ANALYSIS OF JULY 20, 2023 SUPREME COURT OPINION

(Posted July 21, 2023) Are you one of those highly organized people who have an “inbox zero” policy for your e-mail accounts? Me, neither. But some people do, and a part of me admires that discipline. Yesterday, the Supreme Court of Virginia continued its efforts in this direction, reducing the number of argued but undecided merits cases on its docket to three by issuing a published opinion in Monroe v. Monroe, a case from Stafford County.

The problem with being married to your business partner is that if the marriage goes south, you’ve got corporate problems, too. This appeal involves a close corporation owned by a husband and wife. The wife owned 51% of the company, possibly to take advantage of incentives for companies with majority female ownership. The husband’s consolation was that he was the sole director.

The husband sued for divorce five years ago. Along with that proceeding, he filed an action putatively in the name of the company against his wife, claiming that she engaged in self-dealing. The next year, he resigned as director “and then sought to convert the action … to a shareholder-derivative action pursuant to Code § 13.1-672.1,” relying on his 49% stock ownership. The circuit court was happy to oblige, making the husband a plaintiff in the case.

The trial didn’t go as well for the husband. The court found that he hadn’t filed the suit for the benefit of the company, but to advance his own interests. Reading between the lines here, I suspect that timing may have played a part in this ruling, considering that the corporate suit hit the clerk’s office a week after the divorce action.

The court granted the wife’s motion to strike. Justice Kelsey’s opinion for a unanimous Supreme Court explains what happened next:

“That will conclude this matter,” the court remarked after its ruling, “unless either of you has something else I need to address.” [The wife’s] counsel then requested “leave to file for post-judgment sanctions.” Acknowledging that the trial court “remains in jurisdiction over this matter for 21 days after it rules,” counsel stated, “I think we can get in here before then.” The trial court told [the wife’s] counsel to “file whatever motion you need.”“I’m not saying I’m going to grant it,” the trial court clarified, “I’m not saying I’ll even grant a hearing on it, but we’ll address it that way.”

If you’ve been reading this website for a few years, you can probably guess what train wreck is about to occur.

The trial judge entered an order, duly prepared by the wife’s lawyer, that entered final judgment in favor of the wife. That order added that the wife was “free to file post judgement [sic] motions for sanctions against [the husband]. Any such motion filed is to be set at the discretion of the Court.” The wife filed such a motion six days later — plenty early enough, right? — and the court heard argument on that motion three months later, eventually entering an order slapping $70K worth of sanctions on the husband.

Experienced appellate lawyers have averted their eyes by now, knowing that a sanction order entered months after final judgment is hopelessly late. The husband figured it was, too, so he perfected an appeal. Yesterday, the justices agree with the appellant’s learned counsel that the trial court lost jurisdiction 21 days after final judgment, so they vacate the sanction award.

Before reaching this conclusion, the court has to untangle a knotty procedural issue: Who’s the right appellant? The husband noted and pursued the appeal in his own name, not on behalf of the company. The wife insisted that he was the wrong appellant. The opinion holds that he was indeed the proper party to pursue the appeal, regardless of the original posture of the lawsuit.

Justice Kelsey’s analysis is, as usual, meticulous, but the Reader’s Digest version of the holding is that the person or entity who gets sanctioned plainly has the right to appeal. The belated sanction order didn’t impose sanctions upon the company. That means that it wouldn’t have standing to appeal a sanction order against the husband. And the fact that this is a shareholder-derivative action means that one of the husband’s objects in filing suit was to seek a ruling that he fairly represents the company’s interests. Until he got that ruling, the husband himself was the plaintiff, so he’s the right party to appeal.

My sense is that this opinion is published only because of the standing-to-appeal ruling. Opinions invoking the merciless 21-day rule are legion, but this is the first holding of which I’m aware that spells out why an unsuccessful individual suitor can have standing to appeal in his own name.