Cardinal Holding Co. v. Deal

• Decision Date: 05 November 1999
• Docket Number: Record No. 990014.
• Citation: 522 S.E.2d 614,258 Va. 623
• Court: Virginia Supreme Court
• Parties: CARDINAL HOLDING COMPANY, et al. v. John F. DEAL, et al.

522 S.E.2d 614

258 Va. 623

CARDINAL HOLDING COMPANY, et al. v. John F. DEAL, et al.

Record No. 990014.

Supreme Court of Virginia.

November 5, 1999.

Robert H. Smallenberg (Ayers & Stolte, on brief), Richmond, for appellants.

J. Andrew Basham (Charles M. Lollar, Jr.; Heilig, McKenry, Fraim & Lollar, on brief), Norfolk, for appellees John F. Deal, Esquire; Rhonda Cobler-Wells, Esquire; and John F. Deal and Associates.

No brief or argument on behalf of appellees T. Roy Jarrett and Harry W. Jarrett, Co-Executors of the Estate of Alvin Q. Jarrett.

Present: CARRICO, C.J., COMPTON, LACY, HASSELL, KEENAN, and KINSER, JJ., and WHITING, Senior Justice.

WHITING, Senior Justice.

This is an appeal of a sanctions award against an attorney and the law firm that employed him. In accord with familiar appellate principles, we will state the evidence in the light most favorable to the prevailing party.

Cardinal Holding Company (Cardinal) and others, filed a legal malpractice action against John F. Deal & Associates, a law partnership, and two of its lawyers, John F. Deal and Rhonda Cobler-Wells (collectively, Deal). The plaintiffs sought damages in excess of 24 million dollars for Deal's acts of alleged legal malpractice while representing Alvin Q. Jarrett and, later, his executors, T. Roy Jarrett and Harry W. Jarrett. The professional law corporation of Ayers & Stolte, P.C., by Robert H. Smallenberg, one of its members (collectively, Ayers), prepared and signed the motion for judgment and subsequent pleadings that eventually gave rise to the award of sanctions against them.

Charles E. Ayers, Jr., one of the principals in Ayers & Stolte, P.C., was associated with Alvin Jarrett in a number of business ventures. He and law firms in which he was a principal were also Alvin Jarrett's legal counsel in various matters. In July 1990, Deal replaced Mr. Ayers and his law firm as Alvin Jarrett's legal counsel in certain of these matters. Deal's representation continued until Alvin Jarrett's death in March 1991. Thereafter, Deal represented the executors of Jarrett's estate until some time in 1991 or 1992.

In June 1993, Mr. Ayers and two of his related corporations executed settlement agreements with the executors of the Jarrett estate. As a part of the first agreement, Mr. Ayers agreed to assist in the liquidation of the Jarrett estate including "the prosecution of the potential malpractice action against John F. Deal, Esquire, [and] his law firm."

Also in 1993, on a date not disclosed in the record, Mr. Ayers filed a malicious prosecution action against Mr. Deal in the Circuit Court of Henrico County. The action was based on Mr. Deal's cooperation with the Commonwealth's Attorney of Henrico County in the prosecution of Mr. Ayers for alleged criminal conduct in his representation of Alvin Jarrett. Mr. Ayers and his counsel filed pleadings in the malicious prosecution action in violation of the sanctions statute, and the court required them to pay Mr. Deal $4,958.04 as sanctions to reimburse him for his costs and attorney's fees in defending the action.

When the executors decided that they did not want to pursue the malpractice claim against Deal, a second agreement was negotiated in February 1997 in which the claim was assigned to Mr. Ayers and two corporations in which he was a principal. Paragraph 14 of the second agreement provided that "the rights of either party herein may not be assigned without the prior written consent of the other party."

Shortly after the second agreement was signed, Mr. Smallenberg wrote a letter to Stephen G. Test, counsel for the executors, asking that paragraph 14 of the amended settlement agreement be deleted. Mr. Test not only refused to do so, but he also reminded Mr. Smallenberg that Test's clients would "object to the Agreement or any rights conveyed under the Agreement being assigned without our consent."

In spite of this, the claim was assigned by Mr. Ayers and his corporations to Cardinal. Thereafter, this action was filed by Ayers not only in Cardinal's name as assignee, but also in the Jarretts' names without their knowledge or consent or that of their counsel.¹

Although the motion for judgment was filed on March 21, 1997, Mr. Smallenberg delayed service of process on Deal for almost a year. Mr. Deal learned that the action had been filed before he was served with process and began preparations to defend it.

After Mr. Smallenberg finally had process served on March 20, 1998, Deal responded on April 10, 1998 with a grounds of defense, a special plea in bar, and a counterclaim against Cardinal for malicious prosecution. Paragraph 3 of Deal's counterclaim alleged that "[Cardinal] filed the Suit with notice, actual or constructive, that legal malpractice claims are non-assignable in the Commonwealth of Virginia. [Cardinal], as purported assignee, has no basis in law to bring the Suit." Hence, Deal sought sanctions.

At a hearing on June 10, 1998, more than 55 days after service of the counterclaim on counsel for Cardinal, the court permitted Cardinal to file a late response to the counterclaim. Cardinal denied the allegations of paragraph 3 of the counterclaim in its grounds of defense. On the same day, the court heard argument on Cardinal's motion to nonsuit its malpractice action against Deal and Deal's opposition thereto because of the pendency of its counterclaim. The court took this issue under advisement. By letter dated July 15, 1998, the court advised the parties that it would sustain Cardinal's motion for a nonsuit, but would hear argument on the motion for sanctions on a date to be agreed upon by counsel and the court.

Thereafter, counsel for Cardinal prepared, and counsel for Deal signed, an order of nonsuit which did not reflect the court's decision to hear argument on the motion for sanctions at a later date. Another circuit court judge entered that order on August 10, 1998.

At a hearing on September 4, 1998, the court overruled Ayers' oral motion to dismiss Deal's motion for sanctions against Ayers based on the ground that the court had lost jurisdiction to impose sanctions, more than 21 days having elapsed since entry of the nonsuit order.² After hearing evidence and argument, the court awarded sanctions in favor of Deal against Ayers in the sum of $22,181.17 to reimburse Deal for attorney's fees, costs, and time expended in defense of this proceeding and "the sum of $10,000 to punish" Ayers.

The sanctions award was based on the following pertinent provisions of Code § 8.01-271.1 (the sanctions statute):

Every pleading, written motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in his individual name. . . .

The signature of an attorney or party constitutes a certificate by him that (i) he has read the pleading, motion, or other paper, (ii) to the best of his knowledge, information and belief, formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law, and (iii) it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

. . . .

An oral motion made by an attorney or party in any court of the Commonwealth constitutes a representation by him that (i) to the best of his knowledge, information and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law, and (ii) it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

If a pleading, motion, or other paper is signed or made in violation of this rule, the court, upon motion or upon its own initiative, shall impose upon the person who signed the paper or made the motion, a represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the pleading, motion, or other paper or making of the motion, including a reasonable attorney's fee.

I

Ayers' jurisdictional argument is based on the following assignment of error asserted by Ayers:

The trial court erred in awarding any sanctions to the Jarretts when more than 21 days elapsed after entry of the final order. (Emphasis added.)

Deal responds that (1) neither this nor any other assignment of error relates the alleged jurisdictional defect to the sanctions awarded to Deal, and that (2) in any event, Cardinal remained in the case because it was the defendant in Deal's counterclaim which was still pending when the court awarded sanctions. We need to consider only the first response.

During oral argument, Ayers maintained that the reference in the assignment of error to the Jarretts instead of to Deal was a typographic error which becomes manifest upon reading the text of Ayers' argument on brief. In effect, Ayers seeks an amendment of the assignment of error to correct this alleged typographic error.

Hamilton Development Co. v. Broad Rock Club, 248 Va. 40, 445 S.E.2d 140 (1994), we said: "Appeals are awarded based on assignments of error. Rule 5:17(c). The language of an assignment of error may not be changed . " Id. at 44, 445 S.E.2d at 143. Accordingly, Ayers is held to the assignment of error as written and, because it fails to relate the jurisdictional question to the sanctions awarded to Deal, we will not consider the question.

II

Ayers concedes that legal malpractice actions were not assignable at common law in Virginia. Ayers claims, however, that it was objectively reasonable for lawyers to believe that the common law in Virginia had been modified in 1977 by the enactment of the following pertinent provisions of Code § 8.01-26:

Only those causes of action for damage to

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