All posts by Troy Moody

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SCOTUS Opinion: Court Rejects Discovery Rule For Fair Debt Collection Practices Act Claims

The Fair Debt Collection Practices Act requires that claims be brought “within one year from the date on which the violation occurs.” In Rotkiske v. Klemm, a debt collector filed suit against Kevin Rotkiske, served him where he no longer lived, and obtained a default judgment against him in 2009. Rotkiske learned of the judgment in 2014, and sued the debt collector. Rotkiske argued that the Act applied the “discovery rule” permitting his suit to be timely as filed within one year of when he discovered the collector’s conduct, but the district court and Third Circuit disagreed. The Court, in an 8-1 decision by Justice Thomas, affirmed, holding that the Act’s plain language precluded application of a discovery rule. The Court noted that the presence of fraud might equitably allow the discovery rule to apply, but held that Rotkiske had not preserved that argument. Justice Sotomayor wrote a concurrence to emphasize her view that the fraud-specific equitable discovery rule was not “bad wine of recent vintage,” but rather was historically available to parties. Justice Ginsburg concurred in part and dissented in part, arguing that Rotkiske had preserved his fraud-based argument, and should have had the benefit of the rule applied to his case.

A link to the opinion is here.

| Roy L. Kaufmann

Expansion of Home Purchase Assistance Program to Include Construction/Repair Money

A new bill has been introduced before the Council of the District of Columbia that would amend the Home Purchase Assistance Program (HPAP). This program provides assistance to first time home buyers of lower and medium income households by offering interest free loans towards down payments and some assistance towards closing costs. These loans generally take the form of second-position deeds of trust.

Under the current administration of HPAP, before a closing can occur, the property must be inspected and all housing code issues must be resolved. This has proved to be a problem because the funds to correct the code issues may not be available and, even if funds were available, closings are often delayed in order to finalize the repairs and the subsequent inspections. As a result, real estate professionals were reluctant to suggest HPAP resources to prospective purchasers and purchasers who were considering HPAP were shying away from any houses that needed repairs.

The proposed Home Purchase Assistance Amendment Act of 2019, Bill B23-569 would address these problems by increasing the current loan limit from $80,000 to $100,000 and making available an additional $15,000 for “essential home repairs.” Another goal of the legislation is to allow for more flexibility in contract negotiations, specifically allowing for repairs to be done before or even after closing with the additional funding source. Of course, the requirements of the first-position lender would have to be considered. Ideally, those lenders would recognize the mandate of the proposed legislation and lighten the requirement of addressing mandatory corrective issues that may be raised in an appraisal.

If you have any questions about this case or laws impacting real estate in and around the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.

| , John J. Matteo

End of the Calendar Year: A Good Time to Confirm Compliance Issues for Businesses

Corporations, limited liability companies (LLCs), and other business entities are certainly aware of the need to make certain end of year decisions for income tax purposes, but it also is a good time to perform a business audit for possible state, local, and personal property tax return deadlines.

It is also advisable for businesses to review other corporate compliance issues, such as training for board members to insure they are performing their legally required obligations. These types of reviews will not only secure a company’s good standing, but will create an atmosphere of compliance that can protect against unexpected claims and personal liability of owners. This article highlights just a few of the areas business owners should be considering about their companies and why the information is so important to insure compliance with existing law.

Is my Company in Existence and in Good Standing in All Jurisdictions Where It Operates?

A company cannot conduct business in any area unless it validly exists in that jurisdiction and remains in good standing. Corporations and LLCs exist upon the filing of articles of incorporation/organization with and acceptance by the appropriate government agency. Businesses that operate in more than one jurisdiction also must register or seek authorization to operate in every jurisdiction in addition to its original state of organization.

Business entities must also ensure that they remain in good standing. To remain in good standing after filing articles of incorporation/organization or registering to do business in a given jurisdiction, a company must satisfy six general requirements. First, it must maintain a registered agent for service of process in that jurisdiction. Second, the company must have paid all fees and penalties owed to the government of the jurisdiction in connection with any corporate filings. Third, it must be up-to-date on its annual or biannual reports (as described in greater detail below). Fourth, it must be up-to-date on all requisite tax returns. Fifth, the state’s records must not reflect that the entity has been dissolved. Finally, no dissolution proceeding can be pending against the entity. An entity that satisfies all the foregoing requirements will generally be considered in good standing.

Corporate Filing Requirements in Local Jurisdictions

All three local jurisdictions require corporations to file annual or biennial reports.

  • The District of Columbia requires companies to file biennial reports, which must include certain information about the company. In the past, the District of Columbia sent notices and forms to every licensed business; however, that is no longer the case and companies are now responsible for filing online. The first biennial report must be filed by April 1 following the company’s date of formation or registration in the District of Columbia. Thereafter, biennial reports must be filed by April 1 of alternating calendar years.
  • Maryland requires each company to file a report annually no later than April 15 of each year.
  • Virginia requires all companies to file annual a company must file its first annual report before the last day of the twelfth month after it was incorporated or authorized to do business in Virginia. Annual reports must be filed by the same date in each subsequent year.

Personal Property Tax Returns

All the local jurisdictions require business entities to file personal property tax returns.

  • The District of Columbia requires every business that owns personal property in the District or holds it in trust to file a District of Columbia personal property tax return (Form FP-31) on or before July 31 of each year.
  • Maryland requires all companies to file personal property tax returns on an annual basis and they must be submitted no later than April 15 each year. The state recently changed its rules and now allows for one common form to be filed for a company’s annual report and personal property returns.
  • In Virginia, personal property taxes are determined at the local county level.
    • Arlington County imposes a tax on most tangible personal property, including furniture, machinery, tools, and computer equipment. All corporations in Arlington County must file annual Business Tangible Personal Property Returns no later than May 1 of each year, covering all tangible personal property the corporation owned, leased, or had in its possession in Arlington County as of January 1 of the current year.
    • Fairfax County follows a similar rule. Business furniture and fixtures, machinery, tools, and computer equipment that are located in Fairfax County as of January 1 each year must be declared on county tax forms, which must be filed with the Fairfax County Department of Tax Administration by May 1 of each year.

Consequences of Losing Good Standing Status

Companies that lose their good standing status face a range of serious consequences. For example, the company cannot file suit in that jurisdiction until its good standing is restored. Loss of good standing for failure to pay taxes may result in a tax lien. A company not in good standing may be subject to civil fines and penalties that must be paid before its good standing will be restored and can be costly if the company needs to be reinstated. The state may even revoke the company’s charter and administratively dissolve the entity. Every company should confirm on an annual basis that it is in good standing so that it can lawfully continue to carry on its business and affairs.

If a company is in fact revoked and continues to operate, the penalties can be more than just the cost of paying late fees. In many jurisdictions, officers and directors who continue to conduct business on behalf of a revoked business entity subject themselves to personal liability. District of Columbia courts have held that when a director or officer is found to be personally liable for the acts of a revoked entity, even reinstatement of the entity will not relieve that director or officer of personal liability.

Corporate Formalities

Basic Requirements: Boards, Meetings, Elections, and Recordkeeping

One advantage that LLCs have over corporations is that LLCs have fewer corporate formalities with which they must comply. In that sense, LLCs are more akin to partnerships than corporations.

Every corporation must have a board of directors, unless a shareholder agreement eliminates that requirement. However, all nonprofit corporations cannot eliminate this requirement. The board of directors has the authority to exercise the entity’s corporate powers and to manage its affairs and activities. The corporation’s articles of incorporation or bylaws should set forth the number of directors that will serve on the corporation’s board.

Directors are elected by the shareholders at the annual shareholder meetings. The initial directors serve until their successors are elected at the first shareholders’ meeting. Otherwise, each director serves for the term specified in the bylaws. Unless otherwise provided by the articles of incorporation, the shareholders may remove any director with or without cause. However, they can only do so at a special meeting called for the purpose of removing such director.

Directors may hold both annual meetings and special meetings. At the absolute minimum, the board must hold an annual meeting at least once a year. It is imperative that the board prepare minutes of each board meeting, which operate as an official account of any actions taken by the board at the meeting. Unless the bylaws provide otherwise, the minutes of every meeting should be filed in the corporation’s minute book. In addition to board meeting minutes, the corporate record book should include minutes of all shareholder meetings, records of all actions taken by the directors or shareholders without a meeting, and records of all actions taken by a committee of directors in lieu of the board. The corporation should also maintain appropriate accounting records. Finally, the corporation must maintain a record of its shareholders, including their names and addresses, that clearly sets forth the number of shares held by each.

The corporation’s bylaws should expressly identify the types of officers the corporation will have. The board is responsible for electing the corporation’s officers, unless the bylaws authorize one of the officers to appoint other officers.

Larger corporations are likely very familiar with these requirements, but often closely held and family owned corporations with a minimal number of owners are not as strict about holding meetings and documenting actions of the corporation, which can lead to other consequences.

Action by Meeting or Resolution

Action by the board of directors is typically taken at a board meeting. The board cannot take action at any meeting unless a quorum of directors is present. Unless the corporation’s governing documents provide otherwise, a quorum of directors means a majority of the directors on the board. So long as a quorum is present, the affirmative vote of a majority of directors present at the meeting will constitute an act of the board, unless a different vote is specified by the corporation’s governing documents.

However, unless the corporation’s governing documents require certain types of actions to be taken only at a meeting, the board may also act by resolution without holding a meeting. Action without a meeting requires the unanimous written consent of all directors. If the resolution does not have the unanimous consent of the directors, it is not an action of the board. A unanimous resolution of the board has the same effect as action taken at a meeting of the board of directors.

Fiduciary Duties

The officers and directors of a corporation owe fiduciary duties to the corporation and its shareholders. In some jurisdictions, the managing members of an LLC may owe similar duties to the non-managing members. The two principal fiduciary duties are the duty of loyalty and the duty of care. The scope of the duties and responsibilities owed by corporate fiduciaries is defined by the courts rather than by statute. However, directors or officers who violate those duties expose themselves to potential personal liability.

The Duty of Loyalty

The fundamental principal behind the duty of loyalty is avoiding conflicts of interest. Specifically, there should be no conflict between a director’s self-interest and his loyalty to the corporation. Most litigation involving alleged violations of the duty of loyalty occurs in one of two contexts: interested director transactions and usurpation of corporate opportunities.

The classic interested director transaction occurs when a corporation enters into a contract with a company that is owned by one of its officers or directors. For example, if one of the directors owns a landscaping company, and the corporation decides to retain that particular company for its landscaping needs, the director who owns that company is considered an interested director. However, a transaction is not automatically void simply because of a conflict of interest. If a director has a conflict of interest, he should immediately and fully disclose the conflict to the board and should be disqualified from voting on any issues relating to the transaction. It is imperative that the disclosure and the disqualification are appropriately documented in the corporate minutes.

Interested director transactions are permissible so long as certain criteria are satisfied. In the District of Columbia, an interested director transaction is effective if, after the requisite disclosures have been made by the interested director, the transaction was either: approved by the majority of disinterested directors who voted on the matter; approved by the majority of votes cast by qualified shareholders entitled to vote on the matter; or adjudged by a court of law to have been fair to the corporation.

Usurpation of a corporate opportunity occurs where a director or officer uses his or her position within the corporation for personal gain at the corporation’s expense. If an officer or director is faced with a corporate opportunity, he or she must not take advantage of the opportunity unless he or she first brings it to the corporation’s attention and offers the opportunity to the corporation. The director or officer should be disqualified from voting on any matters relating to the corporate opportunity. If the corporation rejects the offer, the director or officer may then proceed with the opportunity. The disclosure and offer of the opportunity the corporation, the director/officer’s disqualification from voting, and the corporation’s rejection of the offer should be carefully documented in the corporate minutes.

The Duty of Care

The duty of care requires directors and officers to act in good faith and in a manner that they reasonably believe to be in the best interest of the corporation. This requires them to use the same level of care that a reasonably prudent person would be expected to exercise under similar circumstances.

To satisfy this requirement, directors and officers must adequately inform themselves of all facts necessary to reach a reasoned decision. Thus, directors must disclose to the other board members any information not already known by them that the director knows is material to the board’s decision making or oversight. Directors who do not have knowledge may rely on information, opinions, reports, or statements of the board’s attorneys, accountants, or other professionals retained by the corporation to the extent that the director believes such persons have the expertise needed to opine on the matter. A director may also rely on a committee appointed by the board if he or she believes the committee merits confidence. Finally, a director may rely on an officer or employee of the corporation if the director reasonably believes such person to be reliable and competent with respect to the information he or she is providing.

Examples of violations of the duty of care include failure to attend meetings, failure to keep oneself informed, failure to prevent harm to the corporation, make reasonable inquiries or adequately monitor, adequately supervise, and negligent appointment or retention of untrustworthy or incompetent officers.

Ramifications of Breaches of Fiduciary Duties

Failure to maintain corporate formalities can result in officers and directors being held personally liable for the obligations of the corporation. This occurs in situations where there is such a unity of interest and ownership that the separate personalities of the corporation, on the one hand, and its individual officers and/or directors, on the other hand, cease to exist. Courts refer to this concept as piercing the corporate veil. The determination of whether to pierce the corporate veil is heavily fact-specific, and the factors that go into the analysis vary based on the circumstances. A few of the more common factors that weigh in favor of piercing the corporate veil and imposing personal liability on an individual officer or director include:

  • Undercapitalization or insolvency;
  • Failure to observe corporate formalities or maintain adequate books and records;
  • Using the corporation to deceive or defraud creditors;
  • Commingling corporate funds or assets; and
  • Diversion of corporate funds or assets.

Irrespective of alter-ego situations in which the corporate veil is pierced, any director who votes for or agrees to an excess distribution is personally liable to the corporation for the amount of the distribution in excess of what the corporation was authorized to distribute.

With respect to nonprofit corporations that maintain at least a certain amount of liability insurance coverage, an officer or director serving in such capacity as a volunteer is immune from civil liability unless the injury to the nonprofit resulted from: (i) the volunteer’s willful misconduct; (ii) a crime, unless the volunteer had reasonable cause to believe it was lawful; (iii) a transaction that resulted in an improper personal benefit to the volunteer; or (iv) an act or omission not in good faith and beyond the scope of the nonprofit’s authority.

While nonprofit employees who serve as officers or directors of the nonprofit do not enjoy the same immunity, their liability for injury to the corporation is limited to the amount of compensation they received from the nonprofit in the preceding twelve months, unless the injury to the nonprofit resulted from: (i) the employee’s willful misconduct; (ii) a crime, unless the employee had reasonable cause to believe it was lawful; (iii) a transaction that resulted in an improper benefit to the employee; or (iv) an act or omission that was not in good faith and was beyond the scope of the nonprofit’s authority. The foregoing limitations of liability do not exempt the nonprofit entity from liability; however, the nonprofit is only liable to the extent of the applicable limit of the insurance coverage it maintains.

Personal Liability of Certain Officers and Directors for Payroll Taxes

Directors and officers who are responsible for the accounting of and paying for payroll taxes can be held personally liable for failure to do so. An officer or director is responsible for payroll taxes if he or she has the duty to account for, collect, and pay over the taxes to the government. Of note, personal liability will not attach simply because of a person’s corporate title. Rather, an officer or director will only be personally liable for unpaid payroll taxes if he or she had a duty to account for, collect, and pay over the taxes to the government.

Other Compliance Issues

These are just a few highlights of what would constitute a good corporate review; many are tied to specific dates. Other areas that should be reviewed are whether your business has engaged in properly training your employees, including training on avoiding sexual harassment in the workplace. Many states are beginning to require a variety of workplace training as a condition for operating a business.

Advice for all Companies

All companies would be wise to seek out their legal and accounting advisors to assist in answering what laws apply to their businesses and in which jurisdictions to assure they are in compliance. They would also be well served to make it a practice to conduct these types of business audits on an annual basis and to properly train their boards, officers, and staff on compliance issues regardless of their size or the nature of their business.

Jackson & Campbell’s Business Law Practice Group regularly advises for profit and nonprofit/charitable business of all sizes on formation, compliance, and regulatory issues across a wide spectrum of operating procedures. This advice also has included board training sessions on their fiduciary duties, and company-wide training on employment and related matters. Please contact John Matteo, Chair of the Business Law Practice Group at jmatteo@jackscamp.com or Erica Litovitz at elitovitz@jackscamp.com for further information or to schedule a training session for your company.

| Christopher A. Glaser

December Real Estate Update | Rae Lee Davis v. J. Garnett Davis, Jr.

On December 5, 2019, the Supreme Court of Virginia issued an opinion invalidating three gift deeds executed and delivered in 2013. The decision is significant in that evidence outside of the recorded documents – and, presumptively, outside of the review of any title examiner – was relied upon by the Court in reaching its decision.

In Rae Lee Davis v. J. Garnett Davis, Jr., Dickey Davis executed a durable power of attorney granting his mother, Agnes, the power to “sell and convey” his real property and to otherwise “execute and perform all and every act or acts” that Dickey could do if acting personally. In October 2013, following the deterioration of his mental and physical condition, Dickey’s physicians notified Agnes of the risk of Dickey’s passing. Within a few days, Agnes made various gifts of Dickey’s personal property to herself and executed three deeds conveying real property valued in excess of $2 million to Dickey’s siblings. The stated purpose of the transfers was to place the properties into “safer hands” and away from Dickey’s spouse, Rae. Dickey passed away in November 2013.

In 2016, litigation was filed challenging the transfers and in November 2017 the circuit court upheld the validity of the deeds. On appeal, the Supreme Court of Virginia first analyzed the legal doublet of “sell and convey” and held that the term did not permit gifting. The term required both a selling and a conveyance such that the attorney-in-fact was authorized to cause transfers only for “adequate consideration.” As there was no consideration, much less adequate consideration, the reliance on the “sell and convey” power was ineffective.

Agnes next asserted that Va. Code § 64.2-1622(H) allows an attorney-in-fact to make gifts of real property in accordance with the principal’s personal history of making gifts. At trial, there was no evidence of any gifts of real estate during Dickey’s lifetime. Absent such evidence, the Supreme Court held that the three 2013 deeds of gift were invalid.

The Supreme Court’s decision raises more questions than it settles. With the vast majority of deeds in the Commonwealth being recorded without complete documentation as to either the adequacy of the consideration or the principal’s lifetime history of making gifts, one should exercise due care in determining the adequacy of deeds executed by attorneys-in-fact.

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

If you have any questions about this case or laws impacting real estate in and around the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.

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Virginia Supreme Court Adopts Partial Subordination Rule

The case of Futuri Real Estate, Inc. v. Atlantic Trustee Services, LLC involved a question of first impression in Virginia regarding what should happen when a first-priority position lien subordinates itself to a third-priority position lien. Under the complete subordination rule, the first-priority position lien becomes junior to the other two liens on the property, the second-priority lien moves to first, and the third-priority lien becomes second. In other words, A-B-C becomes B-C-A. Under the partial subordination rule, the third-priority lien takes part (or all) of the first-position lien’s spot. So A-B-C becomes (C and then A, up to the amount of A’s lien)-B-(C and then A for the remainder). That way, the second-priority lien does not obtain a windfall. The circuit court opted for the partial subordination rule, and the Virginia Supreme Court, in an opinion by Senior Justice Lacy, affirmed, holding that complete subordination was inconsistent with Virginia law because it “incorporates an inference that the contracting parties intended to affect lienholders who are not a party to the agreement, notwithstanding that such intent is not contained in the language of the agreement.”

A link to the opinion is here.

 

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SCOTUS Opinion: Court Remands Alaska Political Contribution Limits Case For Closer Review

The first opinion handed down by the Court in its 2019 Term concerned Alaska’s law limiting contributions to candidates or election-oriented groups to $500 per year. The Ninth Circuit upheld the law, but the Court, in a per curiam decision in Thompson v. Hebdon, reversed and remanded. The Court noted that the Ninth Circuit chose not to apply the decision in Randall v. Sorrell, 548 U.S. 230 (2006), in which the Court rejected Vermont’s law restricting political contributions because those limitations were too low, which could also “harm the electoral process.” The Court noted similarities between Vermont’s law and Alaska’s, including the fact that Alaska’s limits were lower than any prior limit the Court had upheld, and not adjusted for inflation over time. The Court remanded the case for application of Randall and to consider whether any “special justification might warrant a contribution limit so low.” Justice Ginsburg filed a statement not opposing the remand, but noting “certain features” of Alaska’s law that might be deemed a sufficient “special justification.”

A link to the opinion is here.

| David H. Cox

Is the Lender’s Title Policy Coverage Triggered in the Underlying Battle Between the Lender and the Homeowners Association in a Super-Priority Lien State?

In Wells Fargo Bank, NA, as Trustee v. Fidelity National Insurance Company, Case No. 3:19-cv-00241-MMD-WGC in the United States District Court for the District of Nevada (decided October 29, 2019), the trial court was recently confronted with an issue which has been brewing over the past several years in those states that provide Homeowners Association (HOA)/condominium liens with a super-priority status.

The facts of this case are similar to those being litigated in Nevada, Washington, D.C., and in other HOA super-priority lien jurisdictions.

The borrower purchased the property within a HOA on February 27, 1998 and obtained a loan in the amount of $140,000 secured by a first deed of trust. At the time of purchase, Fidelity issued a lender’s title policy in favor of the then lender “…and/or its successors and assigns as the insured.” Ultimately, Wells Fargo, as trustee, became the assigned beneficiary of the deed of trust sometime in November 2016.

As one would expect, the HOA recorded a notice of delinquent assessment lien against the borrower’s property on June 14, 2014 and the HOA sold the property at a lien foreclosure sale to the buyer on December 17, 2014.

Wells Fargo then filed a complaint against both the buyer and the HOA challenging the sale and the Court granted summary judgment in favor of Wells Fargo.

On a related and parallel track, Wells Fargo’s predecessor provided written notice to Fidelity that the buyer claimed an interest in the property superior to the deed of trust. Fidelity denied the claim on the basis that the claim did not fall within the insuring provisions of the title policy and that the HOA lien was created after the date the policy was issued.

In this separate litigation, Wells Fargo asserted a number of bases for why coverage – particularly the duty to provide a defense – should be implicated and triggered. The trial court agreed with Fidelity’s defenses and concluded that the claim was not covered under the lender’s policy. Although both Exclusion 3(d) and Exception 13 were cited by Fidelity as the basis for the denial of coverage, the trial court elected to focus exclusively on Exclusion 3(d). For this court, the analysis was quite straight forward: since Exclusion 3(d) bars coverage for loss or damage by reason of defects or liens created subsequent to the date of policy and the date of policy is February 1, 2007 and the claimed defect or lien here did not arise until 2014, there is no coverage for this lien.

For those readers who are actively involved in either title insurance or HOA matters (or both), you may want to review the entire opinion as there were other related issues discussed and addressed.

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions about this summary, feel free to contact our Real Estate Litigation and Transactions Practice Group.

| Christopher A. Glaser

October Real Estate Update | Lawrence R. Carver, Jr. v. RBS Citizens, N.A.

On September 27, 2019, the Court of Special Appeals of Maryland issued an opinion reversing a judgment against Security Title Guarantee Corp. of Baltimore. The decision is significant not merely for what the Court held, but for what claims were not raised by the property owners.

In Lawrence R. Carver, Jr. v. RBS Citizens, N.A., Nancy and Lawrence Carver purchased multiple lots in Cecil County, Maryland and encumbered each with separate deeds of trust. Following the subdivision of one lot into two separate parcels – referred to as Property A and Property B by the Court –the Carvers sought to refinance the entire debt as to all parcels. Purportedly intending to obtain a deed of trust against all parcels, RBS obtained a deed of trust only against Property A with only Lawrence Carver, and not Nancy Carver, being identified as the borrower. During the refinance transaction, Security Title acted as RBS’s title examiner and issued a lender’s policy of title insurance. Thereafter, the Carvers obtained additional loans from another lender, which were secured by deeds of trust executed by both Nancy and Lawrence Carver.

Following a default on the RBS loan, it was recognized that the refinance deed of trust extended only to Property A and not to the other properties. To remedy the error, Security Title unilaterally revised and re-recorded the deed of trust to include all parcels and added Nancy Carver as a borrower.

In response to the re-recording, the Carvers sued both RBS and Security Title alleging misrepresentation, fraud, constructive fraud, and conspiracy. The claims against RBS were settled before trial, but the claims against Security Title proceeded to trial in April and June 2017. The trial court ruled in favor of Security Title on all claims except for constructive fraud, for which the Carvers were awarded $6,726 in damages. The award in favor of the Carvers was reversed on appeal as the Carvers presented no evidence at trial establishing a confidential relationship with Security Title, a necessary element in their constructive fraud claim.

While the ultimate reversal as to the constructive fraud claim is fairly predictable given black-letter law in Maryland, it is notable that the claims raised by the Carvers – misrepresentation, fraud, constructive fraud, and conspiracy – are personal torts. The more familiar property torts (e.g. slander of title) were not asserted by the Carvers. Some in the title industry may rely upon the Court’s decision to vindicate the unilateral action of re-recording a deed of trust under similar circumstances, but one should be cautious as future plaintiffs may press claims in addition to the personal torts raised by the Carvers. As neither the trial court nor the appellate court opined on the potential liability flowing from such unilateral action, careful attention should be given in the future in relying on this case.

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

If you have any questions about this case or laws impacting real estate in and the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.

| Christopher A. Glaser

September Real Estate Update | Loch Levan Land L.P. v. Board of Supervisors of Henrico County

On August 22, 2019, the Supreme Court of Virginia issued an opinion denying a developer’s claim of vested rights in a dedicated road. In Loch Levan Land L.P. v. Board of Supervisors of Henrico County, the Court affirmed the Circuit Court’s judgment and brought major disruptions to plans for development of 1,089 acres of land located only a few miles from Richmond.

The matter begins in 1989 when the 1,089 acres were rezoned to include plans for an existing “spine” road to be continued through the new development. Beginning in 1991, Henrico County included the road in its Major Thoroughfare Plan. In 1992, the developer recorded a plat for the sole purpose of dedicating a right-of-way to complete the road. No construction was ever commenced on the road and the project remained stalled for many years.

With economic prospects improving, the developer filed a rezoning application in 2016. Almost immediately, the neighboring residents grew worried that the development would unreasonably increase traffic. The Board of Supervisors, responding to the complaining neighbors, removed the unbuilt road from the Major Thoroughfare Plan and in February 2017 abandoned the road. The developer soon brought suit alleging, among other things, that it had vested property rights in perpetuity to develop the road.

The Supreme Court of Virginia examined Va. Code §15.2-2261(C) and noted its plain language that the Board was prohibited from adversely affecting the developer’s rights to complete an approved development “in the case of a recorded plat for five years after approval.” However, since the road was not constructed within the five-year period from 1992 – a “significant period for a developer to complete a road” – the developer’s statutory rights expired.

The developer contended that it held a constitutionally vested property right that augmented the statutory five-year right. The Supreme Court of Virginia, however, quickly dismissed this notion by citing the dedication statute and noting that the “dedication of a road ‘shall operate to transfer, in fee simple,” the premises platted. As the developer had transferred fee simple title to the property, it had no property right in the road and, thus, no constitutionally protected property right. The Supreme Court of Virginia further concluded that the developer only “had a statutory right to construct the road within five years. It forfeited that right through inaction.”

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

 If you have any questions about this case or laws impacting real estate in and the Washington, D.C. region, feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist. This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions, please contact Chris Glaser at Jackson & Campbell, P.C.

| Christopher P. Ferragamo

Supreme Court of Virginia Holds That Insurer is Entitled to Equitable Contribution From Another Covering Insurer and that Consent to Settlement Conditions Are Waived by Denial of Coverage on Other Grounds

In a decision issued on July 18, 2019, the Supreme Court of Virginia vacated a judgment entered in favor of a liability insurer seeking contribution against another liability insurer and remanded the case to the trial court on the grounds that the complaint had stated a claim for equitable contribution. Nationwide Mut. Fire Ins. Co. v. Erie Ins. Exchange, 829 S.E.2d 731 (Va. 2019). The insurance coverage action arose out of an automobile accident involving an employee of a construction company’s subcontractor who died in a car crash while driving a vehicle lent to the subcontractor by the construction company. The lawsuit began as a declaratory judgment action involving the insurers of the driver, the construction company, and the subcontractor. In the coverage action, the trial court concluded that Nationwide had primary coverage for the first $3 million in liability and that Erie’s policies, which included a $1 million commercial automobile liability policy and a $5 million business catastrophe policy, provided excess coverage beyond that amount. While that case was on appeal, Nationwide accepted a $2.9 million settlement demand after Erie refused to contribute toward the settlement.

In an August 2017 decision issued by the Supreme Court of Virginia, the Court decided the priority of insurance coverage for the crash (Nationwide I) and reversed the trial court’s ruling holding that Nationwide’s CGL policy did not provide coverage for the crash, that Erie’s commercial auto policy provided primary coverage, that Nationwide’s business auto policy provided excess coverage for up to $1 million, and that Nationwide’s commercial umbrella policy and Erie’s business catastrophe policy shared coverage on a pro rata basis. Nationwide then filed a lawsuit against Erie seeking equitable contribution of $1.75 million for Erie’s share of the $2.9 million settlement. Erie demurred, arguing that it had no common obligation with Nationwide to pay the settlement because Nationwide made a unilateral and voluntary settlement payment and because Erie’s consent to settle provision in its policies had not been satisfied. The trial court sustained Erie’s demurrer and dismissed Nationwide’s complaint with prejudice.

Nationwide appealed and argued that its allegations were sufficient to state a claim against Erie for equitable contribution. The Supreme Court of Virginia agreed. In so ruling, the Court noted that the purpose of equitable contribution is to spread the ultimate liability in a fair proportion among the jointly liable obligors and that it is based on “broad principles of equity that where two or more persons are subject to a common burden it shall be borne equally.” The Court concluded that Nationwide’s complaint alleged facts that, if proven, justify an award of equitable contribution. With respect to Erie’s argument that it did not owe a share of the settlement because it did not agree to the settlement, the Court disagreed. According to the Court, “Erie’s refusal to contribute toward a settlement under $3 million had nothing to do with Erie’s right to agree to the settlement but was instead based upon Erie’s then-existing right to refuse to pay anything toward a settlement exclusively within Nationwide’s, not Erie’s, coverage.” The Court further noted that, under settlement principles, an insurer that denies coverage waives any contractual right to participate in a settlement of a claim and cannot later refuse to pay a covered claim on this basis. “For this reason, the conditions precedent to payment requiring consent to a settlement or judgment against the insured did not apply here.” The Court vacated the trial court’s judgment and remanded the case to the trial court to determine the reasonableness of the settlement (which the Court noted must be established by a settling insurer seeking equitable contribution) and an allocation based upon the Court’s decision in Nationwide I.

 

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions about this summary, feel free to contact our Insurance Coverage Practice Group.

| Roy L. Kaufmann

Commercial Recordation/Transfer Tax Increase and Mandatory Use of New FP7

The Washington, D.C. Office of Tax and Revenue has issued an official notice of the increase on transfer and recordation tax on commercial properties where the consideration (real or imputed) is more than $2 million.

The increase is effective on October 1, 2019 and is scheduled to expire on September 30, 2023.

A new FP-7 form must be submitted with all recordings after October 1, 2019 regardless of the date of closing.

Economic Interest deeds on commercial properties over $2 million will be taxed at 5% (however, there is no tax if the economic interest is on a residential coop unit).

A deed of trust on a commercial (both improved and unimproved) property securing a debt of $2 million is subject to an additional 1.05%, bringing the overall tax rate to 2.5% (subject, still, for the exemption from recordation tax, i.e. simultaneous with a purchase).

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions about this summary, feel free to contact our Real Estate Litigation and Transactions Practice Group.

| Arthur D. Burger, David H. Cox, , Roy L. Kaufmann,

The Best Lawyers in America 2020

Jackson & Campbell, P.C. is pleased to announce a number of our Directors have been named to The Best Lawyers in America© 2020 Edition.

Congratulations to:

A special congratulations to David H. Cox for being selected as the Washington, D.C. Lawyer of the Year in Real Estate Litigation.

Since it was first published in 1983, The Best Lawyers in America© has become widely regarded as the definitive guide to legal excellence. The Best Lawyers in America lists are based on exhaustive peer review surveys in which over 50,000 top attorneys cast more than 5.5 million votes on the legal abilities of other lawyers in their practice areas. Corporate Counsel magazine has called The Best Lawyers in America “the most respected referral list of attorneys in practice.” Congratulations to our attorneys for such prestigious recognition by their peers in their specific areas of law.

Jackson & Campbell’s attorneys are among the most respected in Washington, D.C. routinely winning national awards and high rankings from organizations like The Best Lawyers in America, Super Lawyers, Who’s Who in America, and many others. Dependability is the cornerstone of a successful attorney-client relationship. We take particular pride that our clients depend on our advice to address what is often among their most important decisions – wills, family trusts, generation wealth transfers, real estate transactions, business transactions, professional negligence, and all types of dispute resolutions ranging from arbitrations to jury trials. Jackson & Campbell traces its roots to 1887, making it one of the oldest law firms in Washington. We pride ourselves on more than a century of service to our clients and our community.

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Virginia Code Expands Uses for Discovery Depositions and Affidavits

On July 1, 2019, an amendment to the Virginia Code took effect which allows discovery depositions and affidavits to be “used in support of or in opposition to a motion for summary judgment in any action when the only parties to the action are business entities and the amount at issue is $50,000 or more.” See Va. Code sec. 8.01-420(C).

Previously, depositions could only be used if all parties agreed to allow it, or in seeking dismissal of a claim or demand for punitive damages. It remains to be seen whether this modest change reflects a trend toward liberalizing the restrictions on summary judgment in Virginia. The change to Rule 3:20 of the Rules of the Virginia Supreme Court, which will implement the statute’s modification, will take effect on September 1, 2019.

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions about this summary, feel free to contact our Real Estate Litigation and Transactions Practice Group.

| Nathan J. Bresee

D.C. Superior Court Amends Landlord/Tenant Rules

On July 23, 2019, the Superior Court of the District of Columbia issued amendments to the Landlord and Tenant Branch Rules of Procedure.

Generally, the amendments made stylistic changes that are consistent with the recent amendments to the Superior Court Rules of Civil Procedure (i.e., the replacement of the word “shall” with “must”).

Along with the stylistic changes, the amendments made several substantive changes:

Rule 3-II: New rule allows a defendant to join additional parties in actions based on alleged nonpayment of rent if the defendant claims that another person or entity is legally liable for all or part of the amount alleged in the complaint. Motion for joinder must be filed no later than the time for appearance of the existing defendant stated in the summons.

Rule 4: An affidavit of service must now be filed at least six days before the date set for the initial hearing. If the plaintiff does not file an affidavit in that time period, the clerk will dismiss the case without prejudice.

Rule 5: Counterclaims must now be requested in writing at least 14 days before trial. This rule has also been amended to include the procedures for asserting defenses of recoupment and setoff and for filing an undertaking.

Rule 7: Any party may file an application requesting that the court continue the initial hearing date, after making a reasonable effort to notify the other party. The court will hold a hearing on the continuance request on the same day the application is filed.

Rule 10: The amendments clarify that – for cases certified to the Civil Division – parties are entitled to 10 requests for production. (Previous version of the rule stated that parties could only request 10 documents.)

Rule 12-I: Rule now states that a judgment for possession may not be entered as a sanction for a defendant’s failure to comply with a pretrial payment order in any case in which the complaint does not allege the defendant’s nonpayment of rent as a basis for the entry of a judgment in favor of the plaintiff.

Rule 14-II: Rule now states that, in a residential housing case, the redemption amount may not include late fees.

Rule 16: The amendments removed the two day waiting period to file a writ after judgment.

The amendments take effect on September 16, 2019. A full version of the amendments can be found here.

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions about this summary, feel free to contact our Real Estate Litigation and Transactions Practice Group.

| Christopher P. Ferragamo

Changes in Legal Landscape That Could Impact Medical Malpractice Risks | August 2019

In researching and reviewing recent legal developments in the medical malpractice field, Jackson & Campbell, P.C. has identified recent changes in the law and the legal landscape that could impact medical malpractice claims and the risk associated with such cases. Below highlights some of these issues.

Impact of Increase in Successful Challenges to Caps on Non-Economic Damages

  • Louisiana (October 2016): Supreme Court of Louisiana provides pathway to circumvent cap on medical malpractice awards.
  • Florida (June 2017): Florida Supreme Court strikes down cap on non-economic damages in medical malpractice actions ruling that the cap is unconstitutional.
  • Oklahoma (April 2019): Oklahoma Supreme Court strikes down cap on non-economic damages in civil actions ruling that the cap is unconstitutional.
  • Kansas (June 2019): Supreme Court of Kansas strikes down cap on non-economic damages in civil actions ruling that the cap is unconstitutional.[1]

Impact of Increases to Caps for Non-Economic Damages or Overall Recovery

  • Maryland (2006): Legislation increases the limitation on non-economic damages by $15,000 each year beginning on January 1 of each year. No end date to increases.
  • Virginia (2011): Legislation increases the limitation on damages by $50,000 each year until 2031, when the cap will increase to $3 million.
  • Indiana (March 2016): In response to challenges to cap on medical malpractice awards, the Indiana Legislature enacted legislation to increase cap on medical malpractice awards.

Recently Enacted Legislation Extending or Reopening Civil SOLs for Child Sex Abuse Claims

To date in 2019, six jurisdictions have enacted legislation extending the civil statutes of limitations for claims involving the sexual abuse of children. They include: Alabama (May 2019), Connecticut (June 2019), Illinois (May 2019), Montana (May 2019), Rhode Island (July 2019), and Tennessee (May 2019). In addition, six jurisdictions have enacted legislation reopening civil statutes of limitations for claims involving the sexual abuse of children. They include:

  • Arizona (May 2019): Extending the civil statutes of limitations to age 30 and opens a 19-month revival window against people and institutions.
  • Montana (May 2019): Extending the civil statute of limitations against perpetrators and institutions to the earlier of age 27 or three years after discovery that injury was caused by childhood sexual abuse. The Act creates a one year revival window on May 7, 2019 against perpetrators and institutions who are alive and have been convicted of or admitted to the abuse.
  • New Jersey (May 2019): Changes the civil statute of limitations for child sexual abuse offenses so that the child-victim may bring suit against any responsible defendant any time before reaching age 55, or seven years from the time they become aware of the injury, whichever comes later. The Act creates a reviver period in which any victim with a time-barred claim, or with a claim previously dismissed as time-barred, may file a new suit against any responsible defendant. The two year revival window will begin on December 1, 2019.
  • Vermont (May 2019): Eliminates the civil statute of limitations and revives all expired claims against perpetrators and negligent institutions.
  • Washington, D.C. (May 2019): Extending the civil statute of limitations for victims that were abused under the age of 35 such that victims have until they reach age 40 to bring suit with a five year discovery rule. The Act creates a two year revival window commencing on May 3, 2019.
  • New York (February 2019): Changes the civil statute of limitations for child sexual abuse offenses so that the child-victim may bring suit against any responsible defendant any time before reaching age 55. The Act also creates a reviver period in which any victim with a time-barred claim, or with a claim previously dismissed as time-barred, may file a new suit against any responsible defendant without facing a statute of limitations or res judicata bar. Such a suit must be filed between approximately August 14, 2019 and August 14, 2020.

In addition, legislation is pending in 39 additional jurisdictions that involve some type of reform to the statute of limitations for child sexual abuse claims.

Increased Frequency of “Failure to Obtain Informed Consent” Cause of Action

Based upon Jackson & Campbell’s review of reported and unreported medical malpractice cases, it appears that more plaintiffs’ attorneys are including a separate “failure to obtain informed consent” cause of action to claims involving medical malpractice claims. The cause of action provides plaintiffs with an additional avenue for recovery damages in situations where they may not be able to prove all of the elements of a standard medical malpractice case. These new type of informed consent allegations are also showing up in sexual misconduct cases where it is being alleged that the defendant (which is typically a chiropractor) is not obtaining informed consent to perform treatments which include touching which would more generally be considered sexual touching.

Increase in Data Breaches in Healthcare Field – Potential HIPAA Violations[2]

There appears to be a steady increase in data breaches and healthcare providers (and health insurers) have been the target of such breaches. The breaches could lead to violations of medical privacy laws and claims relating to same. Below are a few recent examples:

  • Dominion National: 9 million patients were impacted by a nine year Dominion National hack. Officials received an internal alert about unauthorized access and launched an investigation, then later discovered an unauthorized party accessed Dominion National’s servers beginning as early as August 25, 2010, nearly nine years before the investigation concluded on April 24, 2019.
  • LabCorp reported on June 4, 2019 that 7.7 million consumers’ data was compromised in a breach that affected a third-party vendor collections firm American Medical Collection agency (AMCA).[3]
  • Quest Diagnostics reported on June 3, 2019, that it was affected by the AMCA breach which compromised the data of 11.9 million Quest patients. Quest claimed that a hacker gained access to AMCA’s system for nearly eight months, accessing clients’ personal information such as credit card numbers, bank account details, medical data, and other personal information like Social Security numbers.
  • Premera Blue Cross, the largest health insurer in the Pacific Northwest, agreed (on July 11, 2019) to pay $10 million to 30 states following an investigation into a data breach that exposed confidential information of over 10 million people across the country.

Jurisdictions Adopting Heightened Standard for Expert Evidence (Favorable Change)

Notwithstanding the above, not all of the recent legal developments negatively impact medical malpractice claims or tort claims in generally. By way of example, several states have recently adopted the heightened standard for the admissibility of expert witness evidence.

  • Missouri (March 2019): The Missouri Legislature enacted legislation that effectively codified the Daubert standard for determining the admissibility of expert witness evidence.
  • Florida (May 2019): The Florida Legislature in 2013 enacted legislation to adopt the Daubert standard to determine the admissibility of expert witness evidence. In a 2017 decision, the Florida Supreme Court refused to enforce the statute. In a decision issued on May 23, 2019, the Florida Supreme Court formally adopted the Daubert standard.

This concepts index is not intended to contain legal advice or to be an exhaustive review. If you have any questions about insurance coverage key concepts and terms, please contact Christopher P. Ferragamo at Jackson & Campbell, P.C.

Click here for a downloadable PDF version or a printer friendly version of this resource.

 

 

[1] Notably, the Wisconsin Supreme Court (June 2018) and the Supreme Court of North Dakota (April 2019) have upheld caps on non-economical damages in medical malpractice cases.

[2] Under HIPAA, covered entities must notify patients of data breaches within 60 days of discovery. However, some states are passing legislation that truncates the reporting time. In April 2019, the Washington, D.C. legislature passed a new law – requiring a 30-day notice to victims of a data breach. North Carolina and Oregon are working on similar legislation, while Colorado and Iowa have already introduced similar bills – cutting the reporting time to 45 days.

[3] The AMCA breach included a number of other smaller providers. Because AMCA has such a large number of clients in the medical industry, it is possible that patient information from other healthcare providers may also have been breached.

| Arthur D. Burger

Arthur D. Burger’s Article Published in IP Litigator Magazine

The July/August edition of the intellectual property law magazine includes Arthur D. Burger’s article “Conflicts of Interest Issues for Intellectual Property Lawyers: Problems and Solutions.” The article explores aspects of how an intellectual property practice can create atypical conflict of interest problems and suggests fixes that are geared to those problems.”

Burger serves as the chair of Jackson & Campbell, P.C.’s Professional Responsibility Practice Group.

Read the full article here.

| Christopher A. Glaser

July Real Estate Update | Margaret Williams v. James Kennedy | Jane Robinson, Trustee v. Nels Nordquist

The District of Columbia Court of Appeals and the Supreme Court of Virginia have recently issued decisions which are significant for those in the real estate industry.

Washington, D.C.

On July 11, 2019, the District of Columbia Court of Appeals issued its decision in Margaret Williams v. James Kennedy regarding intra-owner transfers within the context of the Tenant Opportunity to Purchase Act (TOPA). In Williams, the subject rental accommodation was initially owned 40% by Mr. and Mrs. Kennedy as tenants by the entirety, 40% by Mr. and Mrs. Martin as tenants by the entirety, and 20% by Mr. Robinson. In 2004, following the passing of Mr. Martin, Ms. Martin quitclaimed her interest to Mr. and Mrs. Kennedy. In 2015, Mr. and Mrs. Kennedy conveyed a portion of their interest to Mr. Robinson such that Mr. Robinson owned an 85% interest leaving Mr. and Mrs. Kennedy with a 15% interest as tenants by the entirety. In 2016, Mr. and Mrs. Kennedy transferred their remaining interest to Mr. Robinson leaving Mr. Robinson as the sole owner of the rental accommodation. A tenant suit was filed alleging that both the 2015 and 2016 transfers constituted a “sale” pursuant to TOPA, thus triggering the tenant’s right to purchase.

The Court of Appeals began its analysis with the oft-repeated directive from the District of Columbia Council that any ambiguity in the Act is to be decided in favor of the tenant “to the maximum extent permissible under law” as the purpose of TOPA is to “strengthen the bargaining position of tenants….” Despite the directive for such a liberal interpretation, the Williams Court held that intra-owner transfers were not “sales” within the act. The Court of Appeals noted that the “sale” definition does not address a situation in which individual owners reallocate their interests, but does not bring in a new owner. Indeed, other TOPA provisions are explicitly tied to the involvement of a third party (e.g,. the right of a third party being conditioned on a tenant’s exercise of purchase rights and the owner’s obligation to offer sale to a tenant on terms at least as favorable as those offered to a third party). The Court of Appeals, in holding such intra-owner transfers were outside the scope of TOPA, concluded that it “would be odd for TOPA to consider transactions as sales for purposes of TOPA if those transactions do not give rise to substantive rights under TOPA.”

Virginia

Across the Potomac River, the Virginia Supreme Court issued a decision in Jane Robinson, Trustee v. Nels Nordquist on July 18, 2019 construing a “light and air” easement and its subsequent enlargement encumbering valuable property in Old Town Alexandria.

In 1960, the servient estate granted a perpetual easement “for the purposes of admitting light and air” to the dominant estate, but did not provide any dimension for the easement. In 1969, the servient estate “affirmed and enlarged” the easement by providing that a three foot strip of land “shall forever be and remain open and free of all buildings and structures .. and shall be and remain open yard.…” Within the space between the two properties, the servient estate expanded an existing brick wall, constructed an arbor, planted bushes and trees and placed various objects such as “ladders and toys.” Suit was then brought by the dominant estate alleging violations of the 1960 and 1969 easements.

The servient estate challenged the 1960 easement term of “light and air” asserting that it was too vague, ambiguous and without dimension, thus rendering it unenforceable. The Virginia Supreme Court resolved the dispute holding that an easement lacking in dimension is not unenforceable if the scope can be determined “by reference to the intention of the parties to the grant ascertained from the circumstances pertaining to the parties and the land at the time of the grant.” As the 1960 easement described its purpose—to admit light and air—the case was remanded to determine the dimensions as contemplated by the original parties at the time of the grant.

The servient estate also challenged the 1969 easement and sought an interpretation that the “open yard” requirement was merely limited to “open and free of all buildings and structures.” The Virginia Supreme Court disagreed and held that the 1969 easement explicitly required that the space between the properties remain both “open and free of all buildings and structures” and “open yard” as such terms were separately required under the easement. The case was remanded to determine what the original parties intended by such language and, presumably, whether the presence of a bush or the occasional placement of toys violated the easement.

Jackson & Campbell, P.C. represents title insurers and insureds in Maryland, Virginia, and Washington, D.C. and we strive to keep our clients and other title professionals up to date on various developments in the law. Additionally, we present no cost in-house updates of the nation’s most noteworthy cases and national trends following the spring and fall American Land Title Association’s Title Counsel meetings.

If you have any questions about this case or laws impacting real estate in Maryland, Virginia, and Washington, D.C., feel free to contact us. Our Real Estate Litigation and Transactions Practice Group is ready to assist.

| Roy L. Kaufmann

Washington, D.C. Office of Tax and Revenue Homestead Unit Suspending Processing Of Homestead Applications

The division of the DC Office of Tax and Revenue that processes homestead, senior, and disabled applications (FP-100) has announced that, as of July 17, 2019, it will suspend the processing of applications, grant benefits, and tax account adjustments. This action was “taken to meet a demanding billing timeline to reconcile tax accounts” associated with the upcoming 2019 second half tax year billing.

It is anticipated that the office will resume normal processing on August 16, 2019, but that it may take up to 45 days for accounts to be “updated and a corrected tax bill mailed.” One can predict that “corrective bills” may result In duplicate payment by lenders (resulting in negative escrows) or a requirement that homeowners or lenders may need to endure the refund process if a higher amount (sans homestead deduction) was paid.

Inquiries about this adjustment should be directed to homestead@dc.gov.

This summary is not intended to contain legal advice or to be an exhaustive update. If you have any questions regarding the Washington, D.C. Office of Tax and Revenue, please contact Roy L. Kaufmann at Jackson & Campbell, P.C.

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D.C. Court of Appeals Affirms Establishment of a Public Easement by Prescription Against a Tax Sale Purchaser Who Tried to Close Off an Alleyway

In Zere v. District of Columbia, the D.C. Court of Appeals restated the elements for a prescriptive easement in the District, with a particular focus on the element of adversity, by affirming a grant of summary judgment. Mr. Zere, an experienced tax sale purchaser, separately acquired five of six lots that formed a private alley. Mr. Zere then attempted to combine his five lots, erect a fence, and block the alley. However, the DC Office of Planning’s Historic Preservation Review Board denied his request. The District, being aware of Mr. Zere’s attempt to block the alley, filed a complaint seeking, inter alia, a declaration that public easement by prescription existed across the alley.

When the District moved for summary judgment, Mr. Zere, acting pro se, made two critical errors. First, Mr. Zere did not retain counsel. Second, Mr. Zere did not file a Rule 12-I(k) statement of disputed material facts with his opposition to the District’s motion for summary judgment. In failing to do so, Mr. Zere gave himself little opportunity to oppose the District’s motion successfully.

The trial court determined—and the appellate court affirmed—that the District had indeed established a public prescriptive easement over the private alley. The District’s motion attached declaration testimony from longtime residents adjacent to the alley, including one resident who had lived there continuously for 36 years. All residents stated that they used the alley on a nearly daily bases and regularly observed other public use of the alley. While Mr. Zere argued that the public’s use was not adverse, the appellate court noted that “[a]dversity may be presumed from proof of open and continuous use for the statutory period absent contrary evidence.” Chaconas v. Meyers, 465 A.2d 379, 382 (D.C. 1983). Without a statement of disputed material facts, Mr. Zere had little contrary evidence beyond his own denials. Mr. Zere’s legal arguments—that tax sales extinguish preexisting easements and that the District took his property without just compensation—were unconvincing. Under D.C. Code sec. 47-1382(a)(3), tax sales do not extinguish easements of record or those that are readily observable upon an inspection of the property, and Mr. Zere forfeited his takings claim by failing to raise it as a compulsory counterclaim in his answer.

This summary is not intended to contain legal advice or to be an exhaustive review. If you have any questions regarding this particular Washington, D.C. case, please contact Jeremy Camacho at Jackson & Campbell, P.C.

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SCOTUS Opinion: Police May Take Blood Test Of Unconscious Driver Without Warrant Under Exigent Circumstances Doctrine

After Gerald Mitchell was arrested for driving while intoxicated, his breath test came out three times over the legal limit. He then became unconscious. Wisconsin law presumed that an unconscious person consents to a blood test, so the police took him to a hospital where a blood test revealed his BAC well over the legal limit. During his prosecution, Mitchell moved to strike the results of the blood test as an unreasonable search under the Fourth Amendment because it was conducted without a warrant. The trial court denied the motion, and the Wisconsin Supreme Court affirmed the convictions. In Mitchell v. Wisconsin, the Court, in a 5-4 decision by Justice Alito, reversed, holding (for a four-vote plurality) that the exigent-circumstances doctrine generally permits a blood test without a warrant when a driver is unconscious. Alito noted that there was a “compelling need” to determine the BAC of drunk-driving suspects, and the fact that the concentration of alcohol dissipates in the bloodstream over time generates the need to move quickly without a warrant. However, the plurality acknowledged that there may be unusual cases where a defendant could argue that his or her blood would not have been drawn because the police were not seeking a BAC reading, and so remanded to allow Mitchell to make that argument. Justice Thomas concurred in the judgment, arguing in favor of a per se rule that allowed such blood tests any time the police had probable cause to believe the driver is drunk. Justice Sotomayor, joined by Justices Ginsburg and Kagan, dissented, arguing that since the police had time to get a warrant, that should have been the end of the matter. Justice Gorsuch filed a dissent to argue that the case should have been dismissed as improvidently granted because the question presented did not address the exigent circumstances doctrine. A link to the opinion is here. 

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SCOTUS Opinion: Court Decides That Federal Courts Cannot Address Partisan Gerrymandering Claims

The case of Rucho v. Common Cause combined two different gerrymandering claims: one from North Carolina where the claim was that the redistricting plan hurt Democrats, one from Maryland which claimed that the plan hurt Republicans. In both cases, the district courts ruled that the plans violated the Constitution. The Court, in a 5-4 opinion by Chief Justice Roberts, held that political gerrymandering claims are, by their nature, political and not justiciable. While the majority conceded that there were aspects of gerrymandering that were justiciable, like population inequality or racial discrimination, political gerrymandering was not resolvable through tests that were limited and precise in a way that the courts could address the problem. Instead, the majority invited the States and Congress to take action. Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented, arguing that political gerrymanders “debased and dishonored our democracy,” and that the courts were sufficiently equipped to resolve “the worst-of-the-worst cases of democratic subversion, causing blatant constitutional harms.” A link to the opinion is here.

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SCOTUS Opinion: Court Blocks The Citizenship Question From The 2020 Census Questionnaire For Now

The Constitution requires a census to be taken every 10 years, and Congress delegated that task to the Secretary of Commerce. In 2018, the Secretary announced that he would reinstate a citizenship question on the 2020 census questionnaire, a question that had been included in almost every census up through 2000. Opposition to the question claimed that the question would cause non-citizens to underreport, thus affecting the results. Two lawsuits were filed, one by various States and municipal entities, arguing that the question violated the Enumeration Clause and the Administrative Procedure Act, the other by private organizations arguing the question violated Equal Protection guarantees under the Fourteenth Amendment. The district court ruled that the Secretary’s action was arbitrary and capricious, and based on a pretextual rationale, and struck the question, though it found no equal protection violation. The Court, in a fractured decision by Chief Justice Roberts, found as follows: (1) the challengers had standing to sue, (2) the Enumeration Clause permitted the citizenship question, (3) the Secretary’s decision was reviewable under the Act and was supported by the evidence, however (4) the Secretary’s explanation for his action was pretextual, and did not match with the agency’s priorities and decisionmaking process, and thus remanded the matter to the agency for a proper explanation instead of a “distraction.” The Secretary must come up with a new explanation that is not contrived for the question to go on the 2020 census forms, and the Secretary has noted that the forms must be finalized by the end of June. Justice Thomas, joined by Justices Gorsuch and Kavanaugh, concurred in part and dissented in part, arguing that since there was a legal and evidentiary basis for the question, the question should have been permitted, and the Court should not have assumed the Secretary was misrepresenting his views. Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan, concurred in part and dissented in part, agreeing that the Secretary’s reason for the question was pretextual, but arguing that it also violated the Act as an arbitrary and capricious act. Justice Alito, also concurring in part and dissenting in part, argued that the “regrettable” decision was wrong for reviewing the Secretary’s decision under the Act, and the question should have been allowed. A link to the opinion in Department of Commerce v. New York is here.

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SCOTUS Opinion: State Residency Requirement For Liquor Store Licenses Struck Down

Tennessee law required that to get a license to sell alcohol, the seller had to first be a Tennessee resident for two years. The state agency tasked with enforcing the law declined to do so after the state’s attorney general opined that the law violated the Commerce Clause of the Constitution. When two non-resident businesses applied for licenses, a trade association of in-state liquor stores sued to establish the law as constitutional. The district court and Sixth Circuit held that the law was unconstitutional, and in Tennessee Wine and Spirits Retailers Assn. v. Thomas, the Court, in a 7-2 decision by Justice Alito, affirmed, holding that the law violated the dormant Commerce Clause. The majority held that the law in question clearly favored in-state residents over nonresidents, and was not narrowly tailored to advance a legitimate local purpose. The majority rejected the argument that the law was saved by the 21st Amendment, which prohibited the “transportation or importation into any State . . . for delivery or use therein of intoxicating liquors, in violation of the laws thereof,” holding that the language did not permit the States to violate the nondiscrimination principle, but merely intended to set the regulatory regime back to what it was prior to Prohibition. Justice Gorsuch, joined by Justice Thomas, dissented, arguing that Congress expressly permitted the States to enact residency requirements, and the 21st Amendment provided an exception to the Commerce Clause. A link to the opinion is here.

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SCOTUS Opinion: Auer Deference To An Agency’s Interpretation Of Its Own Regulations Survives, Barely

In Kisor v. Wilke, the underlying case concerned a Vietnam War veteran’s quest for disability benefits. The Department of Veterans Affairs interpreted its internal rule to deny the veteran benefits going back to when he first applied. The Federal Circuit affirmed the determination using Auer deference, established by the Court in Auer v. Robbins, 519 U.S. 452 (1997), which held that courts should defer to an agency’s interpretation of its own genuinely ambiguous regulations. The veteran appealed, asking the Court to overrule Auer. In a majority opinion by Justice Kagan, the Court declined to do so under the principle of stare decisis, although it further narrowed its application. Specifically, before Auer deference should be used, the rule must be “genuinely ambiguous,” the court has exhausted all the “traditional tools” of construction to glean its meaning, the court has determined that the agency’s interpretation is “reasonable,” and the court must independently inquire whether the “character and context of the agency interpretation entitles it to controlling weight.” The Court then remanded the case for the Federal Circuit to apply those principles. Justice Gorsuch, joined by Justice Thomas and by Justices Kavanaugh and Alito in part, concurred in the judgment, but clearly was ready to discard Auer deference entirely, stating that the majority’s opinion “is more a stay of execution than a pardon,” leaving the doctrine “maimed and enfeebled—in truth, zombified.” Chief Justice Roberts, who had joined the majority opinion in part, filed a partial concurrence to state that, in his view, there was not much difference between the majority opinion and Justice Gorsuch’s opinion, and noted that this case did not concern Chevron deference (agency interpretation of statutes). Justice Kavanaugh, joined by Justice Alito, also concurred in the judgment, arguing that the application of “traditional tools” of construction should resolve most interpretation issues, and agreed that this case did not touch on the Chevron doctrine. A link to the opinion is here.

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SCOTUS Opinion: Court Strikes Supervised Release Statute That Permitted Additional Prison Time Without A Jury Determination

In United States v. Haymond, Andre Haymond was found guilty by a jury of possessing child pornography, a crime that permitted a prison term of zero to 10 years. After serving his term and while on supervised release, Haymond was found with what appeared to be images of child pornography on his devices. Under 18 U.S.C. sec. 3583(k), a person found by a preponderance of the evidence to be possessing child pornography while on supervised release gets a mandatory minimum additional five-year prison term, and up to life. The district court so found and sentenced Haymond to five years imprisonment. The Tenth Circuit held that the law violated the right to trial by jury guaranteed by the Fifth and Sixth Amendments because the prison term was imposed without a jury finding the necessary elements beyond a reasonable doubt. Five members of the Court affirmed. Justice Gorsuch, joined by Justices Ginsburg, Sotomayor, and Kagan, held that the district court judge could not, without a finding of the elements beyond a reasonable doubt by a jury, increase “the legally prescribed range of allowable sentences” as occurred here. This plurality opinion saw no reason to exclude punishments under supervised release from the requirements of a jury verdict. Justice Breyer, separately concurring in a more narrow opinion that is likely to be the Court’s ultimate holding, stated that while he saw Section 3583(k) as imposing a “punishment for a new offense, to which the jury right would typically attach,” he saw no reason to make the jury requirement apply to the supervised-release context as a whole. Justice Alito, joined by Chief Justice Roberts, and Justices Thomas and Kavanaugh, dissented, arguing that the plurality opinion was dangerously broad in scope as potentially undermining the entire supervised-release system, and finding no constitutional basis for Justice Breyer’s narrower opinion. A link to the opinion is here.

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SCOTUS Opinion: Court Strikes Down Violent Felony Residual Clause As Vague

Under 18 U.S.C. sec. 924(c)(3)(B), a defendant may receive a longer prison sentence for using a firearm in connection with a felony “that by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.” In prior cases, the Supreme Court struck down residual statutes like this one as being unconstitutionally vague, because the language provided no reliable way to determine which offenses qualified under the statute under a categorical analysis. In United States v. Davis, the Fifth Circuit struck down this statute as being vague, and the government appealed, arguing that the Court should adopt a case-specific approach that took into account the defendant’s actual conduct in the predicate crime. The Court, in a 5-4 opinion by Justice Gorsuch, affirmed. Noting that “a vague law is no law at all,” the majority took the position that “when Congress passes a vague law, the role of courts under our Constitution is not to fashion a new, clearer law to take its place, but to treat the law as a nullity and invite Congress to try again.” The majority rejected the government’s invitation to save the law by looking at each case individually, holding that such an approach was not consistent with the language of the statute. Justice Kavanaugh, joined by Chief Justice Roberts and Justices Thomas and Alito, dissented, arguing that the residual clause had been used over the past 33 years to successfully combat violent crime, and to strike it down now was an “extraordinary” event. A link to the opinion is here.

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SCOTUS Opinion: Court Clarifies What “Confidential” Information is not Subject to a Freedom of Information Act Request

In Food Marketing Institute v. Argus Leader Media, a newspaper filed a request under the Freedom of Information Act (FOIA) to the Department of Agriculture requesting information about retail stores who participate in the national food stamp program. The Department declined to provide store-level data on the basis that it was “confidential” and thus precluded from disclosure under FOIA’s Exemption 4. The newspaper sued, and the district court ruled that the information had to be disclosed because disclosure was not, in its view, likely to cause substantial harm in the competitive position of those stores. A trade association representing grocery retailers intervened and appealed, arguing that the substantive competitive harm test should be discarded. The Eighth Circuit rejected that argument. Justice Gorsuch, for a 6-3 Court, reversed and remanded. First, the majority established that the trade association had standing to appeal because its members might be financially harmed by the result of the case. Second, the majority held that where commercial or financial information is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy, that information is “confidential” under the FOIA exemption. The Court rejected the “substantial competitive harm” test fashioned by the D.C. Circuit in a 1974 case, finding its reasoning back by a “casual disregard of the rules of statutory interpretation.” Justice Breyer, joined by Justices Ginsburg and Sotomayor, concurred on standing, but dissented as to the confidentiality analysis, arguing that some form of genuine private harm should be shown to qualify for the exemption. A link to the opinion is here.

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SCOTUS Opinion: Court Strikes Down Law Against Immoral or Scandalous Trademarks

The Lanham Act prohibits registration of any trademark that contains “immoral[] or scandalous matter.” In Iancu v. Brunetti, an applicant sought to trademark FUCT (pronounced F-U-C-T), but was denied by the Patent and Trademark Office. The applicant appealed, arguing that the Act’s restriction violated the First Amendment. The Federal Circuit struck down the restriction as unconstitutional. The Court, in a 6-3 opinion by Justice Kagan, affirmed, holding that the bar on immoral or scandalous content unconstitutionally discriminates based on viewpoint by favoring society’s sense of decency or propriety over anything that might differ. The majority declined to limit the Act’s prohibition to only those trademarks that might be considered lewd, sexually explicit, or profane, because that would require the Court to rewrite the law, which is not its place. Justice Alito filed a brief concurrence noting how the current statute could “easily be exploited for illegitimate ends,” and appeared to invite Congress to pass a “more carefully focused statute” aimed at “vulgar terms that play no real part in the expression of ideas.” Chief Justice Roberts concurred that the bar on immoral trademarks was overbroad, but argued in dissent that the restriction on “scandalous” material could be read more narrowly to prohibit obscene, vulgar, or profane marks only. Justice Breyer fell along the same lines as the Chief Justice, although his narrowing approach would consider whether the restriction “works speech-based harm that is out of proportion to its justifications.” Justice Sotomayor, joined by Justice Breyer, argued that there would be “unfortunate results” from the decision, predicting a “rush” to register “the most vulgar, profane, or obscene words and images imaginable,” when the bar on “scandalous” marks could be used more narrowly to save the restriction. A link to the opinion is here.

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SCOTUS Opinion: Seamen Are Not Entitled To Punitive Damages Under Claims Of Unseaworthiness

In Dutra Group v. Batterton, a sailor was injured when a hatch blew open. He sued the vessel’s owner claiming unseaworthiness, seeking compensatory and punitive damages. The owner moved to strike the punitive damages claim, which was denied by the district court and affirmed by the Ninth Circuit. The Court, in a 6-3 opinion by Justice Alito, reversed and remanded, holding that punitive damages are not available for unseaworthiness claims. The Court noted that the historical evidence did not show any basis for punitive damages being available under that tort, and declined to permit such a “novel remedy” that was not uniform with existing federal admiralty law, noting that adopting such relief would create bizarre results by, for example, making an owner of a vessel subject to punitive damages when the ship’s master or operator would not be, even though the latter would likely bear more culpability. Justice Ginsburg, joined by Justices Breyer and Sotomayor, dissented, arguing that unseaworthiness claims are sufficiently similar to other claims entitled to punitive damages awards. A link to the opinion is here.

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SCOTUS Opinion: Court Vacates Murder Conviction Under Batson Challenge

In Flowers v. Mississippi, Curtis Flowers, a black man, was tried six times for allegedly murdering four people in a small town furniture store. The first three times, he was sentenced to death but the convictions were overturned. The fourth and fifth trials ended in mistrials. Throughout those trials, the prosecution used their peremptory strikes to remove all black jurors from the jury pool. In the sixth trial, the prosecution struck five prospective black jurors, and allowed one to be seated in the jury. Flowers raised a challenge under Batson v. Kentucky, 476 U.S. 79 (1986) that the strikes were based on race, but the trial court found there to be race-neutral reasons for the strikes. Flowers was convicted and sentenced to death. The Mississippi Supreme Court narrowly affirmed. The Court, in a 7-2 decision by Justice Kavanaugh, reversed, holding that the prosecution’s decision to strike a black prospective juror who was similarly situated to other white jurors violated Batson, but also noted the apparent racial discrimination in the history of the prosecutions (in which the prosecution struck 41 of 42 prospective black jurors), and the disparate questioning of black jurors in the sixth trial to find pretextual reasons to strike. The Court made pains to note that it was not breaking new legal ground, but simply applying Batson to the facts of an admittedly “extraordinary” case. Justice Alito filed a concurrence noting that he would have affirmed the conviction but for “the unique combinations of circumstances present here,” including the actions of prosecutor that handled all six trials. Justice Thomas, joined by Justice Gorsuch in part, dissented, arguing that the majority opinion was “manifestly incorrect” because all of the prosecution’s strikes in the sixth trial were for race-neutral grounds. A link to the opinion is here.