Written by: Guy Jeffress

The recent case of PEM Entities LLC v. County of Franklin (2023 WL 105711), out of the United States Court of Appeals (the “Court”), reminds us that the imposition of new rules or restrictions by a local government, although onerous in their application, do not always constitute a diminution of a vested right or an unconstitutional taking. 

The cited case involved the development of a multi-phase, single-family residential community (the “Subdivision”) in Franklin County, North Carolina (the “County”). In 2005 the County approved a single-page “Preliminary Subdivision Plan” for the development (the “Plan”). Notes on the Plan indicated the development would be “served by Franklin County water and sewer to be installed by the developer.” In 2012 the appellant, PEM Entities LLC (“PEM”), acquired 150 acres of undeveloped land located within the Subdivision and subject to the Plan. In 2019 the County adopted a water and sewer allocation ordinance (the “Ordinance”) that established an application process for new water and sewer connections and capped water allotments for new developments. The new restrictions imposed by the Ordinance were not well received by the Subdivision developers, including PEM, who argued they were exempt from the restrictions due to the County’s approval of the Plan in 2005. In the same year, the County passed the Ordinance, PEM, and the other Subdivision developers entered into a settlement agreement with the County (the “Settlement”) in an attempt to resolve disputes involving road and water services. The terms and conditions of the Settlement included the following provision: “except as set forth in this [a]greement,” “[a]ny vested rights accorded to the [p]roperty under the [Plan] shall not be modified or supplemented by any subsequent action including ordinance, rule and/or regulation of [c]ounty.” 

In 2021, PEM sued the county in federal district court, alleging, in part, that the Ordinance effected an unconstitutional taking of PEM’s vested property right to receive water and sewer services under the Plan. The district court dismissed PEM’s complaint reasoning that neither the Plan nor the Settlement “create[s] a property interest for [PEM] in an unlimited right to water and sewer service,” and PEM “failed to demonstrate a concrete particularized injury for Article III standing” on its takings and due process claims. On appeal the Court, reviewing both U.S. Supreme Court concerning takings and due process claims, as well as North Carolina state law regarding vested rights based upon government approvals, found that neither the Plan nor the Settlement created a vested property right, and without a constitutionally protected property interest the “takings and associated due process claims fail as a matter of law.” 

In Virginia, in response to numerous cases concerning the vested rights of property owners, the legislature enacted Code Section 15.2-2307. 15.2-2307(B) sets forth various types of governmental acts which are deemed to be significant affirmative governmental acts allowing development of a specific project. The fifth such act in the list reads as follows: “(v) the governing body or its designated agent has approved a preliminary subdivision plat, site plan or plan of development for the landowner’s property and the applicant diligently pursues approval of the final plat or plan within a reasonable period of time under the circumstances.” Applying the quoted portion of the Virginia statute to the facts of the PEM case would most likely end in the same result, i.e., the preliminary plan was approved, however, according to the cited opinion PEM did not diligently pursue approval of a final plan. In fact, PEM acknowledged on the record that it never requested that Franklin County approve a final plan of subdivision. Additionally, in light of Virginia law, the extent to which the Plan vested PEM with future rights to unlimited water and sewer services is also questionable. 

Land use, zoning, and questions concerning vested property rights are often wrapped up in a complex web of state and local ordinances, prior case law, political change, constitutional rights, and local planning, permitting, and zoning processes. If you are facing land use, zoning, or approval issues with your project, contact the attorneys at Vanderpool, Frostick and Nishanian, P.C. for assistance. 

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer

Written by: Guy Jeffress

The recent federal case of Renee Mason, DPM, v. Brian Mazzei, Et Al., 2023 WL 234777, out of the U.S. District Court for the Western District of Virginia, highlights the importance of adhering to proper record-keeping formalities, even if you are involved in the operating of closely held company. The case at hand involved a small professional corporation founded in 1995. After reviewing the evidence and holding a hearing on a motion for summary judgment, the court found that the lack of resolutions, consents, a properly kept share register, the failure to issue share certificates, and other conflicting evidence, including the testimony of Mason and Mazzei, made it difficult to determine the identity of the shareholders, or shareholder, of the corporation. To quote the opinion, “The record is unclear whether stock certificates were ever issued and whether the parties paid for their shares. . . The only stock certificate book in the record is full of blank certificates beginning at the certificate marked number 0. Mazzei testified that no money was ever paid for the stock. Mason testified that she believed the parties had paid for the stock . . .” Thus, there remained a genuine issue of material fact as to whether either or both the plaintiff Mason, and/or defendant Mazzei were in fact, shareholders. The inability of the court to make a determination will result in the further expenditure of time and money to determine something that could (and should) have been resolved years before. The everyday effort of operating a business can result in a situation where the preparation and maintenance of company records gets put on the back burner. If you have questions or concerns about record-keeping formalities for your own company, please contact the attorneys at Vanderpool, Frostick & Nishanian, P.C.

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer

Written by: Guy Jeffress

Virtual currency exchange Bitzlato was identified as a “primary money laundering concern” in connection with Russian illicit finance.

Today (Jan 18, 2023) the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an order that identifies the virtual currency exchange Bitzlato Limited (Bitzlato) as a “primary money laundering concern” in connection with Russian illicit finance and “advances the political and economic destabilization efforts of the Government of Russia.” The order is the first order issued pursuant to section 9714(a) of the Combating Russian Money Laundering Act and highlights the serious threat that businesses which facilitate and support Russian illicit finance pose to U.S. national security and the integrity of the U.S. financial sector. The order prohibits certain transmittals of funds involving Bitzlato by any covered financial institution.

News Release: https://www.fincen.gov/news/news-releases/fincen-identifies-virtual-currency-exchange-bitzlato-primary-money-laundering

Order: https://www.fincen.gov/sites/default/files/shared/Order_Bitzlato_FINAL%20508.pdf

FAQs: https://www.fincen.gov/sites/default/files/shared/FAQs_Bitzlato%20FINAL%20508.pdf

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer

Written by: Guy Jeffress

Edward MEKHAYA v. EASTLAND FOOD CORPORATION, et al., 2022 WL 17843057

Appellate Court of Maryland (formerly the Court of Special Appeals of Maryland)

In a first for Maryland, the Appellate Court of Maryland, relying on persuasive authority from other jurisdictions, paved the way for the recognition of claims of shareholder oppression based upon the payment of “de facto” or “disguised” dividends. In 2000, Appellant, Edward Mekhaya, was hired by Eastland Food Corporation (the “Corporation”) and eventually rose to the position of Vice President of Operations. In 2008, Mekhaya received ownership interest in the Corporation in the form of 28% of its stock. In addition to holding the officer position, Mekhaya was a director of the corporation. In September 2017, a new president was elected by the board of directors over the objections of Mekhaya. In October 2018 Mekhaya was not re-elected to the board of directors, and a few days later his employment with the Corporation was terminated. He remained a 28% shareholder of the Corporation. In his lawsuit, filed in 2021, Mekhaya alleged shareholder oppression, i.e., that Corporation management, instead of declaring a dividend, awarded themselves large bonuses which were in fact “disguised” dividends, which had the effect of rendering Mekhaya’s block of shares worthless. At the trial level, the court granted summary judgment to the Corporation, finding that Mekhaya failed to state a claim for shareholder oppression. The appellate court relying in part on the concept of “de facto” or “disguised” dividends reversed the trial court noting that the question, rather, “is whether Mekhaya’s complaint, on its face, alleged facts sufficient to establish that his expectations as a shareholder were reasonable (when viewed through an objective lends) and that Appellees defeated substantially one or more of those expectations.”

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer

Written by: Guy Jeffress

The decision of the Supreme Court of Virginia in Grayson v. Westwood Buildings L.P., 300 Va. 25, 859 S.E.2d 651 (2021) highlights the need to confirm a tenant’s financial ability to pay the rent during the term of a lease and obtain personal guaranties regarding the same.

The facts of the cited case are complex but can be briefly summarized as follows: Landlord obtained judgments for unpaid rent against tenants. Landlord, upon finding that the tenants and their principals had engaged in a number of transactions that left the tenant entities all but insolvent, filed suit against both tenants and other parties claiming, in part, that the defendants engaged in a series of fraudulent conveyances and sham transactions designed to avoid the judgments. The trial court found in favor of landlord making each of the remaining defendants jointly and severally liable for unpaid rent, awarding the landlord attorney fees, and imposing sanctions. On appeal, however, the Supreme Court of Virginia reversed the trial court, vacated the judgments, and entered the opinion as final judgment. The court noted that the “badges of fraud” relied upon by the trial court to support its findings “did not apply here.” The opinion also noted that the landlord failed to perfect landlord’s security interest in tenant’s inventory and other assets (as landlord was permitted under the terms and conditions of the lease) and did not obtain a signed personal guaranty from principals of the tenants.

The purpose of this article is not to undertake a deep dive in the law of fraudulent conveyances but to illustrate some basic strategies a landlord could use to avoid an outcome similar to that in the above-referenced case.

First, as regards landlord lien rights we have noticed that many landlords are quick to negotiate their lien rights away. The lien right is a powerful remedy to landlord. If a tenant objects because the rights of a lender or lessor of equipment are primary, offer to subordinate landlord’s lien rights to that of the primary lien holder until such time as the primary lien is satisfied or extinguished. It is better to be in a subordinated position than to waive the lien rights altogether.

Second, obtain personal guaranties from tenant principals and their spouses. Under Virginia law guaranty agreements must be independent agreements that are supported by separate consideration. The terms and conditions of a guaranty should also include certain waivers including a waiver of the application of certain Virginia statutes. The absence of said waivers could delay or jeopardize a landlord’s recourse against the named guarantor.

Third, when vetting a tenant, a landlord should undertake sufficient due diligence to accurately determine the tenant’s management structure and its credit worthiness. Additionally, the landlord should try to keep tabs on a tenant’s financial condition throughout the term of the lease by including language in the lease that allows the landlord to request, from time to time, financial disclosures from a tenant which are (preferably) audited or certified as true and correct by a principal of the tenant.

Fourth, we advise letting one of our lease attorneys review letters of intent prior to sending them to prospective tenants. Our financing and lease attorneys frequently notice issues in letters of intent that put the landlord on its hind legs before the first draft of the lease is even circulated.

Fifth, do not negotiate against yourself and offer concessions the tenant does not ask for, and do not give into the frequent lament of tenant brokers, “it’s not market” without substantial and verifiable data to back it up.

Recent changes in the economy and lender practices are prompting building owners to review their lease forms. If you are feeling challenged by current circumstances or have not reviewed your lease forms in the last few years consider having the lease attorneys at Vanderpool, Frostick & Nishanian, P.C., review your lease and lease-related documents.

Call one of the attorneys at Vanderpool, Frostick & Nishanian, P.C., or email and let us see if we can assist you.

This blog post is not intended to provide legal advice or substitute for the advice of legal counsel with respect to specific facts and situations. See disclaimer