THE CIRCUIT COURT OF WARREN COUNTY Ronald L. Napier, Judge
ARTHUR KELSEY JUSTICE.
case began in the general district court ("GDC")
when the plaintiff, The Robert and Bertha Robinson Family,
LLC (the "landlord"), filed a warrant in debt and
the defendants, Douglas and Deborah Allen (the
"tenants"), filed a counterclaim. The GDC ruled
against both parties and dismissed all claims. The landlord
appealed to the circuit court, but the tenants did not. The
landlord later withdrew its appeal. The circuit court awarded
sanctions against the landlord and awarded damages in favor
of the tenants on their unappealed counterclaim. The landlord
challenges both of these rulings on appeal. We agree and
GDC and Circuit Court Proceedings
landlord filed a warrant in debt against the tenants in the
GDC alleging breach of a lease agreement. The landlord sought
an award for unpaid rent pursuant to a holdover provision in
the lease agreement and for property damage. The landlord
nonsuited and then refiled its claims. The tenants filed
a counterclaim seeking to recover their security
deposit. The GDC ruled against the landlord on its
claims and against the tenants on their counterclaim. Seeking
de novo review in the circuit court, the landlord filed a
notice of appeal of the GDC's denial of its claim for
unpaid rent and property damage. The tenants did not file a
notice of appeal challenging the GDC's denial of their
counterclaim, nor did they file any additional pleadings in
the circuit court asserting their counterclaim.
the case proceeded to a bench trial, the landlord filed a
motion to dismiss the counterclaim arguing that it was not
properly before the circuit court. The landlord subsequently
filed a motion to withdraw its appeal pursuant to Code §
16.1-106.1(A). The landlord's counsel represented that
neither the acting manager for the landlord, which was a
family-owned limited liability company, nor the acting
manager's wife wished to continue the suit due to health
complications. In response, the tenants filed a motion for
sanctions under Code § 8.01-271.1. The tenants
"[took] no position on the health issues" of the
acting manager and his wife and did not object to "an
order dismissing [the landlord's] appeal so long as [the
circuit court] consider[ed]" their motion for sanctions
and adjudicated their counterclaim. J.A. at 179, 182.
circuit court granted the landlord's motion to withdraw
and the tenants' motion for sanctions. The circuit court
also found that the tenants' counterclaim was properly
before it and summarily awarded the tenants $2, 600 on their
counterclaim without hearing evidence on the matter. The
landlord filed a motion to reconsider the circuit court's
judgment. The circuit court denied the motion and awarded
$10, 000 in attorney fees against the landlord as sanctions
for the landlord's withdrawn claims.
Landlord's Withdrawn Claims
withdrawn claims alleged that the tenants owed the landlord
unpaid rent and had failed to restore the leasehold premises
to its original condition. Both claims arose out of a 2005
written lease agreement. The lease agreement included a
holdover provision, which stated that if the tenants remained
on the leasehold premises after the expiration of the lease
agreement's five-year term, the landlord "[had] the
right, at its sole option and discretion, to [deem]"
that the tenants were "occupying" the premises on a
"month to month" basis "at double the annual
minimum rent." Id. at 23. The provision also
stated that the tenants would remain subject to all other
applicable provisions of the lease agreement. See
id. In this holdover scenario, "th[e] Lease [would]
automatically become a month-to-month lease" without the
need for any "notice from [the] Landlord."
different provision also required the tenants to surrender
the leasehold premises "broom clean, in good order and
condition, " and to "remove alterations, additions
and improvements not desired by Landlord, [to] repair all
damage to the [Leasehold] Premises caused by such removal,
and [to] restore the [Leasehold] Premises to the condition
which [it was] in prior to the installation of the articles
so removed." Id. Finally, another provision
No change or modification of this Lease . . . shall be valid
or effective unless the same is in writing and signed by the
parties hereto. No alleged or contended waiver of any of the
provisions of this Lease shall be valid or effective unless
in writing signed by the party against whom it is sought to
Id. at 24.
2010, at the end of the five-year term, the tenants continued
to occupy the leasehold premises. For the next four years,
the tenants did not pay "double the annual minimum
rent" pursuant to the holdover provision. Id.
at 23. In 2015, one year after the tenants had vacated the
premises, the landlord filed the GDC warrant in debt seeking
$4, 410 in unpaid holdover rent and $20, 590 for damage to
the leasehold premises.
Tenants' Motion For Sanctions
tenants' motion for sanctions in the circuit court did
not specifically address the legal sufficiency of the
landlord's claims for holdover rent or property damages.
Nor did the motion cite any case law addressing either the
statute of frauds or lease agreement provisions prohibiting
the non-written modification or waiver of their
terms. Instead, the tenants characterized the
landlord's claims as "completely and utterly
frivolous" and not asserted "in good faith."
Id. at 181. This conclusion, they argued, was
"supported by" the GDC's rejection of the
landlord's claims and by the landlord's failure to
respond to discovery requests in the circuit court.
addition to their motion for sanctions, the tenants filed
Proposed Findings of Fact and Conclusions of Law setting
forth their position on the merits of the landlord's
claims. In their defense to the holdover-rent claim, the
tenants asserted that they and the landlord had
"operated under an oral lease . . . with terms similar,
but not identical, to the [lease agreement]."
Id. at 187. The tenants claimed that prior to the
litigation, the landlord had not "treat[ed] [the
tenants] as holdover tenants or trespassers under the Lease
and [had] not charge[d] double rent as provided for in the
Lease." Id. at 185. Instead, under the new oral
lease, the tenants "were obligated to pay rent to the
Landlord with increases to be determined by the Landlord,
" which they had paid "as communicated to them by
the Landlord." Id. at 187-88. With regard to
the property-damage claims, the tenants asserted that the
landlord, "in consultation with" the acting
manager's grandson, had agreed to accept the vacated
premises without further restoration, a decision that had
also been permitted under the new oral lease. Id. at
hearing on the tenants' motion for sanctions, the
landlord maintained that the express language of the lease
agreement - increasing rent for holdover tenants, see
id. at 23, forbidding non-written modification or waiver
of contractual rights, see id. at 18, and requiring
restoration of the leasehold premises to its original
condition, see id. at 23 - established a good-faith
basis for the landlord's claims.
for sanctions, the tenants' counsel "stated that
without having all its evidence to present at trial,
[the landlord] should not have filed its claim."
Id. at 272 (emphasis added). The circuit court appeared
to accept the tenants' argument. After allowing the
landlord to withdraw its appeal, the circuit court granted
the tenants' motion for sanctions because the landlord
"[had] not [brought] its case in good faith."
Id. at 273. At a hearing to determine the amount of
sanctions, the circuit court elaborated on its holding,
stating that the landlord had violated its "duty to have
all evidence upon which it planned to rely on before
ever filing suit." Id. at 275 (emphasis added).
The circuit court reasoned that the landlord's lawsuit
would be "a per se violation of Federal Rule of Civil
Procedure 11(b)" and "that similarly such filing of
a lawsuit without all evidence in hand in Virginia
is therefore a violation of [Code] § 8.01-271.1."
Id. at 275-76 (emphasis added).
appeal, the landlord assigns error to the circuit court's
judgments on several grounds. We find two dispositive: The
circuit court erred by awarding sanctions against the
landlord and by entering judgment in favor of the tenants on
their unappealed counterclaim.
settled principles, we apply an abuse of discretion standard
when reviewing a sanctions award pursuant to Code §
8.01-271.1. See Shebelskie v. Brown, 287 Va. 18, 26,
752 S.E.2d 877, 881 (2014).
In applying that standard, we use an objective standard of
reasonableness in determining whether a litigant and his
attorney, after reasonable inquiry, could have formed a
reasonable belief that the pleading was well grounded in
fact, warranted by existing law or a good faith argument for
the extension, modification, or reversal of existing law, and
not interposed for an improper purpose.
Kambis v. Considine, 290 Va. 460, 466, 778 S.E.2d
117, 120 (2015) (citation omitted).
circuit court in this case abused its discretion by applying
a rationale for a sanctions award that finds no support in
either the text of Code § 8.01-271.1 or our opinions
applying it. The statute does not, as the circuit court
ruled, place a "duty" on a claimant "to have
all evidence upon which it planned to rely on before
ever filing suit." J.A. at 275 (emphasis added). Nor is
it "a per se violation" of the statute to file
"a lawsuit without all evidence in hand."
Id. at 275-76 (emphasis added). When filed, a claim
must be "well grounded in fact, " Code §
8.01-271.1, not exhaustively supported with every conceivable
fact that the party may plan to use at trial.
circuit court's mistaken analysis also failed to address
the viability of the landlord's claims at the time that
the landlord filed the notice of appeal. See Nedrich v.
Jones, 245 Va. 465, 472, 429 S.E.2d 201, 204 (1993)
("examin[ing] the legal theories" to determine if
they were "warranted by existing law"). Both claims
relied on clearly worded provisions of the lease agreement:
one increasing the rent if the tenants became holdovers and
the other requiring the tenants to restore the leasehold
premises to its original condition. We accept that the
tenants believed, not without reason, that they had a strong
factual argument either that the parties had entered into a
new oral lease or that the landlord had waived the terms of
the original lease. See J.A. at 56 (asserting
waiver); id. at 187-88 (asserting a new oral lease).
However, unless an expected defense is so irrefutable as to
render a claimant's theory of relief frivolous,
"claims which are recognized under ...