Friday, February 25th, 2022
The story is familiar. Your company has a customer that has been purchasing goods or services from your company for a long time. The customer is exhibiting signs that it is experiencing financial difficulties. The customer’s payments of the company’s invoices become slower and eventually past due. The business relationship is valuable to both the customer and your company: the customer needs your company’s goods or services and the customer provides important revenue to your company. Neither party wishes to terminate the relationship. The financial condition of the customer continues to deteriorate and the customer resorts to the filing of a petition under the U.S. Bankruptcy Code. Your company may or may not cease providing goods or services to the customer.
Your company receives a letter from the attorneys for the customer or from a trustee appointed in the customer’s bankruptcy case demanding that your company repay all of the money paid to your company by the customer in the ninety days before the bankruptcy petition was filed. You are outraged at this demand; your company provided the goods or services and the customer got the benefit of those goods and services. Does the U.S. Bankruptcy Code allow this to happen? As more fully described below, the answer is, “it depends.” This article is intended to help you know how to best to turn that answer into “No”.
Section 547 of the U.S. Bankruptcy Code (the “Code”) deals with payments made by a debtor to its creditors before the bankruptcy case was filed. Specifically, it provides that a trustee or in some circumstances, the debtor, may recover a payment made by the debtor (1) to or for the benefit of a creditor, (2) for or on account of a debt owed by the debtor before the payment was made, (3) made while the debtor was insolvent[1], (4) made on or within 90 days before the filing of the bankruptcy petition (the “Preference Period)[2], and (5) that enabled the creditor receiving the payment to receive more than it would have received if the debtor’s case was a liquidation case, the transfer was not made and the creditor received payment as provided by the Code (this latter element is commonly referred to as the “liquidation test”).
Appropriately, section 547 of the Code also provides a creditor with certain defenses against the demands to repay money received by that creditor. The most important of these defenses are the contemporaneous and subsequent new value defenses and the ordinary course of business defense. In sum, these defenses can protect funds paid to the company to the extent the company provided new value (1) in an intentional, substantially contemporaneously exchange or (2) after the new value (new goods or services) was given and that new value itself remained unpaid. An example of these “new value” defenses is when either contemporaneously or after a company’s receipt of a payment from the customer, the company provides new goods or services to the customer. In such circumstances, the company gets what is, in effect, a credit for the new goods and services against the payment it receives.
The other primary defense is generally called the “ordinary course of business” defense. It can also be a valuable tool for dealing with a financially troubled customer. This defense has two elements: (1) the debt must have been incurred in the ordinary course of business between the customer and the company, and (2) the payment by the customer must have been paid either (a) in the ordinary course of business between the customer and the company or (b) made according to ordinary business terms of the company’s industry. These two categories of “ordinary course defenses” are often referred to by courts as the “Objective Standard” and the “Subjective Standard”, respectively. Understanding the contours of these two defenses and taking the appropriate actions with a struggling customer can greatly increase the likelihood of successfully defending a demand to disgorge payments made by the debtor-customer to your company in the 90 days before it commences a bankruptcy case.
The Objective Standard
The Objective Standard measures whether the disputed payments were made in the ordinary course of business in the creditor’s industry. This test is broad. To utilize this standard, the creditor must present specific evidence about its industry’s ordinary business terms. For example, if your company sells widgets and the timing and form of the payments you received from the financially troubled customer during the Preference Period are within the industry’s normal range of the period between when widget sellers ship the widgets and receive payments from their customers (i.e., the industry standard), the payments made to your company will be protected by the ordinary course of business defense.
The Subjective Standard
The Subjective Standard considers the normal payment practices between the customer and the company and by that standard measures the “ordinariness” of the payments made in the 90 days before the bankruptcy petition is filed. The courts can consider a multitude of factors, with no one factor being determinative in the analysis. These factors include (1) the length of time the parties engaged in the type of transactions at issue (the longer the relationship, the more defined the payment history can be determined, (2) whether the subject transfers were in an amount greater than is usually paid, (3) whether the payments at issue were made in a manner different from previous payments (such as a change from regular check to wire transfer), (4) whether there was an unusual action by the debtor or the creditor to collect on or pay the debt, and (5) whether the creditor took any action to gain an advantage in light of the debtor’s deteriorating financial condition. However, the most consistently important factor is the difference, if any, between the timing of payments made by the customer before the Preference Period and the timing of payments made by the customer during the Preference Period. This standard is most effectively utilized if the analysis is based on transactions between the company and the customer during a time in which the customer was financially healthy and experiencing financial difficulties.
The two most common tests to determine the “ordinariness” of the timing of a payment are the “average lateness method” and the “total range method.” The average lateness method compares the average time of payment after the issuance of the invoice prior to the Preference Period against the average time of payment during the Preference Period. If the differences are not significant, the company is able to assert a strong defense against the recovery of payments it received during the Preference Period. If the differences in the two averages are material or skewed by outliers, the use of the “total range method” should provide a more complete picture of the financial relationship between the company and its customer. This method is more tolerant of outlier payments and as a result, payments made outside of the total range during the Preference Period typically must be well outside that range to be considered not made in the ordinary course of business.
Strategies to Protect Against Preferential Transfer Litigation
- Be proactive.
- Educate your accounts receivable personnel about preferential transfers and the defenses available.
- Establish and maintain standards and thresholds for identifying financially troubled customers and taking actions to prevent or reduce exposure to future exposure to preference liability. Determine the applicable range of payments for your industry using the total range method (the Objective Standard) and review and update that range annually.
- Monitor customer accounts for changes in the timing of payments. Determine the applicable historical range of payments by the customer using the “average lateness method.”
- Require customers whose payment history is changing to provide financial information as a condition to continue to sell on credit.
- Change payment terms in response to indicia of customer financial difficulties. (Caution: A change in payment terms, such as COD, may provide a new value defense, but may also make an otherwise “ordinary course” payment no longer “ordinary”. However, acting quickly may offer the opportunity to create a new “ordinary course of business” with the customer.)
- When in doubt, seek competent legal advice.
[1] In a bankruptcy case, the debtor is presumed to have been insolvent on or during the 90 days immediately preceding the date of the filing of the bankruptcy petition.
[2] This period is extended to 1 year for payments made to an “insider” of the debtor.
Wednesday, February 16th, 2022
On July 27, 2020, Virginia was the first state to adopt a COVID-19 Emergency Temporary Standard (the “ETS”), which required Virginia employers to take certain actions to mitigate the spread of COVID-19 infections in the workplace. On January 26, 2021, the VOSH ETS lapsed after its duration of six months. VOSH replaced the ETS with a permanent Standard for Infectious Disease Prevention (the “Permanent Standard”) that took effect on January 27, 2021. In response to CDC guidance issued on July 27, 2021, on August 26, 2021, VOSH adopted amendments to the Permanent Standard. The amended Permanent Standard is currently in effect.
On January 15, 2022, Governor Youngkin issued Executive Order No. 6, whereby the Governor directed the Safety and Health Codes Board to convene an emergency meeting to discuss if there is an ongoing need for the Permanent Standard. As directed by Executive Order No. 6, the Safety and Health Codes Board met on February 16, 2022. The Safety and Health Codes Board voted 7-3 to follow VOSH’s recommendation that the Permanent Standard should be withdrawn because COVID-19 no longer poses a “grave danger” to Virginia workers. This recommendation begins a 30-day public comment period, which will be followed by a public hearing and vote by the Safety and Health Codes Board.
This is welcome news. Inflexible mandates have been a challenge for many Virginia employers. At the present time we remain in a pandemic, however. Thus, employers need to continue to make health and safety a priority in the workplace. As you manage your employees, please contact us if you need any further guidance or advice.
Written by Gentry Locke Construction attorney Spencer Wiegard and Employment attorney Todd Leeson
Monday, November 8th, 2021
As you likely know, Federal OSHA has published its new Emergency Temporary Standard (ETS) that requires private employers with more than 100 employees to mandate COVID-19 vaccines, or require at least weekly COVID testing for unvaccinated employees, among other things. Here is some preliminary information for employers.
Basics: The ETS was published in the Federal Register on Friday November 5, 2021. See the link below to the OSHA Website. OSHA has published several documents to assist including an executive summary, FAQs, and sample policies.
https://www.osha.gov/coronavirus/ets2
The ETS requires that employees be fully vaccinated by January 4, 2022 or have a plan in place to require unvaccinated employees to be tested at least weekly and wear a face covering. Employers have other obligations that take effect December 4, 2021 including providing paid time off for employees to get vaccinated.
What about fact that an Appeals Court has already blocked the ETS from taking effect? On Saturday November 6, the Fifth Circuit Court of Appeals issued a short Order, in a case styled BST Holdings v. OSHA, blocking the ETS from taking effect pending further judicial review. This is not the final word. Over the next few days, weeks, and likely months, look for a plethora of additional (and likely conflicting) court rulings in similar cases pending throughout the U.S. Ultimately, the Federal Courts will likely agree to combine the cases and assign them to a single court, or the U.S. Supreme Court may become involved.
So what should we do now? I do not recommend that you do nothing under the theory that the ETS will not survive. I believe it wise to begin to educate yourself on the ETS. There are several important decisions you need to make, and steps that will take some time to develop if the ETS does ultimately take effect. With this in mind, here are a few additional thoughts.
Read the Regulation (it’s only 5 pages): The Federal Register publication is 154 pages. However, the Rule itself is a mere 5 pages. As you will see from the table of contents, the bulk of the publication contains helpful information in which OSHA explains, in great detail, its view of the world and the facts and opinions that led it to publish the ETS.
Evaluate whether to Mandate or Test. A critical decision you will need to make is whether you will mandate the vaccine for your employees OR implement a weekly testing protocol for employees who are not fully vaccinated. (I do not think it a viable option to ignore the ETS. The penalties for noncompliance can be quite substantial.)
If you decide to mandate, you will also need to ensure that you implement a protocol that allows employees to request accommodations for certain medical or religious reasons.
If you decide not to mandate, you will need to determine how the testing process will work and who will pay for the weekly tests.
What else? For now, please also know that the ETS requires employers to implement and publish a written policy that includes information on vaccines, testing, face coverings, and that provides certain information to employees. You will also need to inform employees that they can receive paid time off to be vaccinated and also paid sick leave to recover from any side effects following a shot. You will also need to be thinking about a process to learn the vaccination status of your employees.
We will do our best to keep employers informed of further developments.
Written by Todd A. Leeson
Thursday, September 2nd, 2021
Virginia follows the American Rule regarding attorney’s fees, which provides that parties must typically pay their own fees and costs in litigation; a prevailing litigant cannot collect its fees from the losing litigant. However, there are some exceptions. For example, a governing statute might include a fee-shifting section. Or, the litigants’ contract might include a similar clause.
There is also a judicially-crafted exception that can apply in fraud cases. The exception has its roots in the case of Prospect Development Company v. Bershader, a 1999 decision by the Supreme Court of Virginia. There, the Court largely affirmed the trial court’s decision to award attorney’s fees in a case involving a claim of fraud, despite the fact that there was no fee-shifting statute or contract implicated in the case.
However, the circumstances of the case were unique. The plaintiffs were homebuyers who incurred six figures in legal fees pursuing legal and equitable claims—which included fraud—against a developer related to the purchase and sale of a lot. While the plaintiffs prevailed in proving that the developer committed egregious fraud, the damages that they ultimately obtained in the trial court amounted to only roughly one-fifth of what they spent in attorney’s fees, and the Supreme Court subsequently reversed that damages award. As a result, both courts found that an award of attorney’s fees to the plaintiffs was appropriate because the plaintiffs’ victory would have been truly pyrrhic absent such relief.
In the wake of Bershader, the courts struggled to discern the scope of the exception that it created. Some courts took a broad view of the case, holding that it authorized a plaintiff to seek recovery of attorney’s fees in any fraud suit. Other courts cabined the Bershader exception as applicable only to fraud claims in which equitable relief is sought. These courts based their reasoning on the equitable underpinnings of the trial court’s rulings. Accordingly, they took the view that a plaintiff in a fraud suit who sought only damages was not entitled to assert a claim for attorney’s fees.
Still other courts limited the Bershader exception to its particular circumstances. That is, they allowed claims for fees where (i) the fraudulent conduct was found to be egregious, and (ii) the expense of litigating the case—when compared to the recovery obtained—would render the plaintiff’s recovery hollow. Some decisions took this concept a step further by denying claims for attorney’s fees in cases where the plaintiff sought compensatory damages for the fraud. These courts reasoned that concerns of empty relief are absent in such contexts because compensatory damages make the plaintiff whole for the harm suffered.
In February 2021, the Supreme Court synthesized many of these decisions and brought some clarity to the issue in St. John v. Thompson. Not unlike Bershader, the facts of the case were (horribly) unique. The plaintiff was an individual of limited mental and physical capacity, and the defendant had deceived and manipulated the plaintiff, capitalizing on his limitations for financial gain. The plaintiff sought equitable relief for fraud and other claims, as well as attorney’s fees. The trial court awarded both, relying on Bershader for the latter fee award.
On appeal, the Supreme Court explained that the Bershader exception was, in fact, limited to exceptional instances in which the trial court awarded equitable relief. It did not explain, however, whether fees could be awarded in cases where a plaintiff sought both equitable relief and damages in a fraud claim. Accordingly, it appears that fee claims are still potentially viable in that context.
The Court further explained that an award of fees does not depend on a showing of egregious fraud, but the circumstances of the fraudulent acts and the nature of the relief awarded must “compel” the award of fees. Thus, it seems that proof of an egregious fraud and the threat of a “hollow” victory are still relevant factors to the trial court’s decision, although neither is dispositive.
So, what’s the takeaway? In all events, the Bershader is a very narrow exception to the general rule against fee-shifting in fraud suits. Plaintiffs: to preserve viable claim for fees, at least some form of equitable relief must be sought in the complaint. And, prevailing on a fee claim will likely only occur in exceptional cases involving a mix of extreme facts and relatively expensive litigation when compared to the relief awarded. Defendants: watch out for attorney’s fees claims in fraud suits that seek damages relief, and look for opportunities to strike fee claims as insufficient under the limiting principles stated in Bershader and St. John.
Monday, August 9th, 2021
A coal company makes a promise to a coal miner: “We will pay you $30 per ton of coal you deliver.” The coal miner then delivers the coal, but the coal company pays the miner only $15 per ton. The coal miner then sues the coal company. Does the miner have a claim for breach of contract? For fraud? Or for both? As with so many legal questions, the (maddening) answer is: it depends.
Virginia law has strived to draw a distinction between contract and fraud claims, for perhaps obvious reasons. Take the facts above. The company’s failure to fulfill its earlier promise to pay is, in essence, simply a breach of contract. But if the company’s failure to follow-through could also be considered “fraudulent,” then the miner’s breach of contract claim would also be the basis of a fraud claim. The same would then be true in every other breach of contract case, and as a result, contract law would “drown in a sea of tort.”
This is why, as a general rule, a claim of fraud must involve a misrepresentation of a present or a pre-existing fact. It cannot be based on unfulfilled promises or statements of future events. Those are simply breaches of contract.
However, that is not to say that a contractual promise cannot be the basis of a fraud claim. It can be. This is often referred to as promissory fraud. Under promissory fraud principles, a fraud claim can lie on a contractual promise in the limited circumstance where a contracting party makes a promise that, when made, he has no intention of performing. In this instance, the promisor misrepresents his current state of mind—a matter of fact—and therefore his promise is a misrepresentation of present fact. And, if the promise is made to induce the promisee to act to his detriment, the promise is actionable as fraud.
Consequently, the key element to a promissory fraud claim is a “simultaneity” between promise and the intent not to honor it. Again, take our facts. To plead a claim of promissory fraud, the miner would have to allege that the company made the promise to pay $30 per ton with the simultaneous intent to disavow its payment obligation or pay some lesser tonnage amount. Absent those allegations, the miner has no fraud claim.
Savvy pleading can perhaps get the miner past the demurrer/motion to dismiss stage of its case. But proving the promissory claim is another matter. Fraud claims are notoriously hard to prove, and absent glaring facts, judges tend to view them with skepticism. Here, the burdens of proof and persuasion are made even more difficult by the precise evidence of “simultaneous disavowal” that is required for a promissory fraud claim. Rare is the case where this kind of evidence can be solicited in discovery or at trial.
Then, from a damages standpoint, is the game worth the candle? What are the damages potentially available for the promissory fraud claim? Again, take the miner’s case as an example. Since the miner’s fraud claim is based on the same contractual promise as a contract claim, the damages claimed between the two claims will be largely (if not entirely) duplicative of each other. The miner can only recover that amount once, which begs the question why the miner would assert a promissory fraud claim in the first place. The contract claim would appear to be a simpler and more direct route to seeking and obtaining those damages. From a cost-benefit standpoint, the miner might be better suited to simply sue for breach of contract.
Of course, each case will present different circumstances. Careful analysis and consideration should be given to the facts and circumstances in determining whether promissory fraud (i) is a viable claim and (ii) should be asserted.
Thursday, February 25th, 2021
In July of 2020, the Virginia Department of Labor and Industry (“DOLI”) enacted an Emergency Temporary Standard (“ETS”) setting forth workplace safety standards relating to the COVID-19 pandemic. Virginia has now enacted a Final Permanent Standard for Infectious Disease Prevention: SARS-CoV-2 Virus that Causes COVID-19 (the “Permanent Standard”). The 58-page Permanent Standard, set forth in Section 16VAC25-220 of the Virginia Administrative Code, is effective as of January 27, 2021. The Permanent Standard applies to all employers in the Commonwealth, and supersedes the ETS.
The Permanent Standard is based in large part on the ETS, and mandates appropriate personal protective equipment, sanitation, social distancing, record keeping, training, and hazard communications in Virginia’s workplaces. It requires employers to mandate social distancing measures and face coverings for employees in customer-facing positions and when social distancing is not possible, to provide frequent access to hand washing or hand sanitizer, and to regularly clean high-contact surfaces. Employers are required to exclude employees from work who are known or suspected to be infected by COVID-19, timely notify employees and others when a worker known to be infected by COVID-19 was at the workplace, and train employees on COVID-19 safety issues.
In particular, the Permanent Standard continues the requirement in the ETS that employers assess the exposure risk level to COVID-19 of the job tasks of each employee, and classify the risk level as “very high,” “high,” “medium,” or “lower.” Employers are subject to different requirements depending on the exposure risk levels their employees face. Employers with job tasks classified as “medium” or higher are required to implement a written infectious disease plan. Employers with hazards or job tasks classified as “very high” or “high” are subject to additional safety requirements as well.
There are some key differences between the ETS and the Permanent Standard. Under the Permanent Standard:
- Employers do not have to fear enforcement actions for failing to provide Personal Protective Equipment (PPE) when they are making good-faith efforts to secure PPE that is in short supply.
- Employers no longer have to report every positive COVID-19 case to the Virginia Department of Health (VDH). An employer only need report “outbreaks,” defined as two or more cases within a 14-day period.
- After an initial report of outbreak of two or more cases, an employer is required to continue to report all cases to VDH until the local health department notifies the business that the outbreak has been closed.
- After the outbreak is closed, the normal standard of an outbreak (two or more cases) applies before the employer is required to report to the VDH again.
- Employers must report to DOLI as well if they have three or more positive cases within 14 days. All reporting to VDH and DOLI can be done through an online form.
- For employees known or suspected to be infected, employers must comply with a time-based return-to-work requirement. The test-based approach has been removed.
- Consistent with CDC guidance, employees may return to work after 10 days, with only onesymptom-free day, instead of the previous requirement of 10 days with three symptom-free days.
- Employees can return to work when they have been fever-free for 24 hours without fever-reducing medications, their respiratory symptoms have improved, and at least 10 days have passed since their symptoms first appeared.
- Critical infrastructure workers may return to work earlier consistent with applicable CDC or VDH guidance.
- Employers have alternative options for complying with respiratory standards when multiple employees travel in work vehicles together, due to shortages of N-95 and other respirators.
The Permanent Standard also clarified a few items:
- Face coverings must be worn over the nose and mouth and fit snugly under the chin. They cannot have exhalation valves or vents.
- A face shield generally does not qualify as a “face covering.”
- Face coverings are required when employees who are solely exposed to lower risk hazards or job tasks have brief contact with others closer than six feet apart, such as passing another person in a hallway that does not allow physical distancing of six feet.
- Employers with hazards or job tasks classified in the “very high,” “high,” or “medium” risk categories must implement enhanced ventilation controls for air-handling systems, such as increasing airflow to occupied spaces (provided that it does not create a greater hazard), increasing air filtration, and using natural ventilation in ground transportation settings.
Although the Permanent Standard does not tie its requirements directly to the CDC’s guidance, it provides that compliance with a specific CDC guideline may be considered compliance with the Standard. The Permanent Standard also provides no guidance for employers whose employees have received a COVID-19 vaccine.
The Permanent Standard will remain effective throughout the pandemic. Within 14 days of the expiration of Governor Northam’s COVID-19 emergency declaration, the Board responsible for developing the rules will reconvene to determine whether the standard should remain in effect.
Employers must update their policies and practices to comply with the Permanent Standard, and inform employees of any changes. As you know, employers were required to provide training to employees consistent with the requirements of the ETS. While employers are not required to retrain employees, employers must ensure that all employees have been trained and are aware of any new changes. Employees are required to keep certification records of the training received by employees. The training requirements take effect March 26, 2021.
For further information, the Virginia Department of Labor and Industry (DOLI) maintains a useful Education and Training materials page, available at https://www.doli.virginia.gov/covid-19-outreach-education-and-training/.
Please contact us if you have questions or if we can assist you with your compliance obligations under the Permanent Standard.
Tuesday, December 22nd, 2020
Minutes before midnight on December 21, 2020, in the first major COVID-19 relief bill since this spring, Congress passed a $900 billion COVID-19 relief bill in combination with a $1.4 trillion omnibus government spending bill.
Key PPP provisions of the new COVID-19 relief bill include:
- A new round of PPP loans to small businesses. The new round of PPP loans contains revisions to prior borrower eligibility criteria, so eligibility for this new round should be examined by any interested businesses. Unlike prior rounds, initial language indicates borrowers will need to show a 25% decline in gross revenue for any 2020 quarter when compared to the same quarter in 2019 to be eligible for this new round of PPP funds.
- A simplified forgiveness application for borrowers with PPP loans of $150,000 or less will be produced by the SBA within 24 days of the COVID-19 relief bill’s enactment. This will be a welcome addition as many borrowers under prior PPP funding rounds are looking to their PPP lenders to provide confirmation of loan forgiveness.
- For borrowers who received PPP funds as well as applied for Economic Injury Disaster Loans (EIDLs), any EIDL advances, which are treated as grants that do not have to be repaid, will no longer be deducted from the PPP forgiveness amount.
- Tax Deductibility for PPP expenses. This was a significant issue for borrowers. The original CARES Act stated that forgiven PPP loans would not be treated as income to borrowers, however it did not address the deductibility of otherwise deductible expenses for which such tax-exempt funds were utilized.
IRS and Treasury issued guidance throughout the year stating that expenses paid with funds from PPP loans that were forgiven (or that the borrower anticipated would be forgiven even if such forgiveness had not yet been received) could not also be deductible for federal income tax purposes. The thought being that this would be a windfall to borrowers, to avoid recognizing forgiveness of indebtedness income and still benefit from allowing taxpayers to deduct the expenses such tax-exempt funds were used to satisfy. Assuming the relief bill is signed by the President, the law would supersede such IRS guidance. We anticipate that additional guidance and clarifications from SBA, Treasury, and the IRS will be forthcoming.
Tuesday, December 15th, 2020
A Commercial Landlord’s Guide to Relief when a Tenant Abandons the Property
Tenants come and go. Sometimes they go without warning. In an age of remote work, stay-at-home orders, and supply-chain delays, commercial landlords find themselves in a precarious position with tenants who threaten not to return or who just altogether leave. Of course, a landlord has available to it the traditional contractual remedies and those under the Virginia Landlord Tenant Act. However, there is another remedy often overlooked: the distress warrant.
Given the severity and unique nature of the distress warrant, it is obvious why landlords infrequently rely on this remedy. Should your situation qualify, though, it can be a useful tool. In general, a landlord has a lien for rent and a right of distress or attachment for the same. See Virginia Code § 43-30. The remedy for rent and to enforce the lien is a distress warrant. Virginia Code § 8.01-130.1. The parameters and procedure of the distress warrant are set forth in the code sections that follow. A distress warrant is similar to any other attachment, which allows the sheriff to attach to the tenant’s goods, preventing them from being sold or moved.
This is how a distress warrant works. First, a landlord can file a distress warrant if rent is unpaid, and can levy on any goods that are found in the leased premises or were removed from the premises 30 days prior to the levy. There are some limitations in Va. Code Ann. § 8.01-130.6 related to premises used for residential, farming and agricultural purposes, otherwise, a landlord can levy on goods equal to the amount owed in rent. Next, the landlord has to allege one of the grounds set forth in Va. Code Ann. § 8.01-534 in order to qualify for the pre-trial levy, seizure or attachment. In general, these grounds involve the tenant absconding, selling goods, destroying goods, leaving the Commonwealth, etc. Third, the rent claimed must be due within five years of the time claimed. Fourth, the plaintiff must obtain a bond that meets the requirements of Va. Code Ann.§ 8.01-537.1.
The steps to file a distress warrant are as follows. You need to draft a Complaint that sets forth all of the elements in Va. Code Ann. § 8.01-130.1, et seq. Then you need to fill out an Attachment Summons, Form CC-1442. On this summons, you can chose “Levy only” which is where the Sheriff simply serves the summons and tells the tenant they cannot remove the levied property or “Seizure” which is when the Sheriff takes the property. Attached to this summons, you must include an inventory of the items you wish the Sheriff to levy or seize. You must also include Form DC-407, which is a request for hearing – exemption claim form required for debtors. Then, file these forms with your bond and the Complaint, request the judge sign the Attachment Summons, and the Sheriff will levy on or seize the property.
A distress warrant could be a great way for a landlord to protect its interests, particularly in cases where a commercial tenant is abandoning the property prior to the lease, leaving Virginia, and selling their equipment and/or inventory.
Tuesday, October 20th, 2020
Friday, October 16th, 2020
A team of Gentry Locke litigators recently reached a settlement for $8 Million Dollars on behalf of a factory worker who was severely injured when her hair became entangled in the drive shaft and roller of the glue spreading machine she operated. The machine spun her hair around the shaft and roller, ultimately completely scalping her from eyebrows to the back of her neck and from ear to ear. Her life was saved by the Duke Medical Center but her injuries are permanent and debilitating.
The claim we asserted on our client’s behalf was initially focused on the way the machine was designed, manufactured, and shipped by the European manufacturer, and how it was installed at the furniture factory by a U.S. company. We developed evidence to support our contention that the machine was not equipped with appropriate guarding on the roller and the shaft. As we dug deeper into the evidence, we learned that the manufacturer had specified certain wall panels for the machine. Those panels would have been a barrier between the operator and the danger zone. While the manufacturer maintained that the panels were shipped in the same crate with the machine, the installer testified by deposition that the panels were not on the machine or with the machine when it arrived in the U.S and that nothing about the machine or its documentation alerted the installer that the panels were a part of the design. The manufacturer conceded that the panels were not attached to the machine during shipment and its documentation did not clearly confirm that the panels ever made it into the shipping container for the transatlantic voyage. This resulted in the manufacturer and the installer blaming one another for the fact that the machine was commissioned into operation at the furniture factory without these important safety components. Of course, both manufacturer and installer blamed our client for being in the danger zone.
The above description of the case is an interesting fact pattern, but it falls within the typical framework of a commercial product liability case. Manufacturer with the duty to avoid placing an unreasonably dangerous product into the stream of commerce, and the installer with a duty to use reasonable care in the installation and commissioning of the machine. Here’s what made this case different. Just 30 days before our client was injured, a sales representative for the manufacturer visited the plant and the inspected the glue spreader. He concluded that it was in need of replacement and hoped to sell a new machine. During the visit, he took photos of the machine on the factory floor and sent them back to the manufacturer in Europe. Those photos clearly revealed the absence of the wall panels from the location where they were supposed to have been attached to the machine. Yet, no one notified the furniture factory that the machine was not equipped with an essential safety component.
We immediately recognized that this omission could put serious pressure on the manufacturer, and its insurer, to avoid a jury trial if the law of Virginia recognizes a duty to warn after the sale and commissioning of a product. Our research led us to several federal court opinions in Virginia which forecast that the Supreme Court of Virginia would recognize such a duty. Those courts in most cases cited with approval a section of the Restatement of Torts—Product Liability which describes when the duty arises and how a product seller can satisfy its duty to warn. In essence, the duty arises when a seller learns that its product has a dangerous defect, has the ability to inform those who are affected by it, and has reason to believe that without a warning the user of the product will not appreciate the danger and protect herself from harm.
There are many unanswered questions that must be considered by those who would make a claim for failure to warn and those who would need to defend such a claim. Does an unequivocal disclaimer of warranty in connection with the sale defeat a claim for post-sale duty to warn? Does the claim “sound” exclusively in tort or do both contract and tort law principles apply? When does the statute of limitation begin to run? Does the rule differ for commercial versus consumer products?
If the attorneys at Gentry Locke can be of assistance in this developing area of the law, please contact us.
