Grayson v. Westwood Buildings L.P.

859 S.E.2d 651

Alan M. GRAYSON, et al.

v.WESTWOOD BUILDINGS L.P.

Victor Kubli, et al.

v.Westwood Buildings L.P.

Carla G. Coleman

v.Westwood Buildings Limited Partnership

Record No. 191413

Record No. 191414

Record No. 191475

Supreme Court of Virginia.

JUNE 24, 2021

Bernard J. DiMuro, Alexandria, (Michael Lieberman ; Dimuro Ginsberg, on briefs), for appellants.

Mathew D. Ravencraft, Vienna, (Louise T. Gitcheva ; Rees Broome, on brief), for appellee.

Kevin E. Smith, Fairfax, for appellant.

PRESENT: All the Justices

OPINION BY JUSTICE D. ARTHUR KELSEY

After securing judgments for unpaid rent against two tenants, a landlord filed suit against both tenants and seven other parties for fraudulent and voluntary conveyances and against one of the seven other defendants for conversion. After a lengthy series of pretrial motions, hearings, a bench trial, and post-trial motions (creating a record just short of 6,000 pages), the trial court issued a 51-page letter opinion finding in favor of the landlord against all of the defendants except two, making each jointly and severally liable with in personam judgments for the unpaid rent, the landlord's attorney fees, and sanctions. The landlord also succeeded on its conversion count that it had alleged against a single defendant. On appeal, the appellants assert that the trial court misapplied Virginia law and made factually insupportable findings. For the following reasons, we agree and reverse.

I. BACKGROUND FACTS

Alan Grayson and Victor Kubli were partners in a law practice from the 1990s through 2013, except for certain years when Grayson did not practice law while he served in Congress. The legal name of the firm was Grayson & Kubli, P.C., which was later changed to AMG TR PC ("G&K/AMG"). At all times, Grayson was the sole owner of G&K/AMG. Kubli was an employee of the firm.

In November 2007, Westwood Buildings Limited Partnership leased office space to G&K/AMG. The lease contained a provision prohibiting G&K/AMG from subleasing the premises or assigning the lease without Westwood's permission and stating that such a sublease or assignment would not relieve G&K/AMG from its obligations under the lease. See 3 J.A. at 1117-18. The lease went on to state:

[G&K/AMG] assigns to [Westwood] any amount due from any assignee or subtenant as security for performance of [G&K/AMG's] obligations pursuant to this Lease.... [G&K/AMG's] obligations pursuant to this Lease shall be deemed to extend to any subtenant or assignee. [G&K/AMG] shall cause each subtenant or assignee to comply with such obligations. Any assignee shall be deemed to have assumed obligations as if such assignee had originally executed this Lease ....

Id. at 1118.² Finally, in the lease, G&K/AMG granted Westwood "a security interest in [G&K/AMG's] existing or hereafter acquired inventory ... [and] other assets which are located in the Premises or used in connection with the business to be conducted therein, and assignments and subleases of this Lease, the Premises or part thereof." Id. at 1124. The lease required G&K/AMG, at Westwood's request, to execute a financing statement or other document evidencing or establishing such a security interest, but no such document appears in the record.³ Neither Grayson nor Kubli signed a personal guaranty on the lease.

After being elected to Congress in 2008, Grayson wound up his law practice and sold it to Kubli & Associates, P.C. ("K&A"), a new firm owned solely by Kubli. The terms of the sale were embodied in a Buy-Out Agreement between G&K/AMG and K&A. The Buy-Out Agreement stated, in relevant part:

WHEREAS it is anticipated that during the calendar year 2008, [G&K/AMG] has recorded and will record approximately $2 million in legal fees and expenses billed or to be billed at regular hourly rates to clients responsible to pay such fees and expenses without regard to the outcome of their cases;

WHEREAS some of the work that [G&K/AMG] performs is billed, in whole or in part, on the basis of legal fees and expenses billed at regular hourly rates to clients responsible to pay such fees and expenses without regard to the outcome of their cases, and some of the work is not;

WHEREAS [K&A] and [G&K/AMG] are unable to agree on the value of certain contingent fee cases;

NOW, THEREFORE, it is AGREED that:

1. The Assets include the assets of [G&K/AMG] necessary to carry on the practice of law as [G&K/AMG] has conducted that practice, including [G&K/AMG's] retainer agreements with all clients; [G&K/AMG's] rights and obligations as an employer of legal and support staff; [G&K/AMG's] rights in its lease, insurance and subscriptions (to the extent transferable); [G&K/AMG's] law library; [G&K/AMG's] office equipment and furniture ...; [G&K/AMG's] books, records and case files; and permits and licenses held by [G&K/AMG].

....

4. [G&K/AMG] shall retain all right, title and interest in all compensation derived for services actually rendered before the Buy-Out Date, including but not limited to all personal services rendered by Grayson before the Buy-Out Date (the "Pre-Buyout Compensation") ....

5. [K&A] shall cooperate in [G&K/AMG's] efforts to collect the Pre-Buyout Compensation.... Such cooperation will be without charge, as part of the compensation received by [G&K/AMG] under this Agreement.

6. [K&A's] bookkeeper will provide assistance to [G&K/AMG] and Grayson in the preparation of all tax returns for periods preceding the Buy-Out Date, in whole or in part, or referring or relating to this Agreement, or to compensation received under this Agreement. Such assistance shall be without charge, as part of the compensation received by [G&K/AMG] under this Agreement. ....

7. [K&A] assumes as a liability all debt that [G&K/AMG] owes to Grayson as of the Buy-Out Date (the "Grayson Debt"). The Grayson Debt accrues interest, both before and after the Buy-Out Date, at a rate of 12% (Twelve Percent) per year, compounded annually. All amounts of Pre-Buyout Compensation shall be credited against the Grayson Debt when received, whether received by [G&K/AMG] or [K&A]. The remainder of the Grayson Debt shall be payable only if, as and when the revenue of [K&A] permits payment, within sixty days of such date.

....

9. As compensation for the assets for which [K&A] and [G&K/AMG] agree on a value, [K&A] shall pay [G&K/AMG] $2 million (Two Million Dollars) in principal payments over 48 months. The payment shall be due on the last day of each month, starting in April 2009. The interest rate on these payments shall be 12% (Twelve Percent)....

....

11. Kubli shall not be personally liable for the payments due under this Agreement. As security for the payments due under this Agreement, [G&K/AMG] or Grayson, or any designee of [G&K/AMG] or Grayson, may record a security interest in [K&A's] assets, its receivables or its stock, or any combination thereof.

12. Because [G&K/AMG] and [K&A] are unable to agree on the value of certain contingent fee cases, e.g. , the "Kargo" case, the "IDT" cases, the "Escheat" cases and the "Derivium" cases, for [G&K/AMG's] contingent fee cases, [G&K/AMG] shall receive the entire amount of such fees if, as and when they are collected, unless [G&K/AMG] and [K&A] agree otherwise in writing. Such fees shall be deemed earned in full as of the date ... the contingent fee agreement was made. If no dated, written retainer agreement is available as of the Buy-Out Date, this date shall be the date when services in the contingent fee matter were first rendered, as reflected in the books and records of [G&K/AMG]. As part of the compensation received by [G&K/AMG] under this Agreement, [K&A] shall continue the litigation of such cases without charge to [G&K/AMG] unless [G&K/AMG] consents to dismissal (or the client requests dismissal without [K&A's] solicitation to do so, or the Rules of Professional Conduct or Federal Rule of Civil Procedure 11 or other applicable law requires dismissal).

Id. at 1141-45.

Paragraph 7 of the Buy-Out Agreement addressed the "Grayson Debt." See id. at 1143. Both Grayson and Kubli acknowledged that Grayson had kept G&K/AMG afloat for many years by the infusion of his personal funds. According to the evidence at trial, Grayson's prior advances of personal funds amounted to approximately $2.816 million. See, e.g. , id. at 1111. In paragraph 7 of the Buy-Out Agreement, K&A agreed that it would assume all liability for this debt.

By its own terms, the Buy-Out Agreement went into effect on January 2, 2009, though it is not clear exactly what date the parties signed the document. On the same day, January 2, G&K/AMG and K&A also entered into a lease assignment, with Westwood's consent, whereby G&K/AMG agreed to remain liable under the lease but K&A assumed all obligations under the lease.

G&K/AMG followed through on the permission granted in the Buy-Out Agreement to obtain a security interest in all of K&A's assets. K&A executed a promissory note in favor of G&K/AMG for the $2 million dollar purchase price for the firm's assets. Because the original 2009 note was unavailable at the time of trial, an unsigned copy was entered into evidence.⁴ K&A also executed a security agreement in favor of G&K/AMG (the "K&A Security Agreement") that became effective on September 28, 2009, though the parties dispute the date that it was signed.⁵ Both documents refer to the "even date" of the other, see id. at 1065, 1068, presumably referring to the effective date of September 28, 2009, stated in the K&A Security Agreement. G&K/AMG recorded a UCC financing statement regarding the security interest in November 2010.

Shortly after the Buy-Out Agreement, G&K/AMG executed a security agreement (the "G&K/AMG Security Agreement") in favor of Grayson that assigned G&K/AMG's assets to Grayson in repayment for the Grayson Debt. The G&K/AMG Security Agreement provided that "[u]nder no circumstances will [Grayson] advance any funds after December 31, 2009, at which time the entire amount advanced as of that date shall become due and payable."...