Fourth Circuit Certifies Business Conspiracy Question To Virginia Supreme Court

Virginia Lawyers Weekly reports that the Fourth Circuit is asking the Virginia Supreme Court to answer two questions about the interpretation of Virginia's Business Conspiracy Statute.

The first question is whether an allegation of tortious interference with contract or business expectancy can serve as the basis for a statutory conspiracy claim.  The second question is whether a two-year or five-year limitations period applies to a tortious interference claim.

The case, Dunlap v. Cottman Transmissions Systems, LLC, was brought by the owner of a transmission shop who alleged that local competitors and others conspired to get a franchisor to force him out of business.  The Eastern District of Virginia dismissed the lawsuit, and the shop owner appealed.  Instead of addressing the issues on appeal, the Fourth Circuit decided that it would be best to ask the Virginia Supreme Court to answer the unresolved questions of state law pursuant to Rule 5:40 of the Rules of the Supreme Court of Virginia.

Interestingly, the Fourth Circuit panel that issued the ruling included former Supreme Court Justice Sandra Day O'Connor, who was sitting on the panel by designation.  In this day and age, Supreme Court Judges are frequently accused of judicial activism by those who disagree with their rulings.  Justice O'Connor's decision to certify a question to a state court instead of resolving it herself is perhaps the epitome of judicial restraint and moderation.

The issues raised in this case are interesting and noteworthy for attorneys practicing business litigation.  There is generally a lack of case law regarding statutory business conspiracy claims.  I recently had a case in state court that involved similar issues, but the claims against my clients were dismissed without the court having to resolve these questions.

The Fourth Circuit's opinion explained why it was certifying these two issues thusly:

The reason to certify the first issue is straightforward: The Virginia Supreme Court’s recent decision in Station #2 signals obvious skepticism about business conspiracy claims predicated on contract disputes, but we are unable to ascertain with certainty how far that skepticism extends.

On the one hand, Station #2 clearly represents an important change in Virginia’s business conspiracy law, and we agree with the district court that this case raises concerns of the kind addressed there.

...

On the other hand, there are plausible reasons to limit Station #2’s holding to actual breach of contract claims, and to distinguish tortious interferences with contract or business expectancy.

...

The reason to certify the second question is even more straightforward: The question which statute of limitations to apply to tortious interference claims is a pure legal issue that has not been settled by the Virginia Supreme Court. Virginia applies a two-year statute of limitations to claims regarding personal injuries and a five-year statute of limitations to claims regarding injuries to property. See, e.g., Willard, 262 Va. at 478. But that distinction can be hard to draw, and the Virginia Supreme Court has previously disagreed with how this Circuit has attempted to articulate it. See id. at 479 (rejecting the test applied in Brown v. Am. Broad. Co., 704 F.2d 1296, 1303-04 (4th Cir. 1983)). As with the previous issue, we believe that this question at bottom concerns an ambiguity in the Virginia Supreme Court’s recent precedent that is best resolved by that Court.

Mandatory Minimum Sentences for Drug Cases in the Western District of Virginia

Although the focus of this blog is civil litigation, I read an interesting story in the Roanoke Times about mandatory minimum sentencing in the Western District of Virginia.  In a recent speech to the American Bar Association, Attorney General Eric Holder announced that he was directing US Attorneys to change the way they charged certain non-violent, low-level drug offenses in order not to trigger the "draconian" mandatory minimum sentences.

According to Timothy Heaphy, the US Attorney for the WDVa, no major change is needed for the Western District of Virginia because drug offenders are not being subject to the harsh measures that concerned Attorney General Holder.  For the most part, Heaphy said that he has already been operating as Holder requested, stating: "This is an evolutionary step, not a new thing for us."  The Roanoke Times also quotes Chief Judge Glen Conrad as saying "This United States Attorney's Office has been fair in the way it charges individuals."

The article contained some interesting statistics that appear to show that, as a percentage, there are more criminal drug cases in the Western District of Virginia than the national average.  And that the average drug-related sentence (91 months) was higher in the WDVa than the national average (72 months).  Heaphy explained that this was because he has focused on major drug cases: "We probably more than some places around the country have already changed our approach to drug charging... We have pivoted toward charging only folks that are more sophisticated," with the rest being charged in state courts.

When drug cases are broken down by drug type, the statistics show that there are fewer marijuana and cocaine cases in WDVa than in the rest of the country, but more meth and "other" cases.  I suspect a good portion of the "other" category is Oxycontin, given the history of that drug's abuse in Southwest Virginia.  In 2011, the kingpin of a multi-state OxyContin distribution ring was convicted and sentenced to 10 years imprisonment in the Western District of Virginia.

Heaphy said that he plans to further tighten charging and sentencing practices, by bringing charges that would impose mandatory minimums only in cases in which there are certain aggravating circumstances.  One interesting statistic that was not available in the article is the percentage of cases in which defendants were subject to mandatory minimums in the Western District of Virginia as compared to the national average.

Lawsuit Seeks to Block Merger Between StellarOne and and Union First Bankshares

The Charlottesville Daily Progress reports that a class action lawsuit has been filed in the Western District of Virginia to block the proposed merger between StellarOne and Union First Bankshares.  Richmond-based Union First announced plans to acquire StellarOne on June 10, 2013.  StellarOne's holding company is located in Charlottesville, while its bank headquarters are located in Christiansburg, Virginia.  The lawsuit, filed four days after the announcement, alleges that the proposed acquisition would "unfairly deprive" StellarOne's shareholders of potential investment value and allegedly constitute a breach of fiduciary duty.  The defendants have filed a motion to dismiss arguing, among other things, that the plaintiffs lack standing to challenge the merger.  The case, which was filed in the Charlottesville division, is being heard by Judge Moon.  I have two minor interests in this case.  First, I have a mortgage with StellarOne.  And second, I used to work with the attorneys for some of the defendants when I practiced law in Richmond.

Summary Judgment For Assignee of Note and Guaranty

On July 26, 2013, Judge Turk entered summary judgment in the amount of $3.2 million in favor of the assignee of a note and personal guaranty.  See City National Bank v. Tress (WDVa 2013).  The defendants had agreed to guaranty the repayment of a note that secured commercial loans made to their LLC.  The LLC, however, soon stopped making payments on the note and went into receivership.  Plaintiff purchased the note and guaranty, but apparently there were problems with how the note was endorsed by the original noteholder.  Defendants, therefore, argued that the personal guaranty was not enforceable since the underlying note was arguably not enforceable by plaintiff.  The Court, however, ruled that under McDonald v. National Enterprises Inc., 547 S.E. 2d 204 (Va. 2001), the guaranty was an independent contract that could be enforced even if plaintiff would not have been able to enforce the note.  The enforceability of the guaranty depended on whether the note had been repaid.  Since the obligation on the note remained outstanding, the personal guaranty could be enforced even if plaintiff could not enforce the note itself.

Johnson v. Federal Home Loan Mortgage Corporation

As previously noted on this blog, homeowners who are in default sometimes file lawsuits against the noteholder or servicer of their mortgage in order to delay or prevent foreclosure.  I have handled a number of these types of cases, on behalf of banking clients.  In July, the Western District of Virginia (Judge Wilson) dismissed one such claim on a motion to dismiss.  See Johnson v. Federal Loan Mortgage Corporation, Case No. 7:12cv00507 (W.D.Va. 2013).

The facts of the case are as follows.  The homeowner alleged that the bank's notice of acceleration was deficient because it failed to include language required by her deed of trust.  The deed of trust said that that the notice of acceleration shall, among other things, "inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale."  According to the homeowner, the notice that she received failed to track this language from the Deed of Trust because it did not notify her of her right to bring a court action.  Therefore, the homeowner alleged that notice of acceleration constituted a breach of contract.

In analyzing this claim, the Court noted that a deed of trust was a contract and that a deficient notice of acceleration could constitute a breach of contract.  Recognizing the difference between a material and nonmaterial breach of contract, however, the Court noted that "immaterial differences in language will not nullify a substantially conforming notice of acceleration."  The Court then ruled that although the notice of acceleration contained different language than what was required in the deed of trust, the notice was in effect the "functional equivalent."  Accordingly, the Court dismissed the breach of contract claim.

This certainly seems like the right result to me.  One of the important distinctions between a material and immaterial breach of contract is that a material breach excuses performance, whereas an immaterial breach does not excuse performance, but only gives rise to a cause of action for damages.  The homeowner did not appear to allege any damages as a result of the different language in the notice of acceleration.  For example, it does not appear that the homeowner alleged that she had a valid defense to foreclosure which she would have asserted in a court action had the notice of acceleration informed her of the right to bring a lawsuit.  Moreover, it appears that the notice of acceleration that was delivered conformed with all of the requirements of Virginia law.

Magistrate Judge's Opinion Prompts Inspector General Investigation Into Attorney General's Office

An article in yesterday's Daily Progress stated that "Virginia' inspector general is still investigating whether an attorney general staffer wrongfully advised energy company lawyers in a on going federal court battle with regional landowners seeking natural gas royalties."

The federal lawsuit is a class action between landowners and two energy companies regarding $28 million in natural gas royalties which are currently held in escrow accounts by the State of Virginia.  Virginia law allows energy companies, in some circumstances, to siphon natural gas below multiple tracts of land.  The royalties are then placed in escrow pending a determination of who owned the gas and who is entitled to the royalties.  The Attorney General's office is involved to defend the constitutionality of the Virginia Gas and Oil Act.

The investigation into the Attorney General's office appears to have been prompted by a comment from Magistrate Judge Pamela Meade Sargent expressing shock that an attorney from the AG's office was "actively involved in assisting" the energy companies "with the defense of these cases, including offering advice on and providing information for use on the motions before the court."  This comment was made in the Magistrate Judge's Report and Recommendation granting in part Plaintiff's motion for class certification.

This story has been the subject of numerous newspaper reports and editorials.

It will be interesting to see the inspector general's report.  It is not uncommon for lawyers representing different parties in a case to share information with each other, especially if their interests align.  Yet, the criticism in this case seems to be that the AG's office was improperly taking sides in a civil case and the suggestion (by some) that the AG's office was being influenced by campaign contributions to current Attorney General and gubernatorial candidate Ken Cuccinelli.

Mortgage Foreclosure Opinions From Judge Wilson and Judge Moon

Borrowers facing foreclosure often attempt to delay or prevent foreclosure by filing lawsuits against the noteholder or servicer of their mortgage.  There have been two recent decisions from the Western District of Virginia dismissing such claims.  In Johnson v. Federal Home Loan Mortgage Corporation, Judge Wilson dismissed a breach of contract claim related to an allegedly defective notice of acceleration.  And in Canterbury v. J.P. Morgan, Judge Moon dismissed a claim for rescission under the Truth in Lending Act.  That opinion is not yet available on the Court's website.  I will write more about these two opinions in separate blog posts.  (DISCLAIMER: I represented J.P. Morgan in the second case referenced above).

Welcome to the WDVa Law Blog









  This blog will focus on noteworthy civil cases, news and administrative procedure in the United States District Court for the Western District of Virginia. I have a special affinity for this part of the Commonwealth and its federal court. I grew up in Bedford County, just outside Lynchburg, Virginia -- the center of the seven divisions in the WDVa. After law school, I served as a law clerk for then Chief Judge Samuel G. Wilson in Roanoke, Virginia. After a brief hiatus in North Carolina, I returned to the Commonwealth and have been practicing law in Charlottesville, Virginia, home of my alma mater, the University of Virginia. Although not as famous as the Eastern District of Virginia's "rocket docket," I find the Western District to be appropriately expeditious in moving cases forward, courteous towards lawyers, thoughtful in their deliberations and fair to all litigants. I am looking forward to writing more about significant cases and developments within the Western District of Virginia.