Annual Review of Civil Supreme Court of Virginia

Friday, July 19 2019 | The Omni Homestead Resort | Hot Springs, VA

CONTINUING Written Materials LEGAL EDUCATION

A presentation of The Virginia Bar Association’s Appellate Practice, Judicial, and Civil Litigation Sections Annual Review of Civil Supreme Court

of Virginia PRESENTERS

The Honorable Everette A. Martin, Jr. Judge Martin attended Washington & Lee University where he received a B.A. in 1974 and a J.D. in 1977. Served as a law clerk to Judge Richard B. Kellam of the U. S. District Court in Norfolk from 1977 to 1978. Received an LL.M. (in Taxation) from New York University in 1980, a degree which is of little use in his present position. Private practice from 1980 to 1987, mostly with the former firm of Seawell, Dalton, Hughes & Timms. Assistant Commonwealth’s Attorney for the City of Norfolk from 1988 to 1990. Judge of the Norfolk Juvenile and Domestic Relations District Court from 1990 to 1995. Judge of the of Norfolk since 1995. Served on the Supreme Court’s Ad Hoc Committee on Local Rules that produced the uniform scheduling order and Rule 4:15, the Circuit Court Forms Committee, the Law Council of Washington and Lee University, the Board of Governors of the Virginia Bar Association, and the Boyd-Graves Conference.

Hon. Daniel E. Ortiz

Judge Ortiz completed his undergraduate studies at the University of Virginia and received his law degree from the George Washington University Law School. Judge Ortiz was elected to serve an eight year term as a Circuit Court Judge beginning January 1, 2015. He began his legal career at the Fairfax County Circuit Court clerking for the Honorable M. Langhorne Keith. At the conclusion of his clerkship, Judge Ortiz joined Blankingship & Keith, P.C. where he became a shareholder and principal at the firm.

Prior to his service at the Court, Judge Ortiz was an active member in numerous bar related organizations. These include serving as a member of the Board of Directors of the Fairfax Bar Association and the Board of Governors of the Virginia Bar Association. He was selected by his peers to chair both the Young Lawyer’s Section of the Fairfax Bar Association and the Young Lawyer’s Division of the VBA. He previously served as a Substitute Judge in the General District Court and Juvenile Domestic Relations District Court for five years.

Judge Ortiz was selected by the Chief Justice Lemons to serve on the Virginia Access to Justice Commission. He is a member of the faculty of the Harry L. Carrico Professionalism Course. Judge Ortiz is a former board member and President of Legal Services of Northern Virginia.

The biographical information is provided by the speakers or collected from their websites.

Significant Civil Supreme Court Cases from the Past Year Judge Everett A. Martin, Jr. – Circuit Court of Norfolk Judge Daniel Ortiz – Circuit Court of Fairfax Monica T. Monday, Esq. Maria Teresa Salido Gusi, Esq. Kristin M. Godsey, Esq.

ARBITRATION Brush Arbor Home Constr. v. Alexander, 297 Va. __, 823 S.E.2d 249 (2019) The Court found that an arbitrator needed to resolve the question of whether the parties’ disagreement over the interpretation of the arbitration clause was a controversy arising out of or relating to the contract, or the breach thereof. The Alexanders sued Brush Arbor alleging that the home it constructed for them suffered from a variety of defects. Brush Arbor moved to compel arbitration based on Article 12 of the parties’ contract, which stated that “any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the Better Business Bureau under its construction Industry Arbitration Rules.” The circuit court denied the because the Better Business Bureau did not have any construction industry arbitration rules, and hence, it would be impossible to execute that term of the agreement. The Court agreed with Brush Arbor in that “under the broad scope of the arbitration clause at issue, the question of which rules were required by the arbitration clause was an issue for the arbitrator chosen by the parties, not the court, to decide.” The Court explained that “the extent of the duty to arbitrate, just as the initial duty to arbitrate at all, arises from contractual undertakings.” “It is a court’s duty in the first instance to construe the contract to determine what questions the parties agreed to submit to arbitration.” For this, the Court only needed to answer whether the parties’ disagreement over the interpretation of Article 12, as well as the application of the doctrine of impossibility, were “controvers[ies] arising out of or relating to this contract, or the breach thereof.” This case clearly arose out of the contract between the Alexanders and Brush Arbor, and thus, an arbitrator had to resolve the issues. The Court further opined that “the fact that the controversy or claim deals with the interpretation of the arbitration clause of the contract does not change the outcome.”

ATTORNEYS Roberts v. Virginia State Bar, 296 Va. 105, 818 S.E.2d 45 (2018) Roberts represented a plaintiff in a personal injury action. The retainer agreement required the client to pay the firm’s costs and expenses, and to maintain a balance of $150 in the firm’s escrow account. The client became dissatisfied with the representation and terminated the firm’s representation. The firm claimed a lien of over $5,000 and transferred the client’s $150 to its operating account. The client filed a bar and Roberts received a public reprimand. Roberts appealed. The Supreme Court affirmed. An attorney claiming an interest in trust funds cannot unilaterally determine whether a dispute over the funds exists and how to resolve it. The decision also contains a good discussion of quantum meruit and terminated contingency fee agreements.

CIVIL PROCEDURE McCulley v. Brooks & Co. General Contractors, Inc., 295 Va. 583, 816 S.E.2d 270 (2018) Brooks & Co., in an unpaid rent and late fees dispute, served process on McCulley by posting pursuant to Code § 8.01-296(2)(b). However, Brooks & Co. failed to follow the additional requirements established in the statute; namely, it failed to mail a copy of the process to McCulley 10 days before obtaining a default judgment and it failed to file a certificate of mailing in the court’s clerk’s office. After McCulley’s failure to file responsive , Brooks & Co. was able to obtain a default judgment against him and the other defendant. McCulley then received a summons from the circuit court clerk commanding him to appear before a commissioner in chancery to answer debtor's . In response, McCulley filed a motion to vacate the default judgment in the circuit court, “making a special appearance for the sole purpose of contesting [the] court’s exercise of personal ” over him given the irregularities in the . Such irregularities, McCulley argued, made the default judgment void. In spite of this, the debtor’s interrogatory proceeding continued for several months. After conducting a hearing on McCulley’s motion to vacate, the circuit court held that, despite service of process being defective, McCulley had waived any objection to such defect “by making a general appearance … through his post-judgment participation in Debtor’s interrogatories.” Hence, the court found that such general appearance during enforcement proceedings on a final judgment effectively waived any claim that the judgment was void ab initio, and denied McCulley’s motion to vacate the default judgment. “A judgment against a party not before the court in any way will be as utterly void as though the court had undertaken to act when the subject-matter was not within its cognizance … and may be so treated in any proceeding, direct or collateral.” Failure to satisfy the mailing and certificate requirement of Code § 8.01-296(2)(b) renders a default judgment void for lack of personal jurisdiction. Because of this, the Court opined that the ’s default judgment was void ab initio. “A mere general appearance after the entry of a void judgment is too little, too late to save the judgment.” In a lengthy dictum, the Court held a defendant would forfeit his right to challenge the judgment when (1) the challenger had “had actual notice of the judgment” and ratified it by manifesting “an intention to treat the judgment as valid and (2) granting relief from the judgment ‘would impair another person’s substantial interest of reliance on the judgment.”’ In this case, McCulley had never manifested an intention to treat the judgment as valid and the Court opined that his initial silence could not be equated to assent. In fact, McCulley’s motion to vacate specifically stated that he was only making a special appearance to challenge the validity of the judgment. Furthermore, the Court explained that there was nothing in the record, such as a partial enforcement of the void judgment or a sale of the debtor’s assets to others, indicating that granting the motion “would impair another person’s substantial interest of reliance on the judgment.”

Catjen, LLC. v. Hunter Mill West, 295 Va. 625, 817 S.E.2d 139 (2018) Hunter Mill West (“HMW”) executed a deed of trust note with a high compound interest rate and a confession of judgement clause. HMW defaulted under the note and filed for bankruptcy. The bankruptcy court fixed the amount of Catjen’s claim. The bankruptcy petition was dismissed. Catjen foreclosed on the real estate and confessed judgement for the deficiency. HMW moved to set aside the confessed judgement on the ground Catjen had incorrectly calculated the interest; HMW claimed that only simple interest was due after maturity. After a hearing on the motion, the court agreed with HMW’s interest calculations, and entered an order awarding Catjen the reduced amount. Catjen appealed. Catjen claimed Code § 8.01-433 does not allow a court to enter a modified confessed judgment over the creditor’s objection. The Supreme Court agreed. The statute provides that a confessed judgement may be set aside or reduced on any ground that would be a defense to an action at law on the note, but if the judgment is set aside or modified, the case is to be set on the trial docket as if an action at law had been instituted on the note. The Court held that the hearing here did not constitute a trial. The Court also noted that a reduced confessed judgment may be entered with the creditor’s consent.

Primov v. Serco, Inc., 296 Va. 59, 817 S.E.2d 811 (2018) An employment contract between the parties had a provision requiring the parties to attempt to resolve any dispute arising of the agreement by mediation. Primov filed one breach of contract action in 2015 without requesting mediation; he took a non-suit on the trial date in 2016. Later that year he filed a second breach of contract action, again without requesting mediation. Serco filed a plea in bar claiming the mediation provision was a condition precedent to litigation. The circuit court agreed and dismissed the case with prejudice. The Supreme Court affirmed. A contractual condition precedent to litigation is enforceable. The proper sanction for non-compliance depends on the circumstances of each case. A stay of the action or a dismissal without prejudice are the most suitable remedies for non- compliance with such a condition precedent. Here Primov violated the condition precedent in the first action and took it up to the date of trial before nonsuiting and then violated the condition precedent again.

Madison v. Board of Supervisors, 296 Va. 73, 817 S.E.2d 818 (2018) In an original jurisdiction case, the Court entered a pre-filing injunction against Madison. Madison had filed 22 lawsuits against Loudoun County, 4 petitions for appeal, and 2 original jurisdiction petitions in the Supreme Court. Loudoun County sought sanctions. It appears none of Madison’s efforts had been successful. The Court found her filing of a petition for writs of mandamus and prohibition violated Code § 8.01-271.1, and therefore the court “shall impose” a sanction. It ordered Madison to pay the county’s costs and attorney’s fees. The Court also found that sanction would not “protect its jurisdiction from repetitious and harassing conduct that abuses the judicial process.” Sua sponte, the Court imposed a pre-filing injunction requiring any future filings in the Supreme Court to be made by a Virginia licensed attorney or after obtaining leave of court. It allowed the Circuit Court of Loudoun County to do the same. In determining whether a pre-filing injunction is warranted, a court must consider all relevant circumstances, including (1) the party’s history of litigation, including whether the cases were vexatious, harassing, or duplicative, (2) whether there was a good faith basis for the suit, (3) the burden of the courts and other parties, and (4) the adequacy of alternative sanctions.

Mercer v. MacKinnon, 297 Va. __, 823 S.E.2d 252 (2019) The Court found that MacKinnon’s pre-litigation contacts with Virginia did not rise to the level of “persistent course of conduct” for the court to have personal jurisdiction over her. Mercer is the daughter of Clifton and the step-daughter of Eleanor, a dual citizen of the United States and Canada. Mercer served as the primary caretaker of both Clifton and Eleanor. In 2014, Eleanor’s niece, MacKinnon, traveled to Virginia from Canada to take Eleanor from the nursing home in which she was living, and to draw up a new power of attorney for her. Subsequently, she used the power of attorney to name herself as the death beneficiary of a bank account. Several lawsuits ensued between MacKinnon and Mercer in Prince William County circuit court. MacKinnon never challenged the circuit court’s jurisdiction over her. In May 2015, MacKinnon filed an action in Canada seeking to have herself declared guardian and conservator for Eleanor. In July 2016, Eleanor died intestate. Mercer was the administrator of her estate. Thereafter, Mercer filed a complaint in Loudoun circuit court against MacKinnon alleging that MacKinnon had illegally used assets from accounts belonging to Eleanor and Clifton to fund litigation in Canada. MacKinnon filed a plea in bar and motion to dismiss for lack of personal jurisdiction by special appearance. Mercer argued that because this was a probate matter and MacKinnon had previously voluntarily subjected herself to Virginia jurisdiction in the other litigation, there were grounds for personal jurisdiction pursuant to Code § 8.01-328.1 (A)(1) and (3). The circuit court held Code § 8.01-328.1 (A)(4) was the only “viable” ground for jurisdiction and that it was not satisfied. Mercer appealed only the ruling on Code § 8.01-328.1(A)(4). The Court found that Virginia did not have personal jurisdiction over MacKinnon. The Court explained that, under Code § 8.01-328.1(A)(4) Virginia courts have personal jurisdiction over someone who, despite having acted outside of Virginia, has caused a tortious injury in the Commonwealth and has regularly engaged in any persistent course of conduct in the state. The Court defined the word “persistent” as “enduring, lingering.” Thus, a limited, discrete quantum of activity would not amount to persistent conduct within the meaning of the statute. The Court opined that MacKinnon’s actions of: (1) coming to Virginia to remove her aunt from the nursing home (2) drawing a new power of attorney in Virginia, (3) using the power of attorney to name herself as beneficiary, (4) filing a petition in a Virginia circuit court to be appointed as Eleanor’s guardian and conservator, (5) availing herself of the jurisdiction of the Virginia circuit court and appearing in court regularly, and (6) appealing the judgment of the Virginia circuit court did not amount to a persistent course of conduct. MacKinnon’s contacts “did not exist for a long or longer than usual time or continuously, and they were not enduring or lingering.” MacKinnon merely came to take her aunt out of the nursing home and bring her back to Canada, and later she merely came to Virginia for the limited purpose of litigating a single case. Hence, the Court opined that MacKinnon’s contacts constituted a “limited, discrete quantum of activity” which were insufficient in scope and duration to rise to the level of persistent course of conduct.

Ray v. Ready, 296 Va. 253, 822 S.E.2d 181 (2018) Mr. Ready executed a holographic will that excluded his wife, Ray, as a beneficiary. Following her husband’s death, Ray filed an action to claim her elective share of the augmented estate naming “the Estate of Keith F. Ready” as the defendant. The administratix of the estate, Katherine Ready, was not named as a party to the action and her name did not appear anywhere in the complaint. In response to the complaint, Katherine asserted the affirmative defense of abandonment, and signed as the administratix of the estate. Before an evidentiary hearing, counsel for Katherine realized that the action has been filed against the estate rather than Katherine as the personal representative. As a professional courtesy, counsel proposed that Ray’s counsel submit an order amending the caption, but no such order was entered. Thus, Katherine’s counsel made an oral motion to dismiss arguing that the action was an absolute nullity because it was filed only against the estate. Katherine’s counsel argued that the only resolution was to commence a new action against the correct party. However, the statute of limitations for Ray’s action had already expired three days prior to the hearing. Ray argued that, given that the summons served upon Katherine named her as administratix and that Katherine had also filed an answer in that capacity, the circuit court should enter an order adding Ready to the complaint as a party. The circuit court disagreed, and Ray appealed. The Court explained that “the party filing a civil action has the fundamental obligation ‘to express the nature of the claim being asserted, and the identity of the party against whom it is asserted.” Furthermore, the Court pointed out that it is well established under Virginia law that “all suits and actions must be prosecuted by and against living parties, in either an individual or representative capacity.” The Court held in Swann v. Marks in 1996, that the filing of a personal injury suit against a decedent’s estate, rather than the personal representative of the estate, was a “nullity” and could not toll the statute of limitations. To toll the statute of limitations, the Court explained, the “suit must be filed against a proper party.” Furthermore, the Court opined that “substitution of a personal representative for the ‘estate’” was not the correction of a misnomer because a misnomer “arises when the right person is incorrectly named, not where the wrong defendant is named.” Hence, the Court explained that the only resolution in cases where the estate and not the personal representative of the estate is named as a party, is “to commence a new action against the proper party.” The General Assembly enacted Code § 8.01-6.3 in 2010, and it provides that when the action or suit involves, among others, a personal representative, “the style of the case in regard to the fiduciary shall be substantially in the following form: (Name of fiduciary), (type of fiduciary relationship), (name of the subject of the fiduciary relationship).” It also “creates a safe-harbor for errors in providing that, where a ‘does not conform’ to the name convention … but ‘otherwise identifies the proper parties’” the pleadings may be amended. However, the Court held that the safe-harbor was not applicable in this case; Ray did not comply with Code § 8.01- 6.3(A) because she did not name the personal representative of the estate as expressly provided. Furthermore, Ray had failed to mention Katherine anywhere in the complaint, and therefore had not identified the proper party for purposes of Code § 8.01-6.3(B). Hence, the safe-harbor did not apply and Ray was time-barred from a bringing a new action against Katherine as the representative of the estate.

Dwyer v. Town of Culpeper, 297 Va. __, 825 S.E.2d 79 (2019) Dwyer appealed from a November 7, 2017, order distributing funds held by the circuit court in a condemnation proceeding. The town moved to dismiss the appeal as untimely because the notice of appeal was filed more than 30 days after the September 11, 2017, order confirming the jury’s award of just compensation. Dwyer filed the appeal on November 30, 2017. Dwyer argued that the September 11 order was not final because it contained the language “the court shall retain jurisdiction.” The Court disagreed. The Court explained that Code § 25.1-239(A) establishes that an order “confirming, altering or modifying the report of just compensation shall be final.” The use of the term “shall” in that statute, the Court further explained, is mandatory; “the General Assembly clearly intended to provide for the finality of the order”. This is because Code § 25.1-239(B) provides for the only instance in which the order related to just compensation will not be final: when the order sets aside the report of just compensation and awards a new trial. Thus, the September 11 order was final, and the notice of appeal was untimely under Rule 5:9(a) because it was not filed within 30 days of the final order. The Court went on to explain why Dwyer’s argument also failed. Unlike most cases where there is only one final order that addresses the entire case and where any retention of jurisdiction by the circuit court applies to the entire case, condemnation proceedings are “two- stage proceedings”, each proceeding being “separate and distinct” and each with its own appeal process. Thus, when the circuit court stated that it “shall retain jurisdiction in this case” it only accomplished what the statute would have done had the circuit court remained silent: to retain jurisdiction to hear the second stage of the condemnation proceedings. The Court therefore held that by using that language the circuit court did not retain jurisdiction over the portion of the order addressing the confirmation of the report of just compensation.

CONTRACTS Kerns v. Wells Fargo Bank, N.A., 296 Va. 146, 818 S.E.2d 779 (2018) The Court held that Kerns’s breach of contract claims were barred by the statute of limitations because he failed to file within five years of the date of accrual: when Wells Fargo actually accelerated the debt and put Kerns in a worse position than he would have been in had he complied with Wells Fargo’s allegedly defective pre-acceleration notice. In 2009, Kerns borrowed money from a mortgage lender to purchase property. The loan’s promissory note had an acceleration clause which stated that if in default, the note holder may require Kerns to pay the full amount of the unpaid principal and all the interest owed. The lender then assigned the loan to Wells Fargo. The next year, Kerns fell behind in his payments. Wells Fargo sent him a pre-acceleration notice advising that he needed to bring the payments current by June 20, 2010, or he would have to immediately pay the full amount owed, and it could also pursue foreclosure. Despite receiving this notice, Kerns did not make any further payment on the loan. Given Kerns’s failure to make any further payments, Wells Fargo treated the entire loan balance as due and initiated foreclosure proceedings. However, even after the foreclosure sale was conducted, Kerns did not leave the property, which prompted Wells Fargo to file an unlawful detainer action against him. Both the general district court and the circuit court on appeal ordered Kerns to vacate the property. Five years after the foreclosure sale, Kerns filed a breach of contract action against Wells Fargo arguing that Wells Fargo back-dated the acceleration notice from June 21 (when it was actually mailed) to June 20. Thus, Kerns argued that Wells Fargo had issued a 29-day notice rather than a 30-day notice, breaching the terms of the loan agreement. The circuit court, after hearing Wells Fargo’s plea in bar, held that the five year statute of limitations barred the breach of contract action claim. Code § 8.01-230 states that “the right of action shall be deemed to accrue … when the breach of contract occurs in actions ex contractu and not when the resulting damage is discovered.” However, Code § 8.01-246(2) states that, in relation to written contracts not otherwise specified, a civil action shall be brought within five years next after the shall have accrued. The Court explained that, in a tort claim, the “duty-breach-harm” sequence, when complete, triggers both the cause of action and the right of action upon the date of damage or injury, and therefore, the distinction set out in Code §§ 8.01-230 and 8.01-246(2) is irrelevant in tort cases. However, in a contract claim, the right of action generally accrues when the breach occurs, as determined by § 8.01-230. In such cases, the right of action could be barred by the statute of limitations regardless of whether compensatory damages ever occur. The Court further explained that “the running of the statute is not postponed by the fact that the … damages do not occur until a later date” and pointed out that any amount of damages, “however slight” would trigger the cause of action. In fact, in a contract claim – and unlike in tort cases- when “no evidence is given of any particular amount of loss, the law declares the right by awarding … nominal damages” which represent “an award of a token or symbolic recovery… to vindicate plaintiffs’ rights by making a legal declaration that the plaintiff has been wronged”, albeit without proof of how much exactly. Therefore, the Court opined, the limitation period in this case began when Wells Fargo actually accelerated the debt and made the entire outstanding balance immediately due, which put Kerns in a worse position than he would have been had he complied with Wells Fargo’s pre- acceleration notice. This unilateral act by Wells Fargo, the Court explained, impermissibly altered the legal relationship between the parties, and “the alleged contractual breach by Wells Fargo caused Kerns legally cognizable harm.” This is so even though at the point of the acceleration, foreclosure had not taken place and thus Kerns had yet to lose his property. The Court explained that the risk of being unable to accurately project future damages if the suit is filed before all damages occur should not be the basis for pushing forward the date of accrual. In fact, the Court reasoned that Kerns had five years to file his breach of contract claim after Wells Fargo accelerated his debt, ample time for foreclosure and any other possible damage to occur and to be calculated.

CORPORATIONS May v. R.A. Yancey Lumber Corp., 297 Va. __, 822 S.E.2d 358 (2019) Yancey, a timber and lumber company, maintained two principal businesses: a mill business and a timber business. Approximately 98.5% of Yancey’s revenue derived from its mill business and the remainder came from the timber business. A majority of Yancey’s shareholders wanted to sell the mill business, but they could not convince a supermajority to agree. This presented a problem because Code § 13.1-724 required over two-thirds of the shareholders to approve any sale that left Yancey “without a significant continuing business activity.” Rather than secure more votes, the majority undertook to redefine the meaning of “significant continuing business activity.” Although that phrase is not defined in Code § 13.1- 724, the statute has a “safe harbor” provision, which states, in part: Unless the articles of incorporation or a shareholder-approved bylaw otherwise provide, if a corporation retains a business activity that represented at least [20% of its assets and income or revenue], the corporation will conclusively be deemed to have retained a significant continuing business activity. The majority shareholders amended Yancey’s bylaws so that the timber business, alone, constituted a “significant continued business activity,” and sold the mill business without obtaining supermajority approval. A dissenting shareholder filed suit against Yancey, arguing that the amended bylaws were void and requesting an injunction barring the sale. The circuit court ruled in favor of Yancey. It held that Code § 13.1-724 allowed a simple majority of Yancey’s shareholders to redefine “significant continuing business activity” by amending the bylaws. Moreover, based on its interpretation of the statute, the circuit court denied the dissenter’s request for an injunction. The Supreme Court reversed. Code § 13.1-724, as a whole, protects minority shareholders. In turn, the safe harbor provision qualifies that protection by establishing a default floor, above which a company will “conclusively be deemed to have retained a significant continuing business activity.” Although Yancey could opt out of the safe harbor provision, its bylaws could not lower the default floor such that a lesser percentage of retained assets would conclusively establish the continuance of significant business activity. Nor could Yancey amend its bylaws to eliminate the need for supermajority approval of such a sale. The Supreme Court also found the circuit court abused its discretion in denying a temporary injunction because of laches. The Court had the opportunity to adopt the federal standard for the issuance of a temporary injunction, but it merely recited Code § 8.01-628 that “no temporary injunction shall be awarded unless the court shall be satisfied of the plaintiff’s equity.” The Supreme Court remanded the case for a trial on whether the proposed sale of the mill business would leave the company “without a significant continuing business activity.”

DAMAGES

Dominion Resources, Inc. v. Alstom Power, Inc., 297 Va. __, 825 S.E.2d 752 (2019)

In response to a certified question, the Supreme Court holds that the collateral source rule may apply to breach-of-contract actions in Virginia. This was a question of first impression.

A fundamental principle of damages is that a plaintiff may not receive a double recovery for a single injury. This is because the essential purpose of tort and contract damages is to compensate a plaintiff for the injury suffered, not to leave the plaintiff better off because of the injury. The collateral source rule is a narrow exception to these principles.

Applying the collateral source rule in some contract cases may advance the goal of enforcing the expectation interests of the parties. It makes little sense, in the name of fulfilling the expectations of the contract, to give the breaching party the benefit of a separate contract negotiated before the breach by the non-breaching party with a third party. Further, the risk of a double recovery for a plaintiff in a breach-of-contract case will often prove to be more hypothetical than actual, due to the assignment of claims or an obligation to reimburse a collateral source.

The rationales supporting the recognition of the collateral source rule in tort cases also support the rule’s application in certain breach-of-contract actions. Whether the collateral source rule applies to a given case requires a case-specific determination of whether the parties’ expectations, in light of those rationales, support the rule’s application.

EVIDENCE Shumate v. Mitchell, 296 Va. 532, 822 S.E.2d 9 (2018) Debra Shumate filed suit against the personal representative of William Early Thompson seeking damages from an automobile collision with a car driven by the decedent. The personal representative conceded liability, and the trial was limited to the issue of damages. Before trial, Shumate filed a motion in limine to exclude testimony regarding Thompson’s description of the collision to his two sons. Shumate argued that Thompson’s statements were inadmissible hearsay not cured by the Dead Man’s Statute because neither son witnessed the collision. The trial court overruled Shumate’s motion. Code § 8.01-397 provides that: In any action by or against a person who, from any cause, is incapable of testifying, or by or against the committee, trustee, executor, administrator, heir, or other representative of the person so incapable of testifying, no judgement or decree shall be rendered in favor of an adverse or interested party founded on his uncorroborated testimony. In any such action, whether such adverse party testifies or not, all entries, memoranda, and declarations by the party so incapable of testifying made while he was capable, relevant to the matter in issue, may be received as evidence in all proceedings including without limitation those to which a person under a disability is a party. Shumate first argued that the Dead Man’s Statute did not apply to Thompson’s hearsay statements because Bowman, a passenger in Thompson’s vehicle, testified as an interested eyewitness to the accident on behalf of the estate. The Court explained that Bowman was not an interested party because he did not have a pecuniary interest in the outcome of the litigation. The Court explained that even if Bowman was an interested party, application of the rule to this case would mean only that Shumate’s testimony would not need corroboration. The Court emphasized that the purpose of the statute is to “prevent a litigant from having the benefit of his own testimony when, because of death or incapacity, the personal representative of another litigant has been deprived of the testimony of the decedent or incapacitated person.” Specifically, the first sentence precludes entry of judgment “in favor of an adverse or interested party founded on his uncorroborated testimony” in cases “against the . . . . representative of the person” incapable of testifying. Code § 8.01-397. Thus, the Court concluded that the first sentence’s concern with corroboration is irrelevant to whether the decedent’s hearsay statements are admissible. The second sentence, the Court explained, makes apparent, regardless of whether the survivor testifies, any and all relevant “entries, memoranda, and declaration” made by the decedent or incapacitated person while he or she was capable of testifying are admissible. The Court noted that since the 1919 version of the statute created the general hearsay exception, relevance is the only statutory limit on whether declarations are admissible. Shumate alternatively argued that the Dead Man’s Statute is inapplicable to cases in which liability is not at issue because it only applies to “proof of elements of ‘any cause’”. The Court explained that the phrase “from any cause” does not refer to the scope of uses before the tribunal, but rather to the cause of a party’s incapacity to testify. The statute states: “The phrase ‘from any cause’ as used in this section shall not include situations in which the party who is incapable of testifying has rendered himself unable to testify by an intentional self-inflicted injury.” The jury returned a verdict for the plaintiff for $0, and the Court held the evidence did not require the jury to award the plaintiff damages.

FREEDOM OF INFORMATION ACT Bergano v. City of Virginia Beach, 296 Va. 403, 821 S.E.2d 319 (2018) The Court found that bills, ledgers, statements, and time records which reveal the motive of the client in seeking representation, litigation strategy, or the specific nature of the services provided, fall within the attorney-client privilege and the work-product doctrine and thus, are exempted under VFOIA. Dr. Bergano made a request under VFOIA for the City to disclose “all invoices, bills, or statements including, but not limited to, all legal fees and expert invoices relating to all of the [City’s] expenses related to the litigation” with him. In response, the City provided invoices and payment documentation from both its outside counsel and its expert witnesses. However, invoking attorney-client privilege and the work-product doctrine, the City heavily redacted these invoices and payment documents, leaving only the date, name of the attorney, time billed, and the attorney’s hourly rates. Not satisfied with the production of these documents, Dr. Bergano filed a petition for a writ of mandamus seeking to compel the City to disclose its records. The City again invoked attorney-client privilege and the work-product doctrine. After reviewing the documents in camera, the circuit court held that the records were exempt from disclosure under VFOIA. Dr. Bergano appealed. Code § 2.2-3704(A) states that “except as otherwise specifically provided by law, all public records shall be open to citizens of the Commonwealth … during the regular office hours of the custodian of such records.” Furthermore, Code § 2.2-3700(B) establishes that “no record shall be withheld … unless specifically made exempt pursuant to this chapter or other specific provision of law.” VFOIA does provide exemptions for documents protected by the attorney- client privilege and for attorney work-product. Specifically, Code § 2.2-3705.1(2) exempts from disclosure “written advice of legal counsel to state, regional or local public bodies or the officers or employees of such public bodies, and any other information protected by the attorney-client privilege.” Code § 2.2-3705.1(3) also exempts “legal memoranda and other work-product compiled specifically for use in litigation.” VFOIA further provides that the exemptions from public records shall be narrowly construed. The Court explained that, in general, “attorney-client privilege does not extend to billing records and expense reports”. The Court further explained that “the identity of the client, the amount of the fee, the identification of payment by case file, and the general purpose of the work performed are usually not protected from disclosure by the attorney-client privilege.” However, the Court pointed out that “correspondence, bills, ledgers, statements, and time records which also reveal the motive of the client in seeking representation, litigation strategy, or the specific nature of the services provided, such as researching particular areas of law, fall within the privilege.” In light of this, the Court concluded that billing records may fall within the attorney- client and work-product exception to disclosure under VFOIA if they reveal information indicating the specific nature of the services provided, analytical work product, or legal advice provided. After reviewing the unredacted billing records, the Court found that the City’s redactions were too broad; for example, the City had redacted a cursory entry that read “trial preparation and document review”. Such an entry, the Court explained, would not fall under VFOIA exception. Hence, the Court remanded the case for a further in camera review and for disclosure of the appropriate unredacted billing records.

INSURANCE Erie Ins. Exch. v. EPC MD 15, LLC, 297 Va. __, 822 S.E.2d 351 (2019) EPC MD 15, a Maryland LLC, purchased an insurance policy from Erie that was issued for one year and identified EPC as the named insured. No policy provision defined “named insured” to include EPC’s subsidiaries. Under a coverage-extension provision, there was coverage for buildings newly “acquired” by EPC after the issuance of the policy: “If this policy covers Building(s), you may extend that insurance . . . on . . . newly acquired buildings at other location(s) described in the ‘Declarations’” as well as “new additions, new buildings and new structures when constructed on the insured premises.” The policy did not define the term “acquired.” The Declarations page of the policy listed only EPC’s Maryland property. EPC later acquired the sole membership interest in Cyrus Square, a Virginia LLC. Shortly thereafter, fire damaged a building Cyrus Square owned in Virginia. EPC’s demand for coverage identified “EPC MD, LLC, and/or Cyrus Square LLC” as the “Insureds.” Erie denied coverage and EPC filed suit, claiming that, although Cyrus Square was not a named insured, EPC was a named insured and had “acquired” the fire-damaged property when EPC became the sole member of Cyrus Square. On cross-motions for based upon stipulated facts, the circuit court granted summary judgment to EPC. It held that the word “acquired” is ambiguous and should be construed against Erie as the drafter. Further, it concluded that EPC gained control of the property by virtue of its control of Cyprus Square, and therefore “acquired” the building. The Supreme Court reversed. The Supreme Court held that the coverage-extension provision cannot be fairly read to apply to property of a newly-acquired subsidiary that is neither a named nor an additional insured on the parent company’s policy. Nor can this provision be reasonably read to mean that a parent company “acquires” the real property of a subsidiary merely by virtue of the creation of a parent- subsidiary relationship after issuance of the policy. EPC, as the named insured, needed to actually acquire the property, not merely acquire the property owner, for the coverage-extension to apply. Property owned by an LLC is owned by the LLC, not by its members, even though the members could indirectly exercise control over the property.

REAL PROPERTY Ettinger v. Oyster Bay, 296 Va. 280, 819 S.E.2d 432 (2018) This case arises from a boundary dispute between Ettinger and Oyster Bay Community Property Owners regarding Parcel E, a tract owned by Ettinger and located in the Oyster Bay community. Titles to parcel E and the properties in that community trace back to a common grantor who created the lots and parcel in 1972. Thereafter, the grantor conveyed fee simple title to Parcel E to Woodrow D. Marriott. Oyster Bay Community Property Owners was created in 1976 as a result of a settlement of federal litigation between the lot owners and the common grantor. As part of the settlement, the grantor conveyed “all of its right, title and interest in and to all streets, alleys and any and all other real estate situate in Oyster Bay II.” In 2009, Ettinger acquired Parcel E by deed from Marriott’s successors. Since 1972, every deed conveying that parcel contained the same property description, which established that the conveyed parcel was bounded on the Northeast by Hibiscus Drive. When Ettinger commenced development of the parcel, Oyster Bay Community Property Owners erected a construction fence and a “no trespassing” sign along Hibiscus Drive, effectively preventing access to Parcel E. Consequently, Ettinger filed a complaint seeking a declaration that, under the rule in Martin v. Garner, 286 Va. 76, 745 S.E.2d 419 (2013), his boundary extends to the center line of Hibiscus Drive, and that Parcel E enjoys right of way from any adjacent portion of Hibiscus Drive. The circuit court disagreed. The Court in Martin opined that “it is an established rule in Virginia that a conveyance of land bounded by or along a way carries title to the center of the way, unless a contrary intent is shown.” The grantor can reserve the narrow strip to the center of the road from a conveyance only if he does so expressly. The Court explained that this “presumption is based on grounds of public convenience, and to prevent disputes as to the precise boundaries of property”, and originates from the legal fiction “that when the road was originally formed, the proprietor on either side contributed a portion of his land for the purpose.” Otherwise, “if the description were presumed to stop at the near edge of the road, it would leave a narrow strip of land in the hands of the grantor”. Hence, if the road were vacated, the original grantor would be able to claim the strip regardless of the access needs of the grantee. In this case the deed’s description established that Parcel E was bounded on the Northeast by Hibiscus Drive. The Court explained that this is the type of description that raises the presumption that tittle carries to the center of the road. Furthermore, the Court pointed out that application of the rule in this case was dispositive because the original grantor conveyed Parcel E to Marriott years before executing a quitclaim deed conveying its remaining interest in the roads and other real estate to Oyster Bay Community Property Owners. Thus, “absent a manifest expression of contrary intent in Parcel E deed”, the Court had to apply the presumption established in Martin. Furthermore, the Court opined that the quantity designation, such as Parcel E’s square footage, was the least certain mode of describing land and therefore the deed’s indication of Parcel E square footage had to yield to the definite boundary of Hibiscus Drive. Finally, the Court also found that merely describing a lot by reference to a survey plat depicting a street as a boundary does not constitute evidence to contrary intent, and thus, the rule established in Martin still applied.

Crosby v. ALG Trustee, LLC, 296 Va. 561, 822 S.E.2d 185 (2018) The Court found that that a trustee under the deed of trust owes both the debtor and the creditor certain implied fiduciary duties, regardless of the language employed in the deed of trust. Crosby owned real property in Albemarle County, and took out a loan which was secured by a deed of trust encumbering the property. The promissory note was later assigned to the Federal National Mortgage Association. In April 2014, the loan was in default, and ALG Trustee was substituted as trustee on the deed of trust. A month later, ALG informed Crosby that a foreclosure of the property would take place within a few weeks. Two separate entities came to the foreclosure sale, and they submitted a single combined bid of $20,903.77 for the property. Although ALG knew that the property had a tax assessed value of $436,800, it accepted the bid, and the property was later conveyed to the purchasers. In June 2014, the purchasers brought an unlawful detainer lawsuit against Crosby, who in turn filed a declaratory judgment action against AGL, Federal National Mortgage Association, and the purchasers seeking rescission of the foreclosure sale and an injunction. Crosby eventually reached an agreement with the purchasers whereby he repurchased the property, and thereafter settled his claims with Federal National Mortgage Association and the purchasers. Subsequently, Crosby amended his complaint, alleging that ALG had breached its fiduciary duty as trustee under the deed of trust because it failed to act impartially when it sold the property so cheaply and it did not cancel the sale when it only received a single inadequate bid. ALG demurred, arguing that it did not owe fiduciary duties to Crosby, other than those “arising from the contractual relationship set forth in the deed of trust.” It alleged that the duties on which Crosby was relying on were not established in the deed of trust and thus did not exist. The circuit court sustained the noting that, although a trustee’s fiduciary duties are “incorporated into the deed of trust in the language that the trustee is to act ‘with perfect fairness and impartiality’ to both the debtor and creditor … such language does not create a common law duty.” Given the amended complaint alleged a breach of fiduciary duty which was based on a common law negligence claim, the circuit court found that “the trustee’s duties [were] limited to the four corners of the contract, and there was no duty by the trustee under common law.” Crosby appealed. At issue first is whether the claim sounds in contract or tort. For this, the Court employs the source of duty rule which establishes that the distinction between a tort claim and a contract claim is determined by the source of the duty that was allegedly breached. Crosby had alleged that the relationship between himself and ALG was based entirely on the deed of trust, a contract. Hence, the Court opined that this was a claim sounded in contract, not tort. Furthermore, the Court held that a trustee under the deed of trust owes both the debtor and the creditor certain implied fiduciary duties, regardless of whether they are established within the “four corners of the contract.” The Court explained that, under common law, a trustee is required to be impartial in balancing the conflicting positions of the creditor and the debtor. That impartiality means that “a benefit to one cannot come at a disproportionate expense of the other.” Hence, if it appears that a sale at the appointed time would result in a great sacrifice of the property, the trustee would have the positive duty to adjourn the sale. If the trustee fails to abide by this requirement of impartiality and sells the property at a price that is “so grossly inadequate as to shock the conscience”, a presumption of fraud is raised. Albeit the language of the deed of trust can address the express powers and duties of a trustee under the document, it cannot abrogate the implied common law fiduciary duty of impartiality. Crosby alleged that ALG favored Federal National Mortgage Association at his expense by selling the property at a grossly inadequate price, and therefore, failed to balance the conflicting positions. The Court believed that such allegation was sufficient to survive the demurrer. The Court further acknowledged that there may be situations in which, through no fault of trustees, the only bids received “are woefully inadequate.” In such cases, the Court opined that the trustee has the duty “to forbear to sell, and to ask the aid and instruction of a court of equity.”

Callison v. Glick, 297 Va. __, 826 S.E.2d 310 (2019) In 2007, Callison leased his commercial property to Elliot Chevrolet, owned by Elliot. Elliot used the property as an automobile service center. Under the lease, Elliot could make additions and alterations to the property with Callison’s consent. Elliot also had the option to purchase the property. If Elliot decided to exercise the option, the property could be conveyed to him or his assign free and clear of all liens and encumbrances. Furthermore, the option would survive the death of Callison and would be binding on his heirs and successors. Elliot owned an investment company with Trainum. Elliot wanted to renovate the commercial property that Callison had leased to him and build a second building on it. For that purpose, the investment company took out a loan of $500,000. The note was signed by Trainum, whose share of the indebtness was 50%, leaving the other 50% to Elliot. Callison also signed a construction deed of trust securing the note with the property. The deed of trust stated that the investment company and he were to pay all indebtedness secured by the deed of trust. Construction began in 2011. Elliot was not only responsible for paying rent on the property, but he also began paying $4,250 per month to the investment company for the renovations, and the investment company in turn made monthly payments on the note. In the same year, Callison passed away, leaving his wife as his only heir. Due to unanticipated cost overages in the renovations, the investment company and the bank increased the note amount to $600,000. Consequently, Mrs. Callison signed a modification agreement changing the deed of trust to secure repayment of that amount, making all parties to the deed of trust and all endorsers of the note liable. A few years after the renovations were completed, the automobile dealerships owned by Elliot began to close, which forced Elliot to stop making its monthly payments to the investment company. Ultimately Elliot transferred his 50% interest in the investment company to Trainum’s wife. In 2016, Trainum, acquired the note and sent the investment company, Elliot, and Mrs. Callison a default notice demanding immediate payment of the note, or else he would foreclose the property. Instead, Mrs. Callison brought an action againt the investment company and Trainum, seeking to declare Mr. and Mrs. Trainum as the obligor and obligee on the note, and seeking contribution from them if the property securing the note was foreclosed. She also sought to enjoin foreclosure, and asked the circuit court to enter judgment against the investment company and its owners for the value of the property in the event of foreclosure. The circuit court found Mrs. Callison was not a subsurety on the note. The circuit court also found that the option to purchase was valid, and dismissed Mrs. Callison’s claims. Mrs. Callison appealed. The principal issue before the Supreme Court was the nature of Mrs. Callison’s suretyship. The Court first explained that a surety contract is a tripartite agreement among a debtor, a creditor, and a surety. In those contracts, “the surety promises to perform the debtor’s obligation in the event the debtor fails to perform”, and despite the debtor having the “ultimate liability”, the creditor can also go against either the debtor or the surety for nonperformance of the obligation. Cosurety and subsurety are two different types of sureties. A cosurety exists when there are multiple sureties, and “as between themselves, each should perform part of its secondary obligation or bear part of the cost of performance.” On the other hand, a subsurety exists when there are multiple sureties, “and those sureties agree that ‘as between themselves, one (the principal surety) rather than the other (the subsurety) should perform or bear the cost of performance.”’ Hence, a subsurety will only be liable in the event that the debtor and principal surety are unable to perform, but if the principal surety performs, the principal surety cannot seek contribution from the subsurety. A subsuretyship may arise from an expressed or implied agreement or from equitable circumstances. If there is not an express or implied agreement establishing the type of relationship among the sureties, there is presumption that the sureties are cosureties. As the parties did not establish in their agreement the type of suretyship they had, the Court presumed that it was a cosurety. The circumstances may establish a subsuretyship if they “demonstrate that, as between themselves, one secondary obligor (the principal surety) rather than the other (the subsurety) should perform or bear the cost of performance. The Court found no abuse in discretion when the circuit court ruled that the equities in favor of Mrs. Callison did not overcome the presumption of cosurety. The circumstances showed that Mr. and Mrs. Callison voluntarily entered into this business arrangement with knowledge of their potential liability, knowing that the property was collateral for the note’s entire obligation, and that the note’s obligation was more than the fixed option price originally set for the property.

TORTS Terry v. Irish Fleet, 296 Va. 129, 818 S.E.2d 788 (2018) Terry’s husband was a taxicab driver who was fatally shot by one of his passengers. Terry, as administrator of his estate, filed a complaint against Irish Fleet, the company that operated the cab dispatch service, and Morris, one of the cab dispatchers, asserting that the defendants were negligent and that their negligence was the proximate cause of her husband’s death. Terry asserted a theory of assumed duty. She claimed that the dispatchers, in the scope of their employment, screened calls to determine the perceived safety risk in selecting which fares to accept and documented known or troubling callers in a log book. The night before her husband was killed, Morris documented that he had received a troubling call from a male caller, labeled the caller as “one that merited screening”, and warned other cab companies about him. The next morning, a different dispatcher received another call from the same individual and, despite Morris’s documentation and warnings about this caller, the dispatcher sent Terry’s husband to the address, which led to his death. Irish Fleet and Morris filed to Terry’s amended complaint and asserted that the amended complaint failed to allege sufficient facts to support a cause of action based on a theory that they assumed a duty to Terry’s husband. The circuit court sustained the demurrers, and Terry appealed. Because Terry’s husband was killed by a passenger, Irish Fleet and Morris would only be subject to liability if they owed a duty to the victim to warn or protect him against danger of criminal assault by a third person. However, the Court explained that generally there is no duty to warn or protect against acts of criminal assault by third parties. The Court then laid out the circumstances in which such a duty would arise. First, there can be a duty to warn or protect against acts of criminal assault by third parties when there is “a special relationship between the defendant and either the plaintiff or the third person.” Terry did not claim a special relationship. A defendant may also owe “a duty to protect against an act of criminal assault by a third party where the defendant voluntarily undertook such duty by expressly communicating his intention to do so.” For example, the Court explained that there was an expressed voluntary assumed duty when a student alerted an assistant principal of an impending fight and the assistant principal promised to take care of the problem. However, the Court further explained, such duty does not exist when the defendant “merely … took precautions not required of it to protect the safety of the plaintiff.” This is because the consequence of imposing such a duty “would discourage other parties from taking extra precautions to avoid being subjected to a liability which they otherwise would not have.” The last circumstance in which a duty that does not otherwise exist would arise is when the defendant impliedly assumes such duty by conduct. However, the Court pointed out that such impliedly assumed duty from the defendant’s conduct has never been recognized in relation to warning or protecting the victim from the criminal act of a third party. The Court then turned to Terry’s allegation in her amended complaint, and indicated that Terry’s tort action was based on the “implied voluntary undertaking theory”, rather than on the “special relationship theory” or on the “expressed promise or intent to warn or protect against danger theory.” Because of this, the Court held that there is no implied voluntary assumed duty to warn or protect against the danger of criminal assault by a third person, and therefore, Terry’s allegations that Irish Fleet and Morris owed an implied voluntary duty to her husband to warn or protect him against danger of criminal assault by a passenger were insufficient to state a claim.

Haynes-Garrett v. Dunn, 296 Va. 191, 818 S.E.2d 798 (2018) The Court held that the duty of care owed by the owner of a Virginia Beach vacation rental was the duty a landlord owed to its tenant because the occupant of the premises had the exclusive possession and enjoyment of the premises at the time of the accident. Haynes-Garrett rented a house for a week from the Dunns for her family holiday. Siebert Realty managed and operated the rented house on behalf of the Dunns. When Haynes-Garrett arrived at the house for the first time, she walked from a carpeted room into an adjoining tiled hallway and a lip or rise created by the unevenness of the threshold between the flooring of the rooms caused her to fall and sustain serious injuries that subsequently led to two surgeries. Haynes-Garrett thereafter brought a personal injury action against the Dunns and Siebert Realty. After hearing her evidence, the defendants moved to strike arguing that, as landlords, they had no duty to warn her of a dangerous condition that was open and obvious or discoverable. In response, Haynes-Garrett argued that defendants owed her the heightened innkeeper-guest duty of care. The circuit court granted the motion to strike and entered judgment in the defendants’ favor. Haynes-Garrett appealed. “A landlord has ‘no duty to maintain in a safe condition any part of the leased premises that [is] under [a tenant’s] control.’” Hence, the Court explained that “when the right of possession and enjoyment of the leased premises passes to the lessee … in the absence of concealment or fraud by the landlord as to some defect in the premises, known to him and unknown to the tenant, the tenant takes the premises in whatever condition they may be in, thus assuming all risk of personal injury from defects therein.” In contrast, an innkeeper has an elevated duty of care because he “holds out his house as a public space” to accommodate travelers. Thus, the innkeeper has the responsibility to take every reasonable precaution to protect the person and property of their guests and boarders, and the “guests may generally assume they are safe.” To determine the existing type of relationship, the Court focused on “the extent to which the owner of the premises maintain[ed] possession of and control over the premises during the occupancy.” Generally, if the owner maintains a “direct and continued control of the property and usually maintains a presence on the property personally or through agents”, he is an innkeeper. If, on the other hand, the owner does not have “the right of possession and enjoyment of the premises”, he is a landlord. Therefore, the issue was whether the parties to this rental agreement “intended that the occupants be entitled to exclusive possession and control of the premises during their stay.” The Dunns were not at any point present at the residence and, in fact, they were not permitted to enter the premises without prior notification to Siebert; the cleaning of the residence, unlike in a hotel, only took place between the period of the occupancy; occupants were required to pay security deposits; the Dunns did not provide any type of food service, room service, or daily maid service to the occupants; and the Dunns only made the residence available for families and did not make it available to the public in general. Hence, the Court held that the evidence showed that it was Haynes-Garrett and her family who had “the right of [exclusive] possession and enjoyment of the leased premises” at the time of her injury.

Quisenberry v. Huntington Ingalls Inc., 296 Va. 233, 818 S.E.2d 805 (2018) The Court found that the employer owed a duty of care to an employee’s family member who alleged exposure to asbestos from work clothes, where the family member alleged that the employer’s negligence allowed the asbestos fibers to be regularly transported away from the place of employment to the employee’s home. Plaintiff’s father was employed from 1942 to 1977 by Newport News Shipbuilding and Dry Dock, where he was exposed to asbestos which adhered to his clothing and car. Consequently, the father used to bring asbestos home and his daughter, Wanda, was exposed to it from 1942 to 1969. In 2013, Wanda was diagnosed with malignant pleural mesothelioma, caused by asbestos, and died from the disease in 2016. Wanda’s son brought an action against the Shipyard alleging that the Shipyard knew or had reason to know of the dangers that asbestos posed to its employees’ families and, in spite of this, they did not exercise reasonable care to warn employees about the dangers of asbestos or to provide them with adequate safeguards. Even though Wanda and the Shipyard may appear to be “strangers under the law”, the Court explained that to determine whether they had a “relationship” for negligence purposes it must focus on “whether the plaintiff ha[d] pled a set of circumstances where the Shipyard placed Wanda within reach of the Shipyard’s conduct, within a class of persons at recognizable risk of harm.” The Court explained that “there…is…a general duty not to injure others [that] arises whenever [a] defendant’s conduct creates a risk of harm to others.” This duty is owed to those within reach of the defendant’s conduct. The Court opined that the risk is what defines the duty to be obeyed, and pointed out that such “risk imports relation.” This is important, the Court explained, because there is no such thing as negligence in the abstract; it must be related to some person. Hence, the Court emphasized that two strangers may have a relationship for negligence purposes based on the risk of one party’s conduct: as an example the Court used the motorist who undertakes a duty to other drivers and pedestrians (who he does not know and nonetheless places in “recognizable risk of harm”) to exercise due care in his driving. Thus, the Court held that for a duty to arise the only relationship needed was “a sufficient juxtaposition of the parties in time and space to place the plaintiff in danger from the defendant’s acts.” Because of this, the Court opined that the fact that the harm in this case happened outside of the employer’s business and after hours was irrelevant as long as the danger created by the Shipyard (asbestos dust) was released through its course of conduct and moved to place Wanda in danger. The Court found that workers accumulated asbestos dust on their clothes; they were not informed of the dangers of asbestos dust; and they did not have on-site laundry or a way to keep those clothes at work making it necessary for the employees to bring their clothes home to clean them. The asbestos dust posed a danger to those who breathed it. Thus, the Shipyard was placed in such a position in regard to Wanda, that if it did not use ordinary care and skill, it would subject Wanda to regular danger of injury from asbestos. Because of this, the Court found that Shipyard had a duty to use such ordinary care and skill to avoid injuring Wanda.

Parker v. Carilion Clinic, 296 Va. 319, 819 S.E.2d 809 (2018) Parker had been diagnosed with a medical condition at a Carilion facility. Several months later she went to another Carilion facility for an unrelated treatment. There, she talked to a male acquaintance, Flora, who was also in the waiting room. A Carilion employee, Davis, who was also acquainted with Flora saw them talking and decided to access Parker’s confidential medical information. She then proceeded to tell Young, another Carilion employee who was also acquainted with Flora. Young also looked into Parker’s confidential medical information, and told Flora about it. Coming full circle, Flora told Parker of Young’s disclosure. Parker filed an unauthorized disclosure claim against Carilion, Davis, and Young based on (i) vicarious liability under respondeat superior, (ii) direct liability for failure to secure her confidential medical information and (iii) negligence per se for failing to comply with the Health Insurance Portability and Accountability Act (HIPPA). In response, Carilion filed demurrers; it argued Davis and Young acted outside of the scope of their employment precluding Parker’s respondeat superior claim and it contested the legal viability of the direct liability claims. The circuit court sustained Carilion’s demurrers but gave Parker 21 days to amend the complaint. Instead of amending, Parker filed a notice of appeal. First, the Court addressed the Rule 1:1 issue raised by Carilion, which asserted that Parker’s notice of appeal was not made within 30 days from the entry of the final order. The Court explained that, under Rule 5:9(a), the commencement of the 30-day period for filing a notice of appeal required “the entry of a final judgment or other appealable order or decree”. For purposes of Rule 5:9(a), when a trial court enters an order dismissing a case but allows the party to file an amended complaint within a specific timeframe, “[d]ismissal – and finality – occur only when the deadline expires without the filing of an amended complaint.” The Court then turned to the demurrers. On the vicarious liability claim, Carilion argued that despite its admission that Young and Davis were its employees, the rebuttable presumption that they were acting within the scope of their employment did not apply at this stage. It argued this presumption only applies during trial. The Court disagreed and explained that “a prima facie civil case … remains the same from the beginning of a judicial proceeding to its end. A demurrer, a motion for summary judgment, inter alia, all use the same definition of a prima facie case when the question presented is the legal sufficiency of the claim.” Thus, the Court held that the proper timing of the scope-of-employment presumption begins with the complaint, and not with the presentation of evidence at trial. The Court also addressed the issue of what the rebuttable presumption that Young and Davis were acting within the scope of their employment actually presumed. The Court opined that “a master is not liable for every wrong which a servant may commit during the continuance of an employment.” Recognizing that the “scope-of-employment” phrase has led to difficulties in application, the Court explained that in Virginia “the first principle of respondeat superior is that vicarious liability may be imposed on an employer when ‘the service itself, in which the tortious act was done, was within the ordinary course of [the employer’s] business’ i.e., when the employee committed the tort while ‘performing a normal function’ of his assigned job.” Hence, no vicarious liability could arise when “the tortious act did not arise out of the ‘very transaction,’ or service or task that the employee was being paid to perform.” This is what the Court called the “job-related-service doctrine.” Furthermore, the employee’s motive in committing the tortious act is a factor to consider in applying such doctrine. The Court explained that respondeat superior liability does not exist when the unauthorized tortious act committed by the employee arose “wholly from some external, independent, and personal motive on the part of the [employee].” This is because the employee’s independent course of conduct in those cases is not intended to serve any purpose of the employer. After explaining the job-related-service doctrine, the Court found that Parker had properly pled a rebuttable presumption that facts existed that would satisfy the test for vicarious liability; i.e., that Davis and Young committed tortious acts “within the scope of [their] duties of … employment and in the execution of the service for which [they were] engaged.” The Court then turned to the wrongful-disclosure claim. Parker’s based this claim on the holding of Fairfax Hospital that “a health care provider owes a duty to the patient not to disclose information gained from the patient during the course of treatment without the patient’s authorization, and that [a] violation of this duty gives rise to an action in tort.” Since two of Carilion’s employees disclosed her confidential information, Parker argued, Carilion breached its duty. The Court pointed out two problems in that argument. First the Court opined that it blurred the line between vicarious liability and direct liability. While it is true that corporate health providers only provide health care through their employees, Parker’s argument would “cut respondeat superior principles completely out of our common law tradition.” Second, Parker did not allege that Davis and Young acted with the requite corporate authority. A corporate defendant cannot be liable as a primary tortfeasor if it is not alleged that it authorized, directed, ratified or performed the tortious conduct through someone who had the discretionary authority to act on behalf of the corporation, such as corporate officers acting under the authority of the corporate bylaws. Here, Parker alleged that Carilion’s employees committed the tort. Thus, the Court found that Carilion could not be subject to direct liability. Finally, the Court addressed Parker’s negligence per se HIPPA claim, and held that her argument had no support under Virginia law because a violation of a statute that sets a standard of care does not, by itself, constitute an actionable negligence per se claim; the doctrine of negligence per so only applies where there is also an underlying common-law duty. In essence, the Court explained, the effect of the doctrine of negligence per se in Virginia “is that it establishes the second element of common-law negligence – breach of duty – by reference to a statutory standard rather than the common-law ‘ordinary prudent person’ standard.’” Parker argued that Fairfax Hospital, which stated that there was a duty to the patient not to disclose information gained during the course of treatment without his authorization, created the common law duty and that HIPPA established the standard for a breach. The Court disagreed. Fairfax Hospital did not impose a duty on a healthcare provider to manage its confidential information to prevent employees from gaining unauthorized access to it. It imposed a duty not to disclose. Furthermore, the Court found inconsequential Parker’s invocation of Code § 8.01-221 because “for over a century, we have held to the view that … Code § 8.01-221 [does not] create a ‘new right of action for damages’ based upon statutory violations.” Instead, the Court explained, the statute merely recognized, but did not supplant, existing common-law principles framing the negligence per se doctrine.

Francis Hospitality v. Read Properties, LLC, 296 Va. 358, 820 S.E.2d 607 (2018) Read, a commercial real estate broker working for Forehand, assisted in negotiating a lease between Creekside, as lessor, and Delta, as lessee. Thereafter, Read Properties purchased Forehand’s commercial real estate division. The agreement assigned to Read Properties all rights and obligations under the Creekside contract. Beginning January 2011, Read Properties received the monthly leasing fee established in the lease of the Creekside property. In 2014, Creekside sold the leased property to Francis Hospitality. Even though the sale was subject to the lease agreement and its amendments, Read Properties did not receive a leasing fee in April 2014 or thereafter. Read Properties filed its complaint in circuit court alleging (i) breach of contract, (ii) intentional interference with contract by Francis Hospitality and Delta, and (iii) statutory business conspiracy in violation of Code § 18.2-499 and -500. The circuit court ruled in favor of Read as to all of its claims. Francis Hospitality and Delta appealed arguing that they could not tortiously interfere with their own contract. The Court explained that only a party outside the contractual relationship with the plaintiff can be subject to liability as an interferor, and stated that “‘one who intentionally and improperly interferes with the performance of a contract … between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for pecuniary loss resulting to the other from the failure of the third person to perform the contract.’” Thus, the Court held that “[a] person cannot intentionally interfere with his own contract,” and therefore Read Properties’ tortious interference claim failed. As to the statutory business conspiracy claim, the Court explained that such a claim was predicated on Read Properties’ claim against Francis Hospitality and Delta for tortious interference with the lease agreement. Because the tortious interference claim failed, the Court held that the statutory business conspiracy claim had to fail as well.

Sweely Holdings, LLC v. Suntrust Bank, 296 Va. 367, 820 S.E.2d 596 (2018) SunTrust made secured loans totaling $18.3 million to Sweely Holdings, and later sought to recover collateral when Sweely defaulted and threatened bankruptcy. The parties, represented by counsel, negotiated an agreement that provided Sweely with another chance to pay its debt. When Sweely failed to do so, Suntrust took action against Sweely’s collateral. In response, Sweely filed suit against Suntrust alleging, among other things, fraud in inducement and constructive fraud. More specifically, Sweely alleged fraud in the appraisal reports valuing the collateralized property. The circuit court dismissed the case on demurrer because, among other reasons, Sweely had failed to state a claim for any fraud. The Court explained that fraud is never presumed, and the burden of proof is higher than a mere preponderance. Consequently, the burden of pleading is also higher: it must be distinctly alleged and the complaint must show specifically and in detail all elements of the cause of action. For fraud in the inducement, the Court opined that the complaint must also include allegations that the victim “reasonably relied upon the misrepresentation … that allegedly constituted the fraud. Absent such ‘reasonable or justifiable reliance’, no fraud is established.” For such justifiable reliance, the Court explained that the defrauded party must demonstrate it had the right to reasonably rely upon the misrepresentation. More specifically, the Court further explained that “parties to a[n] agreement that [are] in an adversarial relationship and represented by counsel at the time of negotiation … will be strictly held to this reasonable reliance standard under Virginia law when seeking to vitiate the [agreement] based on claims of detrimental reliance on the misrepresentation.” The Court on demurrer then would ask whether, assuming that such allegations are true, a reasonable jury could find them sufficient to justify the plaintiff’s reliance under a clear and convincing standard of proof. The parties were in an adversarial position and represented by counsel. Sweely clearly distrusted Suntrust when it asked for copies of the appraisals and did not receive them. It had every reason to be skeptical of the alleged misrepresentation. Furthermore, the parties negotiated and entered into the agreement, at least in part, for the purpose of avoiding the threat of imminent bankruptcy litigation; Sweely had threatened to delay further collection efforts by filing for bankruptcy, which would have triggered an automatic stay and jeopardize SunTrust’s ability to seek deficiency judgments. Hence, in determining “whether a reasonable factfinder could accept Sweely’s factual allegations as true and nonetheless conclude that Sweely justifiably relied on Suntrust’s alleged misrepresentation,” the Court found that any alleged reliance on Sweely on the appraisal information was unjustified as a matter of law. Thus, the circuit court did not err in dismissing the fraud in the inducement and constructive fraud claims on demurrer.

WILLS Carody v. Hamblin, 295 Va. 597, 816 S.E.2d 286 (2018) One of the testator’s daughters sought to probate a three page typewritten will that left everything to her. Her brother contested the will. One of the witnesses recalled the execution of the will and that the will was three pages, that the first two pages were not initialed, but she could not identify the first and second pages. Another witness testified he witnessed the execution of the will, but he was also unable to identify the first two pages. The brother claimed the first two pages of the will offered for probate might have been substituted. In rebuttal, the executor testified about a conversation he had with the testator in which the testator told him he wanted the daughter to have everything, and the son nothing. The circuit court admitted the will and the son appealed. The circuit court properly admitted the executor’s testimony. Declarations of a testator standing alone are not admissible as direct evidence to prove or disprove the genuineness of the will, but when its genuineness has been questioned by other evidence, the declarations are admissible to show the testator’s state of mind and his plan and intent as being consistent or inconsistent with the will in dispute. There is no requirement that a witness read the will or examine it so as to be able to testify that all of the pages of the proposed will were the pages of the will the testator signed and the witness attested, or even recall attesting it. If the witness can identify his signature the presumption of proper execution will be upheld absent clear and satisfactory proof to the contrary.

CIVIL PROCEDURE

RMBS Recovery Holdings v. HSBC Bank, 297 Va. ____, ____ S.E.2d ____ (May 30, 2019).

RMBS, an investor in mortgage-backed securities, sued HSBC, the indenture trustee, for investing in poor quality securities. One of the agreements at issue had a forum selection clause in which the parties agreed to the exclusive jurisdiction of the state or federal courts of New York. RMBS filed suit in Fairfax County and HSBC actively participated in the litigation for six months, filing demurrers, a plea in bar, other motions, and agreeing to a trial date. The Court held a forum selection clause is not governed by Code § 8.01-264, the improper statute. The enforcement of such a clause is procedural and to be determined under Virginia law. The right to enforce such a clause, like any legal right, can be waived. An implied waiver must be established by clear and convincing evidence. The Court held HSBC’s participation in litigation for six months was a waiver of its right to enforce the clause.

Watson v. Commonwealth, 297 Va. ____, ____ S.E.2d ____ (May 30, 2019). A prisoner attacked sentences imposed on eleven other prisoners as void for being below the mandatory minimum statutory punishment. The court reviewed its “uncharacteristically fragmented decision” in Virginian- Pilot v. Dow Jones, and noted its prior holdings that a void order can be attacked by anyone, anywhere, anytime. Without overruling any cases, however, the Court held that standing is necessary in considering a challenge to an order as being void, at least when a judgment is being attacked as void because it is of a character the court lacked power to render. In a companion case, Commonwealth v. Watson, 297 Va. ___, ___ S.E.2d ___ (May 30, 2019), the Court held a sentence below the mandatory minimum statutory punishment to be voidable, not void. Query? Why was Watson v. Commonwealth not dismissed as improvidently granted? P.S. In Commonwealth v. Watson, the Court held: “Under stare decisis, a circuit court lacks power to rule [the Supreme Court] has overruled its earlier precedent by implication.” Slip opinion at pg. 3.