Environment Specialist v. Wells Fargo Bank

• Court: Supreme Court of Virginia
• Decided: February 12, 2016
• Docket: 150693
• Status: Published

Opinion

PRESENT: All the Justices

ENVIRONMENT SPECIALIST, INCORPORATED, T/A HOWELL’S HEATING AND AIR CONDITIONING CO. OPINION BY v. Record No. 150693 CHIEF JUSTICE DONALD W. LEMONS FEBRUARY 12, 2016 WELLS FARGO BANK NORTHWEST, N.A., AS TRUSTEE OF THE GSA FREDERICKSBURG FBI 2013 PASS-THROUGH TRUST

FROM THE CIRCUIT COURT OF STAFFORD COUNTY Michael E. Levy, Judge

In this appeal, we consider whether the trial court erred when it awarded $1200 in

sanctions against plaintiff’s counsel for counsel’s failure to voluntarily extend the time in which

a defendant might file its answer.

I. Facts and Proceedings

Environment Specialist, Inc., t/a Howell’s Heating & Air Conditioning Co. (“ESI”) filed

a complaint in the Circuit Court of Stafford County (“trial court”) against Stafford Office One,

LLC, Stafford Office Two, LLC, Stafford Management I, LLC (collectively the “Stafford

defendants”), Lawyers Title Realty Services, Inc., and Wells Fargo Bank Northwest, N.A.,

Trustee (“Wells Fargo”), in order to enforce a mechanics lien. According to the complaint, ESI

had contracted with the Stafford defendants, the owners of the property in question, to perform

certain HVAC improvements. At the time the complaint was filed, ESI asserted that there was

an unpaid balance of $24,449.30 that it was owed. Wells Fargo was named in the complaint

because it was the trustee and secured party under the “Credit Line Deed of Trust, Security

Agreement, Assignment of Leases and Rents, and Fixture Filing Statement” dated March 25,

2013, related to the property in question. ESI’s complaint was filed with the trial court on October 21, 2013. On October 29, 2013,

the complaint was forwarded via the Secretary of the Commonwealth to Wells Fargo, and the

Secretary filed a certificate of compliance with the clerk of the trial court on October 30, 2013.

See Code § 8.01-329. Counsel for Wells Fargo, however, did not learn of the filing of the

complaint until November 21, 2013. Counsel for Wells Fargo contacted counsel for ESI and

requested a brief extension of the deadline within which to file its answer. Counsel for ESI did

not consent to the requested extension. Wells Fargo then filed a motion for leave to file answer

out of time, asking for leave to file the answer on or before November 26, 2013, and requested

its “fees and costs incurred with regard to the motion.” Wells Fargo did not cite any authority

for the court’s award of “fees and costs.”

On January 2, 2014, the trial court entered a consent order between ESI and the Stafford

defendants. The Stafford defendants agreed that they owed ESI the amount specified in the

complaint, and agreed that the mechanics lien was a valid and enforceable lien against the

property. Judgment was therefore entered jointly and severally against the Stafford defendants.

Despite the entry of the consent order, on January 6, 2014, ESI filed a motion for default

judgment against all the defendants, because none of the defendants had filed a responsive

pleading within the 21-day period afforded by Rule 3:8.

The trial court held a hearing on February 3, 2014, to consider Wells Fargo’s motion for

leave to file answer out of time and ESI’s motion for default judgment. The trial court granted

Wells Fargo’s motion and ordered ESI’s counsel to reimburse Wells Fargo’s counsel $1200 for

“fees and costs” incurred regarding the motion for leave to file answer out of time. In that order,

the trial court required that the payment be made within 30 days, which was subsequently done

2 “under protest.” By separate order, the trial court granted ESI’s motion for default judgment

against defendant Lawyers Title Realty.

Thereafter, Wells Fargo, the only remaining defendant, and ESI advised the court that the

matter had been settled. In its final order, entered February 18, 2014, the trial court stated that

the judgment entered on January 2, 2014, had been satisfied and therefore released the mechanics

lien. The trial court also stated that it had issued the $1200 sanctions award against ESI’s

counsel “for its failure to voluntarily extend the time in which Wells Fargo might file its

answer.” In its order, the trial court recites no statute or rule authorizing its award, nor does it

invoke its inherent authority to do so.

There was no transcript of any proceeding related to the award of “fees and costs.”

Counsel for ESI submitted a written statement in lieu of a transcript pursuant to Rule 5:11(e) and

counsel for Wells Fargo filed an objection thereto. However, the trial judge did not sign the

statement in lieu of transcript and neither counsel placed the matter on the court’s docket to

accomplish this purpose.

ESI appealed to this Court and we granted the appeal on the following assignment of

error:

1. The trial court erred in the following respect: By awarding sanctions against Counsel for the Plaintiff/Appellant for his failure to voluntarily agree to extend the time in which Counsel for the Defendant/Appellee was to file its Answer, as required by Rule 3:8(a) of the Rules of the Supreme Court of Virginia.

II. Analysis

In Nusbaum v. Berlin, 273 Va. 385, 641 S.E.2d 494 (2007), we examined the trial court’s

inherent powers to discipline attorneys, and considered whether that power included the

authority to issue monetary sanctions in response to attorney misconduct. We recognized that

the courts of this Commonwealth have long had the inherent power to supervise the conduct of

3 attorneys practicing before them and to discipline any attorney who engages in misconduct. Id.

at 399, 641 S.E.2d at 501 (citing Judicial Inquiry & Review Comm’n of Va. v. Peatross, 269 Va.

428, 447, 611 S.E.2d 392, 402 (2005); Richmond Ass'n of Credit Men, Inc. v. Bar Ass'n of

Richmond, 167 Va. 327, 335, 189 S.E. 153, 157 (1937); Norfolk & Portsmouth Bar Ass'n v.

Drewry, 161 Va. 833, 836, 172 S.E. 282, 283 (1937); Legal Club of Lynchburg v. Light, 137 Va.

249, 250, 119 S.E. 55, 55 (1923)). A court's inherent power to discipline an attorney practicing

before it includes the power not only “to remove an attorney of record in a case,” Peatross, 269

Va. at 447, 611 S.E.2d at 402, but also “in a proper case to suspend or annul the license of an

attorney practicing in the particular court.” Legal Club of Lynchburg, 137 Va. at 250, 119 S.E. at

55; accord Norfolk & Portsmouth Bar Ass'n, 161 Va. at 836-37, 172 S.E. at 283-84.

In Nusbaum, we determined that a monetary sanction against an attorney was not “in

accord with the purpose of a trial court’s inherent power to discipline an attorney, which is ‘not

to punish [the attorney], but to protect the public.’” 273 Va. at 400, 641 S.E.2d at 502 (citation

omitted). Accordingly, we concluded that, absent the authority granted by a statute or rule, “a

trial court’s inherent power to supervise the conduct of attorneys practicing before it and to

discipline an attorney who engages in misconduct does not include the power to impose as a

sanction an award of attorneys’ fees and costs to the opposing party. Id. at 400-01, 641 S.E.2d at

502.

Our holding in Nusbaum therefore makes it clear that a trial court may only impose a

monetary sanction against an attorney if the authority to do so is granted to the trial court by a

statute or rule. As we stated above, the trial court in this case did not identify the authority under

which it was imposing the monetary sanction against counsel. Upon review we can find no Rule

4 of Court that applies, and, as outlined above, the trial court does not have inherent authority to

justify its actions.

Although nothing in the record on appeal reveals that counsel or the trial court relied

upon Code § 8.01-271.1 as a basis for its ruling, nonetheless we will consider whether the

“sanctions” or “award of fees and costs” are justified pursuant to the statute. We have held that

"a court's imposition of a sanction will not be reversed on appeal unless the court abused its

discretion in 1) its decision to sanction the litigant, or 2) in the court's choice of the

particular sanction employed." Switzer v. Switzer, 273 Va. 326, 331, 641 S.E.2d 80, 83 (2007).

We note that the trial court’s order recites that the “sanction” was awarded because

counsel for ESI failed to “voluntarily extend the time in which Wells Fargo might file its

answer.” The action by counsel declining to agree to an extension of time does not involve a

“pleading, motion, or other paper” filed by counsel for ESI. In this regard, the award of

sanctions is patently incorrect and completely without basis under the governing provisions of

Code § 8.01-271.1, which provides in pertinent part:

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

Nonetheless, and in plain disregard of the stated reason for the trial court’s award, Wells

Fargo argues for the first time on appeal that the trial court did not abuse its discretion in

awarding sanctions because ESI filed its motion for default judgment against Wells Fargo with

an improper purpose, and therefore the trial court had authority to issue sanctions under that

portion of Code § 8.01-271.1. Wells Fargo is correct that an attorney may be sanctioned for

5 filing a motion that is well grounded in fact and warranted by existing law if that motion is

nonetheless filed for an improper purpose, such as to harass or to cause unnecessary delay or

needless increase in the cost of litigation. We recently affirmed a trial court’s decision to issue

sanctions on that exact basis. See Kambis v. Considine, 290 Va. 460, 468-69 & n.3, 778 S.E.2d

117, 121-22 & n.3 (2015) (affirming trial court’s decision to award sanctions against plaintiff

and plaintiff’s counsel for filing numerous pleadings with an improper purpose of intimidating

and injuring the defendant). However, there is nothing in the trial court’s orders indicating that it

ever made a finding that ESI’s counsel had filed the motion for default judgment with an

improper purpose. Rather, the trial court specifically held, in its final order, that it had imposed

sanctions for counsel’s “failure to voluntarily extend the time in which Wells Fargo might file its

answer.” It is well established law in this Commonwealth that a trial court speaks only through

its written orders. Davis v. Mullins, 251 Va. 141, 148, 466 S.E.2d 90, 94 (1996). There is

nothing in Code § 8.01-271.1 that gives a trial court authority to impose sanctions on an attorney

for failing to voluntarily agree to an extension of a deadline for an opposing party.

On brief and in oral argument before this Court, counsel for Wells Fargo characterized

ESI’s counsel’s behavior as “unprofessional.” She asserted that in her 24 years of practicing law

she had never heard of an attorney refusing to extend the type of professional courtesy she had

requested. Counsel for Wells Fargo claimed that “the sanctions award was clearly intended to

educate Plaintiff’s counsel as to the level of professionalism [the trial judge] expected of counsel,

as well as to reimburse Defendant’s counsel for the unnecessary time and expense incurred in

coming to [c]ourt to argue the [motion for leave to file an answer out of time].”

While professionalism embraces aspirational values of civility, courtesy, public service

and excellent work product, legal ethics rules and statutory provision of sanctions express the

6 lowest level of permissible conduct at the Bar, below which an attorney may be subject to

discipline or sanctions. The legal profession has been self-regulating, and its attempts to regulate

the conduct of its members has created a tension between the aspirational goals of

professionalism and the bare minimum of ethical requirements and conduct required by written

rules and statutes.

In 1984, Chief Justice Warren Burger delivered a speech to the American Bar

Association (“ABA”), voicing concerns over the decline in the public’s perception of and

confidence in lawyers. Warren E. Burger, The State of Justice, 70 A.B.A. J. 62 (1984). He

asked the ABA to create a study group to examine these problems. Id. at 66. Chief Justice

Burger’s 1984 speech is generally considered the beginning of what many refer to as the

Professionalism Movement: a concerted effort across the legal profession to address

professionalism within its own ranks. See, e.g., Jack L. Sammons, The Professionalism

Movement: The Problems Defined, 7 Notre Dame J.L. Ethics & Pub. Pol’y 269 (1993). In

response to Chief Justice Burger’s call for action, the ABA established the Commission on

Professionalism. This Commission studied the challenges for continued professionalism in the

modern practice of law, and recommended nearly thirty specific actions to be undertaken by all

members of the legal profession. ABA Comm’n on Professionalism, In the Spirit of Public

Service: A Blueprint for the Rekindling of Lawyer Professionalism, 112 F.R.D. 243, 300 (1986)

(reporting the conclusions of the ABA commission on professionalism).

The second important development in the Professionalism Movement was the founding

of the American Inns of Court, also upon the encouragement of Chief Justice Burger. The

American Inns were founded to “promote the goals of legal excellence, civility, professionalism,

and ethics on a national level.” See American Inns of Court, About Us-History,

7 http://home.innsofcourt.org/AIC/About_Us/History/AIC/AIC_About_Us/History_of_the_Ameri

can_Inns_of_Court.aspx (last visited Feb. 4, 2016). The first Inn was established in Utah in

1980, and a committee of the Judicial Conference of the United States recommended in 1983 the

creation of a national foundation to support the expansion of the American Inn concept. Id. The

American Inns of Court Foundation was created in 1985 to support the inns, and today there are

nearly 400 chartered American Inns of Court, with more than 30,000 active members. Id.

In addition to the Inns of Court, fourteen states have established professionalism

commissions as joint efforts between bar associations and the judiciary. See American Bar

Ass’n, Professionalism Commissions,

http://www.americanbar.org/groups/professional_responsibility/resources/professionalism/profco

mmissions.html (last visited Feb. 8, 2016). Fourteen more state bar associations have

professionalism committees. Id. Thirty-eight states plus the District of Columbia have codes or

creeds for professionalism in legal practices. See American Bar Ass’n, Professionalism Codes,

http://www.americanbar.org/groups/professional_responsibility/resources/professionalism/profes

sionalism_codes.html (last visited Feb. 8, 2016).

Virginia lawyers have been active participants in the promotion of professionalism. A

high level of professionalism has always been expected and encouraged of all attorneys in this

Commonwealth. Before being admitted to the Bar of this Court, every attorney swears the

following oath:

Do you solemnly swear or affirm that you will support the Constitution of the United States and the Constitution of the Commonwealth of Virginia, and that you will faithfully, honestly, professionally, and courteously demean yourself in the practice of law and execute your office of attorney at law to the best of your ability, so help you God?

(Emphasis added). See also Code § 54.1-3903.

8 In 1987, this Court issued an order requiring all new attorneys in Virginia to take a

mandatory course on professionalism, which is designed to encourage attorneys to uphold and

elevate the standards of honor, integrity, and courtesy in the legal profession. See Virginia State

Bar, About the Bar-Professionalism, https://www.vsb.org/site/about/professionalism (last visited

Feb. 3, 2016). Additionally, in 2008, responding to the efforts of the Virginia Bar Association,

this Court endorsed the Principles of Professionalism for Virginia Lawyers, which articulate

standards of civility to which all Virginia lawyers should aspire. See Virginia State Bar,

Principles of Professionalism, http://www.vsb.org/pro-guidelines/index.php/principles (last

visited Feb. 3, 2016). These principles include guidelines on how counsel is expected to interact

with clients, judges and court personnel, and opposing counsel. With respect to opposing

counsel, attorneys should “[c]ooperate as much as possible on procedural and logistical matters,”

“[c]ooperate in scheduling discovery, negotiations, meetings, closings, hearings or other

litigation or transactional events, accommodating opposing counsels’ schedules whenever

possible,” and “agree whenever possible to opposing counsel’s reasonable requests for

extensions of time that are consistent with [an attorney’s] primary duties to [the] client’s

interests.” Id.

It is important to recognize, however, that the principles of professionalism are

aspirational, and, as we stated when this Court approved their adoption, they “shall not serve as a

basis for disciplinary action or for civil liability.” Id. Moreover, the principles themselves

recognize that conflicts may arise between an attorney’s obligations to a client’s best interests

and the professional courtesy of agreeing to an opposing counsel’s request for an extension of

time. Id. In this case, it is clear that the trial court sanctioned plaintiff’s counsel “for its failure

to voluntarily extend the time in which Wells Fargo might file its answer.” However, in this

9 case, counsel may not have been acting in his client’s best interests if he had agreed to the

requested extension of time. In fact, ESI directed counsel not to agree to the requested

extension.

We applaud the bench and the bar as they encourage the aspirational values of

professionalism. But there is a difference between behavior that appropriately honors an

attorney’s obligation to his client’s best interest, behavior that falls short of aspirational

standards, and behavior that is subject to discipline and/or sanctions. In this case, Wells Fargo

was in default. Counsel for ESI satisfied his obligation to pursue his client’s best interest, and in

this case followed the client’s express direction. Counsel did not engage in behavior that could

be characterized as unprofessional, an ethics violation or behavior that is subject to statutory

sanctions. Accordingly, we reverse the trial court’s order awarding $1200 in sanctions against

plaintiff’s counsel for counsel’s failure to voluntarily extend the time in which Wells Fargo could

file its answer.

III. Conclusion

For the reasons stated, we will reverse the judgment of the trial court regarding sanctions

and remand for further proceedings not inconsistent with this opinion, including an order

directing counsel for Wells Fargo to return the payment of $1200 to counsel for ESI.

Reversed and remanded.