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Genesis Capital, Ltd. v. Hoyer

Supreme Court of West Virginia

March 11, 2019

Genesis Capital, Ltd. Partnership, a West Virginia Limited Partnership, Plaintiff Below, Petitioner
Ralph Hoyer, individually, and Hoyer, Hoyer & Smith, PLLC, a West Virginia Legal Corporation, Defendants Below, Respondents.

          Kanawha County 12-C-669


         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 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, 2017[1], 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 Tabit[2] 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 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 (thereby conserving judicial resources), compensates the victims of vexatious litigation, and educates the bar about appropriate standards ...

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