St. John v. Thompson

299 Va. 431

854 S.E.2d 648

James C. ST. JOHN, Individually and as Trustee of the JCS Trust, et al.

v.Laura G. THOMPSON, Individually and as Executor of the Estate of Ernest Stuart Elsea, II, Deceased, et al.^*

Record No. 200068

Supreme Court of Virginia.

February 25, 2021

William D. Ashwell (Mark B. Williams & Associates, on briefs), for appellants.

Nate L. Adams, III, Winchester, for appellees.

PRESENT: All the Justices

OPINION BY JUSTICE STEPHEN R. McCULLOUGH

James Charles St. John challenges the circuit court's determination that he must pay attorney's fees to the person he defrauded. St. John argues that, in imposing the fees, the circuit court erroneously interpreted our decision in Prospect Dev. Co., Inc. v. Bershader , 258 Va. 75, 92, 515 S.E.2d 291 (1999). St. John also contends that the circuit court erred because an indispensable party, a trust, was not made a party to the litigation.

We disagree with both contentions and, accordingly, we will affirm the judgment below.

BACKGROUND

Ernest Stuart Elsea, II was afflicted with numerous health problems. He had sustained several strokes and a heart attack. As a consequence, he suffered from cognitive deficits. He also had auditory and visual problems. Elsea had limited education and below average intellectual abilities. These circumstances left him vulnerable to undue influence or coercion.

In 2015, St. John moved next door to Elsea. St. John befriended Elsea. After one of Elsea's brothers committed suicide, St. John and Elsea became especially close.

Elsea confided to St. John his fear that his family might take his property and place him in a nursing home. During the course of his conversations with Elsea, St. John learned that Elsea was the beneficiary of a number of trusts and that he owned an extensive firearm collection with a value of almost $100,000. St. John persuaded Elsea to transfer these firearms to a firearm trust St. John established and controlled, the JCS Trust. This transfer, St. John said, would prevent Elsea's family from gaining possession of the firearms. St. John told Elsea that he would return the firearms upon request and that Elsea would retain control over them.

St. John capitalized on Elsea's fear that his family would place him in a nursing home to obtain control over Elsea's property. St. John had Elsea sign a durable power of attorney. St. John did explain what the form was, but never read it to him or explained how it could be used. Elsea signed the document, believing that St. John was acting in Elsea's best interest. Using this power of attorney, St. John then obtained trust documents and other estate planning documents. St. John persuaded Elsea to assign additional property held by the Ernest Stuart Elsea, II Trust U/A to the firearm trust St. John controlled. St. John also prepared a letter to Elsea's estate planning attorney informing him his services were no longer needed and that he was revoking appointments made under a number of estate planning documents. Elsea signed this letter. Again exploiting Elsea's fear that his family would take his assets and place him in a nursing home, St. John induced Elsea to sign a codicil to his will which named St. John and St. John's partner, Katherine Cole, as beneficiaries.

After St. John moved, his grip on Elsea evidently loosened and Elsea revoked St. John's power of attorney. In response, St. John revoked Elsea's appointment to the JCS Trust. This had the effect of removing from Elsea any control of the title to the firearms in the JCS Trust. On Elsea's behalf, his representatives then asked St. John to return the firearms to Elsea, but St. John refused.

Elsea, through his representatives Laura and W.R. Thompson, filed an amended complaint seeking, in Count I, an accounting and a recovery of the firearms, alleging breach of fiduciary duty in Count II, and alleging fraud and undue influence in Count III. The circuit court found that St. John was required to return the firearms to Elsea because he had defrauded Elsea. The court rejected Counts I and II. The court ordered St. John to either return the firearms or to pay Elsea the value of the firearms. Finally, relying on Prospect Dev. Co. , the circuit court ordered St. John and the JCS Trust, jointly and severally, to pay attorney's fees in the amount of $108,211. St. John appeals from this decision.

I. THE CIRCUIT COURT PROPERLY AWARDED FEES UNDER PROSPECT DEV. CO. V. BERSHADER.

"It is well established that Virginia follows the ‘American Rule,’ which provides that ‘[g]enerally, absent a specific contractual or statutory provision to the contrary, attorney's fees are not recoverable by a prevailing litigant from the losing litigant.’ " Chacey v. Garvey , 291 Va. 1, 8, 781 S.E.2d 357 (2015) (quoting REVI, LLC v. Chicago Title Ins. Co. , 290 Va. 203, 213, 776 S.E.2d 808 (2015) ). That rule, however, does not apply in every instance.

Historically, recovery of attorney's fees in chancery court differed from recovery of attorney's fees in common law courts. "Early English courts of equity allowed the Chancellor to award attorney's fees to the prevailing party; the Chancellor, however, rarely granted fee awards unless the losing party acted in an abusive manner." John F. Vargo, The American Rule on Attorney Fee Allocation: The Injured Person's Access to Justice , 42 Am. U. L. Rev. 1567, 1570 (1993). In contrast, "[a]t common law, fee awards were based solely on statutes." Id. ; see also Arthur L. Goodhart, Costs , 38 Yale L.J. 849, 852-54 (1929) (tracing the separate development of the recovery of costs – which in English practice included attorney's fees – at common law and in courts of equity).

In Sprague v. Ticonic Nat'l Bank , 307 U.S. 161, 166, 59 S.Ct. 777, 779, 83 L.Ed. 1184 (1939), the United States Supreme Court observed that "[p]lainly the foundation for the historic practice of granting reimbursement for the costs of litigation other than the conventional taxable costs is part of the original authority of the chancellor to do equity in a particular situation." Even so, the Court cautioned, "such allowances [by equity courts] are appropriate only in exceptional cases and for dominating reasons of justice. " Id. at 167, 59 S.Ct. 777 (emphasis added).

One manifestation of this power of a chancellor to award attorney's fees is the "common fund" doctrine. Norris v. Barbour , 188 Va. 723, 741-43, 51 S.E.2d 334 (1949) ("[e]xcept in rare instances, the power of a court to require one party to contribute to the fees of counsel of another party must be confined to cases where the plaintiff, suing in behalf of himself and others of the same class, discovers or creates a fund which ensures to the common benefit of all"); see also Internal Improvement Fund Trs. v. Greenough , 105 U.S. 527, 532-34, 26 L.Ed. 1157 (1881). Our decision in Prospect Development Co. is another outgrowth from these ancient equitable roots. In that case, we recognized that "in a fraud suit, a chancellor, in the exercise of his discretion, may award attorney's fees to a defrauded party." Id. at 92, 515 S.E.2d 291. We explained that "[w]hen deciding whether to award attorney's fees, the chancellor must consider the circumstances surrounding the fraudulent acts and the nature of the relief granted to the defrauded party." Id.

St. John posits that an award of attorney's fees is permissible under Prospect Development Co. only if the fraud is particularly egregious, and he maintains that the facts here do not rise to that level. We disagree with his premise. An award of fees under Prospect Development Co. does not depend on a showing of especially egregious fraud. Instead, fees are proper if the trial court, exercising its discretion in a fraud case, awards equitable relief, and further determines that the circumstances surrounding the fraudulent acts and the nature of the relief...