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The Virginia Appellate Lawyer’s Court of Appeals of Virginia Blog

Please Ignore the Lesson of the First Published Court of Appeals Opinion of 2024

The Court of Appeals of Virginia released its first published opinion of 2024 today and it comes with a very bad lesson that I implore my readers to ignore. While it will appear that the attorneys involved in Smith Development, Inc. v. Martin C. Conway, et al. were clever like an earth of foxes (more on that turn of phrase later), I would argue that they were just lucky and it was dumb luck at that.

The Conway of the case name is a name attorney of the firm Pesner Kawamoto Conway, P.C. Smith Development, Inc. (SDI) hired the firm in 2008 to represent it in a Chapter 11 Bankruptcy -- commonly known as a "reorganization." The firm provided a representation letter which was countersigned by the president of SDI. So far, so good.

Conway filed the chapter 11 proceeding in January 2009 and obtained approval from the

bankruptcy court to be employed as counsel to debtor-in-possession SDI and made efforts to collect on some debts owed to SDI. So far, so better. Then SDI in 2010 failed to pay the required fees to maintain a chapter 11 proceeding.

As will happen in such cases, the bankruptcy court "on its own motion" converted the case to a chapter 7 liquidation, which ousts the debtor's attorney as representative for the estate and substitutes the bankruptcy trustee. The trustee engaged Conway to litigate the pending collection actions. Eventually the bankruptcy was concluded in 2012.

Now while all this is interesting (to some) as a lesson in bankruptcy proceedings, this clearly isn't a bankruptcy case -- because bankruptcy is a federal matter. So let's get to what this case is really about -- legal malpractice. SDI sued Conway alleging that it received bad legal advice concerning the Chapter 7 proceeding. Whether that is true, we will never know, because, have some of the more astute among you may have already noticed, the bankruptcy happened a longish amount of time ago . . . 15 years to be precise from the filing, and 11 years from the conclusion, of the bankruptcy. And that means we are probably talking about a statute of limitations issue.

Just under five years after the bankruptcy was concluded, Conway is served with SDI's suit for malpractice. Now you are probably thinking that the issue before the trial court was when did Conway allegedly first breach the agreement set out in the representation letter that, given that malpractice, while it "sounds in tort," derives its limitations period based on contract law and the limitations for filing suit on a written contract is five years.

As it turns out, the issue wasn't when the breach occurred, but whether the five year statute of limitations even applied. Conway argued that the representation letter specified that the firm was retained for the Chapter 11 reorganization, but the suit alleged the malpractice arose during the Chapter 7 liquidation. This raised two issues -- first, since Conway was retained by the trustee, was there even a client-attorney relationship with SDI and second, if there was such a relationship, was it based on the written agreement from 2008 or on some unwritten agreement implied by the course of conduct in or after 2010.

The statute of limitations on a contract relationship not in writing is 3 years -- meaning that regardless of when the breach occurred, the suit file 4+ years after the conclusion of the bankruptcy was definitely too late, regardless of when the breach occurred. That is, assuming that there was a client-attorney relationship and the liquidation was a new matter.

The circuit court determined that the dispositive issue was whether the representation of SDI was based on the written agreement or was a new matter based on an "oral" agreement. It concluded that it was the latter and sustained a motion for summary judgment based on the statute of limitations having run.

Before getting to the Court of Appeals' opinion, let me take issue with the term "oral" in this context. The code does not use the term "oral," rather it describes "(i) any contract that is not otherwise specified and that is in writing and not signed by the party to be charged, or by his agent, or (ii) any unwritten contract, express or implied." So really, its not an "oral contract," but a contract "not enforceable in writing."

On the the Court of Appeals. We get a split decision with Judge Raphael joined by Sr. Judge Clements affirming the circuit court, and Judge Causey dissenting. The majority comprises 17 of the 21 pages of the opinion, in part because it addresses the ethical implications of Conway continuing to provide legal advice to SDI while the firm was working for the trustee as well as issues of not advising Conway that the representation for the reorganization had terminated. The majority concludes that while these issues are troubling, Conway did not necessarily violate the Code of Professional Responsibility; though I suspect SDI may be filing a complaint with the Bar if it has not already done so.

Suffice to say that is is the bad lesson I do not want attorneys to take from this case. Conway did the right think by getting the initial engagement in writing and specifically stating that it was for the Chapter 11 case, it should have followed up with a case closing letter when it ceased to represent SDI in the converted Chapter 7. Whether it was providing SDI with legal advice or representation in the Chapter 7 proceeding, and whether this was a conflict of interest with the firm's representing the trustee, is not a question the majority addresses. Like the trial court, it assumes that the statute of limitations period is dispositive to the motion for summary judgment.

Judge Causey dissents on this very point -- that the statute of limitations was raised in a motion for summary judgment, not a plea in bar. The difference is that a motion for summary judgment should be granted only if there are no material facts in dispute -- and Judge Causey believes that whether Conway was representing SDI in the Chapter 7 proceeding and, if so, whether it was under the representation agreement or some other agreement "not enforceable in writing" are material issues.

I find myself in agreement with the majority on the substantive law, but with Judge Causey on the procedure. Even though I think it will be difficult for SDI to prove that Conway was providing legal advice and representation to SDI in the Chapter 7 proceeding under the representation letter that specified it was for a Chapter 11 proceeding, this is a disputed fact that should not be decided on summary judgment (or, for that matter under a plea in bar -- but the designation of the pleading as one or the other is not dispositive, its the substance of the pleading).

I am less concerned about whether Conway was representing SDI in the Chapter 7 -- the opinion notes that the pleadings were signed “Counsel for chapter 7 Trustee, Richard A. Bartl, for Smith Development, Inc." -- than whether whether communications between Conway and SDI constituted legal advice. As the trustee said in requesting Conway represent the estate in the debt collection actions, this is a common process in bankruptcy proceedings, but I think maybe it creates some blurring of the lines when a debtor's former attorney is communicating with him about the bankruptcy proceedings.

Now, an "earth of foxes" . . . Earth is one of the lesser-known collective terms for a group of foxes. Other terms are "skulk of foxes," a "troop of foxes," a "lead of foxes," and a "pack of foxes." According to one source three foxes, no more no less, is a "leash." I would like to propose that a "cleverness of foxes" would be more appropriate than any of these pedestrian terms. A male fox is a "dog" or "tod," while a female is a "vixen" and their young are "pups," "kits," or "cubs."

And to answer the eternal question, "What to the fox say?" is:

The fox's vocal repertoire is vast, and includes:

Whine -- Made shortly after birth. Occurs at a high rate when kits are hungry and when their body temperatures are low. Whining stimulates the mother to care for her young; it also has been known to stimulate the male fox into caring for his mate and kits.

Yelp -- Made about 19 days later. The kits' whining turns into infantile barks, yelps, which occur heavily during play.

Explosive call -- At the age of about one month, the kits can emit an explosive call which is intended to be threatening to intruders or other cubs; a high-pitched howl.

Combative call -- In adults, the explosive call becomes an open-mouthed combative call during any conflict; a sharper bark.

Growl -- An adult fox's indication to their kits to feed or head to the adult's location.

Bark -- Adult foxes warn against intruders and in defense by barking

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