Lawletter Vol 48 No. 3
The Utility of a Declaratory Judgment Action
Paul Ferrer—Senior Attorney
Most states, as well as the federal government, have enacted some form of declaratory judgment act, which authorizes courts to declare the rights and other legal relations among parties even though traditional remedies for damages or equitable relief are not yet available. Virginia’s Declaratory Judgment Act is typical. It permits Virginia’s trial courts, “[i]n cases of actual controversy, . . . to make binding adjudications of right, whether or not consequential relief is, or at the time could be, claimed” by the parties. Va. Code Ann. § 8.01-184. Declaratory relief is particularly useful in settling controversies involving the interpretation of written instruments, such as contracts, deeds, and wills, but relief may be sought whenever there is an “actual antagonistic assertion and denial of right.” Ames Ctr., L.C. v. Soho Arlington, LLC, 301 Va. 246, 876 S.E.2d 344, 347 (2022) (quoting Va. Code Ann. § 8.01-184). In Ames Center, the Virginia Supreme Court noted the struggle courts have sometimes faced in finding “the case-specific equilibrium where a declaratory-judgment action serves its intended purpose without going too far or not going far enough.” 876 S.E.2d at 348. That, however, was not one of those cases.
In that case, the defendant leased hotel property under a long-term ground lease. The lease provided that if any construction was contemplated to be made on adjoining property, the tenant had to afford to the person undertaking the construction the right to enter the hotel property for the purpose of doing such work as the person “shall consider to be necessary to the safety and preservation of any of the foundations, walls or structures of the Building [being leased] from injury or damage and to support the same by proper foundations.” When a developer planning to build two 30-story buildings on adjacent property asserted a right to enter the hotel property pursuant to this provision, the tenant responded, in the strongest possible terms, that the developer was not welcome on the property, “for any reason.” In fact, the tenant threatened to have the developer’s representatives removed for trespassing and subjected to civil and criminal suit if they entered the property. The tenant went so far as to say that even a trespass in the form of a construction crane swinging into its airspace would be met with a damages action.
Confronted with the tenant’s fearsome response, the developer sensibly filed suit under Virginia’s Declaratory Judgment Act, seeking a declaration of its rights as a third-party beneficiary under the ground lease. The trial court agreed that the developer was a third-party beneficiary that had acquired rights under the ground lease. However, the trial court refused to then adjudicate the nature and extent of those rights, because the tenant had not yet denied any specific request by the developer to exercise its right of entry on the property. If and when the developer did so and was rebuffed by the tenant, then the tenant could file another declaratory judgment action to settle that dispute.
The Virginia Supreme Court disagreed with the trial court’s consideration of the parties’ dispute “to be more hypothetical or imaginary than actual and material.” Id. The court emphasized several undisputed facts, including that the tenant “made clear from the beginning that it disagreed with everything [the developer] had asserted” concerning its rights as a third-party beneficiary under the ground lease and “even threatened to initiate criminal trespassing charges and to seek civil tort damages if anyone from [the developer] crossed the boundary line between the properties.” Id. It is hard to imagine a more “antagonistic assertion and denial of right” than that. Therefore, the high court ruled that the trial court erred in holding that no justiciable dispute existed between the parties once the court held that the developer qualified as a third-party beneficiary under the ground lease, and remanded the case for the trial court to go ahead and actually declare the parties’ rights under the lease. Id. While the Virginia Supreme Court’s decision in that extreme case should not be controversial, it still serves as a good reminder of the utility of a declaratory judgment action when, among other things, a party threatens suit over the interpretation of a disputed instrument.
