ANALYSIS OF NOVEMBER 27, 2019 SUPREME COURT OPINIONS
(AND HOLIDAY CLOSING SCHEDULES)
(Posted November 27, 2019) Looking at the weather forecast for much of the eastern half of the nation, I hereby offer my sincere wish that, wherever you’re planning to spend your Thanksgiving, you’re there already.
The appellate courts are closing for the holiday weekend, starting this afternoon for the state courts and tomorrow for the Fourth Circuit. Both will remain closed through the weekend, reopening Monday. This means that if you have a filing deadline in the appellate court that falls today through Sunday in state court, or tomorrow through Sunday in federal court, you get an automatic extension until Monday, December 2.
For those of you who like long-term planning, I know the state court schedules for the end of December. The Supreme Court and Court of Appeals of Virginia will close December 24-26 and December 31-January 1. For Christmas week, that means an oddball calendar: open Monday and Friday only. I imagine there will be more than a few requests for vacation days in there, especially if someone has use-‘em-or-lose-‘em days.
Meanwhile, we’ve got opinions! With the courts closed tomorrow, the Supreme Court hands down two published opinions today from appeals argued in the October session. Both of today’s opinions are short, for which boon I thank Justices Mims and Lacy, the authors of the decisions.
Perhaps you’re one of those folks who collectively yawn at the prospect of an opinion that sorts out liens subject to a subordination agreement. I’m not about to tell you what you should be interested in, but give Futuri Real Estate v. Atlantic Trustee Services a fair read. The conundrum in it will at least make you think.
Here’s the setup: A particular Blackacre in Fairfax County is encumbered by three deeds of trust. To be consistent with today’s opinion, we’ll call them Liens A, B, and C. They were recorded in that order, and aggregate to nearly a million bucks, so this Blackacre must be pretty valuable.
Wells Fargo Bank held Liens A and C; SunTrust held B. For internal reasons that today’s opinion doesn’t discuss, Wells Fargo wanted to subordinate Lien A to Lien C. It therefore recorded a subordination agreement doing just that. The document didn’t mention SunTrust or Lien B.
Well, you know what happened: The debtor, eager to see what would happen, defaulted on Lien B. SunTrust’s substitute trustee foreclosed, knocking down the sale at $468K, which is somewhat short of the amount necessary to satisfy everyone. The trustee paid the costs of sale, paid SunTrust its lien, and had about $200K left over.
At this point, the auction buyer and Wells Fargo started arguing over where that money should go, and whether the bank’s first lien still encumbered the property. The issue here is what effect the subordination agreement had on Lien B. If Lien A is now subordinate to Lien C, that puts it last in line, so the foreclosure of what was then a first lien wiped out all junior liens. Right?
That’s not the way the learned circuit court judge saw it. Believe it or not, this kind of dispute crops up often, and American courts have diverged on which approach to use. A majority follow the partial-subordination approach, whereby the agreement leaves Lien B in second position, and Liens A and C fight over the money attributable to Lien A. A minority of courts take the simpler complete-subordination approach: By subordinating itself to the last lien in line, Lien A has now become, well, last in line. That would make Lien B seniormost.
The judge sided with Wells Fargo, ruling that Virginia law requires partial subordination. Today the Supreme Court unanimously agrees and affirms. The court rules that in Virginia, we interpret contracts so that we carry out the intention of the parties. We also require that if someone is to be a third-party beneficiary of someone else’s contract, that fact should be apparent in the contract. This means that SunTrust is paid in full, but Wells Fargo is still entitled to be paid up to the amount of the first lien.
I work in a firm with a lot of dirt lawyers, and they love this stuff. When I saw the assignments of error here, I sent word around my firm, spurring a host of predictions about how the appeal would come out. Most of them guessed wrong.
This header is bound to get the attention of the appellate lawyers in my audience. Jackson v. Jackson resolves the power of a circuit court to make substantive changes in a pension-distribution order more than 21 days after final judgment.
This appeal involves spouses who divorced in 2011. The circuit court entered two decrees on the same day. The divorce decree stated the parties agreement to divide marital property, including the husband’s military pension. The second, entitled “Order Dividing Military Pension,” carried out that agreement by specifying a monthly annuity amount to be paid to the wife. The second order provided that the court retained jurisdiction under Code §20-107.3(K)(4) to enter orders necessary to effectuate and enforce it.
Six years later, the wife moved the court to reopen the case to modify her pension amount. She asserted that the husband’s benefits had increased over the years, but her annuity payment remained fixed. The trial court ruled that the parties had agreed to a fixed monthly amount, so the second order was consistent with the divorce decree.
The wife appealed to the Court of Appeals, which ruled that the circuit court didn’t have jurisdiction six years later to modify the second order anyway. It also ruled that the statutory authority to modify a distribution order doesn’t extend to changing the substance; it only allows a court to correct errors and omissions. Since both original orders were by consent of the parties, the court couldn’t use the statutory power to materially alter the agreement.
The justices affirm today, agreeing fully with the CAV’s reasoning. The court holds that trial courts indeed can’t use the statute to change the parties’ deal; only to effectuate it.
I’ll note here my gratitude to Justice Mims, who writes today’s opinion for a unanimous court. Here’s the second sentence of the opinion: “Marie Dolores Jackson and Dennis Michael Jackson married in June 1974.” Did you see what’s missing? Identifiers, that bane of legal writing. Another writer might have written, “Marie Dolores Jackson (“Marie”) and Dennis Michael Jackson (“Dennis”) married in June 1974.”
While this runs counter to what lawyers have learned, it’s almost always better to omit the modifiers where there’s no reasonable probability of ambiguity. There’s only one Marie and one Dennis in today’s published opinion, and Justice Mims wisely doesn’t insult the reader by telling us what to expect.