ANALYSIS OF MAY 6, 2021 SUPREME COURT OPINION

(Posted May 6, 2021) Evidence geeks will appreciate today’s ruling from the Supreme Court of Virginia in White v. Llewellyn, a fraudulent-conveyance suit that turns on the durability of a presumption.

The procedural posture here involves two lawsuits. Mr. and Mrs. Homeowner owned Blackacre, presumably as tenants by the entireties. One day Mrs. Homeowner drove out of the driveway and clobbered another vehicle. The driver of the other car sued both Mr. and Mrs. Homeowner, asserting what I see as a creative premises-liability claim against the husband. The injured party eventually got a jury verdict and a final judgment against Mrs. Homeowner only, for $1.5 million.

If the spouses did indeed hold title as tenants by the entireties, then a judgment against the wife only wouldn’t impair the title. But all was not blissful in the halls of Blackacre; the spouses executed separation agreements as a precursor to an eventual divorce. A final divorce decree would sever the entireties and entitle the tort plaintiff to execute on the wife’s half of the property.

The separation agreement helpfully provided that the husband would receive Blackacre as part of the equitable distribution of the spouses’ marital property. That would thwart any collection efforts against the home. Pursuant to the agreement, the parties executed a deed of gift, conveying title to Mr. Homeowner. Mrs. Homeowner and the couple’s school-age children continued to live in the property.

The tort creditor smelled a rat. She filed a second suit, seeking to set aside the deed of gift as a fraudulent conveyance. At a bench trial, she established to the judge’s satisfaction multiple badges of fraud. Under established Virginia law, that triggered a presumption that the conveyance was fraudulent. The unhappy couple testified as to non-fraudulent reasons for the transfer, noting among other things that they negotiated the settlement at a time when Mr. Homeowner was still a defendant in the tort suit. They explained that the wife and children still lived in the home “to help them deal with any anxiety and depression brought about by the divorce.”

Hearing this, the judge concluded that the couple had met their burden of production by adducing competent evidence that the transfer was not fraudulent. The court concluded that once they did that, the presumption burst, as the plaintiff in the suit always retained the ultimate burden of persuasion. The court entered judgment for the Homeowners, finding that the plaintiff hadn’t met that ultimate burden.

This case implicates the distinction between the two types of presumptions. The first, which I alluded to above, is formally known as the Thayer theory, and informally called “bursting bubble.” It’s called that because of the dynamic that the trial judge employed here: Once the opponent meets the burden of going forward with evidence to refute the presumption, is “bursts” and disappears from the legal analysis.

The other approach is formally the Morgan theory; I regard it as a durable presumption. That is, the presumption endures even after the opponent introduces evidence. In this form, the opponent of the presumption bears the twin burdens of going forward with the evidence and of persuasion.

This litigation turns on whether the presumption of fraudulent conveyance is bursting or durable. Today’s opinion from Justice Goodwyn assures us that this is a question of first impression in the Commonwealth. The court rules today that it’s durable, so the circuit-court judge erred when he ruled that the tort creditor hadn’t overcome the burden of proof. The court unanimously sends the case back so the trial court can decide whether the Homeowners established the good faith of the deed of gift.

My pal John Koehler has posted an interesting essay about this decision on his blog, The Soap Box.

The justices received oral argument on this appeal in the January session. That leaves one appeal still pending from that session, a criminal case styled Myers v. Commonwealth. There are seven undecided appeals from the March session, including a pair of reciprocal appeals that the court will likely decide together.