THE STORY BEHIND THE STORY OF
ENVIRONMENT SPECIALIST v. WELLS FARGO
[Posted March 28, 2016] Last month, the Supreme Court of Virginia handed down 14 opinions and orders all at once, on what turned out to be Justice Roush’s last day on that bench. One of those decisions was Environment Specialist, Inc. v. Wells Fargo Bank Northwest, an appeal of a $1,200 sanction order. A unanimous court reversed the imposition of sanctions against a lawyer who had declined to agree to extend his opponent’s deadline to file an answer in a mechanics’ lien suit.
When the opinion came down, I analyzed it in the usual way, noting that it focused on the difference between ethics and professionalism. The trial judge had sanctioned the lawyer for what amounted, at most, to behavior that could be classified as unprofessional – though there’s real doubt about even that, since the lawyer received express instructions from his client not to consent. (Really, what are you supposed to do when the client says, “Hell, no!”? Disobey him and risk a Bar complaint?)
I will admit to you, my loyal readers, that I wrote only half of the story on February 12. I had seen the petition for appeal and the brief in opp, and thereby learned plenty about the underlying issues – especially the procedural posture of the appeal. That background convinced me that this appeal was destined for the appellate morgue. I was very surprised when the justices decided the appeal on the merits instead of dismissing it for one of several procedural defects.
But after getting some advice from a professional journalist, I deliberately withheld what I thought was the major news story of the case. That’s because I don’t want to meddle in somebody else’s active appeal, and if I had written back then what you’re about to read here, it could foreseeably have spurred a petition for rehearing. Now that the court has issued the mandate, the appeal is truly over, so I can write more freely.
The first thing I’ll note is a surprising aspect of the case, for which I can conceive only one likely explanation. Note the amount of the award: twelve hundred dollars. That kind of money might buy you a 45-minute lunch with a K Street lawyer, or an extended, leisurely lunch with me if you insist that I bill you by the hour. (To my knowledge, $1,000+ hourly rates have not arrived here in Tidewater. I doubt I’ll be the first to cross that daunting line. And no, I don’t bill for going to lunch.)
Twelve hundred bucks. That’s all that was at stake in this appeal. And yet, Wells Fargo’s lawyer filed a brief in opposition to the petition for appeal; after the writ arrived, she filed a brief of appellee, prepared a speech, drove to Richmond, and participated in oral argument. That’s a lot of attorney hours in an effort to protect a $1,200 award. Most appellees in this situation would decline to spend tens of thousands of dollars in order to hold on to twelve Benjamins. It may be a fair inference that the lawyer didn’t bill Wells Fargo for that time; the stockholders might want to know why the bank would spend a dollar to collect a dime.
Accordingly, I don’t think this appeal was about money. Theoretically it could be about principle – a word that makes me wary whenever someone tells me he wants to hire me – but my suspicion is that it was more about vengeance, triggered by resentment that the plaintiff’s lawyer had declined to extend a simple courtesy. Perhaps the lawyer was trying to establish a precedent that plaintiffs’ lawyers should be susceptible to punishment if they refused to agree in situations like this. I’ll probably never know for sure if my suspicion is correct.
On to the more important issues. As I saw it, there were three fatal flaws in this appeal, any one of which should have been sufficient to dunk it. In one sense, I’m glad that the justices overlooked this, as I wholeheartedly agree that it was inappropriate for the trial judge to have sanctioned this lawyer; this sanction order had to die. But for those of us who handle appeals for a living, these three flaws will come as breathtaking surprises.
One of the problems came out on page 3 of the published opinion, and I mentioned it last month: there was no record of the sanction hearing. There was no court reporter, and while the appealing lawyer prepared a Rule 5:11(e) written statement, the judge never acted on it. That means there’s no explanation in the record for why the judge did what he did; there’s no statement of what factors he considered, no expression of his reasons for imposing the sanctions.
Normally that’s fatal to an appeal unless a transcript is unneeded – an appeal of a sustained demurrer comes immediately to mind as an example of that rare kind of case. But the justices determined that the sanction order itself was enough for them to decide the merits of the appeal. The order states that the lawyer was being sanctioned for his “failure to voluntarily extend the time in which Wells Fargo might file its answer.” In all, I can see why the justices looked past this issue, but read on for my advice on this factor.
The second ordinarily fatal flaw didn’t find its way into the opinion, but it’s spelled out in the petition for appeal and the appellant himself mentioned it during oral argument. After the court imposed the sanction, the lawyer paid the $1,200 under protest and proceeded with the appeal.
So why is that a problem? Because the justices have expressly held that the voluntary payment of a judgment “deprives the payor of the right of appeal.” Citizens Bank & Trust Corp. v. Crewe Factory Sales Corp., 254 Va. 355, 355 (1997). You get a pass if you’re facing involuntary collection procedures, such as an execution on a money judgment, or a show-cause hearing for failure to pay a sanction like this. In that instance, you can pay it and still appeal. That’s Carlucci v. Duck’s Real Estate, Inc., 220 Va. 164, 166 (1979). But there’s nothing in the petition for appeal to indicate that this lawyer was facing a contempt hearing when he paid up; this looks to have been just a voluntary payment.
Now, perhaps there’s something that I’m just not aware of, since I didn’t review the entire record. Maybe Wells Fargo did file a show-cause motion, and nobody happened to mention it, either in writing or orally. I’ve checked the trial court’s case-information page for this litigation, and I don’t see any such motion listed, so I doubt I’m wrong. In any event, on its face, I would not have expected the justices to reach the merits of this question after the lawyer made the appeal moot.
That brings us to the last fatal problem, and I don’t see how we get past this one. The petition for appeal listed the only appellant as Environment Specialist, Incorporated. It did so twice: once on the cover and again in the mandatory Rule 5:17(i)(1) certificate. But Environment Specialist didn’t get sanctioned; its lawyer did. And he didn’t list himself as an appellant.
That means two things. First, the named appellant – the client – was not aggrieved by the sanction order, so it had no standing to appeal under Code §8.01-670. That, in turn, means the Supreme Court didn’t have jurisdiction over the case. Second, you cannot proceed with an appeal unless all necessary parties are before the court; that’s the Asch v. Friends of Mt. Vernon Yacht Club case from 1996 (251 Va. 89). Beyond question, the lawyer fits the definition in Asch of a necessary party:
Where an individual is in the actual enjoyment of the subject matter, or has an interest in it, either in possession or expectancy, which is likely either to be defeated or diminished by the plaintiff’s claim, in such case he has an immediate interest in resisting the demand, and all persons who have such immediate interests are necessary parties to the suit.
251 Va. at 90-91. The court went on to say that an appeal “must be dismissed” in the absence of a necessary party.
In the past, when the Supreme Court has taken up appeals of sanctions against lawyers, the lawyer has always been named as an appellant. The cases are legion: McNally v. Rey, Shebelskie v. Brown, the PETA cases (involving a lawyer named Petrosinelli and the Williams & Connolly law firm), Flora v. Shulmister, Nedrich v. Jones. Even Northern Virginia Real Estate v. Martins, the eye-catching $270,000 sanction from a few years back, had a companion appeal, decided in the same opinion, in which the lawyer named himself as an appellant. The same thing happened in 2013 when an even more astonishing sanction (almost $900,000) against a lawyer found its way to Ninth and Franklin; again, the lawyer was a named appellant in the case. If the lawyer is aggrieved by being sanctioned, he has to name himself as an appellant. Otherwise, the court won’t help him – at least in normal circumstances.
So does this mean that in the future, you can bring appeals without a transcript or written statement, after prepaying the judgment, and without naming the real party in interest? Don’t try this at home, folks; I strongly suspect that these issues fell by the wayside here for one overwhelming reason, for the wording of which I will borrow from FedEx: this sanction was so improper, it absolutely, positively had to be reversed.