ANALYSIS OF SEPTEMBER 12, 2008 SUPREME COURT OPINIONS[Posted September 12, 2008] The Supreme Court decides a total of eighteen appeals today, all but two by published opinion. These cases were argued in the June session (with the exception of one of the orders, which involves a case argued this week). The court holds over to the October session the criminal appeal of Garrett v. Commonwealth. The major news story of the day is the court’s reversal of the conviction of spammer Jeremy Jaynes, on rehearing after a sharply divided court had affirmed earlier this year.
In February, a divided Supreme Court affirmed the conviction of Jeremy Jaynes under Virginia’s anti-spam statute. That ruling was 4-3, and produced a split on whether Jaynes could offer a challenge to the statute based on overbreadth. The court granted rehearing soon afterward, and today, it issues a new opinion (also styled Jaynes v. Commonwealth), this one unanimous, in which the court declares the statute to be unconstitutional.
I covered this case back in February, and I won’t recount the facts here; if you’d like to review those, here is a link to my analysis that day (you’ll need to scroll down to the criminal law section). The dispositive difference is the court’s new view of Jaynes’s standing to make this challenge. The court finds today that, based on the US Supreme Court’s ruling in an earlier Virginia case, the Commonwealth could permit greater challenges to overbreadth than federal courts provide, but it cannot permit fewer challenges. The federal constitutional standard is thus established as a floor, not a ceiling, on who may challenge a statute for overbreadth.
The Commonwealth’s argument in this regard was hampered by the position it had taken in the earlier case, Virginia v. Hicks, 539 US 113 (2003). There, the attorney arguing the case in Washington had argued that the Commonwealth could offer more standing rights than federal law provided, but agreed that it could never provide less. That concession stands in sharp contrast to the Commonwealth’s position in this appeal, which was that standing to raise overbreadth challenges is purely a matter of state law, which may be more restrictive than federal law.
From there, the analysis focuses on the right to anonymous speech. The statute forbade the use of false IP for the sending of e-mail. But if you know the sender’s true IP, it is possible to track down who sent the e-mail, and that effectively forbids anonymous speech. What’s wrong with that, you ask? The Supreme Court has an answer, taken from the history pages of our nation’s beginning:
“For example, were the Federalist Papers just being published today via e-mail, that transmission by Publius would violate the statute.” If you know your Colonial history, you know that Publius is the pseudonym adopted by James Madison, Alexander Hamilton, and John Jay when publishing their broadsides relating to the founding of this nation, some of the most famous anonymous political speech in our culture. The Supreme Court of Virginia is not about to silence someone who can somehow shoehorn himself into Publius’s position, and Jaynes does that today.[In case you’re wondering, he has help. The Big Supremes in Washington have specifically held that the First Amendment includes the right to speak anonymously.]
The opinion then concludes that the statute is not narrowly tailored to achieve a legitimate government purpose, as it proscribes far more than the minimum required to contain spam. Accordingly, it’s back to the drawing board for the General Assembly, which will undoubtedly wish to sculpt the statute somewhat in order to comport with the constitutional doctrines described by the court today.
Ironically, this decision, which fairly oozes federal constitutional analysis, is the Supreme Court of Virginia swan song for former Justice Steve Agee, who has now moved on to – what else? – federal court.
Today’s shortest opinion is destined to generate some of its biggest controversy, at least in criminal law circles. The ruling is Logan v. Commonwealth, and involves the direct question of whether the exclusionary rule applies in probation revocation hearings, if the officer’s good faith is in question.
Logan found himself on probation in 2003 after serving some time for a drug distribution conviction. But one August day in that year, he probably started sweating as he saw a police officer heading up the stairs of his rooming house, straight toward him. What must have made Logan nervous was the cocaine he knew he had in his pocket at the time.
The officer had entered the rooming house without a warrant, in pursuit of someone else. But when he met Logan at the top of the stairs, he presumably patted him down and found the cocaine. That produced a criminal conviction that was eventually overturned by the full Court of Appeals in 2005.
But the Commonwealth wasn’t done. Instead of appealing the en banc CAV ruling, it went back to the trial court and moved that court to revoke Logan’s probation, since he had unquestionably possessed cocaine while on probation. (The rest of us aren’t supposed to possess drugs, simply because they’re illegal. But probationers also have a specific duty arising out of the terms of their probation.)
Logan contended that the officer had acted in bad faith in searching him, and moved to exclude the evidence; the trial court refused and revoked the probation. In the Court of Appeals, Logan again raised the bad faith argument, but the CAV refused to even consider it. Citing a 1998 US Supreme Court case, Penna. Bd. Of Probation & Parole v. Scott, 524 US 357, that held that the exclusionary rule doesn’t apply at all in parole hearings, the court affirmed without reaching the bad faith issue.
Well, it’ll have to reach it now. The Supreme Court reverses in just 4 ½ pages, distinguishing between the parole hearing in the federal case and the probation hearing here. (The two are different, and parolees have fewer rights than probationers.) The court also notes today that the parolee in Scott had consented to be searched while on parole, and that a parole hearing is administrative, not judicial. For all of these reasons, the Supreme Court sticks to its guns in a 1996 Virginia decision that held that the exclusionary rule does apply in probation hearings if there is “a showing of bad faith on the part of the police.” The court thus remands the case to the CAV to determine whether Logan has made out a bad faith defense.
Just three days ago, the Court of Appeals handed down an opinion focusing on a principal in the second degree (Dunn v. Commonwealth). Today the Supreme Court follows suit with a second-degree principal decision of its own, in McMorris v. Commonwealth. This one deals with a robbery that occurred in Hampton.
It started, as so many foolish encounters do, quite by accident. The victim got off a bus to visit a friend. When he alighted, he saw a group of about fifteen young men across the street. One of the men recognized the victim and shouted after him. The victim ignored the men and walked toward his friend’s apartment, even as a few of them (presumably including McMorris) started following him.
The victim finally reached the apartment door and the prospect of safety, assuming he could get inside. Alas, disaster struck in the form of . . . nothing. The victim knocked on the door, but his friend wasn’t home. By then, the small crowd had arrived, and the first of the attackers struck.
Fortunately, this isn’t a murder case, or one involving maiming. The crowd just beat up their single victim, armed with the false courage that comes with superiority in numbers. The last attacker was McMorris, who joined in pummeling the victim.
During the attack, the victim’s wallet and a $300 mobile phone fell out of his pocket. The victim understandably paid more attention to the objective of survival than to checking to see where his property was; when the attack was over and the band fled, both wallet and phone were gone. The victim did see one of the crowd holding the phone as he left, but McMorris wasn’t with that attacker.
McMorris didn’t get the victim’s wallet, or the phone; presumably all he got was a few scraped knuckles. But eventually, he did get a robbery charge. The trial court decided that he was a principal in the second degree, and convicted him of the charge. The Court of Appeals affirmed in an unpublished, divided opinion.
Today, the Supreme Court reviews what it takes to become a second-degree principal. It acknowledges that such a principal isn’t the perpetrator of the crime charged, but he aids and abets the first-degree principal. Clearly, McMorris wasn’t a first-degree principal of robbery (remember, this isn’t a charge of assault; McMorris would clearly have been guilty of that), since he didn’t take personal property from the victim by force or threat.
In order to establish McMorris’s guilt as a second-degree principal, the Commonwealth had to show that he “consented to the felonious purpose and contributed to its execution.” It can do so by showing “some overt act done knowingly in furtherance of the commission of the crime,” or if he shared in the criminal intent. Note that that would be the specific intent to rob, not just the intent to commit some crime.
And that’s where the Commonwealth’s case falls, the court rules today. In reversing the conviction and dismissing the charge, the court finds that the Commonwealth never established that McMorris even knew that any of the victim’s property had been taken; much less that he shared anyone’s intent to rob. It might be possible to show that the ultimate act (robbery) was a natural and probable consequence of the original act (the gang assault). But the court turns way back to some very old precedent (one case cited here is from 1885) to hold that an eventual robbery of an assault victim is not one of those “natural and probable consequences.”
This one is going to make the tough-on-crime crowd mad; unquestionably, McMorris committed at least some bad acts (starting with hanging out with the wrong crowd) and no doubt deserved to feel the weight of the criminal justice system. But the import of this ruling isn’t that he’s innocent; it’s merely that he was charged with the wrong crime. The prosecutor understandably would want to pin the most serious charge possible on him – and robbery is emphatically a more serious crime than any assault-based charge – but today’s ruling establishes that that prosecutorial decision was one reach too far.
The Attorney General avoids a complete whitewashing in the criminal justice field today by winning the appeal of Shaikh v. Johnson. Johnson is the Director of the Department of Corrections, and this is a habeas corpus appeal involving a claim of ineffective assistance of counsel.
Before we get to the facts, let’s set the legal tableau. A claim of ineffective assistance of counsel can’t be raised on direct appeal of a criminal conviction; it is asserted in a habeas corpus proceeding. The seminal case on ineffective assistance is Strickland v. Washington, 466 US 668 (1984). Under Strickland, the petitioner must show two things: First, that his lawyer’s work “fell below an objective standard of reasonableness”; and second, that if the lawyer had acted properly, the result of the trial probably would have been different. (I’m paraphrasing here for simplicity; the actual wording is on page 8 of today’s slip opinion.) The court can choose to evaluate either prong first; this isn’t a sequential analysis, and if it looks obvious that the petitioner can’t establish one of the prongs, then it need not even look at the other.
Now, then: Shaikh was part of a tightly-knit family that lived together in an apartment in Fairfax. The group included, in addition to Shaikh, his father, brother, three sisters, and a brother-in-law.
Careful eyes will have detected that since Shaikh has a brother-in-law, one of his sisters is married. Alas, that didn’t ensure her fidelity; the married sister had an affair. When the family fund out about it, they reacted angrily.
At this point in the story, we get a “what was he thinking?” moment – the sister’s paramour came to the apartment to discuss matters with the father. Now, it’s apparent that this large family comes from a very different culture than what I’m accustomed to, so perhaps it’s regarded as the honorable thing to do in such a situation. But regardless of whether it’s honorable, it’s inherently dangerous to just stroll into a lion’s den like that. The paramour learned that lesson the hard way when he arrived. Shaikh arrived shortly thereafter, and had to be restrained from assaulting the paramour. While Shaikh was being thus restrained, the brother-in-law (the man who had been cuckolded) came in from the kitchen and started using it, in particularly bloody fashion. The unfortunate paramour suffered several stab wounds, and Shaikh added a few blows to the head with a stick.
The now critically injured paramour jumped off a second-story balcony to escape, but by then it was too late; he died a few hours later from his injuries.
Meanwhile, Shaikh called police and made a false report that an intruder had come into the apartment with a knife. That story evidently fell apart when each family member gave a different description of the events, the individuals even giving different stories on subsequent retellings. Police eventually charged both Shaikh and the cuckold with second-degree murder. Shaikh was convicted, and his convictions held up on direct appeal.
Shaikh raises two claims that his trial lawyer was ineffective. First, there was an argument over which jury instruction to use to define “concert of action” between the two assailants. The trial court eventually agreed to give the prosecutor’s draft, which was straight out of the model book. He told Shaikh’s lawyer, on the record, “I’m marking your instruction R as refused, and it will be placed in the record.” So far, that’s good record protection by the lawyer. But somehow – the opinion states that no one knows how – the refused instruction didn’t make it into the record. That’s part of the reason why the conviction was affirmed; an appellate court can’t evaluate whether an instruction should have been given unless it can read it to see what it said.
That being said, the lawyer had read part of the refused instruction into the record during the trial, so the Supreme Court can at least passably evaluate it. And this review proves dispositive, as the court finds today that even if the instruction had been included, it would not have produced a different result (that’s prong 2 of the Strickland analysis). The court thus does not reach the question of whether the lawyer’s actions fell below the standard of care.
Shaikh’s second claim was that the lawyer should have called the brother-in-law to testify at Shaikh’s criminal trial. In this instance, the court finds that the lawyer did nothing wrong; the brother-in-law’s testimony was eminently impeachable (he had told several different versions of the same events, and would have been mauled on cross-examination). And since his lawyer refused to allow him to be interviewed, there’s no telling what he would say if he got onto the witness stand. The court thus finds that the lawyer’s decision not to call the brother-in-law to testify was “a sound tactical decision. This is the functional equivalent of abuse-of-discretion analysis for review of trial court’s decisions – if the lawyer had a legitimate basis for deciding not to use the testimony, appellate judges are loath to second-guess that strategic call.
The denouement in the case is a finding that the habeas court acted within its proper discretion in declining to convene an evidentiary hearing. The record was ample for the court to evaluate the claims, and a statute provides that the court can simply review the record and decide the matter if that’s the case.
Anyone who has handled much municipal litigation – and I have, in my former life in the Virginia Beach City Attorney’s Office – has heard of Dillon’s Rule. In fact there’s even a special way to pronounce the phrase, with extra emphasis on the first syllable, and a foreboding tone of voice, as though invoking a dark deity. Judge Dillon, the story goes, was a mean old Virginia judge from the Nineteenth Century who set out to constrain the power of local governments, spurred on either by a hatred of certain local officials or a special kinship with rural legislators who wanted to keep all the political power for themselves.
Actually, the story, as recited above, is wrong. There really was a Judge Dillon, but he was from Iowa, not Virginia (and no; his first name was not Matt). And as far as I know, he may have been a great guy, not some judicial demon. But in 1868, he decided a case in which he held authoritatively that local governments only have those powers specifically granted by statute, those fairly inferable from the specifically granted powers, and those essential to their functioning. Courts across the land took to this doctrine, and it got named after its author.
Virginia emphatically subscribes to the Dillon Rule, and that’s the heart of today’s ruling in BZA v. Fairfax County. You may not have known it, but there’s a war raging up there in the State of Northern Virginia, and it isn’t pretty. The Fairfax County Board of Supervisors and its Board of Zoning Appeals frequently don’t see eye-to-eye; I recall posting analysis on at least three cases in which the two boards are on opposite sides. And remember, that’s just the ones on which the Supreme Court grants a writ; it doesn’t include litigation that never gets to the high court.
The war escalated in 2004 when the Board of Supervisors evidently rankled at the idea that it was paying the enemy’s lawyers. It accordingly sent a letter to the BZA telling it that the County would no longer pay for a lawyer to represent the BZA, other than in sharply limited situations. It later sent another letter, contending that the BZA didn’t have the right to hire its own lawyer, either. (If this is reminding you of the Grisham novel The Firm, then you and I are on the same track. The County is disabling its adversary by denying it the right to get an attorney.)
The BZA fought back in the only way it could conceive, by filing a declaratory judgment proceeding, seeking a ruling that the County had to provide the BZA with a lawyer. Instead of addressing the merits of the suit, the County filed a demurrer, claiming that the BZA didn’t even have the right to file a suit, including this one, since no such right is conferred by statute.
The trial court agreed and dismissed the suit. On appeal, the Supreme Court today affirms, noting that the application of an offshoot of the (let’s intone this together, ominously) Dillon Rule deprives the BZA of the right to file suit. The BZA had argued that hiring a lawyer is one of those powers that were essential to its functioning. But in the 1970’s, the Supreme Court had held that BZA’s get even fewer rights under the Dillon Rule than do local governments; they only get “those powers expressly conferred.” When you check that limitation against the statutory framework for BZA’s, you have to agree with the trial judge.
There is a subtext in today’s short opinion, authored by Senior Justice Lacy. The court never comes right out and says this, but this case cries out for legislative action. Hamstringing a litigant by depriving it of the right to be represented in court sounds a whole lot like unfair play, and this particular effect of the War of Northern Virginia seems patently unfair. The problem is, who will lobby the General Assembly for curative legislation? Remember, the local government just won this battle, and the BZA is answerable, under the statutes, to the local government. This theoretically could be the end of BZA litigation as we know it, if other localities follow suit and emasculate their own BZA’s.
In my view, the most interesting parts of this decision are the stories behind the story. The “intra-family” squabbles between a county governing body and one of its boards, and the devastating way in which the Board of Supervisors has won that war, are of significant political, if not jurisprudential, interest. As for the ruling itself, there’s no fussing with the analysis, in light of the by now well-established Dillon Rule.
The other local government case decided today is, in actuality, five separate appeals, all implicating a development plan crafted by the primary litigants. The consolidated decision is Loudoun County v. Town of Purcellville.
Today’s opinion is thirty pages long, and it takes fully half that, fifteen pages, to recite the facts and the procedural posture. Because I have traditionally eschewed a very long summary of the facts in these reports, I’ll summarize them VERY briefly, and invite you to click on the hyperlink above for the slip opinion to get the full story.
The case features several separate decisions on land use issues, all of which arise from a deal struck by the County and the Town back in 1994. The Town agreed to surrender the right to seek to become a city (which would make it independent of the County under Virginia’s unique local government setup). In exchange, the Town got the right to annex certain parts of an area in which both parties expected significant growth – hence its name, the Urban Growth Area. The parties agreed that they would share planning and zoning responsibilities for the Area, although the County’s say in things would be curtailed as portions of the area were annexed by the Town. The plan included designated areas for the placement of four future schools.
The eventual litigation started when, in 2006, the County sought to build a high school in the Area. That brought on all sorts of assertions and denials, back and forth, over whether the Town had any say in exactly where the school would be placed. Today’s ruling deals with several BZA appeals, but the overriding issue is a declaratory judgment action filed by the Town, asking the local circuit court to determine that it did, in fact, have a say in where the school got placed.
Here are the Supreme Court’s key rulings in the case:
1. Declaratory judgment is indeed an appropriate vehicle for the resolution of these disputes. There is unquestionably an assertion of a right, and an antagonistic denial of that right; in addition, this is not one of those questions that logically belongs in another type of litigation.
2. Judge Dillon strikes again; the court rules that the Town has no authority to weigh in on zoning issues involving land that is outside its territorial limits. (If the General Assembly had stepped in and blessed the agreement, then presumably this ruling would go the other way.) Once the Town annexes a portion of the Area, then it acquires the right to control that portion, but the existence of the agreement alone doesn’t confer that power. The Town can still participate in the process as an interested party, but it doesn’t have the power to decide the case.
3. The County’s proposed placement of the high school in a meaningfully different part of the Area than the general or approximate location shown on the original plan requires the issuance of a “commission permit” pursuant to the agreement. So the County still has to go through the permit process, although it will do so presumably with significantly less interference from the Town.
In a case that made major headlines in Richmond where it as tried, the Supreme Court reverses a $16 million judgment in favor of a Richmond grocer who had convinced a jury that a major supplier had defrauded him and driven him out of business. The opinion is SuperValu v. Johnson.
Johnson was the owner of several grocery stores in some areas in Richmond where other grocery stores dared not venture. According to his evidence, his success attracted the attention of a major supplier, Richfood (which later became SuperValu). Unfortunately, that attention would prove unwelcome; the grocer contended that the supplier then infiltrated his business with the intent of driving him away and then taking over the market. If that was the supplier’s intent, it succeeded; within a couple of years, Johnson was out of business and several stores owned by SuperValu were in the Richmond market areas he had served.
Johnson sued for actual and constructive fraud, plus intentional infliction of emotional distress. The jury found in SuperValu’s favor on the actual fraud claim, but in Johnson’s favor on the other two. It awarded him $500,000 on the emotional distress claim, and $15.5 million for constructive fraud.
Analytically, there’s a problem with that. Johnson’s evidence was that the fraud was perpetrated by means of promises made with no intention to perform them. Virginia law clearly permits a recovery for actual fraud in that event. But constructive fraud is based on unintentional misrepresentation. How do you unintentionally intend to do someone in?
Well, you can’t. But Johnson responded that it was SuperValu who had asked the trial court to instruct the jury on constructive fraud. A litigant cannot ask that a jury be instructed on a certain claim, and then (after losing the verdict on that claim) contend that the issue shouldn’t have gone to the jury. That’s called the law of the case doctrine.
The court resolved this dispute by analyzing the order in which certain jury instructions were given, and holding that the law of the case doctrine didn’t apply here. Those instructions did not permit the recovery of a constructive fraud verdict, the court holds today. Because few cases have identical patterns of instructions, this part of the opinion probably won’t have widespread application to other cases.
Not so for the emotional distress ruling. In that element of the case, the court takes up for the first time the question of whether conduct that primarily relates to a business can support an emotional distress recovery. Here’s the key language on this holding:
“This tort is directed at prohibiting conduct intended to cause personal, emotional damage to an individual, rather than conduct intended to cause economic damage to a business. . . . Although a person may be so closely associated with the operation of a business that economic damage may result in damage to the individual’s emotional state, the tort of intentional infliction of emotional distress does not encompass such personal consequences of business conduct.”
Justice Kinser dissents in part (joined by Justice Lemons). She would hold that the law of the case doctrine did, indeed, enable the jury to make a finding of constructive fraud based on the evidence adduced. The dissent would, however, limit the recoverable damages to those proved directly by the individual, some $327,000. This dissent, by the way, is the only one filed in this session; all of the other decisions handed down today are unanimous.
The other tort case decided today is much more of a media access question than a garden-variety tort claim. In Perreault v. The Free-Lance Star, the court takes up what looks for all the world like two incompatible statutes.
Today’s appeal deals with four separate wrongful death settlements in Spotsylvania County. The settlements were reached by the personal representatives of four decedents against the manufacturer of a medication used in open-heart surgery. The four cases settled after mediation, and the terms of each settlement included confidentiality, as authorized by Code §8.01-581.22.
The settling parties then went to the circuit court for the court approval that is required by Code §8.01-55 in all wrongful death settlements. Once there, they informed the judge that the amounts of the settlements were confidential, and hence not listed in any written pleadings. (Indeed, it appears that no pleadings at all may have been filed; the whole thing appears to have been done on oral motion.)
Who could fuss with this procedure? A couple of newspapers; that’s who. The Fredericksburg and Richmond papers wanted to cover the story, and they very much wanted to know how much the manufacturer had paid to get out of the suits. They cited a separate Code section, §17.1-208, which requires that all court records be open to the public. The trial judge decided to convene a hearing on all this, and he required the parties to file petitions under seal, listing the amount of each settlement.
At the conclusion of the hearing, the court ruled in favor of the newspapers, but he permitted the documents to remain under seal pending the plaintiffs’ appeal. And appeal they did; the personal reps and the manufacturer got a writ from the Supreme Court to decide which statute trumped the other.
This Supreme Court, my loyal readers know well, is vigilant in its protection of open government. For an example in a related area, just check all the recent FOIA cases, every one of which has gone in favor of the party seeking access to documents or meetings. In a close call, this court has always (at least in the last few years) told the governmental defendant to pony up the documents. The governmental entities have almost as long a losing streak in open government cases as poor ol’ Hamilton Burger had against Perry Mason back in the 1960’s.
Golly, I just spoiled any surprise about how this case comes out. The court affirms the trial court’s ruling, and directs the circuit court to unseal the documents. In doing so, it turns aside several arguments, on statutory and common law grounds, that had been urged in support of keeping the agreement confidential. Here are the court’s primary rulings in this case:
1. The wrongful death settlement statute requires the parties to a settlement to “petition” the circuit court for approval. That means they have to submit a writing, and can’t do it orally. (Note that this ruling will have significant impact in other fields of law, wherever a “petition” is required.)
2. The mandatory disclosure provision of §17.1-208 trumps the permissive-confidentiality provisions of the mediation statute (§8.01-581.22). The latter merely states that parties can, if they choose, incorporate confidentiality into their mediated settlements. But that doesn’t give settling parties the right to contractually overcome mandatory disclosure provisions in other statutes.
3. The court cites the familiar rule that a specific statutory provision prevails over a general one when the two can’t be reconciled. The mediation statute applies to settled claims generally, but §8.01-55 applies specifically to settlement of wrongful death claims. The court finds the latter provision to be narrower.
4. This case didn’t present a compelling need for nondisclosure. The settling parties offered a number of justifications for confidentiality, but each of them proves unequal to the “compelling” level of the task. The most intriguing of these was the manufacturer’s claim that it had negotiated confidentiality, and it would be deprived of the benefit of its bargain if disclosure were mandated. The court answers this by asking, “Who said you can contract away the public’s statutory right to know?” And of course there is no answer for that.
5. Finally, the court holds that neither side has breached its contractual duty of confidentiality; both sides complied with that obligation by asking the court to place the documents under seal, and they were only compelled by court order to disclose the amounts of the settlements.
Here’s a prediction I can make with confidence: If you don’t pay your insurance premiums, you soon will have no coverage. But in that event, just who is canceling (or in insurance-ese, “nonrenewing”) the policy – you, or the insurer? That question gets answered today in the Workers’ comp context in Travelers Property Casualty v. Ely.
This appeal involves two separate comp claims, consolidated in the Court of Appeals, each brought against Travelers. Two separate employers had Workers’ comp insurance policies, and each received a bill shortly before the renewal date, telling it to pay the premium, or the policy would expire. Each company neglected, failed, or refused to pay the premium. And each company had an employee get injured a couple of months after the anniversary date.
Ordinarily, that means no coverage; an insurer isn’t obligated to provide coverage if it isn’t paid a premium to do so. But there’s a quirk in the Workers’ comp law. Behold, from Code §65.2-804(B):
“No policy of [Workers’ comp] insurance . . . shall be cancelled or nonrenewed by the insurer issuing such policy . . . except on thirty days’ notice and the Workers’ Compensation Commission . . ..”
That means that an insurer can’t cancel a policy unless it notifies both the employer AND the Commission thirty days beforehand. Travelers didn’t provide thirty days’ notice to the Commission, and its only notice to the employers had been “pay this or coverage will expire”; the insurer didn’t follow it up afterward with a formal notice that coverage had terminated.
The Commission read that language and decided that Travelers had not effectively cut off coverage, so it was on the hook for both injuries. An equally divided en banc Court of Appeals effectively affirmed without opinion. That left it up to the Supreme Court, which fortunately agreed to take the case (those evenly-split CAV affirmances are always troubling).
The key language in the statute is “cancelled or nonrenewed by the insurer.” Travelers argued that this wasn’t a situation where the insurer had cancelled coverage; this was a situation where the employer (the insured) had cancelled coverage by electing not to pay the renewal premium. And today, the Supreme Court agrees; the court finds that to hold otherwise would render the words “or nonrenewed by the insurer” superfluous. The court then turns to “the settled rule in this Commonwealth that every provision in or part of a statute shall be given effect if possible,” and reverses. Travelers doesn’t have to give notice because it wasn’t the one who terminated the policy, so the employers are on their own when it comes to paying those employees’ medical bills.
What, did I just send you scurrying for the next section? Not into tax cases, are we? Well, I learned a long time ago that there’s a lot of money in tax litigation, and tax lawyers do pretty well for themselves. Today, we get three tax decisions, and thus the subset of well-off tax lawyers gets plenty to chew on. As for the rest of you, I’ll try to keep the prose interesting, so stick with me here.
The first case is Palace Laundry v. Chesterfield County. Palace rents linens to its customers; periodically, it picks up dirty linens and exchanges those for clean, neatly-folded ones. It then takes the soiled stuff back its plant and launders them, folds them, and gets them ready to deliver to the next customer.
Businesses in Chesterfield County, as elsewhere, have to pay business personal property taxes on their machinery and equipment. But certain businesses get a break in the tax rate; two of those are laundry businesses and processing businesses. Palace claimed to be both of those. The local tax commissioner disagreed with the first contention (evidently that’s for dry cleaners and laundromats), and didn’t address the second. Palace then appealed to the State Tax Commissioner, who agreed that Palace does, indeed, process things, so he gave the business the applicable tax break.
At this point, Palace is in the catbird’s seat. The finding of the Tax Commissioner is entitled to significant deference on judicial review. But that didn’t stop the circuit court, when the county filed a petition, from overturning the Commissioner’s decision and rejecting Palace’s tax break. Palace got a writ to review the decision, and today the Supreme Court affirms the circuit court.
The problem is this: The court has previously defined a processing business for tax purposes, and Palace ain’t one o’ those. Processing “requires that the product undergo a treatment rendering the product more marketable or useful.” The court considers that to be where raw materials are converted somehow. All these linens get is a thorough cleaning; that doesn’t make them more useful than when they were first purchased. What you’ve got here, the court rules, is a linen supply business; the cleaning part is merely ancillary to that. Accordingly, Palace gets to pay the full tax rate.
The next tax case is as much about corporate structure as it is about taxation. In Virginia Cellular LLC v. Department of Taxation, the court considers whether an LLC has to pay the minimum tax that is applied to telecommunications companies.
Many lawyers seldom wade into the jungle of Title 58.1, dealing with taxation, so they may not know about the minimum tax. Ordinary corporations have to pay taxes at a rate of 6% on taxable income, pursuant to §58.1-400. But telecommunications companies get special (probably unwanted) treatment in the next section, 58.1-400.1:
“A telecommunications company shall be subject to a minimum tax, instead of the corporate income tax imposed by §58.1-400 . . ..”
Virginia Cellular is a limited liability company, but it unquestionably is in the telecom business. The question in this appeal is whether that tax, imposed on all telecom companies, applies to LLC’s. The Department of Taxation, the Tax Commissioner, and the circuit court, each considering the provisions in turn, found that it did. The Supreme Court, which in the end gets more votes on this question, decides that it doesn’t.
The reason is disarmingly simple: The corporate tax and the telecom minimum tax are both contained within Article 10 of the tax code, which by its terms deals with corporations. Limited liability companies, as pass-through entities (that means that the taxable income from the company passes through the company, directly to the owners, who pay personal income tax on the money instead of having the company pay corporate taxes), aren’t subject to the general corporate tax in §58.1-400. And since the minimum tax is paid “instead of the corporate income tax,” it becomes clear that LLC’s don’t pay this alternate tax.
Do you sense a rush toward corporate reorganization, starting on Monday morning, for those telecom companies that aren’t LLC’s? Do you sense a legislative initiative in response, to slap a similar minimum tax on LLC’s? This is all part of the elaborate ritual of taxation and tax avoidance, for which ritual those legal tax jocks get paid so well.
Still with me? Good. The final tax case involves a challenge to the assessment of real estate. The decision is West Creek Associates v. Goochland County.
West Creek is actually 144 different LLC’s, all of which are 90% owned by a single entity; the other 10% is owned by a man named Armstrong. He saw a large tract of land in Goochland County that looked perfect for a business park development. He thereupon aranged to buy the property, but spread the acreage thus conveyed into his 144 different companies; the opinion explains that this was done in order to avoid getting hammered with long-term capital gains taxes down the road. The conveyances referred to a rough survey that divided the land up into 144 parcels, but did not include metes and bounds. In addition, the County did not formally approve a subdivision of the land.
The companies paid $34.1 million for the land, which was $5 million less than the land trust’s offering price. And then trouble arrived, in the form of the County’s quadrennial reassessment of land.
The property had previously been assessed by the County at $54.8 million, spread over 20 separate parcels. West Creek no doubt expected its new assessment to be somewhere between the old assessment and its purchase price. You can imagine the company’s astonishment when it got notice of the new assessments that had been fixed by the County — $105.4 million.
A hundred million bucks?! Holy guacamole! This calls for a petition to correct an erroneous real estate assessment.
Back in the 90’s, when I worked for the Virginia Beach City Attorney’s Office, I got to handle several significant tax assessment challenges under Code §58.1-3984. That provides that a taxpayer can challenge a property’s assessment by showing a lack of uniformity, or by showing that it’s assessed for more than fair market value. But the governing body is entitled to a presumption that the assessment is correct; this presumption is often the assessor’s best friend, since trial is often just a swearing contest between the assessor and an appraiser hired by the landowner.
There is a fundamental truth in land valuation, that, all other things being equal, a larger parcel of land will sell for less (on a per-acre basis) than a smaller parcel. The easiest explanation for that is that there are more potential buyers who can afford to buy small tracts; there are comparatively few people (or entities) who invest in huge chunks of land to develop. The reason for the huge difference here is that the County assessed the land as 144 separate small parcels, instead of one big one. In truth, it had to do so, despite the fact that there had never been a formal subdivision; remember that West Creek had the land conveyed into 144 separate owners, and the County has to give each one its own tax bill.
At the trial, West Creek presented evidence that the land was worth the $34.1 million that it had paid for it. To get a value for each parcel, it simply divided the acquisition cost among the several smaller tracts. It also sought to prove that the County’s three-step assessment process was flawed. (Step 1: Get a report from a hired appraiser. Step 2: Submit that report to a Board of Assessors, who then fixes the value of each parcel, guided – but not controlled – by the appraisal report. Step 3: Resolve any challenges to individual assessments through a separate Board of Equalization.)
West Creek called as witnesses the members of the County’s two boards, to explain how they arrived at their final figures (which differed somewhat from the hired appraiser’s report). Inexplicably, each of the witnesses shrugged when asked how the Board came up with a figure; they simply couldn’t remember.
This next part is rich – when West Creek rested, the County moved to strike, in part because the petitioner hadn’t proved that the County’s methodology was flawed. In fact, since none of the members of the two Boards could remember anything, the County argued, West Creek hadn’t proved that the methodology was flawed, because it hadn’t proved what that methodology was in the first place.
Please forgive my editorializing here, but this argument seems preposterous. If it were correct, then any taxing authority could win every legal challenge by the simple expedient of ensuring that all of its board members have similar lapses of memory once the trial date arrives. But the trial court bit for it, at least with regard to 40 of the parcels in which the Boards had significantly changed the figures listed in the initial appraisal report. The court granted a motion to strike on those 40 parcels. This ruling gets reversed today, as the Supreme Court holds that it is not essential to prove a flawed methodology in order to get relief; one can also get relief by showing that the property is assessed for more than its fair market value. The case is remanded with regard to those parcels for further proceedings.
But West Creek loses the rest of its challenges, based on that good ol’ presumption. While the two experts in the case presented sharp disagreement both on the method by which the values should be fixed, and on the ultimate values, the Supreme Court agrees with the trial court that the County’s final figure is supported by testimony that is not flatly incredible. And the trial judge made a specific factual finding that he found the County’s expert to be more persuasive, and – hint, hint – listed for the record several reasons why he felt that way. Credibility determinations are out of the Supreme Court’s bailiwick, so the judgment stands as to the great majority of the parcels. As for the other 40 parcels, the trial judge took evidence of their value (sort of a preemptive move in the event of a reversal), so he’ll probably be in a position to issue a further ruling without reconvening the evidentiary portion of the trial. And on the assumption that the methodology for those 40 parcels was the same as for the others, the county is likely to get a comlpete victory in the end.
When Virginia lawyers mention the state of frauds, the statute they’re probably thinking of is §11-2, which requires a signed writing to support enforcement of certain substantial contracts. Those deals generally involve things like the conveyance of land, loans of more than $25,000, or agreements not to be performed within a year – as I said, substantial things.
But there’s another statute of frauds in the Code, buried in the forbidding realm of the UCC. It’s §8.2-201. And this one can affect very small deals, as we see in Delta Star, Inc. v. Michael’s Carpet World.
I was an Economics major in college, so I’m familiar with the concept of “bracket creep,” usually in the field of taxation. That’s where the government sets a tax rate for those people earning at least $X a year. But it never gets adjusted for inflation, so as time passes, more and more taxpayers find themselves paying a higher tax, even if their income stays the same in inflation-adjusted terms.
There’s a sort of reverse bracket creep that applies in other contexts, too. For example, the State Tort Claims Act has a ceiling of $100,000 for any tort claim against the Commonwealth. But that rate was set in 1993, and hasn’t been raised in the intervening 15 years. Effectively, this trims the Commonwealth’s potential liability in any given case by the inflation rate every year; $100,000 in 2008 dollars is the equivalent of only about $65,700 back then. You can try it yourself here, using the government’s inflation calculator.
The UCC’s statute of frauds applies to contracts for just $500 or more. But that figure was set in 1964, when Virginia adopted the UCC, and has never been changed. If you do the same calculation, you see that $500 in today’s currency is worth about seventy bucks in 1964 dollars. (If the threshold had been adjusted for inflation, then this statute would only kick in for contracts exceeding about $3,500 today.) What all this means is that this statute of frauds now covers far more deals than it would have, back when Lyndon Johnson rested his cowboy boots on the big desk in the Oval Office.
Michael’s Carpet World sued Delta Star for the princely sum of $2,565.58, for goods ordered but not paid for. Michael’s sold flooring, and Delta Star wanted new flooring in its offices. The parties initially agreed on flooring for the office foyer, and Delta Star received and paid for that. But a dispute arose over whether Delta Star had also ordered floor tiles for two interior offices. Delta Star refused to pay, and Michael’s, which had ordered the tiles from a manufacturer, sued for the cost of the goods.
Delta Star raised the UCC’s statute of frauds as a defense. Michael’s lawyer looked at it and probably scratched his head; this wasn’t the kind of defense he had in mind. But he found solace in subparagraph (3) of the Code section, which exempts certain deals from the statute’s requirements. He promptly raised those, and the trial court bit, awarding judgment in favor of Michael’s. Delta Star appealed, and the Supreme Court granted a writ.
One thing that’s particularly noteworthy about this grant of a writ is the amount in controversy. Many lawyers mistakenly think that the Supreme Court doesn’t take cases that involve small amounts of money. This case proves otherwise; the Supreme Court is a court of error correction, and it will accept an appeal regardless of the amount, as long as it perceives a possible error. Well, almost regardless of the amount. One monetary requirement is imposed by statute: The Supreme Court can’t take an appeal from a monetary judgment that’s less than $500. (The small devil within me can’t resist; I ran that figure, which was set in 1977, through the same inflation calculator, and came up with a figure of $137.75, in 1977 dollars, for the Supreme Court’s minimum jurisdiction today.)
The appellate lesson in all this is that you should not be dissuaded from pursuing a meritorious appeal because you think the court won’t take the case because of its size. It’s definitely true that the court pays more attention to very large judgments, because of their great importance to the parties. But the reverse is not true; a small appeal is not the kiss of death for an appellant. Of course, the appellant still has to think about the cost, in terms of legal fees, for pursuing such an appeal; it is overwhelmingly likely that Delta Star paid more in attorney’s fees to litigate this appeal than it would have by simply paying the judgment. But as a guy who makes his living by handling appeals, who am I to complain about a decision like that?
The Supreme Court eventually reverses this judgment, finding that none of the subsection (3) exceptions applies to this contract. The goods weren’t specially manufactured for this job; they were merely ordered from the supplier, and could well have been used for other customers. And this wasn’t a contract that had been partially performed (by paying for the flooring in the foyer), since the statutes make it binding only as to that part that was actually paid for. That means that the deal for the foyer floor won’t cover (sorry; if you read this site faithfully, you know to expect bad puns) the rest of the deal.
Perhaps the most important feature of this case is its illustration of the effect of bracket creep, not only on the UCC’s statute of frauds threshold, but also on the jurisdictional minimum for Supreme Court appeals. Both of these now-outdated figures should be updated to reflect today’s prices, and reviewed from time to time to ensure they aren’t as out-of-date as these are. As for the Tort Claims Act, well, don’t get me started . . .
We get a clear walk-through of the process of contractual interpretation in Pocahontas Mining LLC v. CNX Gas, which centers on a lease of natural gas rights on a large tract in western Virginia. Pocahontas Mining owns the land, comprising 20,000 acres, and leased it in 1998 to permit extraction of natural gas. The lease proclaimed at its onset that exclusive rights were being conveyed.
The “guts” of the conveyance, further down the contract, gives the lessee the exclusive right to the natural gas on the site. It also grants other ancillary rights (notably leaving out the word exclusively), such as the right to build a pipeline to carry the extricated gas offsite for distribution. The landlord reserved unto itself the right to make all other uses of the land, as long as those uses didn’t interfere with the rights granted to the lessee.
Eight years later, the landlord executed another lease with a separate lessee, giving that company the right to build gas pipelines across the property, presumably to facilitate transportation of gas extracted from another site. When the second lessee began to build its pipeline, the original lessee put up a fence and told everyone else to “stay off my land.” That led straight to circuit court, where each party asked the court to interpret the original lease.
The issue is whether the first lessee’s rights to construct pipelines are exclusive or not. It says right in the beginning that that lessee is getting exclusive rights. But then, in the granting clause, the contract says the lessee gets exclusive rights to drill, but simply the right (no exclusivity mentioned) to build pipelines. The trial court sided with the original lessee, and held that the landlord didn’t have the right to convey any pipeline rights to a second lessee.
The Supreme Court reviews this issue de novo – if you’re an appellant, you always want de novo review if you can get it – since this is a pure-law question of contract interpretation. After doing so, it concludes that the contract is not ambiguous, so it’s interpreted according to its plain terms, with no extraneous evidence of the parties’ intention allowed. On that basis, the court reverses the trial court’s finding, ruling that the original lease conveyed exclusive mining rights but nonexclusive pipeline rights. If, as the original lessee contended, all of the rights were exclusive, then there would be no reason for the parties to have included the word exclusive in the granting clause; the use of the word in the introductory clause would have been sufficient. Instead, the court finds that the lease gave the original lessee certain rights that were exclusive, and other rights that were nonexclusive. Since building a pipeline is among the latter rights, it was perfectly permissible for the landlord to allow a second company to build its own pipeline – as long as that doesn’t interfere with the original lessee’s operations.
As long as we’re in the mountains, let’s stay there for the next case; Nextel WIP Lease Corp. v. Saunders is a lease of a BedfordCounty mountaintop for a use for which it’s ideally suited: A cellular communications tower.
In 2004, the owners of the mountain agreed to lease some space at the top to Nextel so the telecom company could use it as the base for a cell tower. In three separate paragraphs, the lease described what was being conveyed and what uses Nextel could make of the land. Nextel built a tower, and all was right with the world. But in 2006, the company sought permission from the County to build a second tower. The owners protested, saying that Nextel could only build one tower, not two, and the matter quickly ended up in court on reciprocal summary judgment motions. (That’s appropriate, since contract interpretation is usually a matter of pure law.)
Let’s see what those three paragraphs say. Paragraph 10 talks about “the construction and maintenance of towers,” and #14 uses the same phrase. So far, it’s looking pretty good for Nextel. But paragraph 17 says this:
“17. Improvements; Utilities; Access. (a) Lessee shall have the right, at Lessee’s sole cost and expense, to erect and maintain on the Premises improvements, personal property and facilities, including without limitation, one (1) tower, . . .”
This is what we in the legal profession call “trouble.” The contract says both that Nextel gets to build “towers,” obviously plural, and “one (1) tower,” unambiguously singular. Since there is no way to harmonize these provisions, the courts turn to parol evidence to see what the real intent of the parties was when the deal was struck. Since Nextel lost in the trial court, the owners of the mountain get the benefit of a favorable view of the evidence on appeal.
At this point, trust me; it’s over. The trial court heard testimony from one of the owners to the effect that Nextel’s original draft of the deal contained, in paragraph 17, the word towers, and that the owners had struck out the “s” and added the “one (1)” to indicate that they would only agree to a single-tower deal. That language was subsequently incorporated into the final draft, prepared by Nextel, and signed by the parties. For my money, that’s all the owners need to win; there is plausible evidence to support the trial court’s factual finding that the parties agreed upon one tower. But the Supreme Court goes further today, citing other evidence in the record that leads to the same conclusion. The result of this is that Nextel comes out of it looking, well, . . . less than square in its dealings with the owners, having agreed to a one-tower deal and then trying to slip a second tower on the mountaintop anyway. The Supreme Court doesn’t see things Nextel’s way, so the ruling is affirmed.
There’s one very important preservation issue in today’s opinion, and trial practitioners in all fields should know about it. After the circuit court’s ruling, the Supreme Court decided Scott v. Walker, 274 Va. 209 (2007), in which it laid down a rule of construction that Nextel thought looked pretty good; that holding says that if a given provision in a lease is ambiguous, is should be construed against the landlord and in favor of the tenant. Nextel hadn’t argued in the trial court that paragraph 17 was ambiguous, but it added such a contention at the appellate level in the wake of the Scott decision.
The problem (and the preservation paradox) is that you can’t do that; even when a given legal doctrine is “born” after the date of the trial court proceedings, you can’t rely on that on appeal if you didn’t assert that argument at trial. This very conundrum served to deprive convicted sniper John Muhammad of a potentially winning argument in his 2005 appeal. After his 2003 conviction in the trial court, the US Supreme Court decided Crawford v. Washington, 541 US 36 (2004), in which it ruled that the use of testimonial hearsay exceptions against criminal defendants was unconstitutional. Muhammad’s lawyers snapped up this new issue and added it to their list of assignments of error. But the Supreme Court of Virginia refused to consider the argument, since it hadn’t been raised in the trial court.
This doctrine imposes upon trial lawyers the punishing duty of anticipating future changes in the law when making trial objections. The same requirement hamstrings Nextel here. Even though this doctrine didn’t exist at the time of trial court objections, the lawyers still had to comply with the contemporaneous objection rule by raising it. Unfortunately, Nextel’s lawyer, when challenged in oral argument in Richmond to cite where in the record the argument had been raised, cited three such places. But when the justices checked those spots in the record, they found no such argument. That mistake may well cost that lawyer in terms of his credibility with the court, the next time he appears to argue an appeal.
There’s an important decision today in the field of foster care placements. The case is DSS v. Cook. After determining that a 17-month-old girl was in danger at her home, the Lynchburg DSS took the child onto protective custody and filed a request for an emergency removal order, which was granted. There followed three separate petitions for custody of the girl – one each by the parents, and one by the child’s paternal grandparents.
Note that these are separate proceedings – one for emergency removal and placement in foster care, filed by DSS, and three seeking child custody. The two types of proceedings are governed by differing rules relating to how the trial court is supposed to adjudicate where the child will go. Custody proceedings involve a simple best-interests-of-the-child decision, while the removal and foster care action requires a detailed set of factual findings about certain circumstances relating to the child’s welfare, the foster home, and so forth. The statutes require that the trial court make specific findings in that instance, and that it include those findings in the order.
Faced with two separate proceedings, the trial court decided that it didn’t need to adjudicate them separately; it decided to grant the grandparents’ custody petition, based on the child’s best interests. The order recited that, and the court’s finding that the child no longer needed social services, but it didn’t say anything about the foster care requirements.
The Court of Appeals, deciding the case en banc, affirmed this ruling, holding that the custody statutes were sufficiently broad so as to obviate any requirement to comply with the foster care laws. It held, in the language of today’s order, that the best interests determination “supersedes and replaces the findings required under the foster care statutes when a . . . custody petition is before the court.”
The en banc ruling was not unanimous; Judge Humphreys wrote a dissent in which he contended that the foster care findings were required any time a child had been placed in foster care, even if the ultimate ruling is in an ordinary custody proceeding. Today, Judge Humphreys’s view is vindicated, as the Supreme Court unanimously reverses. The court holds that the foster care provisions are significantly narrower than the general custody language, and under familiar rules of construction, specific language in one statute trumps general language in another. The court’s ultimate ruling in the case sets the standard for this special set of circumstances:
“Once a child has become subject to proceedings under the foster care statutes, a court may not transfer custody without the specific, written factual findings required by the foster care statutes. This statutory mandate holds true whether the custody order is entered upon a petition for custody, a petition for a foster care review hearing, or a petition for a permanency planning hearing. An award of custody without such findings, as in the case at bar, is error as a matter of law.”
In light of this holding, the case will be remanded all the way back to the trial court, so that court can make the required factual determinations and insert them into a final order. In the meantime, the court decrees today, interim custody will remain with the grandparents.
There’s one other aspect of today’s ruling, and that deals with the grandparents’ petition for an award of attorney’s fees. The statute provides that the Court of Appeals can award fees as it may deem appropriate, “based on the relative financial ability of the parties.” The CAV had denied the request for fees because, it found, the DSS had taken a reasonable position addressing “appropriate and substantial issues.” Capping what has to be regarded as a terrible day for the Court of Appeals, the Supreme Court reverses even this holding, noting that the reasonableness of a litigant’ position on appeal isn’t the statutory basis for a fee award. It remands for the CAV to reconsider the fee request under the correct legal standard.