Common Sense Limitations on Sanctions Awards Under VA. Code §8.01-271.1
On February 26, 2015, the Supreme Court of Virginia issued a unanimous decision that discussed, and set boundaries upon, sanctions awards under Va. Code §8.01-271.1.
In EE Mart F.C., L.L.C. v. Delyon, 2015 Va. LEXIS 20 (Va. 2015), an opinion apparently slated for publication, the Court interpreted Va. Code §8.01-271.1. That statute provides that a court, in certain circumstances, may sanction a party, or counsel, or both, for signing a filed pleading, motion, or other paper. The statute requires that each such document, for a represented party, “shall be signed by at least one attorney of record in his individual name.” Unrepresented parties must sign such documents themselves. The statute ascribes a legal significance to the signature:
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.
In addition, the statute imputes the same tripartite good faith representation into any “oral motion made by an attorney or party in any court of the Commonwealth.”
Should any attorney or party violate the rule, the statute provides for sanctions, using directory language:
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.
In Delyon, the issues required the Court to decide whether the statute’s scope reached to violative conduct committed by a party in multiple actions involving the same litigants and substantively similar issues. In its opinion, the Court analyzed the specific language of Va. Code §8.01-271.1, and its prior case law. It held that the statute enables a court to award sanctions only in reference to filings or motions made “in the matter then pending before the court.”
EE Mart, a Virginia limited liability company, once employed Suzanne Delyon as its CFO. Ms. Delyon also personally owned several limited liability companies, dubbed by the Court as the “Other LLCs.” In 2010, EE Mart sued Delyon and the Other LLCs in Fairfax Circuit Court, alleging wrongful conversion of certain insurance proceeds paid to Delyon by Travelers Insurance Company. The Supreme Court referred to this lawsuit as the “Original Action.” Immediately prior to trial, EE Mart nonsuited that case.
In 2011, EE Mart sued Travelers in the Circuit Court of Carroll County, Maryland. This suit, which the Supreme Court named the “Maryland Action,” related to the same insurance proceeds as the Original Action. Travelers removed the action to U.S. District Court. EE Mart then amended its complaint in the Maryland Action to add Delyon and the Other LLCs as parties’ defendant, and asserted a RICO count against them to maintain federal diversity jurisdiction. The U.S. District Court granted a motion to dismiss the RICO count, and transferred the case back to the Carroll County Circuit Court. In early 2015, that litigation remained pending.
Delyon and the Other LLCs initiated suit against EE Mart in 2012, in the Fairfax County Circuit Court (“the trial court”). The Supreme Court referred to this litigation as the “Present Action.” In this litigation, the plaintiffs sought injunctive and declaratory relief against EE Mart respecting the Maryland Action. The plaintiffs therein asserted that the Maryland Action lacked any merit. EE Mart flied a counterclaim, once again seeking to litigate entitlement to the insurance proceeds it first claimed in the Original Action. Delyon and the Other LLCs answered, and, moved for sanctions under Va. Code §8.01-271.1. They did so “on the grounds that the assertions in the counterclaim were frivolous and based on false statements.”
The trial court eventually ruled that EE Mart, litigating pro se, had abandoned its counterclaim in the Present Action. After hearing evidence, it awarded Delyon and the Other LLCs relief on their claims. Its final order referred to EE Mart’s abandoned counterclaim as “frivolous and without support in law or fact.”
The plaintiffs promptly made oral motion to the trial court for sanctions against EE Mart under Va. Code §8.01-271.1. This motion expanded upon their earlier sanctions motion, made as part of their answer to EE Mart’s counterclaim. Delyon and the Other LLCs now asserted, “that the Original Action, the Maryland Action and the counterclaim to the Present Action were frivolous.” They sought an award of “the total amount of attorneys fees that they had expended in…the Original Action and the Maryland Action, as well as …in the Present Action.”
The trial court granted the motion. It awarded Delyon and the Other LLCs the full amount of attorneys fees requested, totaling $25,550. EE Mart hired counsel, and unsuccessfully litigated a reconsideration motion. EE Mart’s reconsideration motion included a claim that the trial court erroneously calculated the sanctions award.
On appeal to the Supreme Court, EE Mart did not contest Delyon’s and the Other LLCs’ entitlement to a sanctions award. Instead, the Court framed EE Mart’s contentions as follows:
Specifically, EE Mart takes issue with the fact that the sanctions award included attorneys fees that Delyon and the Other LLCs had incurred in suits that pre-dated the filing of the Present Action or were tried in other jurisdictions. According to EE Mart, the proper procedure for seeking those sanctions would be a timely application in the actual action or court in which Delyon and the Other LLCs incurred those attorneys fees.
The Supreme Court’s decision sustained EE Mart’s position. If first looked to the language of Va. Code §8.01-271.1, implicitly invoking the plain meaning rule of statutory construction. The Court emphasized the text that permits an award of attorneys fees and expenses, “incurred because of the filing of the pleading, motion, or other paper or making of the motion.” Citing relevant passages within two prior decisions in support, the Court concluded that the phraseology, “clearly indicates that a court cannot award attorneys fees or expenses for actions that occurred prior to the sanctionable act.” The cited cases were, Oxenham v. Johnson, 241 Va. 281, 289-90, 402 S.E. 2d 1, 6 (1991), and, Cardinal Holding Co. v. Deal, 258 Va. 623, 632, 522 S.E. 2d 614, 619 (1999). Each case, interpreting the statute, focused its applicability on the specific claim, or pleading, pending before the court and made the subject of a sanctions motion.
The Court then turned to the “other jurisdictions” issue. It noted that a filing of a violative document, or the making of such a motion, serves to trigger the court’s authority to award a sanction under the statute. It then concluded that, “while not expressly stated, the clear implication is that the filing or…motion must occur in the same action and same court that subsequently awards the sanctions.” To hold otherwise, it observed, would abrogate the finality provision of Rule 1:1, “because a trial court’s authority to award attorney’s fees as sanctions to related but previously litigated matters could extend beyond 21 days after final judgment[.]” Likewise, the Court noted that such result “could also effectively impose…§ 8.01-271.1 on every litigant in every court in the country by allowing a party to seek sanctions in Virginia for filings or motions made elsewhere.” Thus, the Court interpreted the statute according to its limited remedial purpose, and, in harmony with the Court’s own rule on the finality of judgments.
In making these points, however, the Court added a significant footnote. It therein recognized the “highly probative” nature of evidence of “similar frivolous suits” to resolve sanctions motions. The Court went on to articulate the intended breadth of its holding. It stated that, “our holding today addresses only the principle that, when determining the amount of sanctions to award, a trial court is limited to the attorney’s fees incurred as a result of a filing or motion made in the case presently before it.” In effect, then, the trial court properly considered the totality of EE Mart’s litigious conduct. The trial court’s error lay in awarding sanctions for attorneys fees incurred in the Original Action and the Maryland Action.
The Delyon decision limits the scope of applicability of Va. Code §8.01-271.1. A sanctions motion must pertain to a filing or motion made in the matter currently pending before a court. The Supreme Court reached its conclusions according to familiar principles of Virginia statutory interpretation. The Court looked first to the General Assembly’s chosen language. From there, it referenced its previous interpretations of the same statute. Ultimately, the Court harmonized the statute’s language with other provisions of law, so as to fulfill the law’s underlying purpose. Nevertheless, the Court made clear that the totality of a party’s, or, presumably, an attorney’s, previous and related conduct properly may be considered to resolve a sanctions motion.