By Susann Nordvik

More Americans than ever have been able to enjoy the freedom, and the responsibility, of being a small business owner (“SBO”).  Entrepreneurship can be both an extremely rewarding and extremely risky proposition.  This self-starting demographic in many cases has not only developed unique and innovative products or services, but has sought professional assistance to create the right business entity as a vehicle for their efforts and to protect and separate their personal interests from their professional ones.  In many cases these intrepid individuals form limited liability companies or a closely held corporation under Subchapter S.  However, the shield from liability of company debt can be compromised if certain formalities are not observed.

Moreover, because revenue streams for small businesses can be somewhat erratic, many SBOs opt for credit lines and short-term loans to bridge the income gap.  However, although such loans are highly regulated in the case of a consumer loan,[1] loans in the name of a SBO’s company are considered commercial, and are not subject to consumer protections.  As such, various so-called lenders have arisen to take advantage of this niche market and in some cases, trap the unwary SBO in a loan that has wide ranging implications to the SBO if his or her company ultimately fails.

These essentially predatory lenders offer attractive options for quick and easy “signature” loans that are often handled entirely over the internet.  In many cases they advertise that no personal guarantees are required.  However, a close look at the fine print may show this not to be the case at all.  In such cases, the SBO who signs on the dotted line may have just executed a personal guarantee that bypasses the corporate veil of limited liability, and if the SBO defaults on the loan due to financial difficulty, that SBO may find their personal finances and assets in jeopardy. 

So, what should the wise SBO do?

First, make sure that you are engaging only with a reputable lender.  Finance companies that previously made their money dealing in subprime mortgages and what the industry refers to as “C paper” were hit hard when the real estate bubble burst in the early 2000s.  Some of them found new life in the post-Obama era by lending to small businesses at high interest rates or with hidden liabilities.  Therefore, the SBO’s may be better off going to their local bank or credit union and avoiding independent finance companies altogether.

If it isn’t possible to stick to a mainstream commercial lender, make sure that you are dealing with a lender that has a good rating, or is in good standing with the Better Business Bureau, the FDIC, the Office of Thrift Supervision, and/or FINRA (if the SBO is dealing with an investment company), or state regulatory agencies for state-chartered banks or lenders.  

Second, make sure that you fully review any contract and all addenda before signing anything.  Although the lender may promise a quick turnaround for much-needed funds, prudence is the better part of valor.  If at all possible, have your contract reviewed by an attorney skilled in matters involving the lending industry and closely-held businesses.  Most importantly, if you see a “personal guaranty” as part of your signature packet, think twice before agreeing to this loan.  You may be signing away your personal assets by accepting funds under such terms.

All right, thanks for the advice, but what do I do if I’ve already signed such an agreement and the lender is attempting to sue me personally?

​One of the tactics used by predatory lenders is to attempt to sue the SBO in a foreign state, possibly with the belief that the SBO will not appear to defend themselves, or because the foreign state has laws that the lender views as more favorable to it.  In such a case, the SBO may not have the requisite contacts with the forum state for the lender to successfully sue in that state.   In order for a court in another state to have personal jurisdiction over a defendant, one of two types of circumstances must exist:

1. The SBO must have either had “continuous, substantial, and systematic” contacts with that forum state.  In other words, the SBO must regularly do business in that state.[2]  This is what is known as “general jurisdiction.”
2. The second type of circumstance, “specific personal jurisdiction,” occurs when the transaction in question took place in the forum state.  For example, in most jurisdictions, a contract is formed in the locale where it is signed.  Therefore, an argument may exist that the foreign state court cannot exercise specific jurisdiction over the transaction if the contract was formed and performed elsewhere.

If the lender cannot establish one of the two types of personal jurisdiction over the SBO in the court that it chose, the SBO may be able to successfully prevent the case from moving forward in that court by making a motion to dismiss for lack of personal jurisdiction.  It is important to note, however, that if the lender does not prevail in the face of a jurisdictional argument, the lender may choose to file a new lawsuit in the SBO’s home state.  If that occurs, there may be other defenses available to the SBO in his or her home jurisdiction.

Unless and until the state legislatures pass laws to protect SBOs from predatory lending practices, SBOs will need to remain particularly vigilant in protecting their interests.  It is far better to delay a few days in securing a loan rather than risk the personal liability the SBO organized to avoid.

If you've signed a business loan or would like an attorney to review the loan documents, please feel free to contact us. 


[1]  See, e.g., Code of Virginia, § 6.2-1816, relating to the requirements and prohibited business methods for consumer lenders pertaining to “payday” loans.

[2]  See Daimler AG v. Bauman, 134 S. Ct. 746, 761 (2014) (“Our cases have long stated the rule that a defendant’s contacts with a forum State must be continuous, substantial, and systematic in order for the defendant to be subject to that State’s general jurisdiction.”)

By Katarina Nguyen

The biggest hurdle in family law litigation is often the initial one: getting that first court order. This applies to spousal support and child support, particularly when the payor spouse or parent is contesting paying the amount of support you are seeking or contesting paying any amount of support at all. But you complete all the litigation and trial to obtain your spousal support and/or child support order, the fight may not be over.
 
When a payor spouse or parent fails or refuses to pay their court-ordered support, you're left with only two options: working out a resolution with the payor spouse or parent or, more often than not, resorting to litigation. Most people are apprehensive at the idea of having to go back to court because of the time, energy, and financial resources it takes. Plus, they remember the initial litigation and how hard it was to get that first support order and the idea of going back is discouraging. However, you're able to ask the court to award you attorneys' fees if the payor spouse or parent is not paying. 
 
But lawsuits to collect on spousal support or child support arrears are actually relatively straightforward and typically involves much less effort than the initial support determination. This is because the court is only interested in four main questions: (1) whether the payor spouse or parent failed to pay the full amount due and, if yes, how much back-support is owed, (2) whether to hold the payor spouse or parent in contempt of court for violating the support order, (3) setting a new payment plan for the arrears on top of the regular support that continues to accrue, and (4) determining whether any additional punishments are necessary as a result of a contempt finding.  Plus, again, you are able to ask the court to award you your attorneys' fees for bring this type of lawsuit.
 
These lawsuits are referred to as "show cause" petitions or, simply, a "show cause." "Show cause" means that the payor spouse or parent has to appear in court and "show cause," i.e., explain why he or she is not in violation of the court order and should not be held in contempt.
 
Show cause litigation in Virginia comprise of two steps: there is the first, initial status hearing, also called the initial return, and the second hearing, which is the trial. There may be other hearings in between depending on whether you or the payor spouse or parent files any motions.
 
 I.         The Filing Requirements
 
Va. Code Section 8.01-274.1 provides the requirements for show cause petitions in the Circuit Court, while Va. Code Section 20-115 provides additional details for show cause petitions in the family law context in the Circuit Court. You will need to file a "rule to show cause," the show cause petition, and an affidavit. The petition and affidavit can be the same document, but the rule to show cause is separate. The rule to show cause is a very brief order that is entered by the court. The order instructs the payor spouse or parent to appear at the designated initial return date. The order does not grant your petition, but rather merely initiates the court hearing process by putting the payor spouse or parent on notice of the proceeding.
 
Va. Code Section 16.1-278.16 provides the requirements for show cause petitions in the Juvenile and Domestic Relations District Court ("JDR Court"). The JDR Court uses Virginia form DC-635, which has instructions.
 
The court you file your petition with depends on which court entered your support order. If the Circuit Court entered the support order, which may be part of a final divorce order or a settlement agreement incorporated into a final divorce order, then you may file in Circuit Court. However, you should review the order and/or settlement agreement to see if the Circuit Court remanded the matter of spousal support or child support to the JDR Court. If yes, then you will need to file your show cause petition with the JDR Court. And if the JDR Court entered your support order, then you simply file your show cause petition with the JDR Court.
 
Generally, you will need to include a copy of the support order with your show cause petition. When filing, you should bring one original copy of each document and extra copies for service and for you to keep for your records. If in doubt, call the court and ask about the number of copies that is required, but remember to bring one extra copy to get date-stamped with proof of filing for your own records.
 
II.         Service
 
Va. Code Section 8.01-274.1 requires the rule to show cause, the show cause petition, and the affidavit to be served on the payor spouse or parent. Va. Code Section 16.1-278.16 requires personal or substituted service of the documents.
 
Va. Code Section 8.01-296 details the types of service that are permitted for individuals. Personal service means hand-delivering a copy of the documents to the actual payor spouse or parent. Substituted service means hand-delivering a copy of the documents to a member of the payor spouse or parent's household that is at least 16 years of age. Substituted service can also mean posting a copy of the documents to the front door of the payor spouse or parent's "place of abode," or their home, and mailing a copy of the documents to the same address at least ten days before the first hearing date, with a certificate of mailing filed with the court.
 
If the payor spouse or parent lives in Virginia, you can request service through the Sheriff's Office for $12.00. If they live outside of Virginia, you can obtain service through the Secretary of the Commonwealth or by private process service.
 
III.         The Initial Return
 
The initial return is normally a short status hearing. The court will ask the payor spouse or parent if he or she admits to owing the amount you stated in your petition. If yes, then the court may enter a final order that same day or schedule another hearing on the contempt disposition. If no, then the court will schedule a trial date.
 
If you are in the Circuit Court, you automatically have the right to issue discovery. But if you are in the JDR Court and you want to be able to issue discovery, you will need to ask the court for permission at the initial return. The court may ask you to explain why you believe discovery is necessary.
 
IV.         The Trial
 
At the trial, bring your support order and proof of all payments made by the payor spouse or parent since the entry date of your support order. The court will ask you how much the payor spouse or parent owes you through the trial date, so be prepared to provide that number along with any supporting calculations.
 
If the payor spouse or parent is unable to provide proof of payment for any month that you stated he or she missed or failed to pay in full, then he or she will be unable to disprove your testimony.
 
The court will weigh the evidence presented, including the parties' testimony, the testimony of any witnesses, and any other evidence submitted before the court. The court will then decide whether to grant your show cause petition and find that the payor spouse or parent violated the support order. If yes, the court may enter its final ruling that same day or it may set a status hearing some time out for the ruling. The court may delay its ruling to allow the payor spouse or parent time to demonstrate that he or she is putting in a serious effort to comply with the court's order. If he or she does so, then the court will likely exercise leniency in its ruling.
 
V.         The Ruling
 
Regardless of whether the ruling happens the same day as trial or at a later date, the court first decides what the arrearage amount is after weighing the evidence. Once that amount is determined, the court will decide how the payor spouse or parent will make payments towards that arrearage. The payor spouse or parent may already have an existing spousal support or child support obligation owed to you, so the court will take that and the payor spouse or parent's financial status into consideration when setting the arrearage payment. The court will also decide whether to formally hold the payor spouse or parent in contempt and, if yes, whether to sentence the payor spouse or parent to imprisonment for a term of up to one year. The court is not required to hold the payor spouse or parent in contempt in order to order him or her to comply with the support order. The court may also order the payor spouse or parent pay for your reasonable attorneys' fees and costs.
 
VI.         Conclusion
 
While suing in court can be daunting, show cause petitions based purely on nonpayment of support are often relatively straight forward because the evidentiary burden is easy to prove: either the payor spouse or parent paid or didn't. Once you establish how much is owed, the arguments shift to how much the payor spouse or parent can afford to repay on a monthly basis and whether the court ought to make a contempt finding.
 
If you need assistance filing a show cause petition or would prefer to have an attorney represent you in court, especially since attorney’s fees are recoverable in these actions, please feel free to contact us for a consultation.

By Susann Nordvik, Katarina Nguyen, and Steven Krieger
 
“Every attorney shall be liable to his client for any damage sustained by the client through the neglect of his duty as such attorney.”[1]  This statutory provision stands for the common sense principle that attorneys are responsible for the actions they take as counsellors and representatives of their clients—just like everyone else who acts on behalf of others or who interacts with others.  However, because of the place where this principle stands, at the intersection of many areas of the law, this statutory obligation is not as straightforward as it appears. 
 
In civil situations, which is the area where most people will come into contact with, or require the services of, attorneys, a standard of ordinary care applies.[2]  However, what happens when a client believes that his or her counsel has breached that ordinary duty of care?
 
To prevail on a claim of legal malpractice, a client must establish the following:

1. That the client employed the attorney;
2. That the attorney failed to perform his or her services with an ordinary standard of care; and,
3. The client was damaged as a proximate result of the attorney’s failure to perform.

 
Employment of Counsel

The relationship between an attorney and client has been considered to be the most sacred relationship in the law.[3]  Because of the nature of the legal profession, it is possible that an attorney could be “employed” simply based upon the meting out of legal advice, even if no money ever changes hands, and regardless of whether a formal contract is formed.  However, generally speaking, because of the vagaries of legal situations, the formation of an attorney-client relationship requires actual interaction between the parties as opposed to the mere review of generic information, such as reading an article on an attorney’s website.  The formation of an attorney-client relationship requires the assent of both parties, either directly or impliedly.[4]  In formal terms, this relationship is known as “contractual privity.”[5] 

Nevertheless, it is possible that a third party could be what is known in the legal world as a “third party beneficiary” of legal services, and therefore, can stand in the shoes of the client for purposes of a legal malpractice claim.  For example, if a person engages an attorney to make out a will, and in the process names a specific beneficiary, that beneficiary is essentially the intended beneficiary of the agreement between the lawyer and the client.  If the attorney fails to properly safeguard the estate while making a will so that the assets do not pass to the client’s intended beneficiary, that beneficiary may be able to state a claim for malpractice against the attorney if the attorney cannot correct the error after the death of the testator.  This is precisely what happened in the case of Thorsen v. Richmond Society for the Prevention of Cruelty to Animals.[6] 

In Thorsen, the Richmond SPCA was able to maintain an action for legal malpractice on the grounds that the SPCA, which was the testator’s sole surviving beneficiary, was unable to receive the testator’s bequest of real property due to the error of the attorney Thorsen when preparing the will.  As a result, the property passed intestate to other members of the testator’s family, thereby damaging the SPCA and depriving it of the full bequest.[7]

The Virginia Supreme Court held that the third-party beneficiary doctrine was a well-reasoned exception to the privity requirement, thereby permitting a party to proceed with a malpractice action.[8]  However, if a third party cannot claim beneficiary status, the rule of contractual privity will prevent that third party from asserting a malpractice claim,[9] and a malpractice claim cannot be assigned by a client to another party.[10]  

However, in 2017, the year after the Court ruled on Thorsen, the Virginia legislature enacted Va. Code § 64.2-520.1, which arguably has the impact of undoing the Court’s ruling in the estate planning context. The statute says that only the individual or their personal representative can maintain an action for legal malpractice in the estate planning context, the cause of action for which accrues upon the completion of the representation, unless there is a specific reference to subsection (B) “expressly grant[ing] standing to a person who is not a party to the representation.”
While a third-party could bring a legal malpractice claims in other contexts, a client cannot assign a legal malpractice claim to someone else.[11] This is due to the court’s concern that legal malpractice claims would be sold and traded like a commodity, which means that an attorney could be sued for malpractice by someone they never met before and for whom they never rendered legal advice or services.[12]

Falling Below the Standard of Care

The employment of counsel establishes a duty on the part of the attorney to the client, and failing to meet, or falling below the standard of care constitutes breach of the duty owed the client.  The standard of care is based on what the ordinary, prudent attorney would do under the same or similar circumstances.  In fact, the Virginia Supreme Court has stated:  “[The attorney] is not to be answerable for every error or mistake, but on the contrary, will be protected if he acts in good faith, to the best of his skill and knowledge, and with an ordinary degree of attention.”[13]  In addition, a negligent attorney can also apply the defense of contributory negligence in the context of legal malpractice cases, or that the client’s own negligence contributed to the client’s resulting damages.[14]
An illustration of this comes into play when an attorney is asked to make a determination about the path the courts will take in an unsettled area of the law.  The attorney cannot “look into a crystal ball” and foresee what will happen, but he or she can review the existing law and make a reasoned judgment about how a court might rule.  In Virginia, there is no blanket “judgmental immunity,” however, the Supreme Court has held that “if an attorney exercises a ‘reasonable degree of care, skill, and dispatch’ while acting in an unsettled area of the law, which is to be evaluated in the context of ‘the state of the law at the time’ of the alleged negligence, then the attorney does not breach the duty owed to the client.”[15]

Resulting Damages

“‘Damage is an essential element of a cause of action. Without some injury or damage, however slight, a cause of action cannot accrue.’” [16] An injury may be something intangible, such as the loss of the right to pursue a legal claim because of an attorney’s failure to take timely action to sue;[17] or an injury may be a tangible effect, such as having a judgment entered against the client, even if the client had not paid the judgment, due to an attorney’s manifest error.[18] 

However, it should be noted that in the event that the damage suffered by the client is so financially catastrophic that the client finds himself or herself filing for bankruptcy protection as a result, any claim for legal malpractice that arose prior to the bankruptcy filing would become part of the bankruptcy estate.[19] As such, the future of the malpractice claim is determined by the bankruptcy trustee, who may opt either to prosecute the claim as an adversarial proceeding in the bankruptcy court, or abandon the claim, in which event the claim reverts to the client.[20]

Collectibility is also an issue the courts consider when the damage is the loss of an otherwise viable claim due to the attorneys’ negligence. Collectibility of a claim can act as a limit on “the measure of the legal malpractice plaintiff’s damages to how much the legal malpractice plaintiff could have actually recovered from the defendant in the underlying litigation, absent the attorney’s negligence, not simply to the face value of the lost claim.”[21]  This collectibility issue goes to proving the attorney’s negligence was the proximate cause of the client’s damages.[22]

Finally, a potential claimant must understand that as a contract action, only pecuniary losses are considered recoverable damages in a legal malpractice claim, but this includes losses that are “reasonably foreseeable when the contract is made.”[23]  Non-pecuniary losses, such as pain and suffering or emotional distress are not recoverable.[24] Likewise, punitive damages cannot be recovered “in the absence of an independent, willful tort giving rise to such damages.”[25]

Making a Timely Legal Malpractice Claim

One of the most important aspects of any legal claim is making the claim in a timely manner.  This requires taking action before the “statute of limitations” runs out.  A statute of limitations is a time period created by the legislature in which a legal action must be filed in court or the right to file the claim is lost forever.  The purpose of statutes of limitations is to provide sufficient time for a potential plaintiff to take action, but not allow so much time to pass that the claim becomes stale, witnesses become difficult to locate, or memories of the events fragment.  The time periods involved may appear to be somewhat arbitrary, but the time periods themselves are meant to strike a balance between the rights of an injured party, the interests of justice in a fair and complete hearing, and the interest of a potential defendant in finality.

Although there are notes of tort law in legal malpractice claims, the courts have largely concluded that the duty of the attorney arises out of the agreement to perform services for the client.  Consequently, the claim is a contract claim and governed by the limitations period for contracts.[26]  This time frame is 3 years for an oral contract and 5 years for a written contract.[27]

It is nevertheless possible to allege an “independent willful tort,” such as fraud, if the conduct of the attorney is of a type that would ordinarily be considered tortious, and the duty that the lawyer owes to the client arises in a manner not solely attributable to contract.[28]  As this concept suggests, the legal doctrines applicable to such unique situations can be highly complex, and necessitate analysis by experienced counsel to determine whether a given case involves a tort claim in addition to a contract claim.

The Code of Virginia states that the limitations period for contract claims commences on the date that the breach occurred, not the date that the breach was discovered by the client.[29]  Therefore, it is important to act quickly once you realize that your attorney or former attorney may have committed malpractice.  Nevertheless, the Supreme Court has also held that the “continuing representation” rule applies in legal malpractice claims that tolls the statute of limitations.  “[W]here there is an undertaking which requires a continuation of services, the statute of limitations does not begin to run until the termination of the undertaking. . .This special rule is applicable to a continuing agreement between attorney and client.”[30]  This prevents the client from being placed in the awkward position of having to take action against an attorney who is still performing services under the original agreement.  However, the termination of the last services performed on the particular undertaking is what controls the start of the statute of limitations period, even if the attorney represents the client for other matters.[31]

Applying These Requirements to Civil Litigation and Criminal Defense Cases
​
As discussed above, there is a certain degree of latitude given to the lawyer who attempts to discern what a court will do, but chooses wrongly.  This reasonable judgment rule commonly arises in litigation matters.  These situations are often referred to as “cases within cases,” because in order to establish damages for a lost claim against a litigation opponent, it must first be established that but for the attorney’s malpractice, the client would have prevailed in the underlying action.  This often necessitates a “mini trial” of the underlying claim to establish that the malpractice claimant would have won that original case.[32]  Consequently, whether or not your claim for litigation malpractice is a truly winnable case can be open to interpretation. 

Likewise, the threshold for an attorney malpractice claim in a criminal case is somewhat more robust than in other situations.  This is because the client must establish that he or she obtained post-conviction relief, and was legally innocent, entitling the client to release from incarceration.[33]  Generally this rule supports the public policy of the Commonwealth that “a criminal defendant may not profit from a crime in a subsequent legal malpractice action.”[34] 

Like most situations involving complex legal issues, claims are evaluated on a case-by-case basis, taking into consideration all of the facts that are unique to you.  Therefore, be sure to consult with competent counsel if you feel that you have a potential claim against an attorney that has represented you by contacting us for a consultation. 
 
* * * * *

[1] Va. Code, § 54.1-3906.

[2] Virginia does not have certifications for legal specialists, therefore, the general standard applies for all attorneys authorized to practice in the Commonwealth.

[3] Shipman v. Kruck, 593 S.E.2d 319, 324 (Va. 2004) (noting the “special trust and confidence inherent in the attorney-client relationship,” and quoting Allied Productions, Inc. v. Duesterdick, 232 S.E.2d 774, 776-77 (Va. 1977)).

[4] Bankers Credit Service of Vermont, Inc. v. Dorsch, 343 S.E.2d 339, 341 (Va. 1986) (“In order for an agreement to be binding, the parties must have assented to its terms.  This assent, however, need not be communicated by express words, but may be inferred from the conduct of the parties.”).

[5] See Ayyildiz v. Kidd, 266 S.E.2d 108, 112-13 (1980) (noting that an adverse party cannot institute a legal malpractice claim, as adverse parties are not in contractual privity with the attorney, nor are they intended beneficiaries of the agreement between lawyer and client).

[6] 786 S.E.2d 453 (Va. 2016).

[7] Id. at 457.

[8] Id. at 463; cf Copenhaver v. Rogers, 384 S.E.2d 593, 596 (Va. 1989) (noting that “[t]here is a critical difference between being the intended beneficiary of an estate and being the intended beneficiary of a contract between a lawyer and his client.”)  As Copenhaver indicates, although alleging third-party beneficiary status may permit a case to proceed, it is still necessary to prove that the individual claimant was specifically intended to benefit under the contract for legal services.  Such a situation may occur where a parent engages an attorney for the representation of an adult child, for example.  Although the child may also be considered a client of the attorney from a professional ethics standpoint, the child is clearly the intended beneficiary of the agreement between parent and lawyer.

[9] Johnson v. Hart, 692 S.E.2d 239, 243-44 (Va. 2010).

[10] MNC Credit Corp. v. Sickels, 497 S.E.2d 331, 333 (Va. 1988).

[11] Id. at 334.

[12] Id. at 333-34.

[13] Glenn v. Haynes, 66 S.E.2d 509, 512-13 (Va. 1951).

[14] Lyle, Siegal, Croshaw & Beale, P.C. v. Tidewater Capital Corp., 457 S.E.2d 28, 32, 249 Va. 426, 432 (Va. 1995).

[15] Smith v. McLaughlin, 769 S.E.2d 7, 14 (Va. 2015).

[16] Shipman v. Kruck 593 S.E.2d 319, 323 (Va. 2004) (quoting Keller v. Denny, 232 Va. 512, 520, 352 S.E.2d 327, 332 (Va. 1987)).

[17] Williams v. Joynes, 677 S.E.2d 261, 265 (Va. 2009).

[18] Shipman, 593 S.E.2d at 326 (“A client who suffers the entry of a judgment against him indeed suffers a legal injury or damage”)..

[19] See In re Sheikhzadeh, Case No.:  14-14219-BFK at **10-11 (E.D. Va. Bankr. Jun. 26, 2018); see also Shipman at 323 (the cause of action accrued during the bankruptcy petition, which vested in the Bankruptcy Trustee).

[20] Property held by the debtor prior to the filing of the petition, and scheduled under Section 521 of the Bankruptcy Code, reverts to the original holder after discharge and closure of the case if the property is not pursued by the trustee for the purpose of addressing the debtor’s debts through the bankruptcy estate.  However, bankruptcy is a complex field of law, and questions surrounding choses in action where a bankruptcy is involved should be addressed by competent bankruptcy counsel.

[21] Smith, 289 Va. at 261, 769 S.E.2d at 17 (Va. 2015).

[22] Id.

[23] Id. at 265 (What damages are recoverable in legal malpractice is governed by the law concerning damages in breach of contract cases, and thus “‘are limited to those losses which are reasonably foreseeable when the contract is made’” (quoting Kamlar Corp. v. Haley, 224 Va. 699, 706, 299 S.E.2d 514, 517 (Va. 1983)).

[24] Smith, 769 S.E.2d at 19.

[25] Id. (quoting O’Connell v. Bean, 556 S.E.2d 741, 743 (Va. 2002)).

[26] Oleyar v. Kerr, 225 S.E.2d 398, 400 (Va. 1976).

[27] Virginia Code, § 8.01-246.

[28] Goodstein v. Weinberg, 245 S.E.2d 140, 142 (Va. 1978). 

[29] Virginia Code, § 8.01-230.

[30] McCormick v. Romans, 198 S.E.2d 651, 654-55 (Va. 1973); see also Keller v. Denny, 352 S.E.2d 327, 330 (1987) (holding that “the breach of contract or duty occurs and the statute of limitations begins to run when the attorney’s services rendered in connection with that particular undertaking or transaction have terminated.”).

[31] Shipman, 593 S.E.2d at 324 (Va. 2004) (holding “[t]he proper inquiry is not whether a general attorney-client relationship has ended, but instead, when the attorney’s work on the particular undertaking at issue has ceased”); see also Moonlight Enters., LLC v. Mroz, 293 Va. 224, 232-33, 797 S.E.2d 536, 540 (Va. 2017).

[32] See e.g., Smith, 796 S.E.2d at 10-11.

[33] Id. at 13.

[34] Desetti v. Chester, 772 S.E.2d 907, 910 (Va. 2015) (citing Taylor v. Davis, 576 S.E.2d 445, 447 (Va. 2003); Adkins v. Dixon, 482 S.E.2d 797, 801-02 (Va. 1997)).

By Susann Nordvik

It’s a story almost as old as time, or at least as old as high occupancy dwellings:  Renter signs lease, renter pays security deposit, renter moves out, renter loses security deposit to a host of nebulous, if nonetheless predictable, “expenses” charged back by the landlord after the fact.  This theme is so persistent that many tenants actually plan for the inevitable loss of their security deposit.  Other tenants who are somewhat more optimistic have gone to extreme measures to try and recoup as much of the deposit as reasonably possible, including hiring detailing services for the white glove and cotton swab treatment of their former home.

Washington D.C., however, has implemented safeguards to protect the tenant’s right to recover security deposits.  In 1955, the District enacted Title 14, Section 309 of the District of Columbia Municipal Regulations to prevent the renting public from losing those hefty deposits arbitrarily.  The regulation provides that a landlord must provide notice in writing of the intent to withhold any portion of the security deposit to pay for repairs or other expenses within forty-five (45) days of the termination of the tenancy.  Once this notice is provided, the landlord then has thirty (30) days to effectuate the claimed repairs and tender a refund of the unused amount to the tenant with an itemized statement of each expense to which the deposit funds were applied. 

This modest provision was intended to protect the tenant from random charges and surprises.  In many cases landlords complied with Section 309 in one form or another, and landlord/tenant relationships evolved accordingly.  For some less scrupulous landowners, however, Section 309 marked the beginning of an arms race-like effort to avoid returning deposits.  This eventually became such an obvious concern that in 2012, the District amended Section 309 include subsection 309.5, which details the consequences of a landlord’s failure to comply with the notice and refund requirements.  In the garden variety situation, this would render the landlord responsible for the return of amounts wrongfully withheld, plus any interest accrued during the tenant’s occupancy of a year or more.  Most notably, the new provision also contained a “treble damages” remedy in the event that the tenant was able to establish that the landlord acted in bad faith by refusing to return some or all of the tenant’s deposit.  Another regulation requires landlords who hold a security deposit for one year or more must keep the funds in and interest-bearing account and then return the bank paid interest to the tenant with the remainder of the security deposit.  See 14 DCMR § 311.2.

As an example, let’s say that Jack and Jill rented a two-bedroom apartment for $1500 per month and paid a security deposit of $1500.  They paid the rent timely every month for 12 consecutive months and then moved out.  Jack and Jill would then be entitled to a return of their deposit plus interest within 45 days (unless there was damage, which would give the landlord an additional 30 days to complete the repair and refund any remaining portion of the security deposit).  However, during the final inspection, the landlord noticed that Jack had ripped up some of the tile on the floor in the bathroom, and got an estimate from Good Buddy for the repair at $250.  The landlord then sends Jack a written notice that he will be withholding approximately $250 for the repairs to the bathroom floor.  The landlord promptly has the repair completed, and within 30 days of the written notice to Jack and Jill, the landlord returns $1250, plus interest, and a receipt for the floor repair.
 
But what happens if there was actually no tile damage at the time of move out?  Jack and Jill could be expected to be quite annoyed by the idea of having to be responsible for a $250 repair that was unnecessary, or based on conduct that took place after they left.  In such a situation, Jack and Jill may be able to recoup their lost $250, plus an additional $500 if they can prove that the landlord charged them for non-existent floor damage. 

This is not necessarily as simple as it may seem at first blush.  The text of the regulation describes what “bad faith” means for the purpose of claiming treble damages:

For the purpose of this sub-paragraph, the term “bad faith” means and frivolous or unfounded refusal to return a security deposit, as required by law, that is motivated by a fraudulent, deceptive, misleading, dishonest, or unreasonably self-serving purpose and not by simple negligence, bad judgment, or an honest belief in the course of action taken. 14 DCMR § 309.5(2).

Based on this definition, it would be plausible to obtain treble damages if Jack and Jill can prove that there was never any floor damage prior to vacating the apartment. Moreover, if Jack and Jill can show that the estimate obtained by the landlord was falsified by Good Buddy, a long-time friend of the landlord, this goes a long way to proving that the whole claim as a sham to enable the landlord to keep $250 of the deposit.  However, the landlord may not be found to have acted in bad faith if after his real estate broker conducted the final inspection, the cleaning crew damaged the floor and tried to pass it off as a circumstance caused by Jack and Jill.  The landlord may have reasonably believed the story of his staff rather than his former tenant. 

Additionally, the ability to recover treble damages may also be reduced by a lack of evidence provided to the civil judge or the administrative law judge (“ALJ”) (if a claim is made to the Rental Housing Commission).  This was the case in Bell v. Pourbabai, RH-TP-13-30, 448 (OAH Apr. 15, 2015). 

Bell, together with seven others, rented a single-family residence for $10,000 per month and paid a $10,000 security deposit.  Bell claimed that after more than a year of tenancy, the residents decided not to renew the lease, and although the premises were left in nearly as good a condition as they found it (with some exceptions), the landlord refused to return any portion of the $10,000 deposit.  The tenants filed a petition with the Rental Housing Commission.  After a full evidentiary hearing, the ALJ found that although some amounts of the deposit were improperly withheld, there was an insufficient showing of the landlord’s state of mind in refusing to return the deposit, and consequently, Bell was not entitled to treble damages. The ALJ stated:

In this case, there was no evidence to allow me to consider Housing Provider’s state of mind.  The testimony and evidence did indicate that the Housing Provider was at times intimidating and occasionally threatened the tenants unnecessarily, however, a totality of the evidence presented indicates that Housing Provider’s improper deductions were the result of bad judgment and poor management.  Moreover . . . it also appears that . . . he may have received improper advice from his attorneys.

It cannot be overstated that renting is a costly endeavor for both landlords and tenants.  Therefore, the most important thing for either a tenant or a landlord to do is to document everything.  Photographs or video of both the pre-move in and post-move out inspections will protect both parties from damage claims.  Documentation should include any appliances that were included in the rental, as well as fireplaces, the condition of walls, and any surfaces or fixtures that have been subjected to normal wear and tear.  If maintenance or repairs are an obligation under the lease, then the responsible party should document all such efforts and copy the other party with any relevant estimates or receipts.  Any requests or communication between landlord and tenant should be memorialized in writing, at least as a follow up or recap.  By doing so, it may be possible to avoid a significant percentage of conflict and miscommunication.  At the same time, if your landlord has a bad intent, you may be able to unmask fraud or deception through your showing of consistent care and effort.

Consulting an attorney experienced in bad faith cases may also help guide you along the way.  If you are a tenant, your attorney can help you understand the level of evidence necessary to develop your unique situation in the best possible way.  If you are a landlord, an experienced attorney can assist you in navigating your obligations and avoid costly errors. Feel free to contact Steven Krieger Law, if you need any assistance

By Peter Anderson 

With alarming frequency, nursing homes are slipping arbitration clauses into the reams of paper elderly people musty sign when being admitted to a nursing home. There are 2.5 million Americans living in nursing homes or senior living centers. Some legal advocates believe that as many as 90% of large nursing homes in the U.S. now include arbitration agreements in their admissions contracts.

In many cases, these agreements allow nursing homes to avoid being sued in a normal civil court. This means there is no judge, no jury, and the proceedings in most cases will remain sealed from the public eye. If a person who is injured by a nursing home’s negligence as their case resolved through arbitration, the press will never hear about it, and a Google search will not reveal the case.

Arbitration was meant as a tool for business to resolve disputes quickly and efficiently to avoid courts. However, the use of arbitration has expanded over the past 30 years, and has been increasingly used to deprive consumers, who have little legal knowledge, of their rights. Today, asking the elderly to sign arbitration agreements has become standard industry practice.

​The nursing home industry argues that arbitration is good for business. Industry insiders say that claims subject to arbitration settle for 7% lower total cost to the business and three months sooner than claims with no arbitration. On the other hand, trial lawyers and consumer-rights advocates argue that arbitration agreements deprive consumers of a right to a fair trial and public proceeding.

Why Arbitration Agreements are Bad for Nursing Home Residents

There are several problems with arbitration agreements from my perspective. First, in many instances nursing home residents do not know what they are signing. Elderly consumers may have varying degrees of dementia and are presented with page after page of documents to sign before they can be admitted. Some provisions are benign – the nursing home first may ask the patient to sign a “resident’s rights” document. But, the nursing home may also bury an arbitration agreement in the middle. These agreements are very complex with legalese. The nursing home resident is anxious to be admitted and is not thinking about the wording of every sentence. If the resident has Alzheimer’s or dementia, it is unconscionable to ask such a person to sign a complex contract. But it happens all the time.

Second, arbitration agreements are known to result in lower awards. Instead of a jury hearing your case, who may be outraged by the allegations of neglect, an arbitrator will hear the case. An arbitrator is usually someone with knowledge of insurance disputes or an attorney. These people may have become numb to injury claims and may be less likely to award a large amount of money to a claimant. Further, arbitrators are often chosen from a short list of regional professionals. The same arbitrator can decide cases involving the same nursing home over and over again. This incentivizes arbitrators to keep repeat clients happy and give more favorable decisions to repeat offenders. Studies show that awards to plaintiffs can be as much as 35 percent lower.

Third, arbitration has different rules. What might be considered hearsay in civil court may be admissible under the lax rules of arbitration. Speculation about the cause of a resident’s injuries would be more likely to be heard in arbitration than in a regular court, which typically only allows expert witnesses to opine on causation.
 
Virginia Law on Nursing Home Arbitration Agreements

Under Virginia Code § 8.01-581.01, “a written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.” Unfortunately, courts have held that Virginia law favors arbitration provisions. Bishop v. Med. Facilities of Am. XLVII (47) Ltd. P'ship, 65 Va. Cir. 187 (2004).

However, if you have a claim against a nursing home and are trying to invalidate an arbitration provision, here are a few possibilities:

• Agency – The nursing home resident did not sign the contract herself, and the family member, or nursing home employee, who did not have a valid authority to do so.
• Competency – The nursing home resident did sign the contract herself, but was not competent to do so at the time. The contract can be invalidated by showing that the person had dementia or Alzheimer’s at the time the contract was signed.
• Waiver – A nursing home may waive the right to arbitrate by litigating an issue covered by arbitration. For example, if the nursing home has filed a lien for unpaid medical bills, that may act as a waiver of the entire arbitration agreement.
• Fraud – A nursing home may have fraudulently induced a nursing home resident to sign a contract by misrepresenting the contents of the agreement or making untrue promises with respect to the agreement, the nursing home, or nursing home arbitration clause.

Invalidating a nursing home arbitration clause is a tough task. If you are pursuing a nursing home negligence case (or another claim against the nursing home), it is important to hire an attorney who as experience in dealing with arbitration agreements. If you or loved one has a question about a nursing home arbitration clause or nursing home abuse, please contact us and we'll try to be helpful.

By Omar Bississo

Thinking about drinking and driving?

You don’t have to worry about a DUI if you never put yourself in a position to get arrested for one. If you’re going to drink, plan ahead so that you’re not behind the wheel. Many innocent people have been charged with DUI, even though they were not drunk.

Even if you’re lucky enough to get your charge dropped, dismissed, or reduced, going through the court process is tedious, emotionally and psychologically draining, and very costly. In many cases, you may actually still get convicted, even if you weren’t actually driving under the influence! Of course, you may also get killed or seriously injured, or kill another driver. The risk to your safety and the risk of other charges related to a DUI accident alone are good reason to never drive under the influence.

But let’s examine the financial costs too. Next time you’re thinking about drinking and driving, do this simple math.

Let’s assume you’re out with friends or at another person’s home. You start drinking and before you know it, you’re a little tipsy or intoxicated. Let’s further assume that you live far from your house, and let’s even assume your car will get towed if you leave it overnight. If you do the right thing, your costs will look like this:

Cost of Uber/Lyft/Taxi: $15-$75.

Cost of Getting car towed and retrieved: $150-$250.

So you can see roughly you will pay $165-$325 assuming the highest costs possible AND assuming your car will get towed (which usually does not happen).

Now let’s look at what a DUI charge will cost you on average:

Attorney’s fees: $2,000- $7,500.

Administrative car impound fee: $175-300.

Criminal Fines: $250- $2,500.

Administrative Court Costs: $200.

Alcohol Safety Classes $600- $1200.

Ignition Interlock costs: $80 Installation plus $70-$80/month for 6 -12 months.

So a DUI charge can be very costly--well into the thousands of dollars.  Even if you win, you will incur attorney’s fees in the process.

Throw in the incalculable costs of a one year license suspension, permanent criminal record, and employment consequences, and the decision becomes easier.

So there it is: The next time you’re thinking about drinking and driving, do that simple math and then ask yourself if it’s worth it, both financially and from a safety perspective.

If you're reading this post after you received a DUI, please contact us and we'll try to be helpful.

By Stephanie Minkoff
 
The short answer is, yes, thanks to recent changes by the Virginia legislature to the common law security deposit statute § 55-225.19.

There are two sets of laws that govern residential leases: common law (for private landlords unless they have multiple properties) or the Virginia Residential Landlord and Tenant Act (mainly for institutional landlords, buildings, or private landlords with several properties). The Virginia Residential Landlord and Tenant Act (“VRLTA”) always had a provision for attorneys' fees (see § 55-248.15:1), but tenants renting from private landlords who were exempt from the VRLTA could not get their attorneys’ fees recovered in a lawsuit to related to the return of a security deposit.
 
For reference, the VRLTA protects tenant’s apartments, rental homes, and federally subsidized housing in many different ways by imposing requirements on institutional and large residential landlords (defined as three or more properties subject to a residential lease). For more information on the rights of tenants in Virginia, please see our recent blog post on the subject.
 
Let’s say you have just moved out of your rental apartment and you now want to collect the security deposit you paid at the start of your lease. In Virginia, your landlord is obligated to return your security deposit with or without any deductions, which should be itemized with written notice, provided by the landlord, within 45 days after the termination of the lease (for both common law and VRTLA leases). 
 
There are several reasons that your landlord may decide to withhold payment, including outstanding rent payments (including late fees as specified in the rental agreement), money to cover unpaid utilities, excessive wear and tear on the unit, etc., The landlord must provide written notice of such payment obligations. Tenants should make sure landlords have updated address information where security deposits can be mailed and returned. In situations where there is more than one tenant subject to the rental agreement, the security deposit will be returned, less any deductions, with one check made payable to all tenants to a forwarding address provided (unless otherwise previously agreed to in writing). 
 
According to § 55-225.19, obligations in regards to security deposits by the landlord include:

• Itemized record of all deductions made by reason of the tenants noncompliance with § 55-225.4 during the preceding two years; and 
• Permit a tenant or his authorized agent or attorney to inspect such tenant's records of deductions at any time during normal business hours.
• Upon request by the landlord to a tenant to vacate, or within five days after receipt of notice by the landlord of the tenant's intent to vacate, the landlord shall provide written notice to the tenant of the tenant's right to be present at the landlord's inspection of the dwelling unit for the purpose of determining the amount of security deposit to be returned. If the tenant desires to be present when the landlord makes the inspection, he shall so advise the landlord in writing who, in turn, shall notify the tenant of the time and date of the inspection.
• Following the move-out inspection, the landlord shall provide the tenant with a written security deposit disposition statement including an itemized list of damages. If additional damages are discovered by the landlord after the security deposit disposition has been made, nothing herein shall be construed to preclude the landlord from recovery of such damages against the tenant, provided, however, that the tenant may present into evidence a copy of the move-out report to support the tenant's position that such additional damages did not exist at the time of the move-out inspection.
• If the tenant has any assignee or sublessee, the landlord shall be entitled to hold a security deposit from only one party in compliance with the provisions of this section.

 
If you feel that your landlord has not complied with his/her obligations and has not returned your deposit appropriately, and you are unable to resolve the dispute informally, you may decide to take legal action against your landlord. While you may consider handling the dispute yourself, inside or outside of court, hiring a professional with expertise related to the specific landlord and tenant laws in Virginia, doesn’t have to be a huge expense. Professional legal assistance can make the difference in obtaining a favorable outcome and with the recent legislative changes you are also able to request your attorneys’ fees associated with the litigation to recover your security deposit.
 
Feel free to contact Steven Krieger Law if we may be helpful in your security deposit dispute.