter 11 reorganization in the U.S. Bankruptcy Court. The petition claimed the Sussex property as an asset of the corporation.
You may be wondering whether bankruptcy petitions can be used this way. When a court finds that someone filed something for an improper purpose, it may award litigation sanctions. State and federal courts in Virginia have similar rules prohibiting parties and their attorneys from advancing legal claims and defenses for improper purposes and not to vindicate the rights described in the court filing. Improper purposes include but are not limited to harassment, unnecessary delay or needless increase in the cost of litigation.
BB&T brought a Motion for Sanctions for Violation of Bankruptcy Rule 9011. The Bankruptcy Court initially deferred BB&T’s request for sanctions. Judge Huennenkens gave Michael’s Enterprises an opportunity to submit a proper bankruptcy reorganization plan before ruling on the sanctions request. The conditions imposed were not met. In October 2014, the bankruptcy court dismissed Michael’s Enterprises’ petition.
The court granted the lender’s renewed motion for sanctions. Judge Huennenkens observed that Michael’s Enterprises had had an opportunity in Virginia state court to litigate the same objectives sought in the bankruptcy petition. The court saw the new lawsuit as an attempt to attack the Virginia court’s decision and the nonjudicial foreclosure. The bankruptcy opinion doesn’t mention this, but if a party believes that a trial court made an erroneous decision, their recourse is to file a motion to reconsider and/or appeal it to the Supreme Court of Virginia. A bankruptcy court may be able to discharge or reorganize debts reduced to court judgments. However, they usually do not allow parties a do-over of unfavorable results of a state court case. Michael’s failure to present a proper reorganization plan in the face of a sanctions request made a poor impression. Judge Huennenkens found the case to be for an improper purpose and awarded BB&T $10,000 in sanctions against Michael’s Enterprises, Michael Pintz, individually, and his attorney. As of the date of this blog post, this result is currently on appeal before the U.S. District Court for the Eastern District of Virginia.
A common mistaken belief about litigation sanctions is that they are proper whenever a party or attorney loses in court. However, it is common for borrowers in foreclosure contest lawsuits have their cases dismissed on the merits or procedural grounds. Usually, the cases are brought as good faith attempts to obtain relief on the facts and circumstances of the foreclosure proceedings. In Michael’s Enterprises, however, the record of the state court actions together with the absence of a reorganization plan added up to an award of attorney’s fees, not only against the property owner but also its sole shareholder and the attorney. The facts of each case are different and require investigation and research before employing a legal strategy.
Case Citation: Branch Banking & Trust Co. v. Michael’s Enterprises of Virginia, Inc., et al, No. 14-30611-KRH (Bankr. E.D. Va. Nov. 12, 2014).
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December 4, 2014
Litigation over Property After the Foreclosure Law Firm Goes Out of Business
On January 31, 2012, F&M Services, L.C., conducted a foreclosure sale in Hampton, Virginia. F&M was the foreclosure trustee affiliate of the Richmond law firm Friedman & MacFadyen. Freedom Mortgage Corporation appointed F&M as successor trustee for the foreclosure of Hampton property owned by Ms. Gloria J. Harris. At the sale, Freedom Mortgage purchased the property. Subsequently, Freedom assigned the property to the U.S. Department of Veterans Affairs. Ms. Harris had a VA loan on the property.
In October 2012, Friedman & MacFadyen shut down their operations. That law firm was the target of class action litigation arising out of their debt collection and foreclosure practices, including “robo-signing” and violations of federal debt collection law. This law firm was the subject of an October 25, 2012 article on RichmondBizSense.com. In 2008, Diversified Lending Group, a company owned by Bruce Friedman made an undocumented $6 Million loan to his brother Mark Friedman’s law firm. In 2010, the appointed receiver for DLG entered into an agreement with the Friedman law firm for repayment of the $6 Million. A few months later, Bruce was arrested on investment scam charges. This same foreclosure operation was conducting sales and filing foreclosure accountings for many distressed properties in Virginia.
This did not stop litigation over property after the foreclosure law firm went out of business. Ms. Harris decided to bring a lawsuit in federal court to reverse F&M’s foreclosure sale. Rather than sue the law firm or the successor trustee, she decided to bring suit against the federal government and Freedom Mortgage. Ms. Harris’s suit does not focus on the debt collection rules or “robo-signing.” She alleged that a 30-day notice sent to her by LoanCare Servicing Center, Inc. failed to include information specifically required by the loan documents. For example, the amount demanded in the notice was over-stated by one-third. She also pleads that she made an October 2010 payment that was not credited in the notice amount.
Both the government and the mortgage company brought motions to dismiss the lawsuit. District Court Judge Henry Coke Morgan, Jr. denied their motions. The Court showed appreciation of the fact that the 30-day cure notice did not comply with the specific requirements of the loan documents. Of course, on an initial motion to dismiss, the court does not entertain proof of disputed facts. Later in the litigation the Court would consider the exact amount owed at the time of the notice and Ms. Harris ability to cure the payment default if she had received an accurate and compliant cure notice.
In the continuing fallout from the mortgage crisis beginning in late 2008, the federal government frequently finds itself as a party to complex foreclosure litigation. Previously, I discussed the tax advantages Fannie Mae and Freddie Mac enjoy in recording deeds in land records. In other states, such as Nevada, the federal government finds itself as a party to lien priority disputes between banks and community associations. The collapse of foreclosure operations such as Friedman & MacFadyen may prevent them from continuing their scrutinized practices. However, the homeowners, mortgage investors and even the government may find themselves in title litigation over the sale anyway.
Many lawsuits brought by borrowers after foreclosure sales never survive the initial motions filed by the defendant lenders. Although the October 17, 2014 opinion does not mention the law firm, I wonder if F&M’s role in Ms. Harris’ foreclosure afforded her case closer attention.
If you have interest in real property that has in the title report a trustee’s deed from an now out-of-business debt collection law firm, contact a qualified attorney in order to protect your rights.
Case Citation: Gloria J. Harris v. U.S. & Freedom Mortgage Corp., No. 4:14cv56 (E.D.Va. Oct. 17, 2014)(Morgan, J.)
photo credit (does not depict any properties discussed): Mike Licht, NotionsCapital.com via photopin cc
September 17, 2014
Real Estate Decisionmaking in the Face of the Unknown
Eight months ago, I posted about a January 10, 2014 Supreme Court of Virginia opinion interpreting ambiguous words of conveyance in a Southwest Virginia coal severance deed. In CNX Gas Company, LLC v. Rasnake, the Court decided that CNX had the right to continue to extract the Coal Bed Methane from a tract of land in Russell County. The Court interpreted language limiting words of conveyance in a 1918 deed so as not to include CBM. A land conveyance represents real estate decisionmaking in the face of the unknown future.
On September 12, 2014, the Supreme Court of Virginia issued another opinion relating to CNX’s extraction of CBM from Russell County coal fields. Swords Creek Land Partnership v. Dollie Belcher, et al., interprets words of conveyance and the difference between CBM and coal. This case caught my attention because it discusses the Rasnake case. It also so happens that in the past year, “Words of Conveyance” was the most common term entered by all of you into the search feature of this blog.
Like Rasnake, the Belcher case concerns an (1) 1887 conveyance of coal, (2) from a land in Russell County, (3) to Joseph Doran and W.A. Dick, (4) whose successors in interest leased the CBM extracting rights to CNX Gas. Despite the factual similarities, the outcome of the two cases is different, because each deed contains different granting language.
On February 7, 1887, Christopher & Amanda Richardson executed a severance deed conveying:
. . . all of the coal, in, upon or underlying a certain tract of land and the timber and privileges hereinafter specified as appurtenant to said tract of land [metes and bounds description follows] to enter on, over, upon, and through said tract of land for the purpose of digging, mining, or otherwise securing the coal and other things in and on said tract of land hereinbefore specified, and removing the same from off said land . . . .
Ms. Belcher and two others are the successors in interest to the Richardsons. Swords Creek entered into a lease in 1991, granting the CBM to CNX’s predecessor in interest. Swords Creek receives 12.5% royalties from CNX.
Belcher and the other surface owners brought suit claiming rights to the CBM. In September 2013, the Circuit Court of Russell County entered an order finding that Swords Creek only had rights to coal, not to the CBM. Nine years before, the Supreme Court of Virginia decided that the term “coal” as used in the 19th century unambiguously referred to the mineral coal. In Virginia deeds from the 1800’s, CMB is a separate mineral estate from coal.
In upholding the Circuit Court’s decision, the Court discussed the Rasnake case, in which the granting language was deemed ambiguous. In Belcher, the Court found the words of conveyance to unambiguously convey only coal and timber, not including CMB. The Court found Belcher, et al., entitled to all of the royalties from the CBM.
What do Rasnake and Belcher add to what we know about words of conveyance in Virginia? My previous post discussed some of the key technical rules for construction of deeds. Today’s post adds two considerations at a higher-level of analysis:
- Managing What You Don’t Know. When Messrs. Doran and Dick went around Russell County, acquiring coal severance deeds from landowners, they engaged in real estate decisionmaking in the face of an unknown future. They knew that coal and timber fueled the national economic engine. They didn’t know that one day CBM would later be big business. They can’t really be faulted for that. There is an aphorism attributed to Confucius: “What you know, you know, what you don’t know, you don’t know. This is true wisdom.” This Chinese sage’s advice could well apply to everyday strategic real estate decisionmaking. What Doran & Dick did know was that the wording of deeds has the power to spawn or avoid future legal conflict. Severing out certain natural resource extraction rights from the surface owners can maximize the use and value of a parcel. It also heightens the risk that the interests of the parties will fall out of alignment. Perhaps Confucius would advise us to be healthily aware of such risks. Sometimes efforts to simplify a transaction can reap dividends.
- Drafting or Litigating over Property Instruments. The words in a land instrument granting property are facts that Courts feel comfortable interpreting without deference to findings by a jury. Even the threshold question of whether the language in a deed is ambiguous is a legal one. The Supreme Court of Virginia took two of these similar cases and published opinions on them in a 8-month time frame. In title cases where no facts are in dispute, the appellate court will be less reluctant to disturb a decision of the trial court. The language of the instruments needs to make sense, to a general audience but especially a judge if necessary. The choice of language that agreed to in a deed requires careful consideration by a qualified real estate attorney. In a dispute between parties claiming adverse interests to the same real estate, a wise investor consults with an experienced title litigator.
case citation: Swords Creek Land P’ship v. Belcher, 762 S.E.2d 570 (Supr. Ct. Va. Sept. 12, 2014)
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September 8, 2014
Court Confirms Border Between Maryland and Virginia is Changing
The boundary between Maryland and Virginia has been the subject of legal disputes for hundreds of years. On August 29, 2014, the Maryland Court of Special Appeals added another chapter to this “meandering” tale. The Court issued an opinion in a dispute over rights to certain waterfront property near Harper’s Ferry, West Virginia. River Riders, Inc., is a fishing, tubing and rafting tour company doing business in the “Potomac Wayside” area (pictured) along the southern bank of the upper Potomac River. Potomac Shores, Inc. claims the Potomac Wayside tract through their Washington County, Maryland, deed describing the south side of the Potomac as a boundary line. Potomac Shores asserts the parcel is in Maryland, because that geographic area was in the Potomac River before gradual accretion of the shoreline. From Potomac Shores’s perspective, that accretion is their windfall, not River Rider’s. Potomac Shores brought their title lawsuit in Washington County, Maryland. River Riders moved to dismiss on the grounds that the Potomac Wayside land is located in Loudoun County, Virginia, not Maryland.
I became interested in Maryland history during my undergraduate years in Annapolis. In 1996, I had a summer internship with the National Park Service in Sharpsburg, a small town in Washington County, Maryland. Harper’s Ferry remains one of my favorite day excursions, a beautiful spot where the Shenandoah River flows into the Potomac. This is where Maryland, West Virginia and Virginia meet. Along the Maryland side, the C&O Canal towpath offers a flat, scenic hiking and biking trail. Certainly an attractive area for entrepreneurs to base a river tourism business.
The historic Maryland-Virginia border disputes cover a spectrum of issues. Before this latest Maryland lawsuit, most disputes focused on use of oyster beds in Bay tidal areas. The passion for shellfish amid confusingly defined property rights repeatedly escalated into violence between Maryland and Virginia watermen. In 1874, Maryland and Virginia agreed to submit the boundary dispute to arbitration to resolve the matter peacefully.
The Potomac River is part of Maryland and the state boundary runs along the low-water mark on the Virginia side. What happens when this line moves? The Maryland Court of Special Appeals articulated the legal question as follows: “Does the boundary between Maryland and Virginia shift as the south bank of the Potomac alters because of time and the forces of nature? Or is the boundary fixed and immutable?” Potomac Shores argues that the boundary was set in the past and the gradual process of accretion, erosion and relection resulted in “new” land formed on the south bank of the Potomac.
Note that it has long been settled that the Potomac River is freely navigable by the citizens of the states, and that the waterfront property owners have rights to build docks and wharfs out into the river, as permitted under land use restrictions.
The conclusion reached by the Maryland Court of Special Appeals runs contrary to our modern preference towards “precision.” The Court rejected the “fixed boundary” approach requested by Potomac Shores. The Court upheld the Circuit Court decision, finding that, for the non-tidal portion of the Potomac River, the boundary shifts as time and the forces of nature gradually re-shape the low water-mark of the river’s “southerly shore.” This implies that the border between Maryland and Virginia is changing, by acts of nature, not government. This also means that those private landowners along the Maryland-Virginia border also have potentially shifting boundaries. Virginia’s Potomac waterfront landowners above Washington, D.C., may loose or gain waterfront property as the currents withdraw, add or relocate the shoreline.
The court’s decision avoids the problem of defining the water line boundaries as those that existed at a certain point of time in the past, such as a land grant or other legally significant document.
The new court opinion observes that the result of the case may be different if the accretion of the Potomac Wayside property was man-made. The opinion does not discuss waterfront landowners planting vegetation, constructing sea walls and laying rip-rap to protect their properties from natural change.
The Court analogizes state boundary lines and individual property boundary lines, quoting Justice Kennedy’s dissent in an older Virginia v. Maryland boundary case: “No court acts differently in deciding on Boundary between states, than on lines between separate tracts of land.” For example, the arbitrators in 1874 observed that, “Virginia’s prescriptive use of the river’s south bank had changed the boundary to the south bank’s low-water mark for the course of the entire river.” What is prescriptive use of real estate? Professor Minor defined it in his 1908 treatise as, “based upon the presumption of a grant, arising after long-continued, adverse, uninterrupted, notorious, exclusive enjoyment of a right in the land of another, under a claim of title.” The presumption becomes conclusive after twenty years. Was the arbitrator’s reference to the doctrine of prescriptive easements appropriate? Or is it a red herring?
The border between Maryland and Virginia is changing – is your boundary meandering as well? If you are currently experiencing a dispute with one of your neighbors concerning a property boundary defined by a river, stream, lake or other waterway, consult with a qualified attorney in order to explore your options to protect your rights.
Case Citation: Potomac Shores, Inc. v. River Riders, Inc., 219 Md. App. 29 (Ct. Spec. App. Md. Aug. 29, 2014)(Koehoe, J.)
Treatise Citation: Raleigh C. Minor, The Law of Real Property, Sect. 108 (1908).
Photo Credit: Camera John via photopin cc (apparently taken at Potomac Wayside, Purcellville, Virginia)
August 20, 2014
Crying Sham: Challenges to Character at Trial
On Aug. 12, 2014, I blogged about a judicial admission issue in the trial of Minter vs. Prosperity Mortgage, et al. Today’s post is Part Two in a series on this case. The following focuses on challenges to character at trial.
The integrity of the parties lies near the heart of every trial. The classic test of credibility occurs on cross-examination by the opposing lawyer. Prepared trial lawyers show up with cross-examination questions thoroughly exploring the relevant issues.
Challenges to the character of a party or witness can be a delicate matter. Trial lawyers, including those defending a case, are sometimes accused of “blame the victim” strategies. How does one distinguish between zealous, competent advocacy and unprofessional, undisciplined aggression? In his blog post, “Take Care with Character Attacks,” Jury consultant Ken Broda-Bahm, Ph.D., discusses the Police Department’s release of surveillance footage showing 18-year old Michael Brown robbing a store in Ferguson, MO. They disclosed this video after the police shooting of the unarmed Brown in a later incident. Broda-Bahm used this Ferguson story to discuss how perceived relevance of a character attack may determine whether it is interpreted as (1) a red-herring or (2), information useful to understand disputed events. Audiences largely reject recognized ad hominem fallacies. Broda-Bram observes, “The question of whether a character attack is relevant or irrelevant is often ambiguous – and this is nowhere more true than in law where fact finders are asked to evaluate the credibility of parties and witnesses.”
In the 17-day Minter v. Prosperity Mortgage trial, the parties challenged each other’s credibility. The consumers accused Long & Foster and Wells Fargo Bank of creating Prosperity Mortgage as a “sham” “affiliated business arrangement” to exchange “kickbacks” or commissions violating the Real Estate Settlement Practices Act. Of course, business associations don’t have “character” in the sense that individual persons do. However, the integrity of the defendants’ business practices were on trial in the class action suit. One representative plaintiff alleged paying $945 in settlement charges to Prosperity. The two other representative plaintiffs paid $777.03 in settlement charges to Prosperity.
What is a “sham”? According to the common dictionary meaning, it is “a thing that is not what it is purported to be.” In R.E.S.P.A. compliance matters, “sham” is used as a shorthand for “affiliated business arrangements” that fail to comply with the complex legal requirements.
On appeal, the consumers identified two specific character attacks made by their opponents. When the defense attorney made his closing argument, he accused the plaintiffs’ lawyers of putting on a “sham lawsuit” and having “an interest in the outcome of this case.” The “sham lawsuit” accusation appears to be tit-for-tat for the “sham brokerage” accusation. Everyone is calling everyone else a “sham.”
The second accusation is more interesting – every lawyer has at least one “interest” in the outcome of his case. Lawyers don’t try cases without an attorney-client relationship. The interest might be a financial one, such as a percentage contingency fee or unpaid invoices on hourly work. It might be reputational. It might be relational to a client. It might be malpractice related, or even a personal motive. The apparent inference here is that the plaintiff lawyers had a financial interest in the outcome of the case. Defense counsel suggested that the jurors could punish the plaintiffs’ lawyers financially in their verdict.
While the Federal Appeals Court found these comments inappropriate and improper, they remarked that they only came at the end and did not permeate the whole trial. The Court found them irrelevant. However, their prejudicial effect was mitigated by their isolated context and the jury instructions, where the judge told them that lawyer arguments are not evidence. The Court of Appeals upheld the trial judge’s decision with respect to these comments, letting the defense verdict stand.
It is difficult to say whether the defense verdict was influenced by the improper statements. The jurors disregarded other closing arguments made by the defense. They may have ignored these as well. Juries know that lawyers work for fees.
While the lawyers defending this case succeeded in making improper statements, I think it would be a mistake to interpret this court opinion as an invitation for more character attacks in closing arguments. Challenges to personal or corporate integrity must be carefully considered, evaluated in light of the other evidence, rigorously prepared and reevaluated at all stages of the case.
case citation: Minter v. Wells Fargo Bank, 762 F.3d 339 (4th Cir. 2014).
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August 12, 2014
Admit One: Attorney Wins By Failing to Effectively Communicate to Jury
A complex case goes to trial. The parties, witnesses, jurors and lawyers endure weeks of frantic preparation, arguments and witness testimony. Near the end, the defense lawyer faces the jury to deliver his closing argument. He does not want to let his client down by failing to effectively communicate. However, while articulating his client’s position, he admits a key fact.
Perhaps his opponent writes this judicial admission down on a legal pad, shifts back in his chair, smiles modestly and relaxes muscles that have been tense for weeks. Defense counsel concludes his argument. The Judge reads instructions to the jurors. After deliberation, the jury returns with a verdict completely in favor of the defendants, contrary to the admission! Surely relief from the verdict is available, at least on the point of the judicial admission? What amount of jury supervision can attorneys and their clients expect from a trial judge in similar situations?
In June 2013, William Nickerson, a Senior Federal Judge in Maryland, faced a similar situation. He ruled that the plaintiff’s lawyer’s failure to move to revise the jury instructions after the closing arguments rendered the defense lawyer’s admission not binding. On August 5, 2014, Federal Court of Appeals upheld this decision. (This appeals court has authority to also hear appeals from federal trial courts in Virginia) This case illustrates how attention to detail and quick decision-making in jury trials challenges even seasoned litigators. An attorney and client should not bring a lawsuit unless they are willing to prepare to take the case to trial. They must also have sufficient risk tolerance to permit the result to be determined by disinterested judges and jurors.
Class Action Against Long & Foster, Wells Fargo Bank & Prosperity Mortgage:
In the facts of Judge Nickerson’s case, Denise Minter and others used Long & Foster to help them purchase homes. Long & Foster has a joint venture with Wells Fargo Bank called Prosperity Mortgage. Prosperity lends home loans on a wholesale line of credit provided by Wells Fargo. Some of Prosperity’s offices are next door to Long & Foster’s. Ms. Minter used Prosperity to obtain a home loan.
This case caught my attention because Long & Foster has a large market share in residential real estate in Northern Virginia. This case held many business relationships in the balance. On a personal note, Long & Foster has been the listing or buyers agent for every real estate transaction I have been personally involved in. Long & Foster has some agents that I would use again (or refer to others) and some that I would not. I’ve never used Prosperity Mortgage.
Ms. Minter and other common customers (but not me) became dissatisfied with the services of Long & Foster and Prosperity and filed a class action lawsuit. They alleged that Wells Fargo and Long & Foster created Prosperity as a “sham” in order to skirt legal prohibitions on “kickbacks” obtained in settlements that were inadequately disclosed to the consumers. They brought their class action under the Federal Real Estate Settlement Procedures Act.
The trial court certified the plaintiffs class action except for certain claims that could only be brought if Prosperity customers were actually referred by Long & Foster. Those potential claims were set aside for a future, separate trial. In order to get a trial on those other claims, the court required a factual finding at the first trial that Long & Foster referred the plaintiffs to Prosperity.
The jury received extensive evidence in the 17 day trial. Near the end, Long & Foster lawyer Jay Veron presented a closing argument, including, “I think the only thing I agree way (sic) for sure is that Long & Foster did refer the named plaintiffs to Prosperity. There’s no dispute about that.” The jury received predetermined instructions from the Judge. These included Verdict Question No. 3:
Have Plaintiffs proved, by a preponderance of the evidence, that Long & Foster Real Estate Inc., referred or affirmatively influenced the Plaintiffs to use Prosperity Mortgage Company for the provision of settlement services.
This question was almost identical to one proposed by the Plaintiffs’ lawyers. After deliberation, the jury answered “No” to Question No. 3.
The consumers’ attorneys moved the court to set aside the jury’s verdict and order a new trial. Counsel argued that Long & Foster’s factual concession during the closing arguments constituted a “judicial admission” that bound Long & Foster in the case.
Judicial Admissions:
What is a Judicial Admission? The Circuit Court opinion explains that under federal evidence law, they are a representations by a party or their agent that are conclusive in the court case unless the judge allows them to be withdrawn. They can occur in pleadings, discovery or at trial. The are not limited to written communications. Judicial Admissions include intentional and unambiguous waivers that release the opposing party from its burden to prove the facts necessary to establish the waived conclusion of law.
For these reasons, lawyers routinely counsel clients with strategies designed to avoid making undesired admissions regarding issues in controversy. Even if an admission does not achieve binding effect, it remains fertile ground for cross-examination and falls outside the protection of a hearsay objection.
Mr. Veron’s decision to tell the jury that there was no dispute whether Long & Foster referred the plaintiffs to Prosperity was significant. Perhaps he thought that the jury would think this anyway and that he needed to concede this in order to maintain credibility. The jury either wasn’t listening, didn’t understand or believe him. In many trials, the jurors’ least favorite parts are when lawyers are talking. Veron achieved a complete victory by failing to effectively communicate what he was trying to say to the jury. In the words of the prison warden in the 1967 film, Cool Hand Luke, “What we got here is a failure to communicate.” In a 17 day trial, there is bound to be some mis-communication.
Post-Trial Motions:
The plaintiffs’ attorney needed the Court to accept Mr. Veron’s admission for the consumers to get another trial on separate, related claims predicated on that admitted fact. Plaintiff’s counsel moved to have the jury verdict set aside as contrary to the admission and the evidence. The Judge Nickerson rejected the motion for a new trial, explaining that:
Trial advocacy involves knowing when to interject with objections and motions and when to allow the case to simply flow on. In this 17 day trial, undoubtedly there were many objections and motions made by both sides calculated to steer the outcome. However, a trial attorney cannot object or make a motion whenever his opponent tries to accomplish anything. Judges and juries become weary of frequent interruptions of the flow of testimony. When Long & Foster’s attorney made this admission to the jury, the consumers’ lawyer may have thought: “Finally, something unobjectionable and consistent with what I have been saying for the past 17 days.” Unfortunately, by not moving to have the jury instructions and verdict forms changed to reflect this stipulated fact, the jury was permitted to decide it. The jury probably was not aware that there was a whole separate trial that could be precluded based on that factual finding. In the end, the joint venture known as Prosperity Mortgage survived this class action assault.
This Minter trial has several takeaways:
- Just because the parties agree doesn’t mean the jury will.
- Juries have been known to ignore things lawyers say.
- Never give up! Always listen for things that require immediate action to avoid waiver. (This does not mean object to each and every thing.)
- Going to trial, especially with a jury, requires risk tolerance.
- When a problem that requires litigation solution, trial experience counts.
- If an attorney prevails because he fails to communicate what he wants to say, then that is still a happy day for him, his law firm, and his client.
I sympathize for the class action plaintiffs lawyer. He showed opposing counsel respect by assuming that the jury would listen to the judicial admission and decide their verdict in accordance with the fact not in controversy. He also exhibited respect for the jurors, whom he assumed would draw the conclusion based on the arguments and weight of the evidence. He also respected the judge’s desire not to have yet another matter to quickly rule on.
This case illustrates that any system of justice administered by humans will run the risk of inscrutable results. A qualified trial attorney serves clients by managing these risks arising from unresolved legal disputes. This is accomplished through commitment to client service, zealously pursuing the clearest path to victory while exploring reasonable settlement opportunities.
This is Part One in a series of blog posts about the Minter v. Prosperity Mortgage, et al. case. Part Two is about certain challenges to credibility made in closing arguments.
Case Citations:
Minter v. Wells Fargo Bank, No. 07-3442 (Dist. Md. Aug. 28, 2013)(Nickerson, J.).
Minter v. Wells Fargo Bank, 762 F.3d 339 (4th Cir. 2014).
Photo Credit: Paul L Dineen via photopin cc
July 24, 2014
Tenancy by the Entirety and Creditor Recourse to Marital Real Estate
Last week I focused on first-time home buyers and new opportunities for state tax-exempt estate planning. This week’s post continues on the theme of family. Spouses who own Virginia property together may enjoy special protections against the claims of their individual creditors. This special form of ownership is called “Tenancy by the Entirety.” For this to arise, the husband and wife must own in unity of (a) time, (b) title, (c) interest and (d) possession. These requirements may be inferred if the deed specifically conveys to the husband and wife by tenancy by the entirety or with an intent to create a right of survivorship.
As far as creditors are concerned, the couple jointly owns an undivided 100% interest. This ancient doctrine continues to be applied by Virginia courts in contemporary real estate controversies. This post focuses on ways creditors may succeed in spite of this manner of holding title:
- Joint Consent. Neither spouse may sever the tenancy by his sole act. Likewise, one spouse cannot convey the property unilaterally. This becomes significant if one spouse attempts to mortgage the property without the consent of the other. However, the spouses may cause the termination of the tenancy by the entirety ownership or jointly liability for a lien or judgment. For example, when the owners take out a mortgage, if properly perfected, that lien will persevere against acts of divorce and/or bankruptcy unless exceptions apply. Also, if only one spouse files for bankruptcy, the tenancy by the entirety property remains outside of the Bankruptcy Estate.
- Divorce. Completion of a divorce transforms a tenancy by the entirety into a tenancy in common, the ordinary form of co-ownership. In equitable distribution, a Judge has considerable latitude in dividing up marital property.
- Death. Because of the right of survivorship, no transfer of title occurs to the survivor upon the death of a spouse. Upon death, the interest of the surviving spouse converts from a tenancy by the entirety to a sole ownership interest. At that time, the property then becomes subject to creditor claims.
- Fraud. If the husband and wife attempt to work a fraud on a creditor by improper use of a tenancy by the entirety conveyance, it is unlikely that the court would permit the fraud. However, if the couple sells real estate held in a tenancy by the entirety, the proceeds of that sale automatically also enjoy the same status as the real estate, unless there is an agreement to the contrary. A transfer from the husband and wife holding in tenancy by the entirety to the sole name of one of the spouses does not subject those funds to the claims of the other spouse’s creditors.
The gist of tenancy by the entirety flows intuitively from the legal understanding of marriage. It possesses a seemingly “magical” quality when it comes to protecting against many individual creditor claims. However, it can be difficult applying the doctrine to a family’s individual circumstances. If you have questions about Tenancy by the Entirety, whether as a spouse or a creditor, contact a qualified attorney.
Court Opinions:
In Re Eidson, 481 B.R. 380 (Bankr. E.D. Va. 2012) (interpreting Va. law).
Alvarez v. HSBC Bank USA, 733 F.3d 136 (4th Cir. 2013) (interpreting Md. law).
U.S. v. Parr, File No. 3:10-cv-061 (W.D. Va. Oct. 6, 2011) (Moon, J.) (interpreting Va. law).
In Re Bradby, 455 B.R. 476 (Bankr. E.D. Va. 2011) (interpreting Va. law).
In Re Nagel, 298 B.R. 582 (Bankr. E.D. Va. 2003).
