ZONING:  Virginia Court of Appeals: A Rezoning Application for a Private Facility Need Not Substantially Accord with the Comprehensive Plan or the Factors Set Forth in Va. Code §§ 15.2-2283 and 15.2-2284

Lawletter Vol. 49 No. 2

Charlene Hicks—Senior Attorney

            In Hartley v. Board of Supervisors, 80 Va. App. 1, 897 S.E.2d 217 (2024), the Virginia Court of Appeals issued a published opinion that deliberately discounts the role that a locality’s comprehensive plan must play in the Board of Supervisors’ decision to approve a private rezoning application. The decision also requires a court to view with great leniency the Board’s rezoning decision in light of the requirements set forth in Virginia Code §§ 15.2-2283 and 15.2-2284. Hartley thus paves the way for localities to quite easily effectuate a substantial change in the character of a single parcel of private property from the surrounding neighborhood.

Lawletter Vol. 48 No. 4

CORPORATIONS:  When Traditional Standing Rules Do Not Apply to Shareholder Derivative Actions

Charlene Hicks, Senior Attorney

     Standing, or the right to pursue a judicial action, is often viewed in black-and-white terms, that is, either a plaintiff does or does not have standing. In some situations, however, the plaintiff’s status cannot be so easily quantified. One notable grey area is found in shareholder derivative litigation.

     Generally speaking, in order to maintain a shareholder derivative suit, an individual plaintiff must own stock in the corporation at the time the controlling shareholders or directors committed the wrongful act against the corporation that is the subject of the action, and the plaintiff must retain ownership of that stock for the entire duration of the lawsuit. If these stock ownership requirements are not satisfied throughout the entire course of litigation, the plaintiff lacks standing to maintain the derivative action on behalf of the corporation. This general rule is premised on the rationale that a former shareholder would not personally benefit from a recovery by the corporation; therefore, he/she “might be willing to accept an improper or inadequate settlement” to the detriment of the remaining shareholders. Noakes v. Schoenborn, 116 Or. App. 464, 470, 841 P.2d 682, 685 (1992).

The Lawletter Vol 48 No 2

Charlene Hicks, Senior Attorney, National Legal Research Group, Inc.

             Bankruptcy preference litigation involves situations in which the plaintiff (normally the trustee) tries to claw back substantial monetary payments debtors make to creditors within 90 days of filing for bankruptcy. Preference cases are deceptively simple in form. However, complications often arise, particularly in cases involving creditors that regularly do business with the debtor. Such creditors may invoke diverse sections of the Bankruptcy Code in an attempt to negate the trustee’s reimbursement claim against them.

            In Auriga Polymers Inc. v. PMCM2, LLC, 40 F.4th 1273, 1277 (11th Cir. 2022), the Eleventh Circuit Court of Appeals recently analyzed the interplay between two such sections of the Bankruptcy Code. One of the eight preference defenses a creditor may raise is known as the subsequent new value defense and is set forth in 11 U.S.C. § 547(c)(4). Section 503(b)(9), in turn, contains an administrator expense claim that a creditor may obtain for payment in full for the value of goods sold to the debtor in the ordinary course of business within 20 days before the debtor files for bankruptcy. 11 U.S.C. § 503(b)(9). In an issue of first impression in the Eleventh Circuit and one which is unsettled in other circuits, the Auriga Polymers court addressed “whether post-petition transfers made under a 11 U.S.C. § 503(b)(9) request will reduce the creditor’s new value defense” under 11 U.S.C. § 547(c)(4). The trustee claimed that Auriga would effectively receive a “double payment” if it were allowed to obtain payment for its administrator expense claim and also to avoid repayment to the trustee under the preference defense of subsequent new value. Auriga Polymers, 40 F.4th at 1288.

The Lawletter Vol 47 No 3

Charlene Hicks—Senior Attorney, National Legal Research Group

            It is common enough for an overworked attorney drafting a contract to regard a choice-of-law clause as boilerplate and therefore not in need of thoughtful consideration. However, the specific wording of such a clause may well alter the outcome of a future dispute between the contracting parties. Perhaps the most important consideration in this regard is whether the clause is worded broadly enough to encompass all potential causes of action that may arise in both contract and tort. In addition, specific language may be included to ensure that the chosen forum’s statute of limitations will also apply.

            One recent illustrative case is ARKRAY America, Inc. v. Navigator Business Solutions, Inc., No. N20C-12-012 MMJ (2021) (CCLD), 2021 Del. Super. LEXIS 463 (June 9, 2021). There, the parties entered into two separate contracts, one for software and consulting services and one for a license. Both contracts contained nearly identical choice-of-law clauses except that one provided for Utah law to apply and the other for Delaware law.

The Lawletter Vol 46 No 6

Charlene Hicks—Senior Attorney, National Legal Research Group

            Prior to bringing a shareholder derivative action, the complaining shareholders must normally make a detailed presuit demand on the corporation’s board of directors or show the court that such a demand would be futile. In United Food & Commercial Workers Union v. Zuckerberg, No. 404, 2020, 2021 WL 4344361 (Del. Sept. 23, 2021), the Delaware Supreme Court announced a new “universal test” for determining whether a shareholder demand should be excused as futile. This new test imposes more stringent pleading requirements on the derivative plaintiffs to show futility.

            In United Food, the complaining shareholders alleged that the members of Facebook, Inc.’s (now “Meta Platforms Inc.”) board of directors violated their fiduciary duties when they voted in favor of a stock reclassification that would have allowed Mark Zuckerberg, Facebook’s CEO, to sell most of his Facebook stock while still maintaining voting control. The Board’s vote eventually led to the company spending approximately $90 million to defend against a class action lawsuit. The complaining shareholders filed the derivative action in an attempt to recoup those litigation expenses.

The Lawletter Vol 46 No 2

Charlene Hicks—Senior Attorney, National Legal Research Group

            Corporate shareholders, individual members of a limited liability company, or residents of a homeowners' association often file derivative complaints on behalf of the entity to assert rights that the entity itself has failed to raise against third parties. Sometimes these derivative actions prompt the entity to file its own lawsuit against the same third parties, resulting in parallel proceedings.

            In Star v. TI Oldfield Development, LLC, 962 F.3d 117, 131 (4th Cir. 2020), the Fourth Circuit considered for the first time the issue of "whether a plaintiff's derivative action on behalf of an entity is rendered moot by the entity's settlement of the same or similar claims in another action." As a matter of first impression, the court held that it may.

            The evidence showed that the Board of Directors of Oldfield, a residential community in South Carolina, filed lawsuits related to Oldfield's development. Rob Star, an Oldfield resident, later filed a derivative action on Oldfield's behalf, alleging similar claims against the same defendants. After the Board settled the lawsuits that it brought, the defendants moved to dismiss Star's derivative action on the ground that the settlements rendered the derivative lawsuit moot, and, therefore, the court lacked jurisdiction. In opposition, Star alleged that the settlement agreement was invalid due to a conflict of interest by certain board members and that the derivative action alleged claims not included in the Board's lawsuits.

The Lawletter Vol 46 No 1

Charlene Hicks—Senior Attorney, National Legal Research Group

            The COVID-19 pandemic has proven disastrous for cruise lines and passengers alike, with multiple coronavirus outbreaks and lengthy quarantine periods imposed. The resulting lawsuits have met with mixed results.

            In Weissberger v. Princess Cruise Lines, Ltd., No. 2:20-CV-02328-RGK-SK, 2020 WL 3977938 (C.D. Cal. July 14, 2020), plaintiffs claimed that Princess Cruise Lines was negligent and/or grossly negligent because it had knowledge that a disembarking passenger had symptoms of COVID-19 but it made the conscious decision to continue sailing with 3,000 passengers aboard. The Weissbergers claimed emotional distress damages arising from the ship's quarantine and the associated trauma from fear of developing the virus.

            The court recharacterized the negligence counts as claims for the negligent infliction of emotional distress. Id. at *2. From there, the court invoked the "zone of danger" test applicable to maritime cases, which "limits recovery for emotional injury to two categories of plaintiffs: (1) 'plaintiffs who sustain a physical impact as a result of a defendant's negligent conduct'[;] and (2) plaintiffs 'who are placed in immediate risk of physical harm by that conduct.'" Id. (quoting Consol. Rail Corp. v. Gottshall, 512 U.S. 532, 547-48 (1994)) (Weissberger court's emphasis).

The Lawletter Vol 44 No 3

Charlene Hicks—Senior Attorney, National Legal Research Group

            One potentially overused legal principle that is often recited in appellate cases is that a party waives any issues or legal theories that he or she fails to assert at the trial court level. In other words, a party generally cannot raise a new issue for the first time on appeal. Any attempt to do so will likely be rejected by the appellate court.

            Even so, an appellate attorney would do well to keep in mind that this oft-repeated principle does not apply to certain situations, including questions pertaining to the standard of review employed by the lower court. The proper standard of review that is applicable to a particular legal issue is a nonwaivable matter. See Winfield v. Dorethy, 871 F.3d 555, 560 (7th Cir. 2017), cert. denied, 138 S. Ct. 2003 (2018); Gardner v. Galetka, 568 F.3d 862, 879 (10th Cir. 2009). Accordingly, an appellant does not forfeit a claim that the lower court failed to employ the proper standard of review “by failing to argue it” to the lower court. Sierra Club v. U.S. Dep't of Interior, 899 F.3d 260, 286 (4th Cir. 2018); see also United States v. Freeman, 640 F.3d 180, 186 (6th Cir. 2011). Similarly, the parties to a case cannot agree on or assign an incorrect legal standard of review to an issue. Sierra Club, 899 F.3d at 286.

The Lawletter Vol 43 No 7

Charlene Hicks—Senior Attorney, National Legal Research Group        

            To date, no consensus has been reached among courts throughout the United States on the question as to whether a creditor’s issuance of an IRS Form1099-C results in the extinguishment of the reported debt in favor of the debtor. Form 1099-C bears the title “Cancellation of Debt,” and, according to the IRS, a creditor should issue this form to the debtor for any year in which a debt is cancelled. Depending on the state in which the debtor resides, a creditor’s issuance of a Form 1099-C may have the effect of barring further collection efforts and of completely discharging the reported debt.

            The two divergent approaches taken by courts on this issue result in opposite outcomes. The majority approach is illustrated by the Fourth Circuit’s opinion in FDIC v. Cashion, 720 F.3d 169 (4th Cir. 2013). 

The Lawletter Vol 43 No 3

Charlene Hicks—Senior Attorney, National Legal Research Group

     Although the law generally does not allow a contracting party to bring a tort claim against another party to the same contract, this protection does not extend to persons or entities that are classified as "strangers" to the contract. Thus, a contracting party may maintain a viable claim for tortious interference with contractual relations against a stranger to the agreement. In practice, however, the performance of a contract is often contingent on the acts and approval of persons or entities that did not formally enter into the agreement. This makes it difficult to distinguish between a protected contracting "party" and an unprotected "stranger."

     The popular Trader Joe's grocery chain recently found itself pushed into the murky realm of being classified as a "stranger" to a contract between two parties to which Trader Joe's had close business ties.