Virginia Business Litigation Lawyer Blog

When a couple of home buyers in Loudoun County filed a lawsuit against Ritz-Carlton and a Loudoun developer, they chose Loudoun County Circuit Court as the forum. The immediate response of the defendants' lawyers was to remove the case to federal court, where summary judgment is much easier to obtain than in Virginia state court. The home buyers, likely worried about having their case dismissed at an early stage by a federal judge, sought to remand the case back to Loudoun County, pointing to a forum-selection clause which provided: "In connection with any litigation between Buyer and Seller arising out of this Agreement...[t]he sole venue for any litigation shall be Loudoun County, Virginia." The court refused to send the case back to state court. All of that procedural maneuvering meant very little in the end, however, as the court recently denied the defendants' motion for summary judgment and allowed the case to go forward.

In Nahigian v. Ritz-Carlton, LLC, the home buyers (the Nahigians) claim the defendants fraudulently induced them into buying property by making multiple misrepresentations about the nature and extent of the involvement of the prestigious Ritz-Carlton company in the management of the property and its adjoining private golf course. The Nahigians allege they were duped into buying an expensive property at Creighton Farms near Leesburg by various statements by sales agents referring to the development as a "Ritz-Carlton community" and part of the "Ritz-Carlton Life." As it turned out, they allege, Ritz-Carlton was merely a temporary manager of the golf club and never had any long-term commitment to the neighborhood. In March of 2009, Ritz-Carlton announced they were pulling out of the development.

The Nahigians sued for fraud and related claims, and the defendants moved for dismissal, arguing that the plaintiffs had failed to plead fraud with sufficient particularity, and that they failed to allege all the requisite elements of a fraud claim. The court disagreed and denied the motions to dismiss.

The court laid out the basic elements of fraud as: "(1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled." Under Federal Rule of Civil Procedure 9(b), each element of fraud must be plead with the required degree of specificity identifying "at a minimum...the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation."

The plaintiffs had alleged only that the misrepresentations were made by "Juno/Ritz representatives." However, the court found that Rule 9(b)'s specificity requirement does not require that the full name of the person making the statement be identified. The court found the allegations of the Complaint sufficient because the defendants had been made amply aware of the "particular circumstances for which they will have to prepare a defense." The court also rejected the defendants' argument that the reliance element was lacking because the contract specifically disclaimed reliance on outside statements. The court reasoned that the terms of a contract fraudulently induced cannot preclude a Plaintiff from bringing suit for that fraud.

Those considering retaining a Virginia law firm to help stave off a wrongful foreclosure should keep this useful fact in mind: your lawyer's job will be a lot easier if you take legal action before the bank forecloses on your property. Seek legal advice when you begin to fall behind on your mortgage or when workout negotiations seem to be faltering. Don't wait until the trustee enforces the deed of trust and kicks you out of the house before going to an attorney, on the assumption that your smart lawyer will be able to "undo" an unfair foreclosure. In the vast majority of cases, Virginia courts will not set the foreclosure aside.

This reality is aptly illustrated by a recent case out of the United States District Court for the Eastern District of Virginia, Horvath v. Bank of New York, (E.D. Va. Jan. 29, 2010). The plaintiff, John Horvath, found himself unable to keep up with his mortgage payments--an unfortunate predicament all too common these days--and the defendants foreclosed on his house. Mr. Horvath admitted he had fallen behind on his mortgage, but asserted a number of different legal theories revolving around the argument that Bank of New York and other companies with an interest in his mortgage acted improperly and did not adhere to the law when servicing his mortgage, foreclosing on his house, and eventually evicting him. The court shot each argument down, one by one, and dismissed the case for failure to state a legally cognizable claim.

The first count was for a declaratory judgment declaring the foreclosure "void." The court ruled that declaratory relief would serve "no useful purpose" since the foreclosure sale had already taken place. The court noted that declaratory judgments are reserved for "forward looking actions."

Next, Mr. Horvath argued that the trustee committed a breach of fiduciary duty when he foreclosed on the property without conducting "reasonable due diligence." The court was not persuaded by that angle either, pointing out that Virginia law does not recognize a duty of due diligence by a trustee on a deed of trust. The duties of the trustee are limited to those specified in the deed of trust.

The next count was one to "quiet title" on the ground that the defendants had no valid interest in the property. The basis for the allegation was that Mr. Horvath's original lenders had sold and assigned the promissory notes to other parties, resulting in splitting the deed of trust from the note and rendering the deed of trust unenforceable. The court flatly rejected this argument as wrong under Virginia law. The deed of trust was not affected by the assignment of the note.

Mr. Horvath also argued that the foreclosure violated the Fair Debt Collection Practices Act and that certain defendants committed fraud by misrepresenting their authority to conduct a foreclosure. These theories were also summarily dismissed because the Complaint failed to allege sufficient facts to make the claims plausible under Virginia law.

When wrongful foreclosure is being threatened (such as when, for example, the bank miscalculates the interest due or acts in violation of a forbearance agreement), the time to talk to an attorney is as soon as the threat is made apparent, not after the foreclosure sale has taken place.

In Virginia, an action for trespass is no longer the only remedy a landowner has against a trespasser. A Norfolk judge recently held that a landowner may sue for rent even in the absence of an express or implied lease agreement. A duty to pay rent can arise under the doctrine known as quantum meruit.

In the case of City of Norfolk v. Muladhara, LLC, Norfolk managed several lots of prime commercial real estate on which the city collected rents. The Defendant, Muladhara, began conducting business on one of the lots without ever receiving permission from Norfolk. Upon discovering the trespasser, Norfolk informed Muladhara that the city managed the land and collected rent for its use. This conversation prompted the Defendant to pay the back rent the city claimed was due. However, Muladhara continued to occupy the space without any further payment.

The court held that Norfolk may base its claim for recovery on two distinct theories. First, the court found that the conversation between the city and Muladhara that led to the payment of back rent could form the basis of an implied contract. Judge Hall clearly laid out the three elements of an implied contract: offer, acceptance, and a meeting of the minds. Simply put, the city offered to overlook the previous trespass if Muladhara paid back rent, and Muladhara accepted the offer. Even though this agreement only covered Muladhara's past occupation of the parcel, the Defendant's payment of back rent constituted a meeting of the minds as to the rental value of the land. Should Muladhara continue to occupy the land, the meeting of the minds forms the content of the implied contract. The city, therefore, is allowed to sue for payment of rent due, and the amount will be determined by looking to the parties' prior agreement.

Implied contract is a fairly common vehicle for the collection of rent when no formal agreement exists. The court, however, added a new tool to the landowner's toolbox: quantum meruit, or quasi-contract. This differs from an implied contract in that a meeting of the minds (the basic terms of the contract) is not necessary. All that is required is that the city reasonably expected to be compensated for the use of its land, and that the trespasser, aware of the city's reasonable expectation, still made use of the land. Historically, quantum meruit only applied to a plaintiff's services or materials consumed by the defendant, not to a defendant's use of real property. But, as Judge Hall pointed out, the Virginia Supreme Court has defined quantum meruit to apply whenever a defendant "acquires property of another," and real property need not be excluded from this definition. Consequently, no established precedent prevents a plaintiff from pursuing the reasonable rental value of the property even if no agreement was ever reached concerning the value of the property.

The Virginia Electric and Power Company (VEPCO) and the Trans-Allegheny Interstate Line Company (TrAILCo) plan to build a 265-mile, 500-kilovolt transmission line between Loudoun County, Virginia, and Washington County, Pennsylvania. They claim that due to rapid growth in the Washington, DC metro area, energy consumption along the Potomac will likely continue to grow to levels unsupportable by the current infrastructure, and the anticipated blackouts and line failures would put them in violation of federal regulations. The State Corporation Commission approved the power line, and after a challenge by the Piedmont Environmental Council, the Supervisors of Fauquier County, Prince William County, and Culpeper County, and other interested groups, the Supreme Court upheld the construction permits.

In the case of Piedmont v. VEPCO, the court shed some light on the role of Virginia's State Corporation Commission in developing an effective and efficient system for energy production and distribution. First, before new lines of that size can be constructed, the North American Electric Reliability Corporation (NERC) must find that they are needed to avoid regulatory violations. Second, regardless of federal approval, because the proposed placement of the lines was in Virginia, approval must be obtained from the State Corporation Commission, to whom regulatory authority has been delegated by the Virginia legislature.

The plaintiffs argued, and the court acknowledged, that the federal approval process heavily favors new transmission line construction over other possible solutions such as demand-side regulation, new power generation, and conservation efforts. The Commission, on the other hand, is required by the Commonwealth to consider the viability of these other possible solutions. Therefore, the plaintiffs claimed, the Commission's reliance on the NERC's findings was flawed because the federal process is biased against alternative solutions. The plaintiffs demanded that the Commission independently investigate alternative solutions and require them to be incorporated into their interstate operations.

The Virginia Supreme Court, while agreeing with the plaintiffs in spirit, affirmed the SCC's approval. Justice Koontz noted that the Commission's duty to independently investigate all applications for new transmission line construction does not prevent the Commission from considering data that may be biased by a federal regulatory process that seeks different goals. Further, the Court held that even if alternative solutions were feasible, a state regulatory agency lacks the authority to require that action be taken on an interstate scale. Finally, the Court held that the Commission's role is not to dictate interstate policy but to determine if a proposal will serve the anticipated needs of Virginia residents. The Commission's decision was upheld because it critically reviewed all arguments and data, and its decision was reasonably based on the facts and current law.