ANALYSIS OF JUNE 16, 2016 SUPREME COURT OPINIONS

 

[Posted June 16, 2016] The Supreme Court of Virginia announces three published decisions this morning.

Torts

Dorman v. State Industries involves a products-liability claim against a manufacturer of water heaters. The plaintiffs were Virginia Tech students who sustained injuries from carbon-monoxide poisoning at their apartment. They sued the manufacturer, claiming that the unit vented exhaust openly, so that the CO could enter their apartment, rather than in a closed system that would vent the exhaust outdoors.

At trial, the parties each brought an expert. The plaintiffs’ expert felt that the heater was designed incorrectly, causing the poisoning. The manufacturer’s blamed improper installation, and noted that the apartment had been newly carpeted nine days before the event, reducing the flow of fresh air into the apartment (since the carpet effectively sealed off the opening at the bottom of the door).

A jury sided with the manufacturer. The plaintiffs got a writ to review several assignments.

The first issue relates to the manufacturer’s evidence about the number of its water heaters now in service (in the millions). The plaintiffs claimed that this evidence was improper, since, as the Supreme Court has ruled, “evidence of the absence of other injuries is not admissible in a negligence action when timely objection to it is made.” The justices hold that this wasn’t that kind of evidence. It was relevant, the court holds, as a component of the units’ merchantability.

In products cases implicating the implied warranty of merchantability, one key question is whether the goods pass without objection in the trade.  This, in turn, depends on whether a “significant segment of the buying public” is okay with buying it.

When you put it that way, it makes sense that evidence of the number of units sold is admissible, even if evidence of the absence of other injuries isn’t dispositive of whether a particular product was negligently designed. Nevertheless, products-liability defense lawyers will regard this as a major victory, since they can implicitly make the no-other-injuries connection, or at least expect jurors to make that connection on their own.

Next, the court takes up the trial court’s giving of an instruction on superseding cause. A majority of the court finds that this was a proper issue for the jury, since the manufacturer’s expert testified that the heater wasn’t defective when it left the factory; it only became a problem after it was installed and the landlord put in new carpet. The majority specifically finds that the jury could have attributed the problem to installation issues.

Finally, the court affirms the wording of the superseding-cause instruction, noting that it’s “substantially the exact language given here,” and was supported by more than a scintilla of evidence. The court turns aside an objection that the instruction didn’t properly tell the jury that the burden of proving superseding cause was on the manufacturer. That’s because the plaintiffs never tendered their own instruction to do that. Preservation caselaw provides that if you think the Bad Guys’ instruction is incorrect, you have to proffer your own correct one, or else the objection is waived.

Because this is an important issue that’s overwhelmingly likely to reoccur, I’ll add one observation. The plaintiffs here may well have declined to offer a burden-of-proof instruction for superseding cause because they feared waiving their objection to the presentation of the issue to the jury in the first place.

You can preserve the issue without that waiver by stating clearly, on the record, that you submit your corrected version to the trial court under protest, while maintaining your position that superseding cause (or whatever your issue is) should not be considered by the jury. If you haven’t brought an instruction with you but you want to object to the Bad Guys’ wording, you should at least tell the judge – again, on the record – how a properly worded instruction should read. That would give the justices the full picture for appellate review. What you cannot do is simply claim that the Bad Guys’ instruction is incorrect, without telling the judge exactly what’s wrong with it.

I mentioned a majority opinion, and that tells you there’s a dissent. The chief justice (joined by Justice Millette) feels that while the installation of the heater, and the addition of the carpet, may have been intervening causes, they weren’t truly superseding. A superseding cause exists wholly independent of the defendant’s negligence, and the dissent feels that this set of facts doesn’t rise to that level, so the jury shouldn’t have been instructed on it.

Note that the dissent doesn’t touch the million-of-units issue, signaling that the full court agrees that the number of sales is admissible, not to prove that other injuries haven’t occurred, but for the discrete issue of merchantability. I sense that some future plaintiffs may eschew product-liability theories in favor of straight negligence claims, in order to avoid this issue with widely distributed products. Time will tell.

Eminent domain

While VEPCO v. Hylton is a condemnation case, it contains an important preservation-and-waiver ruling that appellate practitioners will want to know about. The appeal involves the condemnation by VEPCO of an easement across some rural land in Wise County, allowing the utility to string some power lines from a generating plant to a nearby substation.

The easement comprised about eight acres across a 350-acre farm. VEPCO appraised the easement at $19K and offered that much; the landowner declined. In its condemnation petition, VEPCO alleged that it had “complied with all of its statutory obligations associated with the exercise of eminent domain as to the Easement.” The landowner admitted that. In the next paragraph, the utility asserted that it had made a bona fide offer to purchase – that’s one of the statutory prerequisites to condemning land – and this time, the landowner responded that he didn’t think VEPCO had offered enough, so he denied the allegation.

The case matured for trial, but in discovery, the utility’s appraiser – who was relatively new to the practice – admitted that he hadn’t considered any value added to the site by virtue of the mineral rights, specifically coal, that the land might contain. As it happens, there once was an active mine on the site. The mining company that leased it had ceased operating it several years before, though it was still paying nominal rent to the owner under the mineral lease.

A month before trial, the landowner moved the court to dismiss the petition, claiming that the utility hadn’t made a bona fide offer. The trial court agreed; it dismissed the case and awarded the landowner a combined $400K in attorney’s fees and litigation expenses.

A stunned VEPCO applied for a writ and got one of the precious documents. Today, the justices reverse the case and send it back for trial. Today’s opinion contains a few evidentiary rulings on what will happen on remand, but for eminent-domain lawyers, this case will primarily be about the dismissal order.

By statute, if a landowner wants to challenge the jurisdictional basis of a condemnation petition, he has to do so affirmatively, in his answer or in a pleading filed along with it. Here’s the guts of the requirement:

Within 21 days of the service [of the petition for condemnation] any such owner who desires to assert any objection or defense to the taking or damaging of his property or to the jurisdiction of the court to hear the case, … shall file … (ii) the grounds of any objection or defense to the taking or damaging of his property or to the jurisdiction of the court to hear the case …

Code § 25.1-213. While the landowner did claim that the utility’s offer was too low, that’s not enough to constitute a jurisdictional defect. Think about it: if it really was true that the petition could be dismissed whenever the ultimate valuation was higher than the condemnor’s offer, condemnation would effectively be shut down.

Today’s opinion lists several things that the landowner did that were inconsistent with contesting jurisdiction:

• He conceded that VEPCO had met the statutory requirements for condemning.
• He affirmatively elected to proceed to trial by a condemnation jury.
• He agreed to an order allowing VEPCO a right of entry on the property.
• He drew down and pocketed the $19K that VEPCO had paid into court along with filing the petition.

These circumstances lead the Supreme Court to the conclusion that the landowner waived his objection to the proceeding by failing to raise it timely.

I promised you an important preservation ruling. The court bases its decision on the language in the statute I quote above. But in the trial court, the utility had relied upon a different statute entirely:

If any answer and grounds of defense has been filed objecting to the jurisdiction of the court, the court shall determine such issues or other matters in controversy, excepting the issue of just compensation or matters relating to the ownership of any land or other property or the interests of any party in such land or other property before fixing a date for the trial of the issue of just compensation.

Code § 25.1-219(B). This statute, you will note, places an obligation on the trial court, but none whatsoever on the landowner. Here, then, is the preservation question: where your appellate argument depends on a statute, can you preserve the issue for appeal by exclusively arguing a different statute below? Before today, I would have wagered a substantial amount of loot, American currency, that the answer was no. If you’re relying on a statutory obligation but you assert a wholly different statute, how fair is it for you to switch statutes once you get to Richmond?

It’s not fair at all; or so I had thought. In this case, the justices reverse based on a statute that the trial judge never had the opportunity to consider and that the landowner never had the opportunity to brief. But in a long footnote – the footnotes are where the goblins hang out in appellate decisions – the Supreme Court surprisingly says, “Close enough.”

Preservation under Rule 5:25 does not require a party to precisely reference the exact statute or rule upon which they rely in making an argument. Rather, a party need only give the trial court “sufficient ‘notice of the substance of the objection.’”

Since part of my job here is to give you sensible practice tips in your own trial and appellate practices, I will entreat you, when making your objections, to steer a course that’s well clear of the approach in the sentence I quoted here. Cite the precise statute, not its second cousin! There’s no way to be certain in advance that the court will be similarly forgiving in future cases.

There’s one other astonishing detail here. The landowner’s attorney’s-fee petition laid out the basis on which his lawyer was being paid. One of those provisions was for “an hourly fee of $100 per hour for appeal work.” Conceivably, that’s the going rate for legal work in Wise County; though I seriously doubt it. But of the appellate lawyers I know, no one has an hourly rate that’s in the same Zip Code as that. If you’re expecting to hire an experienced appellate practitioner for one Benjamin per hour, good luck with that.

Real property

For the second time in just over a year, dirt lawyers are going to erupt when they read a Supreme Court opinion. Last year, it was Evans v. Evans, where the court ruled that a tenancy by the entireties could be severed by a deed signed by only one spouse. Today, it’ll be Parrish v. FNMA.

The Parrishes bought a home and mortgaged it. A couple of years ago, they evidently got far enough behind on the payments that the lender foreclosed. A substitute trustee knocked down the sale and conveyed the property to Fannie Mae, who apparently was also the lender.

Fannie Mae then filed an unlawful detainer action in general district court, seeking to kick the Parrishes out of their home. In response, the Parrishes contended that the foreclosure was invalid. They claimed that they had – as federal lending law provides – filed a loss-mitigation application more than 37 days before the sale date, so the trustee was powerless to conduct the sale. Since the sale was improper, they reasoned, they weren’t subject to UD proceedings.

The GDC judge didn’t bite; the court gave possession to Fannie Mae. The Parrishes appealed to circuit. There, the lender’s lawyer had an unpleasant surprise wrapped inside a motion for summary judgment. It claimed that the trustee’s deed was prima facie evidence of its right to possess the home, and the GDC didn’t have jurisdiction to try title to the case. The Parrishes had implicitly challenged Fannie Mae’s title in their answer. Since the circuit court’s appellate jurisdiction was derivative of the GDC’s, that meant that neither court had the authority to try title.

The circuit court agreed with Fannie Mae and gave it possession. Today’s opinion resolves the Parrishes’ appeal of that judgment.

By a vote of 5-2, the Supreme Court today reverses and dismisses the UD case, restoring the possessory aspect of the case – though not the legal title to the home – to where things stood before Fannie Mae brought the UD action.

Here’s how the Parrishes won, and what that means for UD practice going forward. The majority – Justice Mims writes for the chief justice plus Justices Kelsey, Russell, and Millette – finds that a bona fide question about the foreclosure process necessarily implicates the new owner’s title to the property. General district courts are not empowered by law to try title; only circuit courts can do that. Since the GDC didn’t have that power, then the circuit court, when it exercises appellate jurisdiction, doesn’t have that power, either. When a court doesn’t have subject-matter jurisdiction, the only order it can enter is to dismiss the case. The majority concludes that Fannie Mae’s legal avenue is to bring a new UD action in circuit court under its original jurisdiction, and at that point the court can adjudicate the title.

Remember when I mentioned earlier the bit about footnotes and goblins? There are enough goblins here to storm Minas Tirith, gathered in no fewer than 24 footnotes, some of which are quite extensive. Justice McClanahan starts the dissenting ball with a surprisingly blunt accusation: “In a result-oriented approach, the majority creates, and then resolves, a question of subject matter jurisdiction that has heretofore never existed.”

As an aside, I’ll begin by noting my appreciation for her honor’s correct use of the hyphen in the phrasal adjective result-oriented. (In a close call that could really go either way, I might have used another one in subject-matter jurisdiction, but I’m so happy to find another grammar geek, I won’t quibble.) That being said, it’s those two words that represent the nuclear explosion today. The rule of law is based in part on the premise that in these cases, the legal analysis drives the case outcome; it isn’t supposed to be a desired outcome shaping the legal analysis.

In this context, her accusation raises a sore subject: does the Supreme Court actually shade its legal analysis in order to make a given case come out the way the justices want it to come out? Permit me to say only that there are two kinds of thinking on this question. All too often, the two differing kinds are represented by the winners and the losers. That makes many of the complaints look like they, too, are result-oriented.

But Justice McClanahan argues forcefully that, at least since 1855, nobody tries title in UD proceedings; you try the right of possession, which is a separate issue, far more limited than title. In her view, Fannie Mae can establish its right to possession by flashing the trustee’s deed, and that’s enough on this issue.

Justice Powell files a separate dissent. She argues that “there is a significant difference between an action that turns on the question of title and an action that tries title.” The state of title to property may be an evidentiary issue in a UD action, but it isn’t the action itself. She points to a statute that makes UD rulings non-binding in subsequent trespass or ejectment actions – both of which arise in circuit court and both of which emphatically require the court, when a dispute arises, to try title.

The Code gives general district courts the right to try UD cases. Today, in post-foreclosure actions, the Supreme Court has stated that a possessor can forestall those proceedings by raising a plausible defense, requiring the plaintiff to suffer a dismissal without prejudice before heading off to circuit.

Justice Powell offers one parting shot for lenders, and ominously for law firms that represent them in foreclosure proceedings. She notes that a trustee owes fiduciary duties to both the mortgagor and mortgagee (the borrower and the lender, respectively) and cannot favor one over the other. In turn, that means that a trustee cannot be both a seller at auction and the buyer, “because the two roles are incompatible.”

In this case, the substitute trustee was a law firm. Acting on instruction from the noteholder, Fannie Mae, it likely bid the property in at a fixed amount representing the amount of the loan. (This is to prevent a single bidder from showing up at the sale and “stealing” the property for a $1 bid.) That made Fannie Mae the buyer. But Justice Powell notes that that same law firm represented Fannie Mae in the UD proceeding; it was clearly acting as Fannie’s agent. “Thus, the record clearly demonstrates that Fannie Mae was both the buyer and, through its agent, seller at the foreclosure auction.” Uh-oh.

Several law firms that handle foreclosures will read this language and swallow hard. This reasoning, if it governed Virginia foreclosure practice, would radically change the way things are done. But take comfort; this is just a lone dissent and not the opinion of the court. No, the real traffic jam from now on will be in GDC, as purchasers’ lawyers try to argue that the UD defendants’ claimed defects are not, in fact, bona fide. Otherwise it’s a long, slow process to get to the trial date in circuit.

Update June 17: I’m lucky enough to have some very bright readers, and one of them has written to me to let me know about the provisions of this statute:

§ 64.2-1423. Trustee not disqualified due to status as stockholder, employee, or officer of corporate noteholder; sale of property by trustee not voidable.

A. The fact that a trustee in a deed of trust to secure a debt due to a corporation is a stockholder, member, employee, officer, or director of, or counsel to, the corporation does not disqualify the trustee from exercising the powers conferred by the deed of trust, nor does it render voidable a sale by the trustee in the exercise of the powers conferred on him by the deed of trust so long as the trustee did not participate in the corporation’s decision as to the amount to be bid at the sale of the trust property.

B. In addition to the provisions of subsection A, if the lender secured by the deed of trust bids the amount secured, including interest through the date of sale and costs of foreclosure, the trustee’s participation in fixing the bid price by the lender shall not be deemed improper and the sale shall not be rendered voidable solely by reason of the trustee’s participation.  …

While this doesn’t address the problem of unlawful-detainer suits in GDC, it does at least give some comfort to law firms that serve as trustees, at least where the noteholder is a corporation. That lessens the sting of Justice Powell’s closing warning. Thanks for the heads-up, Chris.