ANALYSIS OF APRIL 2, 2020 SUPREME COURT OPINION
(Posted April 2, 2020) The Supreme Court of Virginia hands down a significant decision today in the context of foreclosure. The decision is Young-Allen v. Bank of America.
This appeal arises from a residential mortgage loan. The borrower fell in arrears; the bank appointed a substitute trustee who sent out the usual foreclosure notice.
A day later, the borrower wrote to the bank, asking for a reinstatement figure – that is, how much she had to pay to restore herself to the bank’s good graces. Her pleading asserted that the bank ignored her, and that she then told the substitute trustee that the bank had breached the terms of the loan by doing so.
A day before the scheduled foreclosure sale, she filed a declaratory-judgment suit – alleging breach of contract and seeking rescission of any future sale – and recorded a lis pendens memorandum. But the trustee conducted the sale anyway, knocking down the property to an investment company that saw equity in the property.
The bank then demurred to the suit, arguing that the complaint failed to allege that the borrower was damaged. The circuit court sustained that demurrer and allowed an amendment.
The borrower did amend, abandoning her original claims and seeking equitable rescission. The new pleading added a claim of breach of fiduciary duty against the substitute trustee, arguing that that entity had a duty to hold off foreclosing once it received word of a possible breach of contract by the bank.
This time both defendants demurred; the circuit court sustained those and dismissed the suit with prejudice. The Supreme Court granted a writ to review the matter.
The court today unanimously affirms. The ruling really comes down to a single holding: A borrower in this situation must affirmatively allege in her suit that she had the capacity to reinstate the loan. That is, she must allege that she had the funds – or at least the ability to raise the funds – to bring the loan current. If she doesn’t do that, she has failed to plead that she was damaged by the bank’s and trustee’s actions. Because this borrower didn’t assert that, the trial court was correct to dismiss the claims.
This, then, is a decision about pleading (as is so often the case with appeals of demurrer rulings). Today’s opinion continues what I see as a trend in the Supreme Court toward an ever narrower application of the notice-pleading rules that apply here in Virginia. Courts evaluating a demurrer must accept the facts as the plaintiff pleaded them. Traditionally, they must also accord plaintiffs the benefit of all reasonable inferences from those facts.
An expansive view of this process would likely conclude that the borrower’s pleading here would permit the reasonable inference that the actions she assails deprived her preemptively of a well-recognized property right: the equity of redemption. That’s the right of a borrower who’s in default “to recover property before a foreclosure sale by paying the principal, interest, and other costs that are due.” Black’s Law Dictionary (10th ed. 2014) at 657. Deprivation of a recognized property right ought to be cognizable, assuming you view the reasonable-inference process expansively.
Instead, the Supreme Court today adopts a narrow reading of the notice-pleading requirements. It holds that even invoking a recognized property right, the borrower must plead and eventually prove that she would have been able to raise the money to reinstate the loan, if only the bank had answered her e-mail with a reinstatement figure.
In this sense, this dirt-law opinion will cast ripples that spread far beyond the foreclosure-law pool. In my opinion, the reasonable-inference rule is in hospice care in Virginia. To be safe, careful pleaders must set out each element expressly, or risk a court’s declining to draw what the pleader might think is a reasonable inference.
Finally, lest you perceive that I’m rooting for the borrower here, please know that I’m well aware that many borrowers assert gotcha defenses in foreclosure litigation, thereby enabling them to remain for months or years in properties without paying their mortgages. I won’t defend that practice; you need to pay for what you want to keep, in the sense of making agreed mortgage payments.
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The court also hands down a published order in a criminal appeal, McQuinn v. Commonwealth. There, a jury acquitted McQuinn of abduction and robbery, but convicted him on companion firearms charges. He argued unsuccessfully that the verdicts were inconsistent in the trial court and in the Court of Appeals.
Today the Supreme Court makes it unanimous. In doing so, the court sticks with prior rulings that prohibit looking behind the jury’s verdict to see whether that jury simply cut the defendant a break. The evidence in the case, as recited in today’s opinion, was certainly sufficient to convict McQuinn had the jury decided to do so. In such situations, an inconsistent verdict stands.
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Finally, I’ll add a personal note. Today is an important day in the Emmert household: It’s the 108th anniversary of the birth of my paternal grandfather, Stan Emmert. He was an architect and engineer, two professions that I esteem highly.
Back in the day, members of three professions could be distinguished by the fact that they wore bow ties. The three were architecture, medicine, and law. My grandfather always wore bow ties, and in his honor, I’m wearing one today in lieu of my normal necktie. (Yes, I’m aware of the Governor’s current order within his administration to eschew neckties for the duration of the pandemic.)
I still possess the last letter I ever received from my grandfather, written a few months before his death in early 1987. I was a young lawyer then, still in my 20s. He offered this advice, which I reread this morning: “We [he and my grandmother] want you to be totally in command of yourself. We want you to be all that you want to be, as we know your sights are high. Success is not measured in dollars and cents; but rather, in happiness, self-dignity, pride, and accomplishment.” This is the manner of man from whom I am descended; this is the man I’m trying to live up to.
I’m sort-of named for my grandfather. He was Lorenzo Stanley Emmert. Before I was born, he learned that my parents were thinking of naming me after him, assuming I turned out to be a boy. (This was long before amniocenteses could identify a child’s gender months before birth.) He responded, “For God’s sake, don’t name him Lorenzo!”
My parents heeded this plea and Anglicized my first name to Lawrence. As for my middle name, well … my mother idolized the multitalented entertainer Steve Allen. So I’m named for my grandfather and a comedian. Explains some things, doesn’t it?