ANALYSIS OF DECEMBER 14, 2017 SUPREME COURT OPINIONS

(Posted December 14, 2017) The Supreme Court hands down four published opinions this morning, all in appeals argued in the November session.

Executions

The issue in Shifflett v. Latitude Properties, Inc. is whether a judgment creditor can seize his debtor’s income-tax refund to satisfy the judgment, where the debtor hasn’t filed a tax return yet.

The creditor here served writs of fieri facias on the debtor with a return date of January 6, 2016. The fifa sought the debtor’s 2015 state and federal tax refunds. The debtor replied that the refunds were, at that point, merely inchoate, since neither return had been filed. The trial court ruled in favor of the creditor.

The justices today reverse. The creditor based much of its argument on bankruptcy law, since the SCV has never decided this issue in the context of Virginia law. But Justice Powell, the author of today’s unanimous opinion, points out that bankruptcy law defines property of the estate expansively, while Virginia law defines property subject to levy narrowly. In this context, that means that while a debtor’s right to his refund is fixed for bankruptcy purposes on December 31 of the tax year, Virginia execution law still regards that refund as inchoate until the debtor files a tax return claiming it. And since Virginia law doesn’t permit execution on inchoate claims, there was nothing subject to the lien of the fifa.

Probate

There are a few narrowly defined ways under Virginia law to make, or to modify, a will. The justices take up a purported change to a formal will in Irving v. Divito.

I’ll warn you that when you start to read the opinion in this case, you may get a mistaken impression as to the issue. On page 1, Justice Mims tells us that the testator has made two inconsistent representations about whether a juvenile is or is not his natural son. One of those came in a property-settlement agreement during divorce proceedings; there, he stated that the child was not his.

But in his will, he listed the child as “My child born before the date of my Will.” That led me to expect a debate over whether a PSA is a document of equal dignity as a will.

Wrong, Steve; this appeal is about a handwritten codicil. The testator’s brother found a storage-unit key in the testator’s hotel room. In that unit, the brother found a briefcase containing the original will. The storage unit also contained a binder with various estate-planning documents. And here we have our legal controversy. On one of the dividers in that binder, the testator had written this:

11/17/03

I wish to remove Patrick named as my son entirely from this will – no benefits.

DS

There’s no question that the original will was valid; the only issue in this appeal is whether the handwritten note was a valid codicil. A trial court decided that it was not. The justices agree today, affirming in large part because in contrast to his other probate documents, where he signed his full name, the testator here used only his initials. That fact indicated to the trial court that the testator had not manifestly intended those initials to constitute a signature to authenticate the writing, which is one of the requirements for a valid probate document.

The court finds other support for this conclusion. The testator had instructed his brother that a local law firm had his will, but mentioned nothing about the handwritten notes. Justice Mims also turns to rules of grammar to buttress this conclusion, noting that the handwritten note says only that the testator “wish[ed] to remove Patrick” as his heir; not that he was actually doing so. Another document in the binder instructed the testator to consult an attorney if he wanted to make any changes to his will.

All of this falls short of the clear-and-convincing evidence necessary to establish that the testator intended these notes as a codicil.

Contract/fraud claims

The justices again explore the boundary between claims sounding in fraud and those arising in contract. The appeal is MCR Federal, LLC v. JB&A, Inc.

Both of the named companies operated in the (broadly defined) defense industry. JB&A undertook to market itself to potential buyers. MCR sent the seller a letter of intent, which the seller accepted. That letter called for the parties to negotiate the specific terms of a contract for the buyer to acquire the seller. It also prohibited the seller from marketing itself to other potential buyers while the parties were thus engaged in this process.

The parties signed a formal contract on May 5, 2011, calling for a closing date of May 31. The terms included a $42 million cash payment and (as is now fairly common in corporate acquisitions) the potential for nearly $20 million in additional payments if the acquired business met certain earnings thresholds. The buyer also warranted that there were no adverse suits, investigations, or government actions against it. The agreement finally required the buyer to reaffirm those warranties at closing, in something commonly called a “bringdown certificate.”

The warranties were accurate on May 5, but the trial court found that by the 31st, they were no longer accurate. In the intervening weeks, the buyer was bidding on an unrelated government contract with the Air Force. The Air Force inadvertently sent to the buyer details of a competitor’s bid for the same contract, and several persons within the company saw it. That eventually led the USAF to launch an investigation, and eventually to suspend the buyer – three months after the May 31 closing date – from bidding for two periods of time totaling about a month.

The newly acquired business failed to meet the earnings thresholds, so the buyer didn’t pay any part of the $20 million. The seller sued, claiming that the “clean” bringdown certificate produced at closing was both fraud and a breach of contract. After a lengthy bench trial, the circuit court entered judgment, based on both the fraud claim and the contract claim, for the seller. The court awarded $12 million plus interest, and about $2 million in attorney’s fees.

Today the justices focus primarily on the fraud claim, which was the basis of the fee award. The court finds that the seller’s claim based on the bringdown certificate sounded in contract, not in tort. The buyer had no duty outside of the May 5 contract to furnish that certificate, which after all was a reaffirmation of warranties. Since there was no proper tort claim, the justices reverse the fee award.

This ruling illustrates the SCV’s longstanding refusal to tolerate the mixing of tort and contract claims. It has repeatedly held that lawyers too often want to “turn every breach of contract into a tort,” presumably because of the ability to obtain greater damage awards, including in some cases punitive damages. (There was no punitive award here.) This part of today’s opinion focuses on the source-of-duty rule, which holds that if the only basis for a duty is a contract, then you can’t sue in tort.

The buyer wins this battle, but loses the war. The justices go on to affirm the large award of damages, finding that the trial court had a satisfactory evidentiary basis to fix damages based on the buyer’s internal valuation of the “asset” it had acquired in the purchase.

Given the unique nature of the damages evidence in this case, I suspect that this ruling will be cited more for the financially smaller ruling on the source of duty instead of the larger breach-of-contract award.

Criminal law

The Supreme Court looks into the effect of a defective search warrant today in Commonwealth v. Campbell.

You never know what’s goin’ on in the woods. In August 2014, Amherst Sheriff’s deputies got word of an impending “meth cook,” a process for the manufacture of methamphetamine, at property belonging to Campbell. The word came from a paid informant, who told the deputies that he was present and that Campbell and two associates were going to start the process shortly.

An investigator sent some law-enforcement officials to the scene to monitor it discreetly while he went to get a search warrant from a magistrate. The magistrate was satisfied with the investigator’s description, and he issued the warrant. As required by statute, the magistrate faxed a copy of the warrant, as part of a four-page package, to the local clerk of court. But as often happens in facsimile transmissions, one of the pages didn’t go through. It was a fairly important page, too: the warrant itself, describing “the basis for probable cause” and outlining the reason why the officer felt the information was credible.

Meanwhile, back at the meth lab, officers continued to observe activities that matched well the steps in meth manufacture. The informant, having excused himself from the scene, called the investigator and asked urgently, “Where y’all at? They’re starting to make this thing, man.” The investigator arrived and executed the warrant, finding plenty of inculpatory evidence; at this point, Campbell acquired the right to remain silent.

But his lawyer noted the incomplete package in the clerk’s office. That lawyer moved to suppress, citing that same statute, which also governs defective warrants. It requires that the warrant be filed within seven days, but it allows a grace period of up to 30 days. Failing that, evidence seized is inadmissible.

The trial court denied the motion, finding that even if the warrant were invalid, the search was justified based on exigent circumstances. (Among other exigencies, the manufacture of meth can produce toxic gases and even explosions.) The court convicted Campbell and gave him plenty of free room and board.

But the Court of Appeals thought otherwise. A panel of that court unanimously found that the language of the warrant statute is mandatory, and “rendered the fruits of the search categorically inadmissible as a matter of state law.” The Commonwealth sought and obtained a writ from the justices.

Today the Supreme Court unanimously reverses and reinstates the conviction. The court assumes without deciding that the warrant was defective, but notes that the statute deals only with the treatment of search warrants. It doesn’t address warrantless searches. And analyzing these circumstances, the justices agree with the trial court that exigent circumstances fully justified this search, regardless of a warrant.

Justice McCullough writes today’s opinion. He notes that there was undoubtedly probable cause and that there was a serious risk of disposal of evidence or flight by the participants. He also observes that the officers faced a situation that was imminently risky to the participants. In this regard, he offers a nice turn of phrase in a footnote, dispensing with a defense objection:

We reject Campbell’s argument that those present had assumed the risk of death or serious injury, and that this assumption of the risk defeats exigent circumstances. The exigency arising from the need to protect human life extends to the guilty as well as the innocent.

I’ll mention one other point here: This is the fifth time in 2017 that the Supreme Court has reinstated a criminal conviction after a prior reversal in the Court of Appeals. I don’t have statistics on prior years, but that figure seems to me high enough to be noteworthy.

But let’s not stop there; in addition to today’s four published opinions, the justices decide two appeals by unpublished order. These, too, are from the November session.

The first, Collins v. Commonwealth, involves convictions of grand larceny and statutory burglary arising out of a break-in of a Portsmouth home. The thief took several items, including three flat-screen televisions. Those three items were discarded on the ground next to a street adjacent to the victim’s home. Investigators dusted the items and got two hits on Collins’s fingerprints – ne from his left index finger and one from his left middle finger.

A circuit court used those prints to convict Collins of the break-in, but the Supreme Court today reverses. Fingerprint evidence alone is seldom enough to establish guilt; it generally requires some corroboration, and it must negate every reasonable hypothesis of innocence. Here, because there was no corresponding thumb print on the opposite side of the television, the evidence couldn’t exclude the possibility that Collins had merely bent down to touch TV units that some other thief had taken and discarded (presumably because of their bulk). The Supreme Court accordingly reverses and dismisses the indictments.

Another criminal appellant has similar, though more limited, success today: In Cilwa v. Commonwealth, the Court of Appeals dismissed an appeal as moot shortly before oral argument. The appellant had been ordered to serve 90 days in jail on a probation violation, and when the CAV learned that she had served that term and had been released, it found it unnecessary to determine the legality of her incarceration. (Note that the rule is different with an initial conviction. You always have an interest in clearing your name of being convicted of a crime.)

After the CAV’s decision, SCOTUS decided Nelson v. Colorado in April 2017. Nelson held that states cannot keep money paid by criminal defendants for things like fines and costs if the conviction is later invalidated. Since Cilwa had paid almost $850, she has a right to that money back if her appeal is successful. The justices accordingly remand the case to the CAV for a decision on the merits of the appeal.

One interesting side note: Nelson was a 6-1 decision (not counting Justice Alito’s separate concurrence). Justice Thomas alone believed that even if a conviction is reversed, a state has the right to keep any money the defendant paid before getting his conviction vacated – even if he’s fully exonerated: “Colorado is therefore not required to provide any process at all for the return of that money.” You read that correctly.