Robert & Bertha Robinson Family, LLC v. Allen
| Decision Date | 01 March 2018 |
| Docket Number | Record No. 161640 |
| Citation | 810 S.E.2d 48,295 Va. 130 |
| Parties | The ROBERT AND BERTHA ROBINSON FAMILY, LLC v. Douglas O. ALLEN, et al. |
| Court | Virginia Supreme Court |
Stephen D. Lofaso (Law Offices of Clay & Lofaso, on briefs), Gainesville, for appellant.
Andrew P. Hill (Matthew S. Akers; McCarthy & Akers, on brief), for appellees.
PRESENT: All the Justices
OPINION BY JUSTICE D. ARTHUR KELSEY
This case began in the general district court ("GDC") when the plaintiff, The Robert and Bertha Robinson Family, LLC (the "landlord"), filed a warrant in debt and the defendants, Douglas and Deborah Allen (the "tenants"), filed a counterclaim. The GDC ruled against both parties and dismissed all claims. The landlord appealed to the circuit court, but the tenants did not. The landlord later withdrew its appeal. The circuit court awarded sanctions against the landlord and awarded damages in favor of the tenants on their unappealed counterclaim. The landlord challenges both of these rulings on appeal. We agree and reverse.
The landlord filed a warrant in debt against the tenants in the GDC alleging breach of a lease agreement. The landlord sought an award for unpaid rent pursuant to a holdover provision in the lease agreement and for property damage. The landlord nonsuited and then refiled its claims.1 The tenants filed a counterclaim seeking to recover their security deposit.2 The GDC ruled against the landlord on its claims and against the tenants on their counterclaim. Seeking de novo review in the circuit court, the landlord filed a notice of appeal of the GDC’s denial of its claim for unpaid rent and property damage. The tenants did not file a notice of appeal challenging the GDC’s denial of their counterclaim, nor did they file any additional pleadings in the circuit court asserting their counterclaim.
Before the case proceeded to a bench trial, the landlord filed a motion to dismiss the counterclaim arguing that it was not properly before the circuit court. The landlord subsequently filed a motion to withdraw its appeal pursuant to Code § 16.1–106.1(A). The landlord’s counsel represented that neither the acting manager for the landlord, which was a family-owned limited liability company, nor the acting manager’s wife wished to continue the suit due to health complications. In response, the tenants filed a motion for sanctions under Code § 8.01–271.1. The tenants "[took] no position on the health issues" of the acting manager and his wife and did not object to "an order dismissing [the landlord’s] appeal so long as [the circuit court] consider[ed]" their motion for sanctions and adjudicated their counterclaim. J.A. at 179, 182.
The circuit court granted the landlord’s motion to withdraw and the tenants’ motion for sanctions. The circuit court also found that the tenants’ counterclaim was properly before it and summarily awarded the tenants $2,600 on their counterclaim without hearing evidence on the matter. The landlord filed a motion to reconsider the circuit court’s judgment. The circuit court denied the motion and awarded $10,000 in attorney fees against the landlord as sanctions for the landlord’s withdrawn claims.3
The withdrawn claims alleged that the tenants owed the landlord unpaid rent and had failed to restore the leasehold premises to its original condition. Both claims arose out of a 2005 written lease agreement. The lease agreement included a holdover provision, which stated that if the tenants remained on the leasehold premises after the expiration of the lease agreement’s five-year term, the landlord "[had] the right, at its sole option and discretion, to [deem]" that the tenants were "occupying" the premises on a "month to month" basis "at double the annual minimum rent." Id. at 23. The provision also stated that the tenants would remain subject to all other applicable provisions of the lease agreement. See id. In this holdover scenario, "th[e] Lease [would] automatically become a month-to-month lease" without the need for any "notice from [the] Landlord." Id.
A different provision also required the tenants to surrender the leasehold premises "broom clean, in good order and condition," and to "remove alterations, additions and improvements not desired by Landlord, [to] repair all damage to the [Leasehold] Premises caused by such removal, and [to] restore the [Leasehold] Premises to the condition which [it was] in prior to the installation of the articles so removed." Id. Finally, another provision stated:
No change or modification of this Lease ... shall be valid or effective unless the same is in writing and signed by the parties hereto. No alleged or contended waiver of any of the provisions of this Lease shall be valid or effective unless in writing signed by the party against whom it is sought to be enforced.
In 2010, at the end of the five-year term, the tenants continued to occupy the leasehold premises. For the next four years, the tenants did not pay "double the annual minimum rent" pursuant to the holdover provision. Id. at 23. In 2015, one year after the tenants had vacated the premises, the landlord filed the GDC warrant in debt seeking $4,410 in unpaid holdover rent and $20,590 for damage to the leasehold premises.
The tenants’ motion for sanctions in the circuit court did not specifically address the legal sufficiency of the landlord’s claims for holdover rent or property damages. Nor did the motion cite any case law addressing either the Statute of Frauds or lease-agreement provisions prohibiting the non-written modification or waiver of their terms.4 Instead, the tenants characterized the landlord’s claims as "completely and utterly frivolous" and not asserted "in good faith." Id. at 181. This conclusion, they argued, was "supported by" the GDC’s rejection of the landlord’s claims and by the landlord’s failure to respond to discovery requests in the circuit court. Id.
In addition to their motion for sanctions, the tenants filed Proposed Findings of Fact and Conclusions of Law setting forth their position on the merits of the landlord’s claims. In their defense to the holdover-rent claim, the tenants asserted that they and the landlord had "operated under an oral lease ... with terms similar, but not identical, to the [lease agreement]." Id. at 187. The tenants claimed that prior to the litigation, the landlord had not "treat[ed] [the tenants] as holdover tenants or trespassers under the Lease and [had] not charge[d] double rent as provided for in the Lease." Id. at 185. Instead, under the new oral lease, the tenants "were obligated to pay rent to the Landlord with increases to be determined by the Landlord," which they had paid "as communicated to them by the Landlord." Id. at 187–88. With regard to the property-damage claims, the tenants asserted that the landlord, "in consultation with" the acting manager’s grandson, had agreed to accept the vacated premises without further restoration, a decision that had also been permitted under the new oral lease. Id. at 186, 188.
At a hearing on the tenants’ motion for sanctions, the landlord maintained that the express language of the lease agreement—increasing rent for holdover tenants, see id. at 23, forbidding non-written modification or waiver of contractual rights, see id. at 18, and requiring restoration of the leasehold premises to its original condition, see id. at 23—established a good-faith basis for the landlord’s claims.
Arguing for sanctions, the tenants’ counsel "stated that without having all its evidence to present at trial, [the landlord] should not have filed its claim." Id. at 272 (emphasis added).5 The circuit court appeared to accept the tenants’ argument. After allowing the landlord to withdraw its appeal, the circuit court granted the tenants’ motion for sanctions because the landlord "[had] not [brought] its case in good faith." Id. at 273. At a hearing to determine the amount of sanctions, the circuit court elaborated on its holding, stating that the landlord had violated its "duty to have all evidence upon which it planned to rely on before ever filing suit." Id. at 275 (emphasis added). The circuit court reasoned that the landlord’s lawsuit would be "a per se violation of Federal Rule of Civil Procedure 11(b)" and "that similarly such filing of a lawsuit without all evidence in hand in Virginia is therefore a violation of [Code] § 8.01–271.1." Id. at 275–76 (emphasis added).
On appeal, the landlord assigns error to the circuit court’s judgments on several grounds. We find two dispositive: The circuit court erred by awarding sanctions against the landlord and by entering judgment in favor of the tenants on their unappealed counterclaim.
Under settled principles, we apply an abuse of discretion standard when reviewing a sanctions award pursuant to Code § 8.01–271.1. See Shebelskie v. Brown , 287 Va. 18, 26, 752 S.E.2d 877, 881 (2014).
In applying that standard, we use an objective standard of reasonableness in determining whether a litigant and his attorney, after reasonable inquiry, could have formed a reasonable belief that the pleading was well grounded in fact, warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and not interposed for an improper purpose.
Kambis v. Considine , 290 Va. 460, 466, 778 S.E.2d 117, 120 (2015) (citation omitted).
The circuit court in this case abused its discretion by applying a rationale for a sanctions award that finds no support in either the text of Code § 8.01–271.1 or our opinions applying it. The statute does not, as the circuit court ruled, place a "duty" on a claimant "to have all evidence upon which it planned to rely on before ever filing suit." J.A. at 275 (emphasis added). Nor is it "a per se violation" of the statute to file "a lawsuit without all evidence in hand ." Id. at 275–76 (emphasis...
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