Last week, while we were focused on significant decisions by the Supreme Court and the Fourth Circuit, the Court of Appeals of Virginia handed down two important published opinions. Both have substantial implications beyond their unique fact patterns.

Got an agreement with the Commonwealth? Get it in writing.

Most of you know that the Commonwealth is immune from tort liability; this doctrine dates back to the English common law (“You can’t sue the King in the King’s courts”), and is thus older than the Commonwealth itself. But contract liability is different. If the Commonwealth enters into an agreement, it can be sued to enforce that liability. (If it couldn’t, the state’s jealously-guarded elite bond rating would vanish instantly.)

Well, what about the equitable doctrines involving quasi-contractual relationships? This is the playing field in last week’s decision in XL Specialty Ins. Co. v. VDOT. It arose in a more or less routine fashion, when VDOT contracted with a company for two construction projects. As is customary, VDOT required the contractor to post performance bonds, to ensure that the work was completed. XL Specialty posted that bond, and the work began.

During the project, VDOT got a little ahead of schedule (those of you who live near or commute through the stretch of I-64 on the Peninsula will find this bitterly ironic) in making certain payments to the contractor; this coincided with the contractor’s getting a little behind in performance. Eventually, the contractor defaulted, and VDOT called on XL Specialty to step in and complete the work. XL Specialty did as it was asked, and then submitted bills for $740,000. No dice, answered VDOT; but we’ll give you $13,000 instead.

Given the magnitude of this disparity, it’s not surprising that XL Specialty headed straight for the courthouse, seeking a recovery of its claim. What may surprise you is the nature of VDOT’s defense; the agency claimed that it was immune from suit. XL Specialty responded that this was a contract suit, not a tort suit, so governmental immunity doesn’t apply. VDOT countered by saying the claim was in quasi-contract (suing on the right of a subrogee to receive payment on the original construction contract), and there is no waiver for immunity from claims of implied contracts.

On January 17, a divided panel of the Court of Appeals sides with VDOT and rules that governmental immunity does, indeed, protect the Commonwealth from subrogation claims. In doing so, it is guided by a series of precedential rulings on the subject, and by the Supreme Court’s opinion in a 2005 order remanding the case to the Court of Appeals for this decision. The court determines that the contractor may not make a claim directly on the original construction contract. But near the end of the opinion, a rainbow appears for the unfortunate insurer – the court permits it to file an amended claim, in which it sues under two “takeover agreements,” in which it had contracted directly with the state. I haven’t seen these agreements, and they may contain provisions less favorable to XL Specialty than the original construction contracts would have been. But it is at least a ray of light in an otherwise dark opinion for the insurer.

A few points occur to me about this opinion, which at least implicitly carries important considerations beyond the arcane field of suretyship law. First, you may not realize that the Commonwealth zealously guards this, as well as all other, claims of governmental immunity. In a case like this one, where XL Specialty did everything that was asked of it and then was told to go and pound sand when it asked to be paid, it is probably surprising that the government would take such a hard line stance. While it is important to remember that we are only getting one side of the facts here (because of the procedural posture, the facts are recited as XL Specialty alleged them), VDOT’s decision to hide behind immunity after getting the benefit of performance seems fundamentally wrong, at least at first blush.

Second, as noted above, the decision was not unanimous. Judge Bumgardner files a dissent in which he contends that XL Specialty’s claim is, in fact, direct, since “XL Specialty was asserting its own rights; not those of another acquired by subrogation.” He points out that fundamental suretyship law gives XL Specialty this right to seek payment directly from VDOT, which is obviously an intended third-party beneficiary of the bond. He also notes that VDOT prejudiced XL Specialty’s surety position by prepaying the contractor. Under plain-vanilla surety law (well, as vanilla as surety law ever gets, anyway), that operates to release the surety.

Third, I can foresee a few future consequences of this decision. Given the amount at stake, I believe that XL Specialty will probably pursue this matter further, either by asking for an en banc rehearing or by appealing to the Supreme Court. Only if filing amended pleadings and suing under the takeover agreements would allow it equivalent relief can I see the company’s accepting this decision. And when a decision like this results in such a manifestly unfair result, one might normally expect to see a proposal for a legislative fix. My opinion is that you shouldn’t hold your breath for that to happen. The General Assembly session is already well underway, and it is probably too late to throw a bill in the hopper to address this situation. As well, legislators aren’t usually too eager to surrender the Commonwealth’s common law protections, and one might reasonably conclude that a groundswell of support is unlikely to arise in a suretyship context in favor of an insurance carrier. On the other hand, you should never underestimate the vitality of the insurance lobby . . .

Make no mistake about it; this is an important case, even if you’re far removed from the worlds of road construction or suretyship. Any rule that allows an entity, even the government, to avoid its just obligations (remember, equity deals with what is just) should be regarded as inherently suspect. When you deal with the state government, it seems, doing business on a handshake is not a good idea.

Well, it’s sort of hearsay, isn’t it?

The Supreme Court of the United States shook up the world of criminal jurisprudence recently when it handed down Crawford v. Washington, 541 US 36 (2004). Previously, the Court had permitted exceptions to the hearsay rule where adequate indicia of reliability existed. Thus, prosecutors and defense lawyers alike had to learn the many contours of exceptions such as business records, statements against interest, and excited utterances. But in Crawford, the Court held that the Confrontation Clause is made of sterner stuff than to be subject to a lot of loopholes; in memorable language, it noted that finding that confrontation was unnecessary because the statement was obviously trustworthy was akin to saying that a jury trial was unnecessary because the defendant is obviously guilty. It held (loosely translated) that testimonial evidence could not be presented without the witness’ being in the room and subject to cross-examination.

Okay, then, what are the limits of testimonial evidence? The Court of Appeals addresses this question in Michels v. Commonwealth, in the context of two certificates from the Delaware Secretary of State. Michels was charged with obtaining lots of money by false pretenses from a woman he was dating. (You are warned that the following recitation will likely convince you that Michels is quite a cad.) According to the opinion, after meeting the woman in an online dating service, Michels persuaded her to lend him six figures with a string of lies about himself and his business dealings. The ostensible object of those loans was to invest in one company and to start another in Delaware. She stroked several checks, but Michels was unable to produce any stock. When she pressed him for an independent audit, he refused. Shortly thereafter, Michels had the right to remain silent.

The Commonwealth needed to prove that the two companies did not exist. It therefore did what you would do if you had to prove in a civil context whether such companies existed or not – it wrote to the Delaware Secretary of State and asked for certificates, in order to introduce those into evidence. The Secretary searched the records and issued two official certificates showing that neither company was really there.

At trial, the prosecutor offered the certificates into evidence. Michels objected, citing Crawford. He argued that the documents were hearsay, and under the Confrontation Clause, he could not “confront” the ostensible witness against him. The trial court overruled the objection, and Michels was convicted.

The Court of Appeals considers the question (of first impression in Virginia) of whether the certificates are testimonial, and finds that they are not. It cites several appellate decisions from other jurisdictions, all holding that similar certificates are not excluded by the Crawford doctrine. The court concludes that the certificates are not testimonial because they “are not by their nature accusatory and do not describe any criminal wrongdoing of appellant. Rather, they are a neutral repository of information that reflects the objective results of a search of public records. In addition, the documents do not resemble ex parte examinations, ‘the principal evil at which the Confrontation Clause was directed.’“

Thus, since the documents describe a set of neutral facts, they are admissible as an exception to the Crawford doctrine, and Michels’ conviction is affirmed. The court also covers one additional base, assuming without deciding that the prosecution had to prove that the certificates were reliable. In a finding that was visible from several miles off, it finds that the Secretary’s certificates are, indeed, sufficiently reliable to justify their admission into evidence.

The Crawford doctrine is so new that any discussion of its contours it worth studying. But this decision involves issues that also will appear, with great regularity, in DUI prosecutions, where a certificate showing the defendant’s blood alcohol content also includes a certification about, for example, the most recent date on which the testing apparatus was calibrated. The Court of Appeals recently granted an en banc rehearing in a case involving those certificates, in Luginbyhl v. Commonwealth; a decision in that case should be handed down in the next few months.

There is another foundation for this ruling, although this one almost certainly was not driving the train: Practicality. The General Assembly has enacted statutes to enable the prosecution to introduce certain certificates (such as in DUI cases) in order to avoid clogging the courtrooms with witnesses who would otherwise be offering only ancillary evidence. For those who champion criminal defendants’ rights, it will be hard to reconcile this doctrine with the principle that the prosecution has to prove each and every element of the case beyond a reasonable doubt. Those critics will argue that the Michels ruling waters down the fundamental protections, and the direct language, of the Confrontation Clause.