Virginia Supreme Court: Attorney’s Fees Can Be Awarded In Fraud Suit Without Finding That Fraud Was “Particularly Egregious”

In St. John v. Thompson, the Virginia Supreme Court, in a February 25, 2021 opinion, reviewed a fraud case where fees were awarded in favor of the defrauded party, and considered whether attorney’s fees were only awardable in particularly egregious cases of fraud.

The Facts of St. John v. Thompson

In 2015, James Charles St. John moved next door to Ernest Elsea, II.  Elsea was afflicted with numerous health problems.  Elsea suffered from cognitive deficits and auditory and visual problems, and had below average intellectual abilities.

St. John befriended Elsea.  Elsea confided in St. John his fear that his family might take his property and place him in a nursing home.  St. John learned that Elsea was the beneficiary of a number of trusts and that he owned an extensive firearm collection valued at almost $100,000.  Preying on Elsea’s fears that his family might take his property, St. John persuaded Elsea to transfer these firearms to a firearm trust established and controlled by St. John, the JCS Trust.  St. John told Elsea that the transfer 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 had Elsea sign a durable power of attorney. St. John explained 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 then persuaded Elsea to assign additionally property held by one of his trusts to the firearm trust that 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 the letter.   St. John also induced Elsea to sign a codicil to his will, which named St. John and St. Joh’s partner as beneficiaries.

St. John eventually moved.  St. John’s grip on Elsea loosened.  Elsea revoked St. John’s power of attorney. In response, St. John revoked Elsea’s appointment to the JCS Trust, which had the effect of removing any control Elsea had over the title to the firearms.  St. John refused to return the firearms to Elsea.

Elsea, through his representatives, filed an amended complaint seeking an accounting and a recovery of the firearms, breach of fiduciary duty, and fraud and undue influence.  The circuit court found that St. John was required to return the firearms to Elsea because he defrauded Elsea.  The court ordered St. John to either return the firearms or pay for their value.  Finally, relying on Prospect Dev. Co. Inc. v. Bershader, 258 Va. 75, 92 (1999), 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 appealed.

When Can a Virginia Court Award Attorney’s Fees For Fraud?

Virginia law follows the American Rule for attorney’s fees, which provides that generally, absent “a specific contractual or statutory provision to the contrary, attorney’s fees are not recoverable by a prevailing litigant from the losing litigant.’”  That rule, however, does not apply in every instance.

In the Virginia Supreme Court decision of Prospect Development Co., the Court recognized that “in a fraud suit, a chancellor, in the exercise of his discretion, may award attorney’s fees to a defrauded party.” The Court 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.”

St. John argued that an award of attorney’s fees is permissible under Prospect Development Co. only if the fraud is particularly egregious, and maintained that the facts here did not rise to that level.

The Virginia Supreme Court disagreed, stating:

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 granted compel an award of attorney’s fees.

The Virginia Supreme Court found no abuse of discretion in the trial court’s decision awarding attorney’s fees for fraud.

Was Elsea’s Trust an Indispensable Party?

“[A]ll persons interested in the subject matter of a suit and to be affected by its results are necessary parties.”

St. John also argued that the circuit court erred by awarding relief when Elsea’s trust was not made a party to the litigation.  St. John argued that some of the firearms that were the subject of the litigation were owned by Elsea’s trust, and that the court could not award rescission of the firearms transfer to an entity that was not a party.

The Virginia Supreme Court quickly dismissed St. John’s indispensable party argument, stating:

The circuit court found that Elsea owned the firearms individually. Nothing in the record contradicts this finding. Elsea stated that the firearms were his. The record indicates that St. John, upon learning that Elsea owned a trust, prepared an additional document transferring any firearms owned by the trust to St. John. This maneuver obviated any title issues in the event the  trust owned firearms, but it does not establish that this trust, in fact, owned any firearms. In short, the record does not support the conclusion that this trust included the firearms at issue. Therefore, the trial court committed no error in granting relief without this trust having been made a party to the suit.

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