ANALYSIS OF JUNE 24, 2021 SUPREME COURT OPINION

(Posted June 24, 2021) The Supreme Court of Virginia clears out the oldest undecided appeals on its docket by handing down a consolidated opinion styled Grayson v. Westwood Buildings, LP. It’s a debtor-creditor dispute on steroids, and arises in Fairfax.

The facts of this case are uncommonly complex. Justice Kelsey’s meticulous opinion takes ten pages to describe the facts and another 4½ to lay out the procedural posture. He notes that the trial record runs to almost 6,000 pages. The opinion of the court is a full 46 pages long.

With a case like this, if I were to describe the facts in detail, I’d lose half of you before getting to any of the holdings. The Reader’s Digest version of the case is that it’s a claim by a landlord that one of its tenants, a law firm, had made several voluntary and fraudulent conveyances that deprived the landlord of the opportunity to collect six figures in rent. The trial court agreed and entered personal judgments against several defendants, including the two lawyers in the firm, some entities associated with one of them, and even the firm’s bookkeeper.

I’ll summarize the significant holdings here, safe in the knowledge that if you really want the Encyclopedia Britannica version of the case, the slip opinion is just a mouse click away.

The Supreme Court begins its rulings by observing that the fraudulent and voluntary conveyance statutes specify a particular remedy, and it isn’t a money judgment against those persons or entities who received the property or money. That remedy is a declaration that the transfer shall be void. That remedy legally puts the transferred goods or money back into the debtor’s possession so priority creditors can execute on it.

Justice Kelsey observes that courts have “supplemented these statutory remedies” by allowing, in certain circumstances, “an in personam judgment directly against the transferee of an unlawful conveyance.” Today’s opinion states that “truly exceptional circumstances” are necessary to justify such a remedy.

The court then goes on to indicate that, under well-established law, there’s no prohibition against a debtor’s preferring one creditor over others, even when the debtor is insolvent. This factor unravels most of the circuit court’s judgment, because a creditor without a perfected lien can’t insist on a priority or even pro rata payment. The debtor can even make a payment to a company insider – a form of self-dealing – as long as the payee’s claim is valid. (I hasten to add that this isn’t a bankruptcy case, where a trustee can void certain transfers that prefer one or more creditors over others.)

There’s an interesting holding about the burden of proof and the standard for reviewing that burden. Last month, in White v. Llewellyn, the court specified that when a plaintiff in a fraudulent-conveyance case establishes certain badges of fraud, the burden of persuasion in the case shifts to the defendant, and stays there for the duration of the case.

The parties tried this case in 2018 or 2019, long before White v. Llewellyn came down. Both parties and the circuit court assumed that the shifted burden was of the “bursting bubble” variety, so the ultimate burden remained on the landlord to prove that the transfers were improper.

White v. Llewellyn was a decision of first impression, so you can’t fault the parties and the trial judge for getting this wrong. Importantly, the Supreme Court today goes ahead and decides the appeal under what we now know to be the wrong burden. Here’s Justice Kelsey’s explanation of that decision:

We will not ex post facto change on appeal the burden of proof applied in a civil case when no party asks us to do so and when the trial court adopted it as the governing standard with both parties’ apparent agreement. This situation is the bench-trial equivalent of a civil case tried to a jury on burden-of-proof jury instructions that the successful party does not challenge on appeal.

At the end of the opinion, the court takes up each of the five challenged transfers and finds that none was improper. The court accordingly reverses and enters final judgment in favor of the defendants.

I noted at the outset that these consolidated appeals were the oldest undecided cases on the Supreme Court’s docket. The SCV Clerk got the record in the case in October 2019; a panel granted the petitions for appeal last June (one year ago yesterday), and the lawyers argued the merits to the full court on November 5, 2020. The 7½ month span between oral argument and decision is the longest I’ve ever seen since I started covering the court in 2005. In most instances, the likeliest explanation for a significant delay is that someone is polishing a dissent. Not so today; this ruling is unanimous. Here, the explanation is simpler: This is a very, very complicated case that results in a highly detailed opinion. Given what I’ve just read over 46 pages, the delay doesn’t surprise me.