Genesis Capital, Ltd. Partnership v. Ralph Hoyer ( 2019 )

STATE OF WEST VIRGINIA
SUPREME COURT OF APPEALS
Genesis Capital, Ltd. Partnership, a
West Virginia Limited Partnership, FILED
Plaintiff Below, Petitioner March 11, 2019
EDYTHE NASH GAISER, CLERK
vs) No. 18-0147 (Kanawha County 12-C-669) SUPREME COURT OF APPEALS
OF WEST VIRGINIA
Ralph Hoyer, individually, and
Hoyer, Hoyer & Smith, PLLC,
a West Virginia Legal Corporation,
Defendants Below, Respondents.
MEMORANDUM DECISION
Petitioner Genesis Capital, Ltd. Partnership, by counsel Thomas E. Scarr and Sarah A.
Walling, appeals the order of the Circuit Court of Kanawha County entered January 18, 2018 that
granted respondents’ motion for sanctions pursuant to Rule 11 of the West Virginia Rules of Civil
Procedure. Respondents Ralph Hoyer, and Hoyer, Hoyer & Smith, PLLC, by counsel David D.
Johnson, III, filed a response to which petitioner filed a reply brief.
This Court has considered the parties’ briefs and the record on appeal. The facts and legal
arguments are adequately presented, and the decisional process would not be significantly aided
by oral argument. Upon consideration of the standard of review, the briefs, and the record
presented, the Court finds that the circuit court erred in awarding attorney’s fees that contained
duplicate billing entries. This case satisfies the “limited circumstances” requirement of Rule 21(d)
of the West Virginia Rules of Appellate Procedure and is appropriate for a memorandum decision
rather than an opinion. For the reasons expressed below, the decision of the circuit court is
affirmed, in part, and reversed, in part, and this case is remanded to the circuit court for further
proceedings consistent with this decision.
Respondent Ralph Hoyer represented Dr. Adla Adi (“Dr. Adi”) and St. Francis West Health
Care, Inc., (“St. Francis”) in procuring a series of loans from Petitioner Genesis Capital, Ltd.
Partnership (“Genesis”). According to Genesis, the purpose of the loans was to purchase medical
equipment to be used by Dr. Adi and St. Francis. In December of 2007, Genesis loaned $73,500
to Dr. Adi and St. Francis, and respondents were tasked with preparing the transactional documents
and UCC filings necessary to perfect Genesis’s interest in the equipment to be purchased.
Respondents performed these functions for the 2007 loan. In 2008, Dr. Adi and St. Francis
obtained another loan from Genesis in the amount of $150,000 to purchase additional equipment.
Respondents again agreed to prepare the required transactional documents and UCC filings.
However, Dr. Adi did not purchase equipment, and instead purchased a condominium in Florida.
Respondents filed the mortgage instrument for the condominium, but did not file any UCC
documents. Dr. Adi subsequently filed for bankruptcy, and Genesis was unable to recover its
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interest in the 2008 loan.
Genesis drafted a complaint against respondents, and forwarded a copy of a draft of the
complaint to respondents’ counsel. The complaint alleged that respondents owed a duty to Genesis
or were dual agents of Genesis and Dr. Adi and alleged counts of (1) detrimental reliance on
respondents’ representations; (2) fraud; (3) breach of fiduciary duty; (4) breach of contract; (5)
negligent failure by respondents to exercise their duties as broker, attorney and fiduciary; and (6)
legal malpractice. Respondents’ counsel responded by letter dated August 17, 2011, requesting
information and documents to support the allegations in the complaint, and cautioning that if the
complaint were filed, it would be in violation of Rule 11 of the West Virginia Rules of Civil
Procedure. On April 16, 2012, Genesis filed a complaint against respondent. The filed complaint
omitted the cause of action for legal malpractice.
By letter dated September 7, 2012, respondents’ counsel explained that Genesis’s claims
were not supported by relevant facts and controlling law, and strongly urged Genesis to voluntarily
dismiss the complaint. The letter further stated that if Genesis did not withdraw the complaint,
respondents intended to move the court for sanctions in the form of attorney’s fees and costs.
Genesis chose not to withdraw its complaint, and respondents’ counsel drafted a motion for
sanctions and delivered a copy of the motion to Genesis’s counsel, warning that if Genesis did not
withdraw the complaint within twenty-one days, then respondents intended to file a motion for
sanctions with the circuit court. Genesis refused and respondents filed a motion for sanctions on
January 7, 2013. Following a brief discovery period, on October 1, 2013, respondents filed a
motion for summary judgment, and on March 21, 20171, Senior Status Judge John L. Cummings,
who was appointed following recusals by all of the Kanawha County Circuit Court judges, entered
an order granting the motion for summary judgment. Genesis did not appeal the summary
judgment order.
Respondents renewed their motion for sanctions on April 6, 2017, and a hearing on that
motion was heard before the Honorable Joanna Tabit2 on November 17, 2017. At the hearing, the
court took note of the procedural history of the case, including the fact that respondents’ counsel
requested that Genesis voluntarily dismiss the complaint on two occasions, and that, on the second
occasion, respondents’ counsel carefully outlined the reasons why Genesis’s claims were without
merit. The circuit court also noted that, after respondents’ counsel delivered a draft of their motion
for sanctions to Genesis, requesting that Genesis dismiss the matter within twenty-one days, that
Genesis again refused to dismiss the claim. The circuit court also found that the summary judgment
order entered by Judge Cummings embraced the factual and legal arguments presented by
respondents’ counsel, in their entirety.
During the hearing, the circuit court asked Genesis’s counsel what information they
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The record is silent as to the reason for the four year delay between the filing of the motion
for summary judgment and the entry of the order granting summary judgment.
2
Following the entry of the March 21, 2017, order granting summary judgment Judge
Cummings was relieved of this matter. The matter was re-assigned to Judge Tabit.
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possessed that led them to believe that the complaint was supported by the facts and law. Genesis’s
counsel asserted that they were not permitted sufficient opportunity to discover evidence that may
have demonstrated their claims, and advised the court that Genesis’s former counsel was convicted
of income tax evasion and disbarred by this Court. The circuit court found that Genesis’s counsel
failed to explain how additional discovery would have supported Genesis’s claims, and that
Genesis’s counsel was unable to articulate facts to support Genesis’s claims for detrimental
reliance, fraud, breach of fiduciary duty, breach of contract, and negligence. Also during the
hearing, when counsel for Genesis conceded that there was no attorney-client relationship between
respondents and Genesis, the circuit court concluded that “the [underlying] civil action constituted
an improper attempt by Genesis to recoup from Dr. Adi’s lawyers the loaned funds which Dr. Adi
failed to repay.”
On December 20, 2017, following the hearing, but prior to the entry of the circuit court’s
order, Genesis filed a Motion Requesting Additional Time, arguing that new counsel was retained
and needed additional time to review the file and respond appropriately to the motion for sanctions.
The circuit court denied the request for additional time by order entered January 18, 2018. In a
separate order entered January 18, 2018, the circuit court granted the motion for sanctions finding
that, at the time the complaint was filed, the allegations were not “warranted by existing law or by
a non-frivolous argument for the extension, modification or reversal of existing law or the
establishment of new law. . .” As a result, the circuit court ordered that Genesis pay attorney’s fees
and costs in the amount of $85,078.70. Genesis now appeals.
Genesis alleges three assignments of error on appeal. Genesis complains that the circuit
court erred by (1) imposing an incorrect standard of review in evaluating respondents’ motion for
sanctions, and in imposing Rule 11 sanctions; (2) denying Genesis a “reasonable opportunity to be
heard” before imposing Rule 11 sanctions; and (3) entering respondent’s proposed order granting
fees without regard to Genesis’s objections that respondents’ counsel’s billable hours were
excessive, and contained duplicate billing entries.
A trial court’s assessment of sanctions is reviewed under an abuse of discretion standard:
The West Virginia Rules of Evidence and the West Virginia Rules of Civil
Procedure allocate significant discretion to the trial court in making evidentiary and
procedural rulings. Thus, rulings on the admissibility of evidence and the
appropriateness of a particular sanction for discovery violations are committed to
the discretion of the trial court. Absent a few exceptions, this Court will review
evidentiary and procedural rulings of the circuit court under an abuse of discretion
standard.
Syl. Pt. 1, McDougal v. McCammon, 193 W. Va. 229, 455 S.E.2d 788 (1995). Further,
An important purpose of Rule 11 of the West Virginia Rules of Civil
Procedure is to prevent frivolous lawsuits or lawsuits filed for an improper purpose.
“The purpose of Rule 11 and Rule 37 of the West Virginia Rules of Civil Procedure
is to allow trial courts to sanction parties who do not meet minimum standards of
conduct in a variety of circumstances.” Bartles v. Hinkle, 196 W.Va. at 389, 472
S.E.2d at 835. Rule 11 with its possible sanctions “deters much frivolous litigation
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(thereby conserving judicial resources), compensates the victims of vexatious
litigation, and educates the bar about appropriate standards of conduct.” Alan E.
Untereiner, Note, A Uniform Approach to Rule 11 Sanctions, 97 Yale Law Journal
901, 902 (1988) (footnotes omitted).
Davis ex rel. Davis v. Wallace, 211 W. Va. 264, 267, 565 S.E.2d 386, 389 (2002). With these
standards in mind, we consider Genesis’s assignments of error.
Genesis first argues that the circuit court erred in granting sanctions, and that summary
judgment does not automatically entitle a party to sanctions pursuant to Rule 11 of the West
Virginia Rules of Civil Procedure. Genesis asserts that the relevant inquiry is “whether the pleader
presented an objectively reasonable argument in support of his or her view of the law.”
Respondents counter that the circuit court has authority to impose sanctions in instances where
one files a civil complaint against another with knowledge that the complaint lacks a factual or
legal foundation. We have held that,
“[a] court may order payment by an attorney to a prevailing party reasonable
attorney fees and costs incurred as the result of his or her vexatious, wanton, or
oppressive assertion of a claim or defense that cannot be supported by a good faith
argument for the application, extension, modification, or reversal of existing law.”
Syllabus, Daily Gazette Co., Inc. v. Canady, 175 W.Va. 249, 332 S.E.2d 262
(1985).
Syl. Pt. 2, Davis. In addition,
“[i]n formulating the appropriate sanction, a court shall be guided by
equitable principles. Initially, the court must identify the alleged wrongful conduct
and determine if it warrants a sanction. The court must explain its reasons clearly
on the record if it decides a sanction is appropriate. To determine what will
constitute an appropriate sanction, the court may consider the seriousness of the
conduct, the impact the conduct had in the case and in the administration of justice,
any mitigating circumstances, and whether the conduct was an isolated occurrence
or was a pattern of wrongdoing throughout the case.”
Syl. Pt. 3, id.
Here, the circuit court found that the factual allegations in the complaint lacked evidentiary
support within the meaning of Rule 11(b)(3), as the viability of the claims rested on Genesis’s
ability to show that respondents owed a duty to Genesis. In imposing the sanction, the court noted
that Genesis’s counsel’s initial draft of the complaint in this matter included a count for legal
malpractice and “explicitly alleged that ‘Mr. Hoyer developed an attorney-client fiduciary
relationship’ with [Genesis.]” However, after respondents’ wrote to Genesis’s counsel asking for
proof of this fiduciary relationship, Genesis abandoned its legal malpractice claim, and removed
the allegation that an attorney-client relationship existed. Nonetheless, Genesis continued to allege
that there was a “de facto” attorney-client relationship between it and respondents. The court also
found that “it is horn-book law that - except in rare cases - an attorney owes a professional duty
only to his client” and that the suit was filed with the “ulterior motive of collecting funds lost by
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Genesis to Dr. Adi through no fault of Mr. Hoyer and his firm.” The circuit court further found,
pursuant to Davis, that the impact of the filing of the complaint was to “(a) subject respondents to
the financial and emotional burden of having to defend against a complaint which was entirely
spurious; and (b) to divert the court’s attention from other legal matters which were legitimate.”
We agree. It is well settled that a fiduciary relationship between an attorney and a client
begins “once an attorney decides to acquiesce in the establishment of the attorney-client
relationship as evidenced by a retainer agreement, whether oral or written.” May v. Siebert, 164
W. Va. 673, 680 264 S.E.2d 643, 647 (1980) (internal citation omitted). At the time of the filing
of the complaint Genesis possessed no proof to establish that an attorney-client relationship existed
between respondents and Genesis. Further, prior to the imposition of sanctions, Genesis had ample
opportunity to voluntarily dismiss the spurious complaint, as Genesis was warned that its claims
were unfounded, and was served with proper notice that respondents would seek sanctions
pursuant to Rule 11(c) of the West Virginia Rules of Civil Procedure. Nonetheless, Genesis
knowingly chose not to dismiss the complaint. Accordingly, we find that the circuit court properly
considered whether Genesis’s wrongful conduct warranted sanctions, and did not abuse its
discretion in awarding the same under Rule 11.
Next, Genesis argues that it was not afforded an opportunity to be heard on the issue of
sanctions before the circuit court imposed them. Genesis explains that it hired its appellate counsel
after the conclusion of the November of 2017 hearing, and complains that the circuit court would
not allow any meaningful argument of the underlying facts, because it found that the factual issues
were resolved at the summary judgment stage. Apart from complaining that the circuit court would
not allow Genesis to re-litigate the issue of whether a fiduciary relationship existed between
Genesis and respondents, Genesis provides no support for its argument. In the absence of
supporting authority, we decline further to review this alleged error because it has not been
adequately briefed. See State v. LaRock, 196 W. Va. 294, 302, 470 S.E.2d 613, 621 (1996)
(“Although we liberally construe briefs in determining issues presented for review, issues which
are not raised, and those mentioned only in passing [which] are not supported with pertinent
authority, are not considered on appeal.” (Citation omitted)).
Genesis also complains that respondents’ counsel billed sixty-two hours for the preparation
of an answer to Genesis’s complaint, and twelve hours in the pursuit of a ruling on the summary
judgment motion. Genesis complains that these hours are excessive.
“Where attorney’s fees are sought against a third party, the test of what
should be considered a reasonable fee is determined not solely by the fee
arrangement between the attorney and his client. The reasonableness of attorney’s
fees is generally based on broader factors such as: (1) the time and labor required;
(2) the novelty and difficulty of the questions; (3) the skill requisite to perform the
legal service properly; (4) the preclusion of other employment by the attorney due
to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or
contingent; (7) time limitations imposed by the client or the circumstances; (8) the
amount involved and the results obtained; (9) the experience, reputation, and ability
of the attorneys; (10) the undesirability of the case; (11) the nature and length of
the professional relationship with the client; and (12) awards in similar cases.” Syl.
Pt. 4, Aetna Cas. & Sur. Co. v. Pitrolo, 176 W.Va. 190, 342 S.E.2d 156 (1986).
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Syl. Pt. 10, W. Va. Dep’t of Transp., Div. of Highways v. Newton, 238 W. Va. 615, 797 S.E.2d 592
(2017). Further, “[t]here is authority in equity to award to the prevailing litigant his or her
reasonable attorney’s fees as ‘costs,’ without express statutory authorization, when the losing party
has acted in bad faith, vexatiously, wantonly or for oppressive reasons.” Syl. Pt. 3, Sally-Mike
Properties v. Yokum, 179 W. Va. 48, 365 S.E.2d 246 (1986). Here, the circuit court found that
respondents’ counsel billed his time at the rate of $180 per hour from the inception of the matter
in 2011, until the final hearing. Further, the circuit court took judicial notice that the hourly billing
rate applied by respondents’ counsel was “extremely reasonable” for an attorney of respondents’
counsel’s experience. In light of the fact that this litigation, involving a spurious and unfounded
complaint, took approximately seven years to complete, Genesis has not provided any evidence or
authority to support its assertion that the complained-of hours are unreasonable. Accordingly, we
find that the circuit court did not abuse its discretion in awarding a fee for the hours.
Finally, Genesis alleges that the circuit court improperly disregarded Genesis’ objections
to the final order regarding the award of attorneys’ fees and costs. Specifically, Genesis objects to
duplicate billing entries, asserting that respondents’ counsel submitted identical invoices in the
amount of $999 for work performed on January 27-28, 2017, and January 31-February 1, 2017.
Respondents concede that they did not object to reducing the fee by $999, but assert that it appears
that the circuit court chose not to reduce the fee, and argues that this is reasonable. We have held
that,
“‘“[T]he trial [court] . . . is vested with a wide discretion in determining the amount
of . . . court costs and counsel fees, and the trial [court’s] . . . determination of such
matters will not be disturbed upon appeal to this Court unless it clearly appears that
[it] has abused [its] discretion.” Syllabus point 3, [in part,] Bond v. Bond, 144 W.Va.
478, 109 S.E.2d 16 (1959). Syl. Pt. 2, [in part,] Cummings v. Cummings, 170 W.Va.
712, 296 S.E.2d 542 (1982) [(per curiam)]. Syllabus point 4, in part, Ball v. Wills,
190 W.Va. 517, 438 S.E.2d 860 (1993). Syl. pt. [2], Daily Gazette Co., Inc. v. West
Virginia Dev. Office, 206 W.Va. 51, 521 S.E.2d 543 (1999). Syllabus point 1,
Hollen v. Hathaway Electric, Inc., 213 W.Va. 667, 584 S.E.2d 523 (2003) (per
curiam).’ Syl. Pt. 3, Shafer v. Kings Tire Serv., Inc., 215 W.Va. 169, 597 S.E.2d
302 (2004).” Syl. Pt. 3, Carper v. Watson, 226 W.Va. 50, 697 S.E.2d 86 (2010).
Syl. Pt. 1, Newton.
With respect to the duplicate billing entries we find that the circuit court abused its
discretion, because respondents conceded to the error in billing. Accordingly, we reverse the order
of the circuit court, and remand with instructions for the circuit court to reduce that portion of the
sanctions that represents duplicate billing entries for the dates of January 27-28, 2017, and January
31-February 1, 2017.
For the foregoing reasons, we affirm, in part, and reverse, in part, and remand to the circuit
court with directions.
Affirmed, in part, reversed, in part, and remanded with directions.
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ISSUED: March 11, 2019
CONCURRED IN BY:
Chief Justice Elizabeth D. Walker
Justice Margaret L. Workman
Justice Tim Armstead
Justice Evan H. Jenkins
Justice John A. Hutchison
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