Tuesday, August 21, 2012

Foreclosure; future advances: Creditor with judgment lien takes priority over future advances by mortgagee with actual notice of the lien, whether or not in writing, and whether or not notice is given by the creditor.

Daniels v. Elks Club of Hartford, 2012 VT 55 (Dooley, J.) (Cohen, S.J. concurring) (Reiber C.J.  joined by Burgess,  J. dissenting)

Plaintiff seeks to foreclose a mortgage on real property owned by defendant Elks Club of Hartford, Vermont (the Club).  Defendant creditors  all have junior liens  arising from a discrimination lawsuit aginst the Club. Creditor sappeal from a trial court decision on summary judgment, concluding that plaintiff  is entitled to a judgment of foreclosure against all parties, and dismissing creditors’ counterclaims.   On appeal, creditors argue the Bank was on actual notice of creditors’ interest, and, therefore money advanced thereafter is not part of the mortgage amount that has priority over creditors’ interests. We  reverse and remand the trial court’s decision to include certain advances in the mortgage amount and remand for reconsideration under the correct legal standard. 

The trial court ruled the Bank’s future advance did not lose its priority because, regardless of what the Bank may have known or inferred, it had not received written notice and objection from the creditors.  We disagree and hold that demonstrated actual notice from any source cuts of the priority of future advances , and that the notice need not be a writing and need not be an objection to future advances.

27 V.S.A. § 410(b)(3)(B) does not require that the intervening interest holder actually object to future advances.  It is enough that the mortgagee “receives written notice of the intervening interest.”  Also, § 410(b)(3)(B) does not require that it be the intervening creditor that provides the notice; the statute is written in the passive voice, requiring that “the mortgagee receives written notice” without specifying by whom.  In short § 410(b)(3)(B) is satisfied by any written notice and requires neither that the notice come from the junior creditor nor that the junior creditor specifically object to future advances.  

Further, although a mortgagee need not seek out information about attachments to ensure that its priority is preserved, we hold it  loses its priority where it has received such information, even though the information is not in writing, as the statute requires. see In re Blackmore , No. 05-12045, 2006 WL 1666194, at *2 (Bankr. D. Vt. Jan. 25, 2006) (“[F]uture advances made by a mortgagee will be subordinate if made after the mortgagee has actual notice of the intervening lien.”)

Members may be personally liable for unpaid judgment against an unincorporated association.


Daniels v. Elks Club of Hartford, 2012 VT 55 (Dooley, J.) (Cohen, S.J. concurring) (Reiber C.J.  joined by Burgess,  J. dissenting)

Plaintiff seeks to foreclose a mortgage on real property owned by  the Elks Club of Hartford, Vermont (the Club).  Defendant creditors  all have junior liens  arising from a discrimination lawsuit aginst the Club. Creditors  sappeal from a trial court decision on summary judgment, concluding that plaintiff  is entitled to a judgment of foreclosure against all parties, and dismissing creditors’ counterclaims.   On appeal, creditors argue the Club’s reinstatement of a dissolved corporation nineteen years after its dissolution does not alter its liability under a final judgment entered against it as an unincorporated association, and that plaintiff is personally liable for the judgment as a member of the Club. We agree.

The Club functioned as a voluntary association for nineteen years after its corporate status was terminated.  Creditors dealt with it as a voluntary association, not as a corporation.  Under Vermont law, the Club while acting as a voluntary association had the same liability as it had as a corporation, but the members had individual liability if the Club failed to pay a judgment against it.   

We conclude that reinstatement of the Club’s corporate status did not result in limiting liability on the Club’s debts arising from the discrimination lawsuit.  Because the Club was a voluntary association at the time it discriminated against the individual women certain members of the Club are liable for the judgments to the extent they cannot be collected from the Club.  The statute, 12 V.S.A. § 5060,   treats “partners, associates or shareholders” alike, imposing liability on them when execution against their partnership, association, or company is unfulfilled.  We have  applied the statute to unincorporated associations.  We acknowledge that the possibility of visiting liability on a mostly inactive Club member, who may have supported admission of women and opposed the Club’s decision to fight the discrimination litigation, with its very high cost, seems an inappropriate result.  Nonetheless, absent the corporate shield on liability,  the law permits the creditors to collect from individuals who were members when the various aspects of the judgment against the Club arose if collection from the Club itself is not possible. Reinstatement of the corporate status does not insulate officers, trustees, or members from liability for the judgment 

Having determined that the reinstatement of the corporate form did not insulate persons who are members, officers, or trustees from liability, we turn to the question of who could be personally liable to the creditors.  A number of courts have imposed liability on officers, directors, or shareholders only if they were aware that the corporation had been terminated.  We hold that reinstatement of the corporate status will not restore the corporate shield on personally liability for a person who knew, or should have known by virtue of the person’s position, that there was no corporate shield at the time of the act that created liability.  If the proceeds available to creditors do not satisfy their judgments, reduced by any other funds they may have received from or on behalf of the Club, they may pursue their counterclaims.

If creditors choose to pursue plaintiff for the unpaid judgment amounts, they must prove that plaintiff is a financially responsible member as defined in this decision: that is, with regard to any particular judgment, a member who knew, or should have known by virtue of his position, that the Club was not a corporation at the time that particular judgment accrued.  These same elements would apply if creditors opt to collect from another member.


Justiciability; ripeness: constitutional issue not decided below is not ripe.


 State v. M.W. (2011-229) (03-Aug-2012) (Burgess, J.)   

The Windsor County State’s Attorney filed this interlocutory collateral final order appeal seeking review on the question of whether 13 V.S.A. § 4815(g)(1) violates the Vermont Constitution’s separation-of-powers provision by divesting the trial court of the authority to order an inpatient mental health evaluation of a potentially incompetent defendant.  The Attorney General intervened on behalf of the State, arguing that the appeal was improvidently granted, and that the statute is constitutional.  We conclude that there is no justiciable claim because the necessity of an inpatient evaluation and the constitutionality of the statute were not decided below.  Therefore, we dismiss the appeal.

We do not reach the separation-of-powers question because we dismiss the appeal for lack of a justiciable controversy in this case.  An appeal of a collateral final order is appropriate if the court’s ruling: (1) conclusively determines a disputed question; (2) is separate from the merits of the case; and (3) will be unreviewable on appeal from final judgment.  V.R.A.P. 5.1(a); see In re F.E.F., 156 Vt. 503, 507, 594 A.2d 897, 900 (1991).  Here, there was no conclusive determination of the disputed question—namely, whether § 4815(g)(1) unconstitutionally precluded the court from ordering a necessary inpatient evaluation. 

Ripeness is part of justiciability and is built on the premise “that courts should not render decisions absent a genuine need to resolve a real dispute.”  Claims are ripe when there is a “sufficiently concrete case or controversy” and when the exercise of judicial power is justified by “prudential considerations.”  “The Vermont Constitution confers judicial authority only to determine actual controversies arising between adverse litigants, and issuing an advisory opinion . . . would exceed our constitutional mandate.”   The exception to the mootness doctrine for issues that are capable of repetition yet evade review does not apply to the ripeness analyis.   The issue was not once live and now moot; the mere possibility of future injury does not transform a nonjusticiable controversy into a justiciable one.

Without a conclusive determination on the issue, there is no controversy to appeal. 

Statute of Limitations; discovery occurs and statute accrues when plaintiff "suspects" a claim; economic loss is not always a six-year limit.

 Eaton v. Prior, 2012 VT 54 (Skoglund, J.)


Plaintiff's lawsuit against her former employer and supervisor for sexual assault was dismissed for failure to prosecute. She claims that her ability to prosecute the case was thwarted by a licensed polygraph examiner who determined that she did not tell the truth in responding to questions about the alleged assault. This action claims negligent administration of the polygraph examination,  improper disclosure of the examination results and conspiracy to cover up the misconduct. The trial court entered judgment for defendants on the ground that the suit was barred by the three-year statute of limitations applicable to actions for "injuries to the person," under 12 V.S.A. § 512(4). We conclude that the trial court correctly applied the three-year statute of limitations to bar the claims for emotional distress, but mistakenly failed to consider the applicability of 12 V.S.A. § 511's general six-year limitation period to the claims for economic harm resulting from dismissal of the underlying lawsuit and other alleged economic costs. Accordingly, we affirm in part, reverse in part, and remand for further proceedings.

We reject plaintiff's  argument  that plaintiffs were not reasonably aware of a potential cause of action  until they received a professional analysis in November 2006, so that the complaint—filed in October 2009—was timely.  The great bulk of plaintiff's claims were plainly known or suspected well before the receipt of his analysis. The law does not require absolute certainty for the statute to run. See Bull v. Pinkham Eng'g Assocs., 170 Vt. 450, 456, 752 A.2d 26, 31 (2000) (holding that statute did not commence on plaintiff's negligence claim against surveyor until he acquired evidence to "suspect that the southern boundary depicted on the survey" was inaccurate) (emphasis added). There is no reasonable dispute here that the action accrued no later than March 2006. Accordingly, the claims for personal injury were untimely.

Plaintiff next argues the claims for economic harm in the form of lost income and medical expenses are separately governed by 12 V.S.A. § 511, the general six-year statute of limitations applicable in civil actions, and therefore remain timely. Although  this argument was expressly raised in opposition to defendants' motions for summary judgment, the trial court failed to address it. In Fitzgerald v. Congleton, a legal malpractice case,  we held the emotional distress claims were time-barred under the three-year limitations period of § 512 while the claim for costs and expenses was controlled by the general six-year provision of 12 V.S.A. § 511, and therefore remained timely. On the other hand, the mere fact that economic harm is alleged will not invariably invoke § 511's six-year limitation provision where the "gravamen or essence" of the claim remains personal injury. See Rennie v. State, 171 Vt. 584, 587, 762 A.2d 1272, 1276 (2000) (mem.) (holding that, although plaintiff claimed she lost income and other economic benefits from alleged tortious interference, this did not alter the "underlying nature" of the claim as one for personal injuries governed by § 512's three-year limitation period).  As noted, the trial court did not address or resolve this issue. Accordingly, we conclude that the case must be remanded for the trial court to consider whether the claims for economic harm are sufficiently distinct from the claims for emotional distress to be governed by § 511 and therefore remain timely.


How cited

Attorneys fees cannot be denied to prevailing party under Prompt Pay Act where other claims on which party lost had no common core of facts


Nystrom v. Hafford, 2012 VT 60 (Robinson, J. ) 

Defendant appeals pro se from the trial court’s order granting plaintiff's request to partition jointly owned property.  Defendant argues that the court erred in rejecting his argument that he added plaintiff's name to the deed only in anticipation of marriage, in calculating the parties’ respective interests in the property, in granting plainitff’s request for occupancy, and in declining to award him attorneys’ fees in connection with plaintiff’s father’s Prompt Pay Act claim.  We affirm the trial court’s rulings concerning the partition itself, but reverse the trial court’s ruling with respect to attorneys’ fees and remand for reconsideration of defendant's fee petition pursuant to the Prompt Pay Act.

 9 V.S.A. § 4007(c) provides  that “[n]otwithstanding any contrary agreement, the substantially prevailing party in any proceeding to recover any payment within the scope of this chapter [addressing construction contracts] shall be awarded reasonable attorneys’ fees in an amount to be determined by the court or arbitrator, together with expenses”).  Defendant unequivocally prevailed on this claim.

In a more typical construction dispute, trial courts have significant discretion in identifying the prevailing party.  PPA claims typically arise in construction disputes in which one party seeks to be paid for its work and the other party seeks to avoid paying on the ground that the work was deficient.  In such cases, the commonality of facts underlying the PPA claim and related claims and defenses  is apparent. The Court has held that, where a common core of facts supports multiple theories of recovery, including PPA claims and non-PPA claims, “[t]he lawsuit cannot be viewed as a series of discrete claims.”  Electric Man, Inc. v. Charos, 2006 VT 16, ¶ 10, 179 Vt. 351, 895 A.2d 193 (quotation omitted).  As a result, in most construction cases that include PPA claims, courts typically determine the substantially prevailing party, if any, and the award of fees with reference to the broader range of claims at issue in the case rather than simply focusing exclusively on the PPA claim.  Notwithstanding this flexible standard, we conclude that the trial court’s order in this case exceeds its discretion.  

This case is not a typical construction dispute in which a court cannot reasonably determine the substantially prevailing party with respect to the PPA claim without taking into account the panoply of other claims on the table.  We reaffirm our prior holding that a fee award should not be apportioned among claims that arise from a common core of facts.  Electric Man, 2006 VT 16, ¶ 10.  But  trial courts must consider and determine which claims do, in fact, arise from a common core of facts insofar as the evidence relevant to those claims is the same. See Electric Man, 2006 VT 16, ¶ 10 (applying “common core of facts” analysis where “[v]irtually all of the evidence is relevant to all of the claims” (quotation omitted)). Father’s PPA claim is predicated solely on his labor in constructing the house on the property subject to this partition action.  The remaining claims among the parties do not spring from a core of facts in common with with father’s PPA claim,  and the evidence underlying these claims is largely distinct from the evidence offered to prove and rebut father’s PPA claim. On remand, the trial court should award Mr. Hafford legal fees associated with father’s PPA claim for reimbursement for labor in connection with the construction project. See Monahan v. GMAC Mortg. Corp., 179 Vt. 167, 199, 893 A.2d 298, 324 (2005) (determining attorneys’ fees attributable to specific claims is a question of fact for the trial court).

Affirmed in part, reversed in part, and remanded for further proceedings.

Justiciability, constitutional and prudential standing: predatory pricing statute does not protect governmental "competitors" not engaged in "commerce".


 Franklin County Sheriff's Office v. St. Albans City Police Department (2011-266) (03-Aug-2012) (Reiber, C.J.)  

In this predatory pricing suit, the Franklin County Sheriff’s Office appeals the trial court’s judgment in favor of the St. Albans City Police Department.  The Sheriff’s Office contends that the City Police Department engaged in an unfair method of competition with the intent to harm competition under the Vermont Consumer Fraud Act’s (VCFA) predatory pricing provision, 9 V.S.A. § 2461c.  Specifically, the Sheriff’s Office argues that the City Police Department submitted an “artificially low” bid in response to the Town of St. Albans’s request for proposals for law enforcement services.  We affirm because the Sheriff’s Office was not denied something in which it had a legally protected interest, nor is its claim within the zone of interests protected by the statute, and it therefore lacks both constitutional and prudential standing.

Because it is a threshold requirement, we first address the question of standing.  Vermont courts are limited to deciding actual cases or controversies.   An element of the case-or-controversy requirement is that a plaintiff must have standing—that is, “must have suffered a particular injury that is attributable to the defendant and that can be redressed by a court of law.”  To bring a case, a plaintiff must show “(1) injury in fact, (2) causation, and (3) redressability.”  Standing also embodies a prudential component of self-imposed judicial limits under which a plaintiff’s complaint must “‘fall within the zone of interests protected by the law invoked.’”

The claim does not meet  the injury-in-fact element of constitutional standing.  This element requires an invasion of a legally protected interest, not a generalized harm to the public.  The VCFA prohibits engaging in predatory pricing because it is an unfair method of competition in commerce. The Town was under no obligation to entertain bids for police services in the first instance, or to award the contract to the lowest bidder.  Fundamentally,  the provision of police services in Vermont occurs outside the realm of commerce because it involves no interchange of goods or commodities on the open market.  It is a governmental function provided only by governmental entities for the benefit of the public.  We conclude that no commerce existed in this case. The Sheriff’s Office has no legally protected right to “fair competition” with other statutorily created government entities to provide police services to the Town.

Second, the claim does not meet the requirements of prudential standing, which demands that the Sheriff’s Office’s complaint fall within the zone of interests protected by the predatory pricing statute.  Predatory pricing in its orthodox form exists where a single firm, having a dominant share of the relevant market, cuts its prices in order to force competitors out of the market, or perhaps to deter potential entrants from coming in. Here, the “competitors” are all statutorily created entities, meaning that one entity cannot put another out of business. There is no threat of monopolization by any one of them.  Thus, the Sheriff’s Office’s injuries alleged in the complaint do not fall within the zone of interests to be protected by Vermont’s predatory pricing statute. 

Res judicata; vague use of disjunctive in stipulated administrative order means plaintiff can relitigate in defamation suit the truth of accusation that plaintiff diverted a regulated drug.


Shaddy v. Brattleboro Retreat, 2012 VT 67 (Burgess, J.)  


There were three prior proceedings: in 
the Windham Criminal Division, the Department of Labor and the Board of Nursing. The criminal charge was resovlved by a plea of nolo contendere, which “is not, in any civil or criminal proceeding, admissible against the defendant.”  V.R.E. 410(2).  Similarly, 21 V.S.A. § 1353, addressing the collateral import of unemployment compensation claims proceedings, provides that a determination of the employment security board "is not binding, conclusive or admissible in any separate or subsequent action between an individual and his or her present or former employer brought before [a] . . . court or judge of this state . . ."   We hold that under Rule 410(2) and § 1353, respectively, neither plaintiff’s criminal plea, nor the result of his unemployment compensation proceeding, can bar his defamation claim. 

Plaintiff  appeals the  dismissal of his complaint against the Brattleboro Retreat and certain employees of the Retreat.  Plaintiff, a former Retreat employee, brought claims of defamation, obstruction of justice, intentional infliction of emotional distress (IIED), and intentional interference with a contract, arising from the Retreat’s allegation that he unlawfully diverted regulated drugs from the medication room at its facility.  The only issue raised on appeal is  whether the court properly dismissed the defamation claim against the Retreat as res judicata, a question of law we consider de novo.    We reverse.  

We further hold that, under our decision in Trepanier v. Getting Organized, Inc., 155 Vt. 259, 583 A.2d 583 (1990), the order settling plaintiff’s Board of Nursing proceeding is too vague to constitute a final judgment on the merits and therefore  does not preclude plaintiff’s claim.  The crux of the issue is whether the truth of the Retreat’s accusation against plaintif was “fully litigated and resolved in favor of the Retreat." Assuming, without deciding, that a stipulated administrative judgment could have preclusive effect as argued by the Retreat, it must at least describe the factual and legal issues being resolved with enough specificity so as to precisely identify what those issues are.   

In this case, the stipulated order was too vague to resolve the issue of whether the Retreat’s allegedly defamatory statements are true.  Pursuant to the order, plaintiff agreed that the State could prove by a preponderance of the evidence that he “engage[d] in conduct of a character likely to deceive, defraud or harm the public which include[d], but [was] not limited to, diverting supplies, equipment, or drugs for personal or other unauthorized use” in violation of 26 V.S.A. § 1582(7).  (Emphasis added.)  This charge reads in the disjunctive and fails to specify plaintiff’s misconduct, so that plaintiff can be understood to admit to preponderant proof of diversion of “supplies” or “equipment” to the public detriment, but not necessarily to diversion of drugs.  Plaintiff's admission that the State could prove misconduct which just possibly included drug diversion does not establish the truth of the Retreat’s specific defamatory allegation that plaintiff thrice diverted a regulated drug.  In short, for want of specificity the order does not establish the truth of the Retreat’s allegations and thus does not preclude plaintiff’s defamation suit.  Accordingly, we reverse the trial court’s dismissal of plaintiff’s defamation suit against the Retreat and remand this matter for proceedings consistent with this opinion.