Virginia’s “Good Faith” Statute Requires Good Timing

Recently, litigants have been relying heavily on Virginia Code Section 8.01-271.1 to shift their legal expenses to the opposing party. Code Section 8.01-271.1 is generally known as Virginia’s “good faith” statute and requires that all pleadings, motions, or other papers filed during litigation are filed for a proper purpose, be well grounded in fact, warranted by existing law, or a good faith argument to extend, modify or reverse existing law. If motions, including oral motions, are made in violation of this statute, a court has discretion to award any appropriate penalty including the fees incurred in responding to a motion. Given the amount of sanctions awarded in some cases recently (several hundred thousands of dollars), it appears that many litigants wait until the end of a case to raise sanctionable conduct and ask the court for reimbursement of practically all fees and expenses incurred in a case by arguing that the entire case was sanctionable as opposed to a narrow, discrete issue. A recent Virginia Supreme Court case, however, may be a reason to rethink this strategy.

In EE Mart F.C., L.L.C. v. Delyon, et al., 768 S.E.2d 430 (Va. 2015), the Supreme Court was asked yet again to determine the appropriateness of a sanction imposed pursuant to Virginia Code Section 8.01-271.1. Unlike most cases involving a sanctions appeal, EE Mart raised the issue of whether a Virginia court could sanction a litigant for actions that occurred in other courts and in other states. The long history of the cases dated back to 2010 when EE Mart filed, and later nonsuited, a case in Fairfax County against various parties (“Delyon”). In October 2011, EE Mart filed a case in a Maryland circuit court which was then removed to federal court. EE Mart sought to bring in Delyon to keep the case in federal court, but the federal court remanded the case to Maryland. In June 2012, Delyon filed suit against EE Mart in Fairfax County. EE Mart filed a counterclaim which gave rise to a sanctions motion “on the grounds that the assertions in the counterclaim were frivolous and based on false statements.” The Fairfax Court later ruled that EE Mart abandoned its counterclaim and, upon motion by Delyon, awarded sanctions against EE Mart. The sanctions included the costs incurred in the present case, as well as those from the 2010 Fairfax case and the Maryland case. EE Mart appealed. The Supreme Court held that the award of sanctions for costs incurred in actions outside of the instant case (the one Delyon filed against EE Mart) was error. The Court made clear that the plain language of Code Section 8.01-271.1 precludes an “award of attorney’s fees or expenses for actions that occurred prior to the sanctionable act.” While other actions may be relevant to determine whether sanctions are warranted, other actions in other states made before the sanctionable act in Virginia cannot include “attorney’s fees incurred for a filing or motion made elsewhere.”

It seems that the most practical application of this case is to bring sanctionable actions to the attention of a court in a timely manner. Failure to do so may result in a waiver of the ability to recover for that conduct.

This is especially true if all or part of the litigation takes places in different jurisdictions. If you or your client become the target of a sanctions motion, EE Mart may create a way to successfully assert that the other party waived the ability to recover for sanctionable conduct by not timely bringing the misconduct before the Court’s attention. This may have the end result in the amount of sanctions being reduced or the Court may choose not to impose any penalty.

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