Collections: Arbitration - A Collection Alternative

     Arbitration has become an increasingly popular way of resolving disputes. For those readers unfamiliar with the concept, arbitration is a process in which parties agree to submit the issues in controversy for determination by a party that they choose. The purpose behind the decision to arbitrate is usually to reach a resolution to the dispute in a quicker and cheaper manner than court action. Although most parties to the arbitration retain counsel to represent them, costs are normally less than court action because the rules of evidence are more relaxed, and the proceedings are less formal. 

     Virginia law recognizes the arbitration process and provides for the legal enforcement of arbitration awards. 

     The American Arbitration Association has developed standard rules, procedures, and panels of trained professionals to serve as arbitrators - the finders of fact. 

     The structure of the arbitration hearing is similar to a regular court hearing. A party has the right to representation by an attorney. Both parties also have an opportunity to make an opening statement, discuss the remedy they are seeking, introduce and cross-examine witnesses, and make a closing statement. Unlike a regular court proceeding, neither party in arbitration has the burden of proof because each party must persuade the arbitrator that its position is correct. 

     Virginia Code §8.01-577 to §8.01-581.016 establish Virginia's rule for arbitration. First, both parties must agree in a written agreement to submit a case for arbitration. The parties then select an arbitrator from a list of names. The court also may appoint an arbitrator.

     An arbitrator has several duties. The first and foremost is to preside over the arbitration hearing. An arbitrator in Virginia may issue subpoenas for witnesses to appear. Lastly, the arbitrator issues and signs the award.

     The court then confirms, modifies or vacates the award. The reasons for modification or vacation vary from a mistake in calculation to the arbitrators exceeding their powers (see Virginia Code §8.01-581.010 and §8.01-581.011). The court proceeds to enter a judgment or decree on the award. A party may appeal an award as one would in a civil action.

     The California Court of Appeals has ruled on the enforceability of arbitration clauses. In Bell v. Congress Mortgage Co., Inc., the California Court held that an arbitration clause in a contract must be highlighted in bold type or the consumer needs to initial beside the specific clause. These methods should make the consumer aware of the arbitration clause in the contract, as previously a consumer might waive his right to a jury trial without realizing it because, the California Court stated, an arbitration clause is not within the reasonable expectations of the consumer. There is no such requirement in Virginia law for the arbitration clause to be highlighted, however, but until the issue is litigated in Virginia, initials next to the clause would be a good measure of caution.

     I have litigated several arbitration cases, each to positive results, once to an amount higher than initially requested by the client.

Foreclosure: Obtaining Possession after Foreclosure

     Upon purchasing property at a foreclosure sale, it is not uncommon to have a “holdover tenant”. If this occurs, you can obtain possession of the property by filing a Summons for Unlawful Detainer in the appropriate General District Court. The applicable statute requires that the plaintiff prove “a right to the possession of the premises at the time of the commencement of the suit.” The only evidence that is usually required is (a) a copy of the recorded trustee’s deed, since the facts recited therein are prima facie evidence of their truth, and (b) a copy of the notice to vacate sent to the occupant(s).

     On the date of the initial return, if the defendant fails to appear, possession will be granted. If the matter is contested, most courts set a new date for trial. In contested cases, issues are usually related to notice and service, so the trustee should be prepared to present evidence that the foreclosure sale was properly advertised, noticed and conducted.

     The judgment for possession is not final until 10 days after it is entered, and most courts will not issue a writ of possession during that 10-day pendency. If an appeal is noted within the 10-day period, the defendant must perfect the appeal by posting an appeal bond and paying within 30 days of the date of the judgment the applicable writ and service fees for the circuit court. Most judges are sympathetic to require significant appeal bonds equating with the former mortgage payments. 

     Eviction is accomplished using a “Request for Writ of Possession.” A writ of possession may be issued on an unlawful detainer for up to one year from the date of judgment. When requesting the writ of possession, provide contact information for both the Sheriff and the person who will supervise the eviction of the new owner; the Sheriff will coordinate a date and time to serve the writ of possession and maintain the peace while the owner physically evicts the personal property of the occupant(s) and secures the property.

Bankruptcy: Revocation of Discharge - Chapter 7

     In the case of Dean v. McDow, the United States District Court at Norfolk, Virginia affirmed a Bankruptcy Court revocation of the debtor’s discharge of indebtedness.

     The District Court in Dean stated that the Bankruptcy Court did not err in revoking the debtor’s chapter 7 discharge based on the evidence of fraud in the debtor’s earlier reporting of her pre-bankruptcy transfers of property (antiques, collectibles, furniture and jewelry), and her statements about prior involvement in a business, after her operation of a thrift store called “New to You.”
     The District Court found as fact that the debtor received a discharge in her chapter 7 case about two years prior. The Bankruptcy Court later reopened the debtor’s case and revoked her discharge based upon the debtor’s fraud. The debtor raised four grounds on appeal: 1) the complaint to revoke her discharge was not timely filed; 2) the U.S. Trustee did not meet an affirmative duty to investigate the debtor’s bankruptcy and therefore constructively knew of the debtor’s fraud; 3) the debtor did not make false oaths because she lacked fraudulent intent and her misstatements were de minimums; and 4) the revocation was based upon inadmissible evidence.
     The District Court stated that cases dealing with whether the timely filing of a complaint objecting to discharge is jurisdictional are sharply divided. Despite the overall disagreement among the federal courts, the Fourth Circuit has indicated the position it finds more persuasive: the timeliness of a dischargeability complaint is not a jurisdictional prerequisite, but rather presents an affirmative defense similar to the statute of limitations that must be raised in an answer or responsive pleading. The court noted that there was nothing in the debtor’s brief or the 4th Circuit case, Farouki v. Emirates Bank Int’l ltd., to indicate that the dischargeability time limitation of Bankruptcy Rule 4004(a) should be treated differently from Bankruptcy Code Section 727(e)(1). The District Court stated that it was therefore unnecessary to address whether the U.S. Trustee’s complaint was timely filed because the debtor had waived her right to appeal on this point. Failure to raise a non-jurisdictional issue before the Bankruptcy Court will generally be treated by the District Court as a waiver of the right to have the issue heard.
     The District Court stated that the debtor argued for the first time on appeal that the errors and omissions of her schedules should have put the U.S. Trustee on notice of possible fraud, triggering an obligation to investigate. Because the U.S. Trustee began investigating possible fraud only after receiving a telephone call concerning the debtor’s bankruptcy about a year after the entry of the discharge order, the debtor argues that the Trustee could not rely upon the “did not know” provision of Bankruptcy Code Section 727(d)(1). The District Court noted again, however, that the debtor did not raise the issue of the trustee’s knowledge in her answer or at trial, and the issue did not fall within the “very limited circumstances” of plain error which would result in a miscarriage of justice. The debtor waived her right to have this issue considered on appeal.
     The District Court next noted that the debtor did not dispute that her schedules and Statement of Financial Affairs contained false oaths. Instead, the debtor argued that she lacked the fraudulent intent, and that her omissions were de minimus. The District Court noted that the Bankruptcy Court’s determination of fraud was a factual finding reviewed for clear error. The District Court concluded that the Bankruptcy Court did not commit clear error in determining that the debtor knowingly and fraudulently made false oaths and that the oaths concerned materials facts. Nor could the District Court find error in the Bankruptcy Court’s conclusion that the debtor’s failure to read her bankruptcy papers constituted a reckless indifference to the truth and the functional equivalent of fraud.
     Finally, the District Court ruled that the Bankruptcy Court’s admission of certain exhibits relating to the debtor’s fraud, is error at all, did not even approach the standard of error so serious that it went to the integrity of the trial.
     Accordingly, the revocation of the debtor’s discharge was upheld.

Collection: Attacking Fraudulent Conveyances

     It seems to happen more and more often. You are able to obtain your judgment against your debtor, but when you go to collect, he has recently transferred his assets. Can you pursue the assets to the transferee? Under the right circumstances, yes.
     The case of Price v. Hawkins, from the Newport News Circuit Court, appealed to the Virginia Supreme Court, stands for the position that a court may enter personal judgments against a transferee to provide a creditor with a remedy when, due to fraud, there is no other remedy.
     In Price the Court found that the debtor, a father, enlisted the help of his son and his son's girlfriend in the debtor's scheme to defraud his creditors. Specifically, the son and his girlfriend, who were not legitimate creditors of the debtor, assisted the debtor in hiding assets ($14,058.77) that the creditor would have otherwise reached in his judgment collection efforts. The transfers occurred after the judgment order was entered, and $10,000.00 was transferred to the son and the girlfriend three months later while the creditor was attempting to collect on the judgment.
     The Court found that simply declaring the fraudulent transfer "void" pursuant to Virginia Code §55-80 would be meaningless, as the conveyance was of money. In cases involving the fraudulent conveyance of real estate, title to the real estate is restored by a declaration, thus, subjecting the property to a creditor's bill. The Court ruled in Price that unless the money was delivered to the Court for the creditor to attach, then personal judgments were the only remedy.
     Perhaps the lesson of Price is: Ask questions! When your debtor is under oath for interrogatories, ask what assets have been conveyed to whom, when, and for what consideration.

Foreclosure: Obtaining Possession after Foreclosure

     Upon purchasing property at a foreclosure sale, it is not uncommon to have a “holdover tenant”. If this occurs, you can obtain possession of the property by filing a Summons for Unlawful Detainer in the appropriate General District Court. The applicable statute requires that the plaintiff prove “a right to the possession of the premises at the time of the commencement of the suit.” The only evidence that is usually required is (a) a copy of the recorded trustee’s deed, since the facts recited therein are prima facie evidence of their truth, and (b) a copy of the notice to vacate sent to the occupant(s).
     On the date of the initial return, if the defendant fails to appear, possession will be granted. If the matter is contested, most courts set a new date for trial. In contested cases, issues are usually related to notice and service, so the trustee should be prepared to present evidence that the foreclosure sale was properly advertised, noticed and conducted.
     The judgment for possession is not final until 10 days after it is entered, and most courts will not issue a writ of possession during that 10-day pendency. If an appeal is noted within the 10-day period, the defendant must perfect the appeal by posting an appeal bond and paying within 30 days of the date of the judgment the applicable writ and service fees for the circuit court. Most judges are sympathetic to require significant appeal bonds equating with the former mortgage payments.
     Eviction is accomplished using a “Request for Writ of Possession.” A writ of possession may be issued on an unlawful detainer for up to one year from the date of judgment. When requesting the writ of possession, provide contact information for both the Sheriff and the person who will supervise the eviction of the new owner; the Sheriff will coordinate a date and time to serve the writ of possession and maintain the peace while the owner physically evicts the personal property of the occupant(s) and secures the property.

Real Estate: Common Area Parking Spaces Must be Assigned Equally

     The Court of Appeals of Virginia recently issued an opinion affirming a Circuit Court decision holding that common area parking spaces must be assigned equally. The case involved a suit by a homeowner, Patrick Batt, against Manchester Oaks subdivision in Fairfax County. The subdivision contained 57 townhouses, 30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision included a common area with 72 parking spaces.
     The subdivision was subject to a declaration, administered by the homeowners association that gave the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner. However, the association was not required to ensure that parking spaces were available to any particular owner or to oversee use of the parking spaces. Batt had purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis.
     In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis. In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration.
     The circuit court ruled in Batt’s favor, finding that the amendment was invalid for six reasons. The association appealed. The Court of Appeals ruled, in summary, that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise. In this case, the court did not find that unequal assignment was authorized.